Daily economics – some bearish views

I haven’t been posting a lot on my blog lately, because I didn’t really know what to write about. This may change as I’m planning to post some more about economic related news, not the typical mainstream stories but the more juicy bits and fascinating contrarian views.

One of the interviews I enjoyed reading today was one with Jim Rogers over at The Economic Times. He predicts a lot of inflation is ahead of us and believes it’s dangerous to short stocks right now because of the risk of hyperinflation. Rogers claims quantitative easing (the printing of money) could cause huge nominal increases in stock markets, the S&P 500 could triple and in the case of a US dollar collapse you could see the S&P 500 at 50,000 and the Dow Jones at 1,000,000 due to Weimar-like hyperinflation.

What kind of a market are you witnessing now?

It’s a bear market rally. I was going to say I don’t think S&P 500 will see new highs. But I have to quickly temper that by saying against the dollar because the S&P 500 could triple from here if they print enough money and the value of the US dollar collapses, then S&P could go to 50,000, Dow Jones can go to 1,00,000.

Which is one reason why I am not shorting stocks right now. Because there is a possibility of this sort of a thing. There is a possibility that stocks could go through unheard of levels, but would be in worthless currency.

He also offers advice on investments in commodities and predicts agriculture awaits a bright future. Ten years from now, it may be the farmers who will drive the Lamborghinis, he says. Funnily enough, Lamborghini used to be a prominent tractor maker.

Demand for gold, silver and other precious metals is high these days and yesterday it was reported that the Royal Canadian Mint is missing a significant amount of its gold, silver and palladium inventory. At present it’s unknown whether thieves or sloppy accounting are to blame for the unaccounted metal.

Geithner was in China this week, telling Chinese university students that the country’s dollar assets are safe. However, it seems he wasn’t really convincing as his statement drew loud laughter.

“Chinese assets are very safe,” Geithner said in response to a question after a speech at Peking University, where he studied Chinese as a student in the 1980s.

His answer drew loud laughter from his student audience, reflecting scepticism in China about the wisdom of a developing country accumulating a vast stockpile of foreign reserves instead of spending the money to raise living standards at home.

More criticism was outed by Yu Yongding, a former Chinese central bank adviser, he would like to see some figures on how the US government plans to achieve its objective of cutting the fiscal deficit to “just” 3 percent from a projected 12.9 percent this year. Yu wondered how the US plans to withdraw all the money it created out of thin air and questioned whether there would be enough demand to meet US debt issuance this year.

Referring to the Federal Reserve “as the world’s biggest junk investor,” and to Chairman Ben S. Bernanke as “helicopter Ben,” Yu said the Fed has dropped “tons of money from the sky since the subprime crisis.”

“The balance sheet of the Federal Reserve not only has expanded like mad but is also ridden with ‘rubbish’ assets,” he said.

Further criticism about the monetary policy of Western central banks was outed by German chancellor Angela Merkel. She warned the central banks that aggressive moves may be laying the groundwork for the next financial blowup.

“I view with great skepticism the powers of the Fed, for example, and also how, within Europe, the Bank of England has carved out its own small line,” Ms. Merkel said in a speech in Berlin. “We must return together to an independent central-bank policy and to a policy of reason, otherwise we will be in exactly the same situation in 10 years’ time.” (Read excerpts of the speech.)

Another interesting thing I just came across is a recent report by Thomas Chaize about the oil market, he has taken a look at the evolution of oil prices over the last 150 years. His inflation-adjusted chart reveals the price of oil has hit $100 a barrel three times in history, the first time was in 1864 when old technology was unable to meet the high demand for oil. The second time oil (almost) hit $100 was 116 years later with the conflict in the Middle-East and the last time was in 2008, but that’s still fresh in everyone’s memory.

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