Harry Schultz , Editor
International Harry Schultz Letter
The Big Picture
HSL 639 March 28, 2004
[Blockierte Grafik: http://www.financialsense.com/Experts/HSL/images/HSLBigPic.gif]
The Big Picture
Dear Reader, Before we get into big-time money talk, let’s lighten up, in this world of so much sadness & fear & look at the World Oscar Awards, held in Hollywood, Outer Slobovia. J •Best Wardrobe Malfunction Award to Janet Jackson in “Making a Clean Breast of It.” •The Humpty Dumpty/Lewis Carroll fiction Oscar for “most meaning-free declarations on WMD-related program activities” was shared by a Mr.T.Blur & a Mr. G.Bushy. This award was previously won by a Mr.B. Clintony relating to use of the verbs be & is & adverb impenetrability, in filmed testimony. •Donaldo Rumsfeld won the good-humor-man award for his last year press remark: “Needless to say, the president is correct, whatever it was he said.” •Best scream play: French Fries Forbidden! •A Mr. Alan Greenspanner won the Smoke & Mirrors award for promising an apple pie in every kitchen & delivering steamed cabbage with garlic. •HSL won the best Big Picture Oscar again, plus a purplish heart for Battles Fought & Not Won. Also known as the A-for-Effort cluster, in the David vs Goliath category •More seriously, I wonder if the Lord of the Rings film won so big because it endlessly-repeated good triumphing over endlessly-repeated evil; a subconscious, desperately wanted outcome to many world problems, especially violence & war.
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Get this irony! A couple of analysts I respect, say the US economic future is, in one word: Japan. By that they mean Japan‘s lengthy economic fall from topdog (remember Japan Inc?), including stock mkt & property crashes, currency flop & deflation (cum depression), which has lasted for over a decade. The irony is that many quality analysts see Japan now as their first choice for stocks, select property, a solid currency, an economic resurgence & an end to its deflation. GNP up 7% in 4th qtr. Jan trade surplus up 500% on yr ago. Talk about ironic. Opposite ends of the see-saw. If there is some moderate degree of merit to this scenario, the prime fault on the US side of the equation is spelled: Greenspan. A spanner in US works.
He has done almost everything mischievously wrong, yr after yr, behind a mask of “for your own good” & spoken in a language everyone admits not to understand—but assumes it must be OK. The more obscure the vocabulary, the more profound it was presumed to be, like Egyptian hieroglyphics.
Even the lapdog media refer to Fedspeak & Greenspeak. He got away with it thanks to insider control of the media which treats him as royalty speaking a foreign tongue, & thanks even more to appalling public ignorance of monetary systems. On the Japanese side, their govt continued to do everything wrong (to protect the banks & insiders--& in fear of losing face[/B]---> "und Gesicht verlieren in Asien ist das schlimmste was passieren kann - ähnlich wie in der westlichen Welt mit "Fehler", die niemanden passieren dürfen, sonst "tod durch die Medien"...) year after year [B]until they ran out of their mistakes supply & the pendulum had no place else to swing except in the other direction.
I said last time we’re stumbling toward something (in late ’04) between recession & eventual depression. “Japan” is one way to say it. Another is stagflation, a word I coined many yrs ago, which is probably the most accurate name for the condition we’re entering: Price inflation in most of the things we need, & deflation in the things we want. We need healthcare, insurance, education, fuel, all leaping in double-digit price inflation. Houses too. But clothes, gadgets, electronics—things we want but don’t really need—keep falling in price [und hält die Wirtschaft ääh, besser gesagt: KonusmJUNKIE-"Wirtschaft" am künstlichen Tropf, will keiner den Stecker ziehen??? NEIN! somit wird das "LEIDEN" verlängert!!! aber der "Tod" ist unumgänglich. und das wissen die "Goldbugs"...]. Things China makes. Wages are falling, relative to prices. Factories close by the thousands, jobs in 1st world disappear, bankruptcies continue at record levels—all these are deflation & stagnation. On balance, stagflation helps the few, hurts the many (of course, the smart can prosper in any climate, especially via trading & via charts).
Which investments will do well?
It’s not crystal-ball-clear, but IMO: Low cost housing, gold, gas, oil, banks (growl), finance co’s, some (not all) commodities, Japanese small caps, very shorterm bonds & most multi-nationals. I lost the guarantee certificate that came with the above. [ich hab sie auch schon mal zu Gesicht bekommen, hatte aber keinen Kopierer oder DigiCam dabei 
]
Note: the greatest danger is that deflation will overwhelm the system. This must be watched carefully for early signs, eg, the bond mkt—which is looking suspiciously bullish, &, if continued, would be deflation’s vanguard. From deflation to depression is a short unstoppable step. Strong overall inflation is a smaller risk & not visible near-term. Fear of deflation is part of the motivation behind currency intervention being practiced today. Big inflation is hard to make happen nowadays with floating exchange rates, & govts know how to combat it … but they don’t know how to stop deflation. Default is its step-sister. Note: CPI’s are dropping like flies in many nations. EU: Feb 1.6% from 1.9. Forecast for 2005: 1.5%. Same in US, UK, etc. Funny almost nobody mentions deflation or disinflation. Govts want inflation--to bail them out of debt, but counter forces are making it hard for them.
I lived in China for only a year or so but maybe enough to savvy some of their way of thinking re money rates (I traded their money mkt at the time). IMO, if China wants to accommodate the West & revise its currency by a fraction, they may do it when the current US$ rally (or the next one) has reached “too far” in their eyes (as they are tied to the $) & a revision will end the $-rally. Altering the $-peg will send the yuan up, but being still tied to the $, if less tightly, not as far up as the West would like. The Chinese thus would accommodate the West, but the result would leave them with virtually the same trade advantage they now have. Clever people the Chinese! It’s known as having your lichee nuts & eating them too. J
The most frightening & important monetary news has gotten zero media attention—due to press ignorance and/or press captivity: the US Treasury is able to sell less than half of all securities put up for auction! It’s what happens to banana republics, but the USA? When the public & other nations don’t want a country’s bonds, what U have is de facto Argentina. Economist Steve Roach asks: “How long before the US loses its credit rating abroad, particularly in nations that hold US debt paper. Will they switch to euro (or £ or Oz) bonds? The IMF is already warning the Bush admin about its “fiscal irresponsibility.” This news is so bad, people can’t or don’t wish to understand it. To prove the case & show that nothing changes: In 1787, John Adams wrote to Thomas Jefferson “All the confusion & distress in America arises, not from defects in the Constitution, not from want of honor or virtue, so much as down-right ignorance of the nature of coin, credit & circulation.” (the monetary system)
Here’s a quaint homespun observation by the Weber Report: “The last 18mos or so, have seen an extraordinary phenomenon. Pretty much all investments have been going up. Stocks of all kinds are clearly up. Govt bonds have been profitable over this time. Precious metals have done well. But so has real estate in most areas. Commodities of all kinds have had a good run. And the strong global currencies have been just great. Even though the US$ has fallen, for Americans who just hold $’s & live there, they haven’t noticed it much. So everything has been great & going up for 18mos or so. That’s not normal. In the investment world, as in the greater natural world, there is [oder besser: "SOLLTE sein"] a balance.
Does this mean everything will fall in the next year, just as all rose petals fall? Could be, & people are not at all prepared for this sour event. [weswegen es passieren wird!!!] Remember, this is still a (counter reaction within a grand cycle) bear mkt.”
Final notes: Words to be eaten later: Greenspan said on Feb 23: The amount of debt held by US consumers was at a comfortable level. Tower of Babel anyone? •••A major worry in US stk mkt: the DJ Transportation Index is still not confirming strength in the DJIA. This has always been a sign of the end of a DJIA uptrend. •••Job-outsourcing (now a dirty word) is causing huge anger & TV talk of boycotts. In a US election year this can push politicians to impose trade restrictions. There are already 30 bills in Congress to impose tariffs & penalties. Ron Paul says “There are different kinds of protectionism, eg, tariffs, competitive devaluations & the exchange rate—which is a reflection of monetary policy.” Thus the US is into protectionism large time. It always begets retaliation & “unforseen consequences.”
••To end on a comforting note:
U & I can survive anything if:
1. We see things coming;
2. We have charts to forewarn & then guide us.
3. We have diversification of our assets, both in types & locations.
Bonne chance to us all.
---> Wenn es jemanden gibt auf den ich "höre" und fast alles abnehme was er ablässt, dann ist es HARRY!!!
(alles blaue von mir)
