Podcast: Eric Janszen on Financial Sense: The Big Picture 2007

[FRED]

Click on the link below to hear the podcast.

Financial Sense: The Big Picture 2007 (mp3) (http://www.netcastdaily.com/broadcast/fsn2007-0106-2b.mp3)
Financial Sense: The Big Picture 2007 (Windows Media) (http://www.netcastdaily.com/broadcast/fsn2007-0106-2b.asx)
Financial Sense: The Big Picture 2007 (WinAmp) (http://www.netcastdaily.com/broadcast/fsn2007-0106-2b.m3u)
Financial Sense: The Big Picture 2007 (RealPlayer) (http://www.netcastdaily.com/broadcast/fsn2007-0106-2b.ram)

[Jim Nickerson]

Financial Sense: The Big Picture 2007 (http://www.netcastdaily.com/broadcast/fsn2007-0106-2b.mp3)

nothing happens when I click the link.

[Jim Nickerson]

CASH may not be TRASH, so says EJ. 1/6/07.

Gross, Pimco, thinks rates will drop by 12/2007. Fed funds 4.25%, with 5 and 10 year yields hovering at perhaps 25 basis points higher. http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2007/IO+Janaury+2007.htm


I believe EJ sees it differently.

[jk]

you recommend cash, ej. u.s dollar-type cash? euro cash? pound cash?

[EJ]

you recommend cash, ej. u.s dollar-type cash? euro cash? pound cash?

Not to be a wiseguy, but the answer is "yes." In 2000 it was easy to make the decision to move to 10 year treasuries and to ride out the "Ka" until mid 2001, but this time dollar risk must also be hedged. Let's put together a basket of bonds, shall we? Nor am I as comfortable with 5 year duration this time around as last, as the risk that rates might spike unexpectedly in the following 5 years are higher now than in 2000. Maybe give up some gains if rates fall to 4.25% in 2007 but if they spike in 2008, we'll be glad we're holding a 2 year duration. Probably a ladder of 6 month, 1 year, and 2 year bills and notes. What's "cash" to you?

[metalman]

Not to be a wiseguy, but the answer is "yes." In 2000 it was easy to make the decision to move to 10 year treasuries and to ride out the "Ka" until mid 2001, but this time dollar risk must also be hedged. Let's put together a basket of bonds, shall we? Nor am I as comfortable with 5 year duration this time around as last, as the risk that rates might spike unexpectedly in the following 5 years are higher now than in 2000. Maybe give up some gains if rates fall to 4.25% in 2007 but if they spike in 2008, we'll be glad we're holding a 2 year duration. Probably a ladder of 6 month, 1 year, and 2 year bills and notes. What's "cash" to you?

so, er, is gold "cash" too?

[Jim Nickerson]

What's "cash" to you?

Since Finster joined iTulip, I would say after him, cash is zero-maturity bonds in the currency of the realm. How about that!!

[EJ]

so, er, is gold "cash" too?
metalman... Gold is money but it ain't cash until you can slip gold coins into a gasoline vending machine at the local gas station. A sovereign to fill 'er up?

Jim... Greenspan said years ago the Fed watched Money at Zero Maturity not M3 as the measure of the money supply. It's looking healthy now. And I bet the Fed is sure they can keep it that way...

http://www.itulip.com/images/mzm2000-2007.gif

...as they have since 1980...

http://www.itulip.com/images/mzm1980-2007.gif

So, has the economy grown 7x since 1980? 30% since 2001? If not, maybe some inflation waiting in the wings?

[metalman]

metalman... Gold is money but it ain't cash until you can slip gold coins into a gasoline vending machine at the local gas station. A sovereign to fill 'er up?

yes, if the bonars are not a function of the gold at the central bank, they ain't cash.

[akrowne]

Jim... Greenspan said years ago the Fed watched Money at Zero Maturity not M3 as the measure of the money supply. It's looking healthy now. And I bet the Fed is sure they can keep it that way...


While the Fed may be watching it (and I'm glad they're not just watching M1), I think it is still artificially narrow. This is because "higher" credit instruments with non-zero maturity can also be used as "money" or at least spur consumption. I believe MZM wouldn't include consumer credit or HELOC, bonds and MBS, various securities being used as trading collateral, etc. Even derivatives are "money-like" in that the presence of derivatives spurs further speculative behavior.

I wonder if, in actively staving off deflation, if the Fed will simply neglect these higher forms of credit in favor of keeping MZM (which doesn't go higher than the M2 level) relatively constant. Hmmm....

[akrowne]

Is it just me or was the scariest thing Eric uttered that the Fed needs a "sudden event" as an "excuse" to inject liquidity (housing decline too gradual)?

Been a long time since we had a terrorist attack, huh?

You know what they've got waiting in the wings now... formally axing the reserve requirement!

Would it really help?

[General Cole]

Eric,

In your book "America Bubble Economy", you recommend Gold as one of the major investment in this bubble period. Now, it's not gold, it's cash? Why the sudden change in perspective?

[EJ]

Eric,

In your book "America Bubble Economy", you recommend Gold as one of the major investment in this bubble period. Now, it's not gold, it's cash? Why the sudden change in perspective?

Cash short term, gold long term. See No Deflation! Disinflation then Lots of Inflation. (http://itulip.com/forums/showthread.php?t=417)

How much of each you hold when through which periods of the disinflation/inflation Ka-Poom cycle depends on your risk tolerances. Check with your investment advisor.

[Spartacus]

listened to the whole thing 2 times - maybe Jim P's putting me to sleep each time, just before Eric comes on?

Who needs Ambien, anyway?

[medved]

you recommend cash, ej. u.s dollar-type cash? euro cash? pound cash?

Here is my "cash" : http://finance.yahoo.com/q/bc?s=PRPFX&t=5y

Gold .................................................. ... 20%
Silver .................................................. ... 5%
Swiss Franc Assets (bonds) ....................... 10%
U.S. and Foreign Real Estate and
Natural Resource Stocks ............................ 15%
Aggressive Growth Stocks .......................... 15%
U.S. Treasury Bills, Bonds
and Other Dollar Assets ............................... 35%

They rebalance this mix through the year to keep the same ratios.

Note the steady performance through the recent Ka-Poom cycle starting from the year 2000. This fund consistently beats all the other funds in the same category, at least, over the last 5 years: http://biz.yahoo.com/p/tops/ca.html

m.

[Jim Nickerson]

Here is my "cash" : http://finance.yahoo.com/q/bc?s=PRPFX&t=5y

Gold .................................................. ... 20%
Silver .................................................. ... 5%
Swiss Franc Assets (bonds) ....................... 10%
U.S. and Foreign Real Estate and
Natural Resource Stocks ............................ 15%
Aggressive Growth Stocks .......................... 15%
U.S. Treasury Bills, Bonds
and Other Dollar Assets ............................... 35%

They rebalance this mix through the year to keep the same ratios.

Note the steady performance through the recent Ka-Poom cycle starting from the year 2000. This fund consistently beats all the other funds in the same category, at least, over the last 5 years: http://biz.yahoo.com/p/tops/ca.html

m.

medved,

I looked at schwab for data on this fund, and for 10yrs, the annual gain was over 8.75%, Nothing wrong with that from my perspective in that I just figured my 10-year compounded gain and it was 1.5%. However in looking at a 10-year chart, if the data are correct, the fund did not do that well during the run-up from 1997-2000 (and had I owned it then I would have been sorely disappointed to have been missing out on all the "fun" of riding a bubble up). Schwab's rating system, which may be the same as Morningstar, rates the fund as a "high risk" fund. Whether that is correct or not, I can't argue, but if it is correct, then I would question whether or not the fund could be correctly considered as "cash." right now.

[medved]

medved,

I looked at schwab for data on this fund, and for 10yrs, the annual gain was over 8.75%, Nothing wrong with that from my perspective in that I just figured my 10-year compounded gain and it was 1.5%. However in looking at a 10-year chart, if the data are correct, the fund did not do that well during the run-up from 1997-2000 .

Absolutely, but neither did the "real" cash.

Schwab's rating system, which may be the same as Morningstar, rates the fund as a "high risk" fund. Whether that is correct or not, I can't argue,

I can, and it is wrong. I doubt, Schwab and Morningstar take into account the currency risk, and it is the currency risk that affects any cash.

but if it is correct, then I would question whether or not the fund could be correctly considered as "cash." right now.

Short-term this fund is more volatile, than cash (again, disregarding the currency risk). Medium-term and long-term it is very safe, safer than dollar cash. Returning to the question of what to do right now, and assuming we expect another Ka part of Ka-Poom, it is very likely to behave the same way it behaved in 2000-2003.

m.

[Jim Nickerson]

medved,

It will be interesting to watch.