Monday, October 13, 2008

Doom and Gloom

The Dow goes up 1,000 points. Sounds a little steep for one day doesn’t it? I was at the supermarket today and was looking for the cottage cheese. The real cheap stuff that I buy was $2.29 a pound. It was $1.69 one month ago. Boneless chicken breast is now $6 dollars a pound. I went to a dollar or less store and they were busy ripping the 60 cent stickers off of the cans and putting 80 cent stickers on them. I bought a few that still had the 60 cent stickers.

Inflation is appearing in the food chain. Everybody has to eat. From shopping over the years, I have noticed an awful lot of people don’t look at prices when they shop. They just put it on their credit card and go on their merry way.

Bernanke and Paulson are going to get the system working again with massive loans to the banks. The trouble is, the people that want the credit can’t even pay their present credit card bills. It’s kind of hard to figure out how this will work out for them.

Did you notice that the Fed has now bought into several large banks? Another 250 billion dollars was borrowed using the “Good Faith and Credit of The United States.” Real investors might demand some REAL money and gold comes to mind.

Printing money on this scale is “Taxation without representation.” We fought a war to stop that and became a country in the process. Now we are doing it to ourselves, go figure.

The Fed is throwing money around in extreme fashion more and more frequently. Look for a cataclysmic collapse of the Bond and Stock market within the next 15 days. That would put an end to their spending fictitious dollars and could stop those two nuts from hyper inflating us into ruin. If not, we are toast.

Copyright 2008 All rights reserved

22 comments:

Tyrone said...

Jim,
I'm reading more and more articles on the US bond market collapsing. And then you have Jim Rogers shorting US Treasuries!

This is crazy time! Are we going to enter a calm before the real storm begins?

Doom and Gloom is correct, but I hope it doesn't get too bad.

BTW, I grabbed some tuna at Safeway; price was about the same but the packaging size went from 6 oz to 5 oz--very sneaky; another form of inflation.

Anonymous said...

It is a mistake to see rising food as gas prices as evidence of inflation in and of itself.

The collapse in asset values (stocks, real estate) and the destruction of available credit is far outpacing the increase in consumer staples. Forget about today's stock rally - it won't last.

The rise in food prices will likely stabilize as well.

Point is, that the supply of available funds is decreasing, pulling down prices.

The so-called 'printing' that the Fed is doing is a drop in the bucket compared to the debt that is being destroyed.

Don't fear inflation. For now.

Shankar said...

Not 15 days.

I give it another 3-4 months. Around Feb-March timeframe.

Tyrone said...

I give it another 3-4 months. Around Feb-March timeframe.

That would be very nice of them. Let us get through the holiday season one last time thinking we are prosperous.

Anonymous said...

Jim in San Marcos,

Tell me if I have this correct. The deflation we are seeing now is in large part due to the fractional reserve lending policies and the fact that this deleveraging is taking 10+ dollars out of circulation for every 1 dollar the banks have to write-off. This is why the fed can't make the printing presses run fast enough to help main street and also the reason why they have chosen to re-capitalize banks in an effort to revive fractional reserve lending. If the fed plan works and banks resume lending we will see massive inflation , if not then deflation across most asset classes. I guess very soon we will see how this action impacts TED Spread, Libor, etc... Is this an over simplification?

Keep up the good work,
-JE

Anonymous said...

Jim,

My bet to move half my 401K into the market Friday paid off handsomly yesterday, but I have a feeling it won't last beyond today.

So if the stock market is due for a trouncing (half my 401k) and treasuries are going to collapse (the other half of my 401K), what in the world can I do with my 401K?

When I called our 401k management firm to ask about moving it into gold funds of any kind, she'd never heard of investing in gold.

Thanks,
John in Texas

watchtower said...

As of this morning LIBOR hasn't moved down very much.

Jim is this what has you thinking that we could see a drop in 15 days?

Could we see nations defaulting on a grand scale in the future because of these shenanigans?

I'm Not POTUS said...

Jim,
You know what scares me most is that no one is mentioning that China nor Russia have gone along with printing money for nothing. Everyone is printing bills like there is no tomorrow and not a peep out of these two.
Don't they know what's good for them.

And you have to hand it to Europeans. They got Hank and Ben to supply dollars for european "equities". That screams rob me blind. The US gives dollars to hold "equities" that have skyrocketed in value. Then all the Europeans have to do is wait for the dollar to tank and refund our Treasury in exchange for instantly cheaper "equities". EFFIN brilliant.

Jim in San Marcos said...

Hi Tyrone

The thing I noticed the most was Potato Chip and Munchies jumped a buck a bag.

The Mayonnaise for the Tuna is now $4 a jar--that's real sticker shock

I sure hope it doesn't get as bad as my story title

Thank you for your comments

Anonymous said...

Jim:

The TED Spread is easing and the market is on the way up. We've already seen the abyss and stepped back. Now is a great buying opportunity. The sell off in the bond market, was the movement of cash into equities.

Jim in San Marcos said...

Hi JE

I agree with your view,The economy is in a massive contraction because of fractional reserve banking. The Fed is hoping that when the economy gets going, they can withdraw this massive amount of printed money and keep inflation from happening.

In theory it sounds great, but if interest rates went to 10% the US government can't pay its bills, it's bankrupt.

The Libor rate could be a forward indicator of what will happen next. Half of California's adjustable rate loans I'll bet are based on it.

Thank you for the atta boy

Jim in San Marcos said...

Hi John in Texas

I don't think that switching back and forth is going to work out in your favor in the long run. You need to take a solid position and go with it for at least a year.

I have alway emphasized that you need to look long term for goals on investing. Of course if you are at retirement age, and have some time to fiddle with it, you may do alright.

The question I have asked without a real answer, is if a 401K became insolvent, would the government pay on what was contributed or what the present shares were worth. I tend to lean to the idea that they would look to what was deposited and use that as a guide. The reason being, some of the assets have unknown value.

Thank you for your comments

Jim in San Marcos said...

Hi Watchtower

The 15 days was my wish that the Stock Market would literally fall apart and go to hell. That way government intervention wouldn't matter much and pretty much be a moot point. The longer it drags out, the more our government can spend and it has to stop.

Shankar suggested it could take 3 to 4 months. By that time the money will be spent.

Foreign countries will default. It's just a matter of time. I have called for a collapse of the Euro. That pretty much is because of the serious bankruptcy prospects of several countries in the EU. Their currency is the strongest in the world right now and it's killing half of the union.

Right now if you can't inflate your currency, you will be eaten alive.

Thank you for your comments

Jim in San Marcos said...

Hi Im not Potus

I think you can forget about China and Russia. These two pikers are in the game, but they don't understand how to play. The financial markets will clean their plow. Russia has so much Graff that investing there is a waste of time. China is a Socialist Regime that can't coexist in a Capitalistic framework.

You are right everyone is printing money. But as I suggested earlier, the Euro is toast, so there is another problem there.

I think that the thing to look at is our interest rates have to jump up sky high to give savings some meaning in our present situation

Ted said...

Jim,

If the market is going to crash then why is the credit freeze easing as we can see in the TED?

Jim in San Marcos said...

Hi Ted

I don't understand what you mean. The current Treasury to Euro Dollar spread is almost 4.4 percent.

It's normal for it to be less than 1%. The current value of Ted spread indicates a crash is imminent

Tim said...

Hi Jim,

The TED spread has seen some easing from 4.7. Credit is slowly easing back into the market and it is therefore unlikely we see a meltdown or depression

Jim in San Marcos said...

Hi Tim

Maybe we are talking about different things.

Here is a bit I quoted from Wikipedia:

"The TED spread is an indicator of perceived credit risk in the general economy.[1] This is because T-bills are considered risk-free while LIBOR reflects the credit risk of lending to commercial banks. When the TED spread increases, that is a sign that lenders believe the risk of default on interbank loans (also known as counterparty risk) is increasing. Interbank lenders therefore demand a higher rate of interest, or accept lower returns on safe investments such as T-bills. When the risk of bank defaults is considered to be decreasing, the TED spread decreases."

The perceived drop from 4.8 was probably because of the cut in EU interbank rate.

If the Ted Spread was to drop below 1%, I would tend to agree with you.

Thank you for your comments

Tim said...

Jim,

But it is decreasing indicating increased liquidity and risk. I don't see how the economy is collapsing. Can you please explain why?

Ted

Jim in San Marcos said...

Hi Ted/Tim

I pointed out that the spread was still the same, absurd by all measuring standards.

The Ted Spread is not a real indicator of economic collapse, but the stock market and the Fed's massive bail out could give you an idea that the economy is going to hell in the fast lane.

fattyk said...

You're wrong about taxation without representation. We very much have control over who we are voting into office. The problem is the general public has no clue as to what is actually going on. The government and big business are raping the american citizens with inflationary policies, yet we sit idly by while we watch our debt subsidized plasma tvs and eat charged carry-out food. An ill informed and apathetic public is as much to blame as anyone and we absolutely have the right and ability to vote in whoever we want. Although neither Mccain nor Obama is the right answer.

Wake up people and take responsibility for your own inactions as much as the fraudulent actions of our goverment and banks.

Jim in San Marcos said...

Hi Fattyk

What I was alluding to is that printing money "inflation" is an invisible tax on our savings. We would never vote to be taxed a second time on our money in the bank.

I am comfortable with government taxing our earnings to pay the bills, thats not inflationary.

As you suggested, this is a fraud on the average wage earner. And I agree there is no political solution (that's what got us here in the first place).

Thank you for your comments