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Monday, May 3, 2010

Money Worries, Or Not?

Something very interesting is happening with the precious metals market.  I don't know if this is a trend or a blip, but it's interesting.

The Euro is tanking because of Greece, Spain and Portugal all being down graded to Junk Bond status.  That SHOULD have caused the dollar to rise, and gold to drop.

Instead, the dollar has risen (not a ton, but it has gone up), but gold has really taken off.  At this moment while I'm writing this, gold is at $1182.40 an ounce.  That's up from a low of $1115 in the last 30 days.

Silver has had a similar increase.

Are the markets finally recognizing that ALL fiat currency is worthless?
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I've got to admit, I have no idea why the stock market in general continues to rise.  What are buyers of equities seeing that I just can't see?

The National Bureau of Economic Research (NBER - they're the folks that officially call the start and end of recessions) will not say that our current recession - which officially stated in December of 2007 - is over.  I'm guessing much to the chagrin of the White House.  It kind of runs counter to their "happy talk".
NBER COMMITTEE CONFERS: NO TROUGH ANNOUNCED
In economic-ese, a trough is a low point in a recession.

I read story after story of how many, if not most of the recent jobs that have been lost are lost forever.
After prior recessions, many of the lost jobs came back quickly and people more or less resumed their former lives. But this time, economists think many of the 8.4 million jobs lost during the recession are gone for good, with a tumultuous period of adjustment ahead.
I thought the stock market was a reflection of future economic expectations.  If people don't have jobs, how can the buyers of stock believe the companies will be growing?  I must be looking at this too simplistically, or something else is going on here.
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Are food prices getting ready to increase?  Significantly?

Most people heard about the recent increases reported by the Bureau of Labor Statistics -
The Bureau of Labor Statistics (BLS) today released their Producer Price Index (PPI) report for March 2010 and the latest numbers are shocking. Food prices for the month rose by 2.4%, its sixth consecutive monthly increase and the largest jump in over 26 years. NIA believes that a major breakout in food inflation could be imminent, similar to what is currently being experienced in India.
All the while more and more Americans are having difficulty in making ends meet -
Food stamp usage in the U.S. has now increased for 14 consecutive months. There are now 39.4 million Americans on food stamps, up 22.4% from one year ago. The U.S. government is now paying out more to Americans in benefits than it collects in taxes.
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I heard a very odd commercial on the radio this morning regarding rice.  California has had great amounts of rainfall this season.  We were on the edge of a very serious drought, but it looks like all of our water storage is mostly back up to good levels.

I guess, it might be too much of a good thing.  The commercial I heard was discussing some sort of special rice seed that could work in wet fields.  According to the California Farm Bureau Federation, the wet weather has had an impact on many types of foods produced in this state. 

There doesn't appear to be reason for real worry, yet, but let's hope we don't get much more rain for the rest of the growing season.  If the problems here in California continue, when coupled with the food price increases already coming down the pike, it could be a very difficult year, food-wise.

Accept The Challenge

Are we out of this economic down-turn, or not?  We clearly have conflicting signals.  Which ones are more accurate indicators of what's going on around us?  With all of OUR cash that the government has pumped into various parts of the economy, it's tough to know if any of the "good news" is real.

One of the explanations for the stock market rise is that it's not considered too risky, at least when compared with putting money into US Treasuries.  That could make some sense.  You're getting essentially zero return for your investment risk.

Although Treasuries are considered the most secure investment type available, they pay very little interest, and the Federal Reserve has just come out and said they will be keeping them low for the foreseeable future. 

Buffer yourself while you are able.  Take care of as much of your food needs as you can right now.  Plant a garden, hunt, fish, preserve.

Buy food while prices are still low.  I've been seeing increases in beans, rice and sugar, so I just picked up more sacks of each.

Lower your expenses where ever possible.  The inflationary price increases coming our way were forecast before the Gulf of Mexico oil problem.  The only thing that can do is push up gas prices even further.

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5 comments:

Joseph said...

"After prior recessions, many of the lost jobs came back quickly and people more or less resumed their former lives."
Although I'm not economic stallion, wouldn't many lost jobs have returned for one of two reasons?
1) A recession was followed by another bubble to 'restart' jobs.
2) A recession occurred to an otherwise healthy economy so the economy went from having a 'head cold' back to being healthy again.

In our case this time we went from one sickness (obesity) to attempting to work our way back to being healthy. As with 'The Biggest Loser' it is all pain, tears and hard work to get our flabby rumps back in shape.

theotherryan said...

I think when it comes to gold (versus silver) we often take relatively tiny price changes as more significant than they are because they occur to the left of the decimal point instead of the right.

Also I really wish that committee which manipulates gold prices would get to work. I'd like to see gold at $400 an ounce. While they are at it if they could get silver to $9 or so that would be great also. Then my monthly metals budget would buy a lot more.

Chief Instructor said...

Joseph, very good analogy. I just don't know how it's going to work out for people that have never had any discipline - or the desire for it - in their lives.

TOR, I just can't put logic on to the way the prices change, so I've given up trying. I think gold/silver are good inflation hedges, I think inflation is coming, so I buy them both. I figure it will all shake out by the time I may need to use it!

Anonymous said...

This "recession" is unlike all the others. It started in the same way for the same reasons. But the amount of unsupportable debt (mostly in the form of mortgages) was too great to ride it out. When that collapsed it turned our "normal" recession into something far worse. Then the government compounded the situation by borrowing and spending like a durnken sailor. We are in an impossible situation, that is with the national debt at the current levels when interest rates begin to rise it will be impossible to pay the interest alone on the debt. It will crush us. This cannot be avoided it will happen, maybe not this year, maybe not next year but soon. Once interest rates begin to rise the economy will again spiral out of control but this time there will be no way to recover.

Chief Instructor said...

Anon, yep, I've written many-a-time that I can see no way out of this federal financial mess. It is simply not possible.

And with my Baby Boomer generation getting ready to belly up to the bar for a cool sip of SSI, it's going to get ugly, fast.

What I'm trying to sniff out is, what will the feds do? They can continue to print money, delaying the inevitable bill coming due, but I don't know how long they can keep that up.

The buyers of our Treasuries are not going to accept payment in grossly inflated dollars, so what then? I can't see our biggest lenders - Japan, the British and Chinese - grabbing American lands, ala the French to the Germans post-WWI.

I just can't figure out what others will do if we default, or pay with useless currency.

War? It's been done before...