Let's Get With The Program Already

Submitted by Bo Peng
Let's Get With The Program Already
Bernanke's 60 Minutes appearance was an unmitigated disaster. Two major failure points, namely "QE is not printing money" and 100% cock-sure-ness, have become an instant butt of jokes. Just because we don't have an economics PhD from a decent department, doesn't mean he should treat us as idiots. Yes, QE doesn't expand the M1 monetary base. But after credit is included, it is expansionary, and this is exactly what he was hoping for. It was embarrassing to watch the Fed chairman talking like a disingenuous, idiotic politician.

So, Fed wants inflation, and inflation is what they'll get. 30-yr treasuries yield has shot up since the announcement of QE2, meaning mortgage rates will go up soon. Coupled with the glut of supply and timid demand in housing, we can all thank the Fed for a prolonged housing dip. Yes, the treasury curve has flattened a bit in the last few days, but the bad news is it's by 10-yr yield going up, not 30-yr going down. Oops. Did somebody just say 100% sure about something?

And, the tax-cut deal without any cuts in spending. What a wonderful win-win world we live in. $1T more deficit in two years just like that. Well guess what, I doubt our children will have to pay for it, because it won't drag out that long. We'll have to pay for it. If you save, you'll be damned because inflation will destroy your savings; if you don't save, you'll be damned because there won't be any meaningful pension or social security when you retire (well, unless you're a government employee of course). And you can't move to Canada because the dollar will be worth 2 Canadian quarters.

But there's a bright side. Europe is fine, as I've said here repeatedly in the last few weeks. EMU will fall apart when Spain gets to the headline in late 2011 or early 2012. But until then, life goes on. EUR will recover. USD may or may not go down in the short-term. But gold will no doubt go up.

I'm not so sure about silver. It's gone up a LOT. But no, silver is not the new gold. It has too much intrinsic value, unlike gold, therefore not a good hedge against the collapse of fiat currency system, unlike gold. It'd be silly for central banks to stockpile silver, which would be like stockpiling titanium. But the trend of central bank hoarding gold is set, and still in its early stage.

So the trade is simple, long gold and short Netflix.

I continue to think western punditry pays too much attention to China, both on the upside and the downside. Beijing is desperately trying to engineer a soft landing. Growth will slow down, and housing will cool down. The only question is how fast and by how much. But Beijing has become quite an expert in soft landing over the past 20 years or so. Just as they ordered shops to run deep discount in late 08 early 09 to stimulate demand, they can now just order price freezes. Who needs the convoluted crap like interest rates and bank reserve ratios? I'm not saying this is good or bad, just sayin. The western world has been wrong on China on many many fronts since forever, and there's no sign of any improvement any time soon.

And, no, there won't be social collapse or revolution in China. Not yet.

But even if there were, long gold and short Netflix won't hurt, either.