Premium Archives

If you have not yet read Part I, available free to all readers, please click here to read it first.

Part II: Prepare for the Collapse of the Dollar

The just-released GDP report, which wraps up the 2011 performance of the US economy, made for unhappy reading.

While the headline number was stronger in the fourth quarter, after adjusting for inflation, the reading for the entire year came in at 1.7%. As Business Insider’s Joe Weisenthal put it, that is the “final, pathetic growth number for 2011.”

Many writers over the past year, including me, have hammered away at the idea that the performance of the US economy in real terms was statistically indistinguishable from a flatline in the aggregate.

No one disputes that some sectors of the economy, like exports and shipping, are growing. At issue is whether the economy as a whole is operating for the majority and not just segments of the populace. (Again, in real terms.) At a growth rate of 1.7%, we can at least conclude that no meaningful headway can be made in employment. Since the 2008 crisis, the US has been building a multi-million sub-population of people who are unemployed long-term. Only monthly job growth that first utilizes all new workers coming into the labor force will be able to eventually cut into this labor pool. Hence the revelations from the Federal Reserve this week related to targeting inflation, maintaining a zero-interest rate policy through late 2014, and conducting further quantitative easing (QE).

Before we dissect this week’s Fed meeting, let’s take a look at the recent trend in exports.

If you have not yet read Part I, available free to all readers, please click here to read it first.

Part II: Determining the Housing Bottom for Your Local Market

In Part I, we examined how the policies of the federal housing agencies and Federal Reserve have fundamentally socialized the US mortgage markets and are propping up housing sales and valuations via zero-interest rate policy (ZIRP), housing subsidies, and various loan guarantees.

Along with the structural factors outlined in my December series, Headwinds for Housing, this is the backdrop for our individual assessments of is this the bottom in my local real estate market?

Why This Time May Indeed Be Different

Before we look at some tools that will help us make that assessment, I want to stipulate that this overview is aimed at small-time investors, not institutional players, and that it may first strike experienced real estate investors as too basic. However, we must be alert to the possibility that this real estate market, so dependent on Central State intervention, ownership and policy, is qualitatively different from previous eras. And so the lessons of previous markets could be misleading, akin to “fighting the last war.” Thus we would be wise to start with the most basic tools as a foundation for further investigation.

If you have not yet read Part I, available free to all readers, please click here to read it first.

Part II: Hard Times Ahead for Assets

Are commodities topping out? Since we know commodities are physically limited in supply even while demand continues to rise, common sense suggests that commodities will outperform over the long term for as long as industrial civilization continues its consumption of those commodities.

However, it is also clear that the global economy is either slowing or entering an actual recessionary contraction. Thus it behooves us as investors to ask what that contraction of demand might do to the prices of commodities over the near term (i.e., the next 24 months, 2012-2013.)

In Part I, we examined the connection between stock markets and demand for commodities as reflected by the chart of the Reuters/Jefferies CRB Index, the commonly used bellwether for the commodities market. We determined that if the stock markets of China and India are indeed leading indicators of demand for commodities, then the market for commodities will likely weaken.

We also found that margin debt seems to be far more closely correlated to the US stock market than demand for commodities as reflected by the CRB, meaning the US stock market may not be an accurate leading indicator of commodity demand or pricing pressure.

In Part II, we examine a key technical correlation that has withstood the test of time, that of copper and the stock market, and explore a potential key dynamic which may exert outsized influence on the demand and pricing of commodities over the next few years.

As a side benefit, our examination of the commodities may also shed light on the direction of the stock market — another key interest for many investors.

If you have not yet read Part I, available free to all readers, please click here to read it first.

Part II: Get Ready for Worldwide Currency Devaluation

Derivatives

You’d think that after AIG blew up spectacularly and Lehman choked on a hairball of tangled derivatives (one that is still being picked apart), the lesson would have been learned and derivatives reduced in both size and complexity.

Unfortunately, that lesson was not learned, and we have to square up to the fact that derivatives are now roughly $100 trillion larger in aggregate than they were in 2009: