-- Posted Wednesday, 16 May 2007 | Digg This Article
| Source: GoldSeek.com
Rick’s Picks
Wednesday, May 16, 2007
“Phenomenally accurate forecasts”
When I last saw my old buddy Zane Binder, Knight-Ridder was syndicating his car reviews, he was driving a $90,000 BMW loaner, and he had just starting to dabble in put and call options. Lo, he’s become not merely an armchair expert, but a veritable put-and-call whiz, employing money-making strategies that most stockbrokers would never think of, let alone try. (Check out his interesting – and easy -- trading tip in the final paragraph!)
Zane and I were cub reporters together at the Atlantic City Press in the early 1970s, where we developed our instincts for a good story and honed our prose under the tutelage of some hard-nosed reporters and editors who even then were a dying breed. Zane briefly achieved notoriety when he broke an A-wire story about Russian spy ships disguised as fishing trawlers plying the waters off South Jersey. Walter Cronkite and a few other heavies picked up on it, but not The New York Times. Turns out they actually were fishing trawlers, albeit outfitted with some pretty sophisticated fish-finding gear.
In his most recent letter to me, Zane bounces some ideas off themes that will be familiar to Rick’s Picks readers. My deflation shtick (as iTulip founder Eric Janszen charmingly refers to it) is not exactly Zane’s number one concern, since, everywhere we look, it would seem, prices are going up rather than down. In a word, inflation. But my contention is that all of these relatively niggling price increases will be looked on with with nostalgia someday, after the credit bubble that has pushed costs higher begins to implode.
Capitalism Begets Inflation
Anyway, here’s Zane, very lightly edited, with some breezy counterpoint:
“I know you're sick of the inflation/deflation thing but I think you must consider The War. There are just two ways to fund it or anything else: through taxes, or borrowing. So far, if you read the Treasury news releases, they say they're retiring debt and, somewhere at the bottom, mention in passing they're issuing notes, etc. to pay for the ‘retirement.’ I'm sure you're familiar, too, with the ‘off-budget’ government debt: Fannie/Sallie Mae (yes, I know their quasi-public status), etc.
“A basic tenet of capitalism is creeping inflation. That's why a 30-year mortgage taken out in '70, for example, is usually so much easier to pay off in 2000 as salaries rise regardless of increased/decreased productivity. Capitalistic governments choose to accept this. (It's a basic flaw in capitalism).
“Basic question: Is inflation a rise in prices or a decline in the value of money? The correct answer is both. One cannot look to '29 as refutation. First, in 1930, there was an almost perfect 61.8% Fibonacci retracement, and those who didn't panic and sell did relatively well. It was the ‘bank holiday’ in 1933 (it had started sporadically in 1929) during which banks simply closed and took your money (there was no FDIC/SIPC).
That's what really caused the Depression.
Been to France Lately?
“Another point: When Nixon took the U.S. off the gold/silver standard (we were effectively off it anyway), it was a signal that government could ‘borrow’ as much as it wanted without constraint. Today, with a civil war raging in Iraq the government has chosen to borrow rather than raise taxes other than incrementally. They're cheapening the dollar (having just been to France, I can tell you it's nearly worthless against the Euro), and international financers know this. Yes, I am aware cheap dollars make exporters more competitive -- but the situation is spinning out of control.
“You are correct about housing. Out here in the 'burbs of LA the cheapest, smallest house you can imagine is selling for $400,000-plus, down about 20 percent. Even in Watts the prices are the same. A friend of mine refinanced his $750,000 house and spent the money (driving the inflation engine) on redecorating. The house is now worth $450,000.
“Though I have nowhere near the economic background you have I can say this: Every time I go to the supermarket prices are higher, every time I buy anything the prices are higher. And yes, I am aware of the government's so-called "Inflation Index." It's BS.
SUV Sales
“Next, though sales of SUVs, crossovers -- or whatever the flacks at the auto firms call them -- have dropped they're still selling between 70 and 85 percent of their peak sales (lately pick-up, however, have gone into the dumpster, a hopeful sign). The point at which the ‘big switch’ back to cars will really commence is $5.50-plus. No evidence for this price, just gut feeling.
“The stock market is at ridiculous heights and eventually it'll return to ‘normal pricing.’ Remember, in bull markets P/E ratios rise, in bear markets they contract. The bear market you're predicting isn't far away.
“A suggestion: Devote some of your newsletter to stocks that will do well in bear markets and/or ‘dividend’ investing. Buy a decent stock with a good dividend just before the ‘ex’ date, then sell a deep-in-the-money call against it. When and if it's called away, you've made money. If it isn't, sell options again. Works almost every time.”
***
Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary. All Contents © 2006, Rick Ackerman. All Rights Reserved. www.rickackerman.com
-- Posted Wednesday, 16 May 2007 | Digg This Article | Source: GoldSeek.com
