Why I won’t sell despite the carnage
When economies collapse, the people don’t spontaneously combust and neither do their stuff. When trillions of dollars worth of paper fantasy money has evaporated, only the farms, mines, oil wells and factories that produce consumer staples will remain. Those are the places you want to keep your money and those are the things you want to buy when the price is right. We are approaching that point today, commodities can not drop below their cost of production for very long and that floor should also extend to stock prices. When you go to buy some shoes, are you upset when the price drops? Of course not, when you are a buyer you want the price as low as possible. I am not looking to retire in the next 6 months so I couldn’t care less what the market thinks these things are worth today, all I care is that the companies in which I invest and their industries survive. What I care about is profit — will these companies generate positive cash flow in an inflationary environment. The ones that make it through this mess will grow in market share and prosper. Let me make this clear, I won’t sell BECAUSE there is carnage. Update: Many people in my office who don’t invest are today discussing the crash. That’s a very bullish sign. Is Argentina a vision of America’s future?
A warning to China?
If China decided to diversify even a small fraction of its current US dollar reserves into gold, they would certainly cause the price to increase dramatically which could prove to be quite a lucrative strategy, especially given the size of their domestic gold production today. Is it possible western powers are flexing their muscles by demonstrating how unprofitable such a move would be by dropping the price of gold and reversing the course of the dollar with such ease? I can imaging the conversation between a Chinese and American official would go something like this… Inflation or Deflation
Many prominent and respected pessimists (a.k.a. realists) like Nouriel Roubini are not concerned about inflation, instead they applaud lower interest rates and government intervention as necessary to restrain the chaotic forces of the free market and valiantly battle the ominous perils of deflation. They are right, but only after they are very wrong, let me explain. Selling Dollar lunacy
Can somebody please explain how the US dollar is any more attractive today than it was 1 year ago? Nobody in their right mind believes the banking crisis has bottomed, we haven’t even seen the Option ARM resets, the right-downs on student loans and auto loans and credit cards, the mass wave of baby-boomers set to retire, peak oil, the result of soaring inflation and a Federal debt with an average maturity of less than 3 years. We haven’t seen the bulk of our more serious problems – and critically, most of these problems originate in the US – so how could the currency of a bankrupt nation be seen as a safe haven? It’s preposterous. The last few months can’t possibly be anything more than a dead cat bounce, it’s a sucker rally. The subprime crisis is not a failure of market
I’m getting tired of hearing people like George Soros happily declare subprime proves “free market fundamentalism” will ruin the financial sector. How anybody can describe a system in which the price of money is fixed by a few secretive men in a marble palace “free” or “market” is beyond me. This crisis is not a failure of market, it’s a failure of government. Inflation is not caused by declining interest rates
Many on the street have accepted a common misconception that threatens to ruin your portfolio. They want you to believe a temporary end to Fed rate cuts will somehow indicate a shift to hawkishness with regards to inflation. That’s total nonsense. Interest rates do not need to be in continual decline to influence inflation, simply maintaining interest rates at a low level will do the trick. Inflation is not caused by the slope of rate changes, it is literally the new money pumped into the system. Nouriel Roubini visits Canada to talk depression
This TVO interview is from April, 2008. (click below to see the rest of this video) |
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