Quote from Swan Noir:
The reason they flooded the world's economies with monopoly money was their fear of deflation.
If they still fear it (and I believe they do) aren't they likely to keep rates low through much or all of 2010?
And, even more importantly, the bet to make right now is that the incredible amount of liquidity in the system is likely to drive commodity prices up.
We need to trade the facts "now" ... not the "maybes to come".
I agree with "Mr. Noir" on this -- particularly Noir's first paragraph.. When you're in debt to other nations deflation can not be tolerated.
Actually I started loading up on commodities months ago when they were in the basement and no one wanted them. But I'm still adding.
Yes, the dollar might recover some, but the long run picture is for a weak dollar even with rates being raised some. In any case we have at least a year of rising commodity prices, as 2010 will see a worsening economy in the US because the 2009 tax returns in April 2010 will be down severely compared to the April 2009 returns.. This will be really rough for State budgets (except for North Dakota!).
An important factor preventing the dollar from strengthening much, not often talked about, is the need to monetize the debt. There is no intention of paying on the US debt using dollars that have anything like the purchasing power of the dollars borrowed. So the Fed will have to walk a tightrope between interest rates high enough to attract bond buyers and low enough to service the debt with inflated dollars.
The only way the US could truly get its financial house in order without significant inflation would be to drastically cut military and health care expenditures while increasing tax revenues, and we all know that is not going to happen. Not until the last Republican is dead and buried.
On another note, here is a best estimate of what's coming in health insurance stocks -- and it is not what you think. If the public option is not part of the bill, then the health bill will be, contrary to media and general public expectations, a goldmine for health insurers.
In the Bill right now, without the public option, there are only ineffective means of controlling premiums. What the Bill says so far is that essentially everyone will have to be covered by insurance -- this will expand the insurance market significantly. In addition the Bill calls for insurance companies not being able to charge more for pre-existing conditions. However it cleverly does not say that insurers can not raise rates for all policy holders! This Bill, without the public option, is a license to print money. Another diabolically concealed handout to the Health Insurance industry. (So what's new?)
It all depends on whether the public option is included. Without that there will be no meaningful check on insurance premiums, and we will all experience higher premiums in excess to what we would have seen otherwise. The justification being mandated coverage of high risk individuals.
At the moment it looks like a bill will pass but the public option will be killed.
Here is how one might anticipate Goldman will play their hand. As you have probably noticed, the Health Care Sector has, in general, participated only to a negligible extent in the market recovery. The reason is obvious, but the obvious in this case is wrong. Goldman knows exactly what will happen, as they are counting votes the same as the insurers. They are either shorting insurers as I write this, or will be, or have already. Then when the Bill passes we will get a conviction sell from Goldman, with or without the public option. Assuming the public option isn't there, Goldman will be among the first to realize that the Bill is actually a goldmine for insurers, and after covering their short position they will go long and squeeze the shorts. Once the gee whiz-- it wasn't that bad for insurers after all-- earnings start to materialize sometime down the road, and health insurer stocks have risen about as far as they can be expected to on their own, Goldman's analysts will cleverly issue a conviction buy. Then Goldman's traders-- operating totally independent of the analysts, of course, because collusion would be illegal
-- will sell their already profitable long positions into an onslaught of eager buyers, i.e., pigeons.
Whether or not a miracle transpires, and the public option survives, a great deal can be made covering at low prices after the bill passes and Goldman issues their conviction sell. (I have not followed Goldman's recommendations that closely, so if they have already issued their conviction sell it only means they went short when it was certain that Obama would be elected and there would be a democrat landslide. In that case, the timing of events will be different then what I have outlined above.)
