“As we mentioned late last year, we believe Ben Bernanke was creating an inflation bubble due to his rate cuts. He was driving the dollar down by flooding the market with dollars and driving commodity prices higher. This has resulted in a wheat bubble, a corn bubble, a soybean bubble and a general commodities bubble. Gold soared to $1,000, while oil recently hit $126. We think there is a very good chance that all of these forces could come to fruition, combined with the de-leveraging of the economy to produce an enormous deflationary cycle. As we approach the election, a potential Democratic president, the likelihood of an Iraq pull-out, a balanced budget, and higher interest rates we are likely to see a stronger dollar in the second half of 2008 and into 2009. By the second half of this year a global slowdown will be well in force and a higher dollar will likely bring down commodity prices. This would be devastating for many of the commodity based economies of the Middle East and Asia. If the US is still in a slowdown (as we presume it will be) and houses are still depreciating (as we presume they will be) there is the potential for global deflation.?”
I wrote that in a research note in Q2 of 2008. If you didn’t read closely you might have a hard time deciphering between the current environment and the situation in 2008. Of course, things are slightly different now. We don’t have the bloated housing prices, the banks on the precipice and the lack of stimulus. But in many ways the situation remains eerily similar. We appear to have once again replaced a bubble with another bubble. Naturally, it only makes sense that we move to the one asset class that has not experienced a broad and devastating bubble in the last decade – commodities.
I don’t know how long this bubble will last or how far it will expand. It could last several years or it could last several months. I seem to be very good (bad?) at being a few years early in calling bubbles….The two things we know for certain are:
1) Prices NEVER sustain parabolic rises.
2) The policies of the Fed and PBoC are significantly contributing to the current bubble.
Like all bubble collapses I would expect this one to be devastating in many regards. We are already seeing its impact in Libya, Egypt and the Middle East. There is no telling how wide ranging its impact will be. But with much of the developed world still mired in a balance sheet recession the last thing we need now is another bubble implosion – particularly if it results in much slower growth in the one strong leg of the recovery – Asia. Dr. Bernanke appears to believe he can contain the madness of crowds. I think he is only fueling this madness and when the crowd turns to run in the opposite direction he will be powerless in stopping it from trampling him.
Could not agree more Cullen.
I’m not sure why we refuse to take a bit of pain to rebalance our economy, but we certainly are not moving in the right direction. I have a young daughter and a second one on the way and make a decent living and let me tell you, I look at the cost of everything going up and think there is no way this is healthy for our economy. Makes me think we are in some sort of a standard of living crisis. What is crazy is that I would love to see the cost of everything come down, but that would definitely not be fun for the country as a whole.
All roads lead to pain…either willingly or forcefully…seems we are choosing the “forcefully” route.
Just fxxk it and learn to love the bubbles – the big boys and the Fed will create them again and again anyway. Follow their trend either long or short, and get your share of the pie.
Right on MS. No point in raging against the machine–just take advantage of the opportunities.
Boom, bust, boom, bust…wash, rinse, repeat.
Don’t forget how easily deflation had been reversed. It is one way train without alternative outcome
Golden timing on that call!
I agree, this ‘fed can engineer prices’ trend might turn into ‘the fed is powerless’ (again).
And so Bill Gross has sold all PIMCO Treasuries and Gov’t securities as he says they are going way down, 10 yr. over 4%. Today, Wed. Treasuries went up.
it is hard for me to believe that our elite leaders do not know what they are doing. they know exactly what they are doing and they want it to be that way so that certain group of people can be profit from it… one just have to swim in the same direction as the big whale.
“We don't have the bloated housing prices, the banks on the precipice and the lack of stimulus.”
Not exactly. Still significant exposure here.
BTW, what to make of PIMCO being 0% tsys, with Gross now turning on Bernanke?
Maybe Gross is angling for job in politics. Good help us all.
Do you think Bill Gross understands how the monetary system works?
Richard Koo: Japanese Economic Déjà Vu http://ineteconomics.org/richard-koo
kind Regards
Notify me of follow-up comments via e-mail
© 2009 pragcap.com · Register for PC
“As we mentioned late last year, we believe Ben Bernanke was creating an inflation bubble due to his rate cuts. He was driving the dollar down by flooding the market with dollars and driving commodity prices higher. This has resulted in a wheat bubble, a corn bubble, a soybean bubble and a general commodities bubble. Gold soared to $1,000, while oil recently hit $126. We think there is a very good chance that all of these forces could come to fruition, combined with the de-leveraging of the economy to produce an enormous deflationary cycle. As we approach the election, a potential Democratic president, the likelihood of an Iraq pull-out, a balanced budget, and higher interest rates we are likely to see a stronger dollar in the second half of 2008 and into 2009. By the second half of this year a global slowdown will be well in force and a higher dollar will likely bring down commodity prices. This would be devastating for many of the commodity based economies of the Middle East and Asia. If the US is still in a slowdown (as we presume it will be) and houses are still depreciating (as we presume they will be) there is the potential for global deflation.?”
I wrote that in a research note in Q2 of 2008. If you didn’t read closely you might have a hard time deciphering between the current environment and the situation in 2008. Of course, things are slightly different now. We don’t have the bloated housing prices, the banks on the precipice and the lack of stimulus. But in many ways the situation remains eerily similar. We appear to have once again replaced a bubble with another bubble. Naturally, it only makes sense that we move to the one asset class that has not experienced a broad and devastating bubble in the last decade – commodities.
I don’t know how long this bubble will last or how far it will expand. It could last several years or it could last several months. I seem to be very good (bad?) at being a few years early in calling bubbles….The two things we know for certain are:
1) Prices NEVER sustain parabolic rises.
2) The policies of the Fed and PBoC are significantly contributing to the current bubble.
Like all bubble collapses I would expect this one to be devastating in many regards. We are already seeing its impact in Libya, Egypt and the Middle East. There is no telling how wide ranging its impact will be. But with much of the developed world still mired in a balance sheet recession the last thing we need now is another bubble implosion – particularly if it results in much slower growth in the one strong leg of the recovery – Asia. Dr. Bernanke appears to believe he can contain the madness of crowds. I think he is only fueling this madness and when the crowd turns to run in the opposite direction he will be powerless in stopping it from trampling him.
Could not agree more Cullen.
I’m not sure why we refuse to take a bit of pain to rebalance our economy, but we certainly are not moving in the right direction. I have a young daughter and a second one on the way and make a decent living and let me tell you, I look at the cost of everything going up and think there is no way this is healthy for our economy. Makes me think we are in some sort of a standard of living crisis. What is crazy is that I would love to see the cost of everything come down, but that would definitely not be fun for the country as a whole.
All roads lead to pain…either willingly or forcefully…seems we are choosing the “forcefully” route.
Just fxxk it and learn to love the bubbles – the big boys and the Fed will create them again and again anyway. Follow their trend either long or short, and get your share of the pie.
Right on MS. No point in raging against the machine–just take advantage of the opportunities.
Boom, bust, boom, bust…wash, rinse, repeat.
Don’t forget how easily deflation had been reversed. It is one way train without alternative outcome
Golden timing on that call!
I agree, this ‘fed can engineer prices’ trend might turn into ‘the fed is powerless’ (again).
And so Bill Gross has sold all PIMCO Treasuries and Gov’t securities as he says they are going way down, 10 yr. over 4%. Today, Wed. Treasuries went up.
it is hard for me to believe that our elite leaders do not know what they are doing. they know exactly what they are doing and they want it to be that way so that certain group of people can be profit from it… one just have to swim in the same direction as the big whale.
“We don't have the bloated housing prices, the banks on the precipice and the lack of stimulus.”
Not exactly. Still significant exposure here.
BTW, what to make of PIMCO being 0% tsys, with Gross now turning on Bernanke?
Maybe Gross is angling for job in politics. Good help us all.
Read Full Article »