A couple more years of deflation, then a hyperinflationary tsunami? That’s the scenario envisioned by a reader from South Africa, Eelco Lodewijks, in response to yesterday’s commentary, “Calling All Inflationists.” We asked readers to explain how inflation could occur with asset values, credit and business collapsing around the world. Hundred of you wrote back, and we are still sorting the replies. Lodewijks’ e-mail was among the first to arrive, and it contains some interesting ideas that seem quite plausible to us. (If you don’t want to miss out on the discussion, click here to receive our free commentary each day by e-mail.) If there is a weakness in his thesis, it is the notion that the banks, whose TARP-fattened reserves are currently sitting in Treasurys, will crank up loans in two or three years as the business climate starts to thaw. We would ask, simply, loans on what collateral? Housing has been spent for that purpose, and we can’t imagine any asset class that could takes its place. Lodewijks writes as follows: Inflation is not just about the amount of money in circulation, but the velocity. Therefore, if we double the money and halve the velocity, there will be no impact on inflation. All the money created in the last months has not improved liquidity since the banks have hoarded it for the following reasons: * They lodged their suspect securities with the fed for funds at 0.5% and reinvested in Treasurys at 3.0%. Therefore, they would be fools to lend the money out at risk if they can get 2.5% guaranteed. * They are hoarding cash to shore up their balance sheets against losses, future credit defaults and hedge/investment losses. * They are reluctant to lend, as they do not know who is creditworthy since seemingly secure companies are
Tuesday, January 13, 2009
E-Mini S&P (872.75)
– Posted in: Current Touts Free Rick's PicksThe futures were moving timidly higher Monday night, probing blindly for resistance. Since the rally comes off a low that exceeded our 863.00 target yesterday by nearly three points, we can only infer that this is not an episode destined for glory. Even so, it threatened to lift a Hidden Pivot resistance at 873.50, and thence perhaps to set the curtains ablaze overnight. I suggest judging the buyers' tenacity on the basis of whether minor thrusts on the 5-minute chart are able to pop past two prior peaks without a bend.
C Citigroup (5.46)
– Posted in: Current Touts Free Rick's PicksCiti should have gotten some lift from news that JP Morgan will take Smith Barney off its hands for more than mere peanuts. Instead, the stock has dropped like a brick, shedding nearly 20% of its value yesterday on top of an 8% loss in the previous session. All of the other financial stocks have come down hard as well, but it remains to be seen what has been troubling them. Meanwhile, the 14.79 target given here yesterday for JP Morgan, representing a 40% plunge from current levels, implies that something wicked is brewing.
February Gold (826.00)
– Posted in: Current Touts Free Rick's PicksThe futures bounced for $7 from the 821.10 target given here yesterday, but the subsequent relapse to an intraday low at 815.10 is not a healthy sign. Whatever happens in the next 2-3 days, the juiciest buying opportunity I could conceive of -- one with relatively little risk -- would come into focus if the futures trace out a pattern similar to the one shown in the chart. Which is to say, our entry would come at the midpoint of whatever C-D leg follows the sharply impulsive drop from Friday's 869.30 high.
