Jeremy Grantham, Grantham Mayo Van Otterloo
Everything is in bubble territory. Everything. From Indian antiquities to modern Chinese art; from land in Panama to Mayfair; from forestry, infrastructure and the junkiest bonds to mundane blue chips; it's bubble time! The bursting of this bubble will be across all countries and all assets.
Richard Daughty, The Mogambo Guru
I'll say it again, as if I haven't said it enough already: The dollar is going down because we acted like idiots, and so load up on gold, silver and the shares of oil companies to save yourself. This Mindless Mogambo Strategy (MMS) has worked like a charm for quite awhile now, and so it IS "the trend." And as everyone knows, "the trend is your friend!"
Bill Fleckenstein, Fleckenstein Capital
Wall Street continues to view stocks as one-way bets, with positive outcomes. Every day, I am more and more astounded by the bravado/denial that I see. If you told this crowd that the world was going to end on Friday, they'd be buying stocks in anticipation of the rebound they would expect to occur after its demise. How anyone can be sanguine about how this movie ends is beyond me.
On a side note, operators in the LBO world seem keen to IPO themselves because they can see that valuations are so stupid. Thus, they're in the process of trying to have it both ways: getting paid huge fees to take companies private, while preparing to take themselves public based on their huge fee income.
Mark Kiesel, PIMCO
One question my friends and colleagues have asked me repeatedly over the past six months is: Are you still renting? Yes! I sold my house over a year ago and continue to rent. Based on the current outlook for housing, I will likely be renting for one to two more years.
Housing is today’s leading indicator of economic growth and risk appetite. An extended downturn in housing will likely lead to slower job creation, softer corporate profit growth, tighter lending standards and weaker consumer and business confidence. The Fed should lower the Fed Funds rate as soon as we have confirmation that the employment situation is deteriorating. By that time, credit spreads will have already anticipated the fact that risk appetite is set to turn for the worse.
Paul Lamont, Lamont Trading Advisors
When the effects of inflation have been extracted, the DJIA is much more cyclical than Wall Street promoters would care to admit. After optimistic peaks of 1834, 1906, 1929, and 1966 the DJIA subsequently moved to the bottom of the long term trend channel. These bear markets were either inflationary, such as the 1966-1982 bear market or deflationary such as in 1929-1932. We have also noticed that inflationary/deflationary crashes tend to alternate. We suppose this is because Mr. Market likes to fool even the bears. Today we are again at the top of the trend channel. How will we fall? Most bears remember and fear the stagflation of the 1970s. However with debt levels currently high, inflation cannot be maintained for an extended length of time. Debtors would merely file for bankruptcy or foreclosure (as they have begun recently). Instead a deflationary spiral similar to 1929-1933 or 1834-1842 is likely. It appears the rule of alternation will continue.
John Mauldin, Millennium Wave Advisors
Rising prices create their own kind of self-fulfilling momentum. As more and more people throw caution to the wind and jump into the market, hoping to capture some of the profits they see their friends making so effortlessly, you finally get down to the last bear standing. Mr. Market will do whatever it takes to prove the most people wrong. And one of his favorite things to do is to create momentum markets which defy the logic of the underlying fundamentals. It then ends in tears.
Mike Maloney, GoldSilver.com
Why does everyone think the Dow is going up, when it is actually going down in value?
According to the Minneapolis Federal Reserve, total inflation from 2000 to 2007, using the Consumer Price Index, is just about 20%. This means the Dow would have to be at 14,100 just to break even. And that's if the CPI wasn't a made-up, hocus-pocus, voodoo fabrication (which it is). Here's why.
In calculating inflation, the Bureau of Labor Statistics (BLS) takes a basket of goods and services and tracks their prices throughout the years. This worked just fine when they would track the actual price of the same items year after year. The problem is they no longer use the actual price, and they no longer track the same items year to year. If the price of an item has gone up so much that it might make whichever administration that is in power look bad, they simply drop that item from the basket of goods (deletion), switch to another item (substitution), or make up their own price (hedonic adjustment). Yes, the BLS has become just another division of the governments "Ministry of Propaganda". Its job is to manipulate the numbers, so as to paint smiley faces all over the economy.
…[This kind of] “invisible crash” is a product of a fiat currency system and/or rampant credit creation. It requires a rapidly expanding money supply to obscure the fact that an overvalued asset class is correcting and reverting back to fair value or less. It cannot happen on a gold standard with conservative fractional reserve banking practices. Therefore, it didn't happen in the United States until the 1970s and today. But it has happened numerous times throughout history once a country leaves an asset backed currency standard. The stock of the Mississippi Company of John Law's France, and the German stock market during the Weimar hyperinflation come to mind.
Michael Nystrom, BullNotBull
When I was about 9 years old, my father took my elder sister and me to see a performance by a famous magician called Blackstone. What I remember most about the show is when Blackstone, with a flourish of his cape, made an elephant appear onstage out of thin air. It was an astonishing feat, and the crowd - including me - went wild with applause. I had no idea how he did it. After the show however, as we were exiting the theater, my elder sister said, “I didn’t see what was so great about that elephant. It just walked onto the stage and everyone started clapping.”
My sister’s revelation was just as amazing as the trick itself, which suddenly made perfect sense. Blackstone had used some kind of sleight of hand, distracting the audience over here while he got the elephant to walk on stage over there. With this simple, well-known magician’s tactic, he managed to fool just about everyone.
Yesterday, as the Dow “smashed its all time high,” closing above 13,000 for the first time in history, I was strangely reminded of Blackstone’s performance that day some thirty years ago. The Dow’s current levitating act is the result of another well-known sleight of hand trick used by central bankers. It's called inflation. Even so, most everyone is mesmerized by the performance. Everyone seems transfixed, clapping in amazement at this spectacular feat.
Rob Peebles, PrudentBear
After four years of rising stock prices a person might wonder how private equity investors can keep finding companies cheap enough to deliver decent returns on their investment. According to Thomson Financial, private equity firms bought 654 U.S. companies last year. But were they bargains? Were they bought cheap enough to produce a decent return on their $375 billion cumulative price tag?
Here’s the answer: It doesn’t matter.
That’s the great thing about being a private equity investor. It doesn’t have to be about the Return on Investment or the ROI. There’s always the RFP, or Return From Pillage. So far, RFP has come in the form of “management” fees and “dividends” paid by recently-privatized companies to the privateers who privatized them.
Wall Street Journal reporters Greg Ip and Henny Sender described these innovative forms of compensation in a July 25, 2006 article using Burger King as an example. Here’s how private equity investors got it their way with Burger King: First, Burger King paid the private equity folks $22.4 million in “professional fees,” apparently for shepherding the company from the public wilderness into the loving arms of private equity owners. Then, after three years of restructuring and other voodoo, and three months before releasing Burger King back to the public, Burger King paid the investors a $367 million dividend.
After reviewing such a transaction, a person might exclaim, “Zowie, what a turn around to be able to afford to pay yourself almost a gazillion dollars!” But that person would be exclaiming in the wrong direction. That person should be exclaiming, “Zowie, you loaned money to Burger King to pay almost a gazillion dollars to their own owners!” That’s because Burger King borrowed the money for the dividend, the sort of thing that apparently is possible at the late stage of a credit bubble.
Ron Paul, Texas Congressman
The fiscal year 2008 budget, passed in the House of Representatives last week, is a monument to irresponsibility and profligacy. It shows that Congress remains oblivious to the economic troubles facing the nation, and that political expediency trumps all common sense in Washington. To the extent that proponents and supporters of these unsustainable budget increases continue to win reelection, it also shows that many Americans unfortunately continue to believe government can provide them with a free lunch.
Peter Schiff, EuroPacific Capital
As the Dow burst through the 13,000 milestone this week, few understood the hollowness of the achievement. Measured against the rising dollar-denominated prices of just about everything else on the planet, the Dow has actually lost value over the past seven years. Measured against the truest benchmark, the price of gold, the record high for the Dow was set back in January of 2000 when its price equaled approximately 43 ounces of gold. Today it is only worth about 19 ounces.
To better appreciate just how much of stock gains can be attributed to inflation, consider that the record high for the Dow in 1929 of approximately 380 also equated to 19 ounces of gold. So despite all of the hoopla and a thirty-fold increase in stock prices, the Dow has actually gained no real value during the past eighty years. The entire rise from 360 to 13,000 has been an illusion made possible by the magic of inflation. So much for the concept of stocks being a “can’t lose” long term investment -- unless you feel that eighty years is not quite a long enough time horizon!
Jay Taylor, J Taylor's Energy & Energy Tech Stocks
We Americans have come to think it our natural-born right to be able to drive huge SUVs while most of the world lives in relative poverty. But our materialistic view of the world is on a collision course with a new reality that will be forced on us and will reduce our standard of living. The new reality I speak of is derived from a combination of declining production of oil, especially cheap oil, and rising competition from huge numbers of middle-class people from places like China and India as well as other lesser-developed countries. We are going to continue to pay much more for oil, as various geopolitical interests compete for dwindling supplies of oil, and as central bankers print more and more money in a self-deceptive move to try to pretend to society that we can afford expensive oil.
Jim Willie, Hat Trick Letter
A powerful gold and crude oil rally is soon to be unleashed. The gold push will be unwanted, but demanded by a weak USDollar. The oil push will be secretly ordered.
Three sources have supported the gargantuan US credit appetite in the last several years. The Asian trade surplus recycle has essentially disappeared, without publicity or fanfare. The Persian Gulf petro surplus recycle is going in full bore, under the shroud of accounting diversions, with little attention paid. The USGovt printing press has been turned loose in unprecedented fashion, without the harsh light of tracked M3 Money Supply statistics. Look for a higher crude oil price, like one to hit $80 per barrel, and a higher gold price, like one to hit $750 per ounce, in the coming months. Look for mindboggling creation of new money to come also, under the cover of darkness, to paper over the mortgage bond black hole, to avert associated credit derivative accidents underway. We are in the Weimar Age of modern money. Good prefers light; evil embraces darkness. In full light, the gold rally would be afforded greater tailwind. Even in darkness, gold will thrive since confidence erodes in darkness. Darkness is the constant theme to both the current financial system which manages the USDollar, and to a lot more of the national drumbeats.
Martin Weiss, Safe Money Report
Forgive me if my message to you is both brief and blunt:
The U.S. dollar is sinking into the toilet.
No one is able or willing to come to its rescue.
Investors who fail to take protective action could get hurt badly.
And those that act promptly stand to make some of the greatest fortunes in recent memory.
