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New Martenson Report ready

Wednesday, December 17, 2008, 12:44 PM

The Zero Bound

Executive summary: This report looks at the latest move by the Fed to drop interest rates to zero and to print massive amounts of money as part of a quantitative easing effort. It looks at the most recent Fed statement that accompanied the rate decision in some detail and closes with an exploration of what this could mean to the dollar (hint: not good) and our financial future. I offer my view on the dollar, stocks, bonds, gold, and real estate.

Link to the report

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12 Comments

Lemonyellowschwin's picture
Lemonyellowschwin
Status: Platinum Member (Offline)
Joined: Apr 22 2008
Posts: 548
Shorting Bonds

Great report Chris, thanks.  Definitely satisfies my need for a Chris-fix.

Chris mentions the possibility of shorting bonds.   Can anyone comment on whether there is a bond fund or other ready vehicle for doing this through one's brokerage account?  I've never bought or sold bonds before.

Tx.

cat233's picture
cat233
Status: Platinum Member (Offline)
Joined: Aug 20 2008
Posts: 575
Re: New Martenson Report ready

Thank you Chris!

Lemonyellowschwin... If you click here,  http://www.masterdata.com/HelpFiles/ETF_List.htm   you will find a complete down-loadable list of ETFs.

Cat 

 

 

scotttherrien's picture
scotttherrien
Status: Member (Offline)
Joined: Aug 26 2008
Posts: 13
What does it mean for the every-day American?

Hi Chris, thank you for all your hard work, your content has been immensely helpful in understanding these issues.  I am struggling with understanding the impact of a falling dollar for the average American.  Let’s assume the dollar losses 50% against other major currencies in the next 12 months.  I understand that imports (mainly energy and food) may become more expensive, gold should rise significantly and interest rates go up. 

The increase in costs will eventually trickle into the system and companies will be forced to raise prices, which may take years depending on how global these companies are (excluding oil).

So how does an average American with a balance sheet denominated in USD (cash, investments, real estate, mortgage, and other debts) feel the impact?  Since ones’ balance sheet hasn’t necessarily changed in a 50% dollar-devalued world, is it strictly a multi-year trend of rising costs and economic deterioration?  I would venture that we felt this very impact for the period of 2007 and 2008.  It seems to me that we should expect the same going forward for some time.

Excluding a hyper-inflationary scenario, am I missing something with respect to what seems to be significant but not catastrophic dollar devaluation in ’09 and onward?

malpert's picture
malpert
Status: Member (Offline)
Joined: Oct 9 2008
Posts: 18
Re: New Martenson Report ready

It is evident that long-duration treasuries are defying financial gravity, however, the of rules of financial gravity don't apply.

The market has anticipated the Fed's support of low yields and the Fed will provide this support.

 1) Low yields provide deflation expections (a perfect veil for inflationary policies)

 2) Low yields provide appearance of demand exceeding supply (a perfect veil for deficit spending)

 3) Low yields encourage borrowing to support asset prices and prevent defaults

The Fed has "limitless" resources to defend low rates.  As for defending the dollar, I'm uncertain that its necessary in the short to medium run, because export-based nations defend it on our behalf to keep their goods affordable.

The catch-22 of a treasury short is that the return is paid in dollars.  If treasuries are defended as the "last bubble", TBT and PST (short-treasury ETFs) will decline indefinately.  If the bubble bursts violently only after years of massively inflationary policy then couterparty risk, bank holidays and de-valued dollars make this an upside case with significant downside. 

cmartenson's picture
cmartenson
Status: Diamond Member (Offline)
Joined: Jun 7 2007
Posts: 5570
Re: Shorting Bonds
Lemonyellowschwin wrote:

Great report Chris, thanks.  Definitely satisfies my need for a Chris-fix.

Chris mentions the possibility of shorting bonds.   Can anyone comment on whether there is a bond fund or other ready vehicle for doing this through one's brokerage account?  I've never bought or sold bonds before.

Tx.

I've addressed this topic over in the subscriber forum area.

Link to discussion of The Zero Bound

See you there.

Chris

cat233's picture
cat233
Status: Platinum Member (Offline)
Joined: Aug 20 2008
Posts: 575
For those interested in stock speculating.

From Chris' post... "The question now for those interested in stock speculating, is to determine which sectors are most likely to benefit from the flood of money and a falling dollar."

I have listed some EFTs that might interest some of you.  I am NOT saying all of these will benefit from the falling dollar... You need to do your own research. 

ETFs are a good way to trade, usually you need not worry about news to an individual company.  What matters most to a company are earrings, ETFs don't have earrings.  That said if Walmart (WMT) missed its earnings, RTH (Retail Holders) would take a hit.    

Most of these are bullish, but I have also listed some bearish.  For example I trade UDN, the price increases as the US Dollar decreases.     

These sites will extend your understanding of ETFs.

http://www.investopedia.com/terms/e/etf.asp?viewed=1

http://www.masterdata.com/

http://finance.yahoo.com/etf

PowerShares DB USD Index Bearish, UDN
PowerShares DB USD Index Bullish,
UUP 

Diamonds Trust, Series 1, DIA

Power Shares QQQ, QQQQ

S&P 100 Index, OEXSPDRs, SPY 

ProShares Short Dow30, DOG
ProShares Short Financials, SEF

ProShares Short MidCap400, MYY
ProShares Short Oil & Gas, DDG
ProShares Short QQQ, PSQ
ProShares Short Russell2000, RWM

ProShares Short SmallCap600, SBB 

Dow Jones Transportation Average Index Fund, IYT
iShares Dow Jones U.S. Aerospace & Defense Index Fund, ITA
iShares Dow Jones U.S. Basic Materials Index, IYM
iShares Dow Jones U.S. Broker-Dealers Index Fund, IAI
iShares Dow Jones U.S. Consumer Goods Index Fund, IYK

iShares Dow Jones U.S. Consumer Index Fund, IYC
iShares Dow Jones U.S. Energy Sector Fund, IYE

iShares Dow Jones U.S. Financial Sector Index Fund, IYF
iShares Dow Jones U.S. Financial Services Index Fund, IYG
iShares Dow Jones U.S. Health Care Index Fund, IYH
iShares Dow Jones U.S. Health Care Providers Index Fund, IHF
iShares Dow Jones U.S. Home Construction Index Fund, ITB
iShares Dow Jones U.S. Industrial Sector Index Fund, IYJ
iShares Dow Jones U.S. Insurance Index Fund, IAK
iShares Dow Jones U.S. Medical Devices Index Fund, IHI
iShares Dow Jones U.S. Oil & Gas Exploration & Production Index Fund, IEO

iShares Dow Jones U.S. Oil Equipment & Services Index Fund, IEZ
iShares Dow Jones U.S. Pharmaceutical Index Fund, IHE
iShares Dow Jones U.S. Real Estate Index Fund, IYR
iShares Dow Jones U.S. Regional Banks Index Fund, IAT
iShares Dow Jones U.S. Technology Index Fund, IYW
iShares Dow Jones U.S. Telecommunications Index Fund, IYZ
iShares Dow Jones U.S. Total Market Index Fund, IYY
iShares Dow Jones U.S. Utilities Index Fund, IDU 

Direxion Energy Bear 3x Shares, ERY
Direxion Energy Bull 3x Shares, ERX
Direxion Financial Bear 3x Shares, FAZ
 

HOLDRS Merrill Lynch Market Oil Service, OIH
HOLDRS Merrill Lynch Pharmaceutical, PPH
HOLDRS Merrill Lynch Regional Bank, RKH
HOLDRS Merrill Lynch Retail, RTH
HOLDRS Merrill Lynch Semiconductor, SMH

HOLDRS Biotech, BBH 

iShares Dow Jones U.S. Broker-Dealers Index Fund, IAI
iShares Dow Jones U.S. Consumer Goods Index Fund, IYK
iShares Dow Jones U.S. Consumer Index Fund, IYC
iShares Dow Jones U.S. Energy Sector Fund, IYE
iShares Dow Jones U.S. Financial Sector Index Fund, IYF

iShares Dow Jones U.S. Financial Services Index Fund, IYG
iShares Dow Jones U.S. Health Care Index Fund, IYH,

iShares Dow Jones U.S. Oil & Gas Exploration & Production Index Fund, IEO
iShares Dow Jones U.S. Oil Equipment & Services Index Fund, IEZ
 

SPDR Select Sector Fund - Basic Industries, XLB
SPDR Select Sector Fund - Consumer Discretionary, XLY
SPDR Select Sector Fund - Consumer Staples, XLP
SPDR Select Sector Fund - Energy Select Sector, XLE
SPDR Select Sector Fund - Financial, XLF
SPDR Select Sector Fund - Health Care, XLV
SPDR Select Sector Fund - Industrial, XLI
SPDR Select Sector Fund - Technology, XLK
SPDR Select Sector Fund - Utilities, XLU

nodebthere's picture
nodebthere
Status: Member (Offline)
Joined: Aug 17 2008
Posts: 22
Re: New Martenson Report ready

 Print all the money we need?  Someone didn't take the Crash Course.

  On the bright side this should help our sagging pulp & paper industry.

  People will need to bring along a wheelbarrow to haul in all those paper "dollars" to go shopping what with no credit and all.

                                                                                    see you, Bob

                                                                                          

                                                                                

                                                                                   

deadman's picture
deadman
Status: Member (Offline)
Joined: Mar 12 2008
Posts: 14
Re: New Martenson Report ready

Thanks for covering the dollar, stocks, bonds, gold, and real estate. One noteworthy phenomenon missing is the plunging price of OIL.

For the first time in my investment career, I'm considering buying into oil at $40 a barrel. Some analysts on yahoo.finance are claiming it will drop to $30 in the next 12 months...but I think the devaluation of the dollar and significant inflation may happen within the next 3-6 months if not immediately. Any advice/comments? 

tarmo's picture
tarmo
Status: Member (Offline)
Joined: Nov 3 2008
Posts: 2
Re: New Martenson Report ready

Just a quick comment from Europe. Most European news papers consider this drop in interest rate to be a major challenge to the EU. The euro will become stronger against the dollar, causin major headaches to the European exports. Apparently UK likes this, as its pound has a lower valuation.

Also speculation that the European central bank will also have to consider dropping its interest rate to 0. We'll see.

skyriver's picture
skyriver
Status: Member (Offline)
Joined: Aug 30 2008
Posts: 20
Re: New Martenson Report ready

GCC: Basket Peg For Common Currency?

December 18, 2008

The Dubai International Financial Center has recommended that a new common currency for Gulf Cooperation Council (GCC) states should be pegged to a basket of global currencies, Bernama news agency reported Dec. 18. The GCC plans to launch a monetary union in 2010.

 

This short news piece came from Stratfor.com.  The rest of the world is not going to stand by and let their assets fall into a black hole, although by 2010, I would think they would be well on their way.  But this is the beginning of a common reaction that I think we will start to see.  China and OPEC may hold the keys - China because they provide dollar support and OPEC because they agree to accept the dollar in exchange for oil.  If either one of these trading partners decides to discontinue their support for a falling currency, the dollar, then it seems we would be in grave trouble. If we only had one currency, around the globe, then it wouldn't matter so much, but when we have to exchange dollars for goods denominated in other currencies, then we will just get poorer and poorer.

SaulMenowitz's picture
SaulMenowitz
Status: Member (Offline)
Joined: Nov 17 2008
Posts: 3
Re: New Martenson Report ready

Because of the Code of Ethics at the money management firm where I work, I can only invest in mutual funds or options on commodities.  Does anyone have a recommendation as to how I could take advantage of the decline in the dollar and the eventual rise in oil prices via mutual funds?

 Thanks.

Woodman's picture
Woodman
Status: Diamond Member (Offline)
Joined: Sep 26 2008
Posts: 1028
Re: New Martenson Report ready
sfleischer wrote:

Because of the Code of Ethics at the money management firm where I work, I can only invest in mutual funds or options on commodities.  Does anyone have a recommendation as to how I could take advantage of the decline in the dollar and the eventual rise in oil prices via mutual funds?

 Thanks.

Vanguard has an energy sector mutual fund, ticker = VGENX.  I don't know much about it so do your own dilengence, but it seems heavily concentrated in oil and gas. 

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