Email on the Market....Have to Share Can't Cut You guys out
Subject: Fwd: The MarketTo: Matthew Kelly <mattkelly54@gmail.com>, Paul Swenson <swenson8@gmail.com>
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---------- Forwarded message ----------From: Benjamin Brey < bjbrey@gmail.com>Date: Oct 10, 2007 11:48 PM Subject: Re: The MarketTo: Matthew Kelly <mattkelly54@gmail.com >
i have a couple notes...
first, i think the credit induced inflationary bust story that has chosen housing as its henchman catalyst is well understood by this group. Things are going to begin to get worse quickly here in the next 6 months...i believe the saudi's decision & chinese inflation putting increasing pressure on them to begin to raise rates more aggressively ( i.e. let the Yuan appreciate more aggressively vs. the dollar) are also very significant events that will serve as structural issues that will pressure import prices into the US & the attractiveness of US assets.
Unlike most that i interact with on Wall Street, I do not believe that foreigners are going to just dump money back into the US due to the current dollar weakness because the only way that works is if you feel confident either that the currency will stabilize or strengthen b/c if people believe that the dollar will continue to devalue its means foreigners will need our assets to return at least 5% to 8% just to offset the currency depreciation, which will be increasingly difficult given that the central bank will likely continue to lower interest rates to pump artificial liquidity in the system to save banks from the housing monster on the horizon.
On the equity side i remain very bearish on economic growth for three reasaons:
First, job growth is increasingly weak and if you look at the number of people not included in the employment base - i.e. we can make the unemployment rate whatever we want - you see increasing numbers of people joining the category "citizens not seeking employment by choice"; combine this with the fact that there are many real estate / wall st. jobs out there that likely won't be there next year & it is easy to see a much uglier employment picture 12m out than we have today....in addition, i can gurantee the incremental job growth will not be there in the coming years given that roughly 50% of the incremental job growth came from housing related industries that are now either not hiring or likely firing people. Thus, I think the job situation is BAD.
Second, I think income growth will likely be much of the same as what we have seen in the past 5 yrs - aka flat to down. The minimum wage growth (14% yoy) should provide some help but if food prices / energy prices / healthcare prices increase at similar rates it won't make a damn difference.
Third, I think rising prices will continue to pressure import prices & slow growth given that consumers are now the least able to accept aggressive price increases when they are definitely coming. What will make it worse is that if rates continue to go down & foreigners look to de-couple from the dollar it will only put pressure on global prices when using dollars.
Thus, I feel US cyclical / discretionary / capital intense industries are not good places to be right now. What I like is Japanese Yen or Japanese Stocks, Swiss Francs, Gold/Silver, Cotton, LIVE CATTLE quite a bit actually, Sugar, US Prison Stocks, US pawn shops, Big Brother stocks (Verachip / Applied Digital / Cogent), and high dividend paying stocks in defensive industries ( i.e. Theaters / Regis hair salon).
THATS ALL I HAVE FOR NOW BROTHER>
- Hide quoted text -
---------- Forwarded message ----------From: Benjamin Brey < bjbrey@gmail.com>Date: Oct 10, 2007 11:48 PM Subject: Re: The MarketTo: Matthew Kelly <mattkelly54@gmail.com >
i have a couple notes...
first, i think the credit induced inflationary bust story that has chosen housing as its henchman catalyst is well understood by this group. Things are going to begin to get worse quickly here in the next 6 months...i believe the saudi's decision & chinese inflation putting increasing pressure on them to begin to raise rates more aggressively ( i.e. let the Yuan appreciate more aggressively vs. the dollar) are also very significant events that will serve as structural issues that will pressure import prices into the US & the attractiveness of US assets.
Unlike most that i interact with on Wall Street, I do not believe that foreigners are going to just dump money back into the US due to the current dollar weakness because the only way that works is if you feel confident either that the currency will stabilize or strengthen b/c if people believe that the dollar will continue to devalue its means foreigners will need our assets to return at least 5% to 8% just to offset the currency depreciation, which will be increasingly difficult given that the central bank will likely continue to lower interest rates to pump artificial liquidity in the system to save banks from the housing monster on the horizon.
On the equity side i remain very bearish on economic growth for three reasaons:
First, job growth is increasingly weak and if you look at the number of people not included in the employment base - i.e. we can make the unemployment rate whatever we want - you see increasing numbers of people joining the category "citizens not seeking employment by choice"; combine this with the fact that there are many real estate / wall st. jobs out there that likely won't be there next year & it is easy to see a much uglier employment picture 12m out than we have today....in addition, i can gurantee the incremental job growth will not be there in the coming years given that roughly 50% of the incremental job growth came from housing related industries that are now either not hiring or likely firing people. Thus, I think the job situation is BAD.
Second, I think income growth will likely be much of the same as what we have seen in the past 5 yrs - aka flat to down. The minimum wage growth (14% yoy) should provide some help but if food prices / energy prices / healthcare prices increase at similar rates it won't make a damn difference.
Third, I think rising prices will continue to pressure import prices & slow growth given that consumers are now the least able to accept aggressive price increases when they are definitely coming. What will make it worse is that if rates continue to go down & foreigners look to de-couple from the dollar it will only put pressure on global prices when using dollars.
Thus, I feel US cyclical / discretionary / capital intense industries are not good places to be right now. What I like is Japanese Yen or Japanese Stocks, Swiss Francs, Gold/Silver, Cotton, LIVE CATTLE quite a bit actually, Sugar, US Prison Stocks, US pawn shops, Big Brother stocks (Verachip / Applied Digital / Cogent), and high dividend paying stocks in defensive industries ( i.e. Theaters / Regis hair salon).
THATS ALL I HAVE FOR NOW BROTHER>
posted by Not Sure if Al Gore or Global Warming is a Bigger Joke at
10:51 PM
2 Comments:
I have been long CXW in a major way over the last year. Just doubled down during the credit crunch, in fact.
Nice post silver. Thanks for the insights.
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