Doom And Gloom
Stocks and bonds moved sideways again today – isn’t the market having a hard time deciding on its direction?
The Dollar fell against the Euro, and Gold/oil/gasoline all fell too. Counterintuitive, but don’t worry, it will get straightened out next week. Oil might fall below $80, and if it does, it could easily go back to $70. Oil could break out of $85, and if it does, it could easily go to $90. Nice not to know.
In the news today…..
February Deficit – increased by a whopping $220B. Wow, now we’re talking about real money. This is the HIGHEST monthly deficit to ever occur. Take notice.
Quote of the Month……
The following quote came at the beginning of The Great Depression. Does it sound similar to what’s going on today???
“The legislature, like the executive, has ceased, save indirectly, to be even the creature of the people: it is the creature, in the main, of pressure groups, and most of them, it must be manifest, are of dubious wisdom and even more dubious honesty. Laws are no longer made by a rational process of public discussion; they are made by a process of blackmail and intimidation, and they are executed in the same manner. The typical lawmaker of today is a man wholly devoid of principle – a mere counter in a grotesque and knavish game. If the right pressure could be applied to him he would be cheerfully in favor of polygamy, astrology or cannibalism.”
H.L. Mencken writing in the American Mercury, May 1930
Tonight’s Dinner Conversation……
Keep your eye on the ball. Where is the US economy headed? S&P said that the US would lose its AAA rating if it didn’t come up with a plan really fast on how to reduce the deficit. As prior economyguys have pointed out, there is no plan to rein in the deficit. In fact, Obama’s current plan is to have it grow. So, the politicians are dooming the future of America.
In that environment, what’s going to happen? Well, foreigners will be the first group to stop buying US Treasuries, and they will demand higher interest rates at the same time. Higher interest rates are the trigger that will cause the next crisis. That’s why the FED isn’t going to raise interest rates until they are FORCED to raise them. I doubt the FED will voluntarily raise interest rates.
When rates go up, then we will have an unsustainable debt – assuming we continue spending like drunken sailors. China and Japan will sell their US bonds, and that will drive interest rates even higher. The Dollar will go back into its “decline” mode, and this will be viewed positively by our politicians as we can sell more exports – but who’s going to be buying them? Where does this all end?
Deflation and Inflation in my opinion. Higher rates will kill off US production as consumption will fall much more – therein lies the deflation process to continue – lower home values, lower wages, more unemployment, etc. Then, the Treasury won’t be able to pay for its debt – even though the politicians will have raised taxes a lot to start paying them – and increased taxes will result in lower consumption – ergo, increased deflation. Then, the Treasury will start monetizing the debt. In other words, it will print money, and pay off the debt with inflated money. The Dollar will decline much faster when there is even a sniff of this happening. This is truly a “Doom and Gloom” scenario. I hope I’m wrong.
What can you do? Get into a “solid” financial position. Eliminate as much debt as you can. Position yourself into assets that will increase in the above scenario. Not stocks. Not bonds. Perhaps some commodities. Perhaps some (other) currency. Perhaps real estate. Gold continues to hold promise in this environment as a place for people (and nations) to store value in an economic meltdown. Gold has gone up during the “deflationary” conditions we’ve had so far. Gold will definitely go up in inflationary conditions. Most financial advisors say to have no more than 10% of your assets in gold. I recommend you talk to your financial advisor.
Here are the last numbers for today:
Dow Jones 30 Industrial – 10,625 (up 13)
10 Year Treasury Bond – 3.71% (down 0.01%)
Euro – $1.3762
Gold – $1102(down $6)
Oil – $81.28 (up $0.83)
Gasoline – $2.26 (down $0.02)



