By Bill Fleckenstein
Monday, April 26, 2004
http://moneycentral.msn.com/content/p78281.asp [1]
On Day 1 of Alan Greenspan's congressional testimony
last Tuesday, nearly every market was roiled dramatically
by the perception that the Fed might raise rates at some
point. Though the "away-from-stocks" markets continued
their slide on Day 2, Equity Land exhaled at the chairman's
soothing words.
As for the substance of this gibberish, he basically told folks
exactly what I assumed he would tell them: "Just because
we've conquered deflation doesn't mean you have to worry
about inflation. I'll handle inflation when needed, but it
won't be needed, because my inflation gauges will never
register any."
The guy is never going to have to tighten unless he's got a
gun to his head. Right now, there is no gun at his head
because everyone is pretty happy. And no one's up in arms
about the inflationary pressures that are, in fact, building.
Just look at what Starbucks is saying about their dairy costs:
http://news.moneycentral.msn.com/ticker/article.asp? [2]
Symbol=US:SBUX&Feed=RTR&Date=20040421&ID=3611924
As noted, however, Greenspan's silly rhetoric was no
cause for celebration in the precious- and base-metals
markets, which saw huge declines last week. But there
is more to the picture than that, since these markets
were a) ALREADY in the process of a correction/setback,
and b) pressured further by the continued contra-trend
rally in the dollar.
I think the size of the moves reflects the panicky late
stages of liquidation, as motion begets more motion,
versus any real fear of rising rates. When 8,000 or so
hedge funds and 8,000 mutual funds change their mind
for 15 minutes before changing it back again, the end
result is gyrations like those we've seen in the precious
metals.
What many fail to understand about interest rates and
precious metals is that IF Al is compelled to raise rates,
the reasons that force his hand -- and the damage so
unleashed -- will be BULLISH for precious metals, not
bearish. After all, a modest rise in rates does not change
any of the reasons one would want to hold precious
metals, most of which still lie in front of us:
* A resumption of the dollar decline.
* Our monstrous trade and budget deficits.
* Geopolitical problems.
* Prospective weakness in the U.S. economy.
One of these days, stock-market speculators will see a
panic much like the precious metals have witnessed
recently. (What comes to mind is silver's recent 25
percent blast to the downside in the space of seven
sessions.)
Some time in the next six months or so, folks are going
to realize that the economy is not on a self-sustaining
path, that we have inflation problems, as well as a litany
of other woes I've previously described. That will
undermine folks' cult-like confidence in the Fed, and
stocks will experience a white-knuckle ride to make the
white-knuckle ride we've just seen in precious metals
appear like a picnic.
Turning to the subject of deflation, I myself am a little
tired of hearing that we're about to endure deflation
every time there's a hiccup in the precious-metals market.
To regard the cascade in the metals as a sign of deflation
is preposterous, in my opinion. With the Dow at 10,000
and home prices at record highs, that's a "signal" about
15 moves in advance. Dare I say that perhaps someday
(remembering that the Fed is totally out of bullets),
AFTER stocks have collapsed, AFTER the dollar has
collapsed, and AFTER real estate has collapsed, then
PERHAPS we'll experience some deflation, and we can
worry about it as those events loom closer.
Finally, for folks who believe you can't lose money in
real estate, since "they're not making any more of it"
or "there's not enough of it to go around," I would direct
their attention to that little country known as Japan. While
only about the size of California, it's got roughly half as
many people as the United States. Even though Japan has
less land to fight over, that hasn't stopped the price of its
real estate from declining for 13 consecutive years. Since
1991 residential land prices have declined about 43
percent and commercial prices about 67 percent -- the
lowest levels since the government started tracking land
prices in 1974. (I am indebted to Dennis Gartman of The
Gartman Letter for those statistics, which come from
Japan's Ministry of Land, Infrastructure, and Transport.)
Given the debt supporting America's housing market, just
imagine the consequences of a Japan-like decline happening
here. The fear of a collapse in real estate, and of the equity
bubble unwinding, is what led the Fed to do what it has done.
But circling back to my comment about the Fed being out
of bullets, it's easy to see how the train wreck ahead could
get so ugly. The train wreck you should be envisioning is
not two but multiple trains colliding.
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http://www.capitalupdates.com/ [12]
http://www.goldenbar.com/ [13]
http://www.silver-investor.com [14]
http://www.thebulliondesk.com/ [15]
http://www.mininglife.com/ [17]
http://www.financialsense.com [18]
http://www.goldensextant.com [19]
http://www.goldismoney.info/index.html [20]
http://www.howestreet.com [21]
http://www.depression2.tv [22]
http://www.moneyfiles.org/ [23]
http://www.howestreet.com [21]
http://www.minersmanual.com/minernews.html [24]
http://www.a1-guide-to-gold-investments.com/euro-vs-dollar.html [25]
http://www.goldcolony.com [26]
http://www.mineralstox.com [27]
http://www.kuik.com/KH/KH.html [28]
(Korelin Business Report -- audio)
http://www.plata.com.mx/plata/home.htm [29]
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(In English)
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Eagle Ranch discussion site:
http://os2eagle.net/checksum.htm [33]
Ted Butler silver commentary archive:
http://www.investmentrarities.com [34]
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figoldstein@buycoin.com [49]
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