Negative "Positive Feedback Loop" of Employment and Housing

[EJ]

the arms adjust to short rates [not the shortest, but short]. so the boys in the yen trade get warnings and joe sixpack is told to finance with an arm?

yep

i have heard of forced conversions of short bonds into longer ones. but i wonder if that could happen today without making things even worse. we have huge edifices of hedges built on the price of the tbond - i don't see how they pull that kind of move in bonds without nationalizing fannie, freddie and just about every big investment and commercial bank. otherwise all those institutions go broke when the bond price discontinuously and drastically resets. doesn't seem likely.

Takes a certain amount of imagination to guess at what they're likely to do, but not too much imagination.

I honestly don't know, and neither does anyone else. All we can do is list possibilties, assign probabilities, place our bets and pray. As usual, proper diversification and a willingness to move quickly out of one position and into another when a trend change is in the offing are key. As long as we keep the quality of dialogue we have going on here at iTulip through this period, I don't see why we have much to worry about. We'll know.

[jk]

i have to agree and congratulate you, eric, on the quality of the dialogue here. i've been impressed again and again, with the new and knowledgable people contributing.

[Charles Mackay]

Quote:

Originally Posted by Spartacus
What do you make of Prechter's contention that in the great depression the only reason Gold and Silver held their price levels was because of government intervention?

Initially both Gold and Silver prices fell, until the US Federal Government put price floors on them.

Prechter also said that after the initial deflation (NOW) that gold will be the ONLY asset to own. I'm not a Prechter fan but I've looked around and don't see anything else. Remember that a great percentage of stocks will go to zero, many if not most bonds, munis, mortgage backed securites, money market funds, etc. go to zero, banks fail and your checking account goes to zero. Who ya gonna call? Gold. It's hard to transport a million dollars in corn or soybeans when you're flleeing to Canada or Australia.

[jk]

Prechter also said that after the initial deflation (NOW)

ka

that gold will be the ONLY asset to own.

poom

[hayfield]

ka

Does that make PM a buy now, because they do the least worst in a deflationary environment?

poom

Or after the ka, because deflated dollars buy more at the turning point? And in the mean time load up on T-Notes while interest rates plummet?

Seems an impossible feat to get the timing right.

[jk]

i think there are too many variable to be able to choose a "best" investment, and that the best we can do is to choose investments compatible with what we think are the several most likely scenarios. in a truly deflationary environment your best investment is long-dated zero coupon tbonds. but as ej has pointed out, the government could in theory play with maturities of already issued securities and thus severely impact that investment. maybe gold holds its value even in the face of deflation because so many of us expect the reflex reaction to produce inflation. maybe gold and bonds both tank and we want to hold cash. does the dollar rise in a flight to traditional safety, so we hold our cash in dollars? or does the dollar tank in anticipation of the inflation to come, and our cash should be in other currencies? in long bonds in other currencies?

so, for myself anyway, i have a variety of investments that will perform well in a variety of environments, and i have my fingers crossed that i've structured them in a way that my gains will outweigh my losses, come what may. we'll see.