Bonds:John Williams

[don]

Re: Bonds:John Williams

Raja:

In your inflationary studies, what role does the Reserve Currency status of the dollar play?

[raja]

Re: Bonds:John Williams

The major flaw in the hyper-inflationary scenario in our all-fiat currency world is that the "common sense" overprinting consequences do not necessarily apply. All fiat currencies are relative to each other. That's where the Reserve Currency dollar status is crucial, backed by the US military. (That's one of the chief reasons the Saddam mixed currency basket for oil sales and the Gaddafi Pan-African gold-backed currency do not exist.)

The Fed/Treasury insane money printing does not mean the US dollar will weaken relative to all other currencies. More likely they will continue to weaken together, hence - Gloom & Doom.

As you say, the currencies will weaken together.
All governments will be affected by the global slowdown, and they will all print to "solve" their problems.
So relative to each other, there may not be significant loss of value in any particular currency, but relative to gold, commodities and real things, there will be inflation . . . big inflation . . . then hyperinflation.

So, I don't see any flaw in the theory in the "hyperinflationary scenario".

A reserve currency will only continue to be a reserve currency if it can store value. What's the good of governments holding it in reserve if it is losing significant value? When people and governments realize that dollars are not holding enough value, the dollar hegemony is over.

When the depreciation of the dollar reaches a certain level and rate -- and I cannot tell you when that will happen -- it will no longer be a reserve currency. Governments will then switch to gold or a basket of commodities. They will not switch to a basket of loser currencies . . . . .

[raja]

Re: Bonds:John Williams

If EJ marketed his site better, then perhaps I would have found it and saved a shit ton of money, yes. MM, please consider that a lot of us have not been saved by EJ (yet). He is your ultimate hero, I know. But, he has also made bad calls. God I wish I found this site 10 years ago!

Chances are there are others who saw the recession as well. They were equally drowned out by the media. You really want to bet a gold sovereign? the way back when machine has a lot of data.

IMO, there are only two significant things left to call . . . .

1. When will the world start dumping dollars in earnest?
   If you haven't moved your assets out of dollars by that point, you're not going to be very happy.
2. Where to put your assets when you move them out of dollars?

As I have said before on this forum, I don't see any truly safe investments at this time other than buying a self-sufficient farm relatively far from the big cities. There are several risks to gold, farmland, other agriculture, and these are some of the better choices. I wish I had the crystal ball to see the future . . . .

EJ made a great call on gold.
Now, he's worried about paying the 28% collectibles tax when it's time to cash in. Losing nearly a third of one's profits is not a pleasant prospect.
But what if that 28% becomes a 90% windfall profits tax during a time of global crisis, as Rickards predicts. Then, EJ's gold call would look a bit tarnished . . . .

[Milton Kuo]

Re: Bonds:John Williams

I recall it went something like this:

Calling a recession when the dot-com bubble burst wasn't hard. What was unforeseen was the radical response of the Fed with cheap money, which provided the ammo for FIRE to go ape shit with housing, MBS, derivatives, etc. I believe EJ missed that call, along with everybody else. One of his very few omissions.

EJ ended up calling a housing bubble (I think the title of the article was, "It's a housing bubble") in 2002. Prior to that (2000?), I seem to recall that he considered the possibility of a housing bubble to ameliorate the hangover of a tech-stock bubble crash but threw out the idea because he didn't believe the Federal Reserve would be so utterly reckless as to allow a housing bubble, which destroys banking systems.

I haven't found anyone who called, and backed up with real evidence, a nation-wide housing bubble earlier than iTulip.

[doom&gloom]

Re: Bonds:John Williams

IMO, there are only two significant things left to call . . . .

1. When will the world start dumping dollars in earnest?
   If you haven't moved your assets out of dollars by that point, you're not going to be very happy.
2. Where to put your assets when you move them out of dollars?

As I have said before on this forum, I don't see any truly safe investments at this time other than buying a self-sufficient farm relatively far from the big cities. There are several risks to gold, farmland, other agriculture, and these are some of the better choices. I wish I had the crystal ball to see the future . . . .

EJ made a great call on gold.
Now, he's worried about paying the 28% collectibles tax when it's time to cash in. Losing nearly a third of one's profits is not a pleasant prospect.
But what if that 28% becomes a 90% windfall profits tax during a time of global crisis, as Rickards predicts. Then, EJ's gold call would look a bit tarnished . . . .

I too look around the world and wonder what to own besides metals and farmland. Cash is good until it is not. Bonds have been stellar way longer than I ever imagined, and I was not on that train due to ignorance of how long and how much we could get away with printing. Shale oil may well become the 'game changer' in US energy markets, but a little hard to play. Several have now called a bottom on housing. (who knows?) I question that call if interest rates move up, and the selfish part of me says 'please no' for 3 more years till I sell my house and move to sunnier climate.

OTOH, Roubini has just made the call 2103 could be the start of something new (and bad), which tends to run with EJ;s calls, Faber, Rogers and some others. Jeff Gundlach believes by 2014 everything goes into the shytter again (to some extent).

see: http://www.zerohedge.com/news/2012-1...h-through-2013

What a series of serial messes the Fed has made, and the bigger they get each and every time.

[raja]

Re: Bonds:John Williams

I too look around the world and wonder what to own besides metals and farmland. Cash is good until it is not. Bonds have been stellar way longer than I ever imagined, and I was not on that train due to ignorance of how long and how much we could get away with printing. Shale oil may well become the 'game changer' in US energy markets, but a little hard to play. Several have now called a bottom on housing. (who knows?) I question that call if interest rates move up, and the selfish part of me says 'please no' for 3 more years till I sell my house and move to sunnier climate.

OTOH, Roubini has just made the call 2103 could be the start of something new (and bad), which tends to run with EJ;s calls, Faber, Rogers and some others. Jeff Gundlach believes by 2014 everything goes into the shytter again (to some extent).

see: http://www.zerohedge.com/news/2012-1...h-through-2013

I'm firmly (for now) in the hyperinflation camp . . . so am looking to put my dollars into something "real" before they turn to dust.

I'm thinking of more rental property, although one has to get Zen to survive the antics of the renters. It's got its risks, but at least there's a chance of providing income that over the long haul will rise with inflation . . . and if you never sell the property, you never get hit with inflation tax on the profit.

I don't think we're at the bottom of housing.
If one looks at housing alone, yes, that may be the case. But in a hyperinflation context, lots of people will end up being forced to sell, and higher interest rates will also hurt mortgage accessibility. On the other hand, if the dollar goes down it will take more of them to buy stuff, so maybe it's better to purchase now? Don't know what to do . . . .

[aaron]

Re: Bonds:John Williams

I feel you. I am looking to buy now. Money will not get cheaper to borrow (and if you are a hyperinflationist, then borrow as much as you can at fixed rate!) by much. And, if by some chance it does, you can refinance. However, I am looking for a home for my family, not an investment.

I have rented for several years now. I would never want to be a landlord, unless the house was new and well-built. These old houses seem to have problems monthly. There is no way that there is a profit in renting this to us except the government deductions. I would not count on those lasting forever. I did rent one of my houses out previously to a family. It was a relatively new house. There was only a microwave to replace and a leak in the roof which the builder insurance took care of. Do not underestimate the amount of money to maintain an older house.

The fiscal cliff may give you some good opportunities this spring. At least, that is my hope.

[doom&gloom]

Re: Bonds:John Williams

I'm firmly (for now) in the hyperinflation camp . . . so am looking to put my dollars into something "real" before they turn to dust.

I'm thinking of more rental property, although one has to get Zen to survive the antics of the renters. It's got its risks, but at least there's a chance of providing income that over the long haul will rise with inflation . . . and if you never sell the property, you never get hit with inflation tax on the profit.

I don't think we're at the bottom of housing.
If one looks at housing alone, yes, that may be the case. But in a hyperinflation context, lots of people will end up being forced to sell, and higher interest rates will also hurt mortgage accessibility. On the other hand, if the dollar goes down it will take more of them to buy stuff, so maybe it's better to purchase now? Don't know what to do . . . .

Personally never had an attraction to rentals due to the whole tenant hassles thing. I seriously ocnsidered buy a bunch of them when everything crashed out and turning them over to a professional management company, but as a hands on kind of guy, it would bother me that their performance would never measure up to what I would expect.

[raja]

Re: Bonds:John Williams

Personally never had an attraction to rentals due to the whole tenant hassles thing. I seriously ocnsidered buy a bunch of them when everything crashed out and turning them over to a professional management company, but as a hands on kind of guy, it would bother me that their performance would never measure up to what I would expect.

Hence my comment, one has to "get Zen to survive the antics of the renters".
Really, it's a question of mind over mind, and aligning expectations with reality.

From my perspective, renters provide unending entertainment. It's like good movie . . . if bad things never happened, you'd fall asleep in the theatre. Also, recounting tales of the idiocy and dysfunction of renters makes for great conversation with friends. Normally I don't have contact with those further down on the intelligence/income scale, and it's fascinating to observe their way of thinking and acting. An education about the world, really. At least as entertaining are reading Matt Taibbi on the antics of sociopathic Banksters . . . .

The biggest challenge is when a renter runs into money trouble through no fault of their own. Then, you have to decide if you're going to help them out by letting them get behind, or kick them out immediately before they run up a big bill and end up leaving anyway. One thing I'm doing now is only renting to people who say they have adequate resources to handle temporary financial difficulty. I make them put that in writing. Then, if I have to evict, I won't be putting them out on the street . . . if they've told the truth.

The rental game is like playing chess.
There are the rules, and it's a battle of the tenants against the landlords -- landlords mostly happy just to get the rent, while renters expect the landlords to be a loan service whenever they fall behind.
One of my latest strategies is to change all my rentals over to weekly instead of monthly, which allows me to give a 15-day vs. 30-day Notice To Vacate. If a renter is one day late, I send the Notice. If they then pay, fine. If not, they're out within the month . . . and I always collect a 1-month security deposit in advance.

The thing I like about the rental business is you don't have to do much. What's the good of being in the rentier class if you have to work your ass off? Of course, what the renters don't want to think about is that you had to work your ass off to earn the money to buy the properties where they are now living.

I do all my own repairs, except central AC-Heat units, which require special tools.
Repairs really don't come up that often.
Mostly, I just drive the rent money to the bank once a month. Easy money, in my opinion.

[doom&gloom]

Re: Bonds:John Williams

I have a friend who has a rental in Maywood, Il -- not the classiest of people live in Maywood. he git stuck wiht a 'professional tenant' and it took him a year to get the guy out -- sans rent. Quite a mess.

Living in the NorthWest but longing for Florida, I am stuck. I will not buy here because I want to be there in a few years, and cannot buy there unless I turnit over to others...

[don]

Re: Bonds:John Williams

Living in the NorthWest but longing for Florida, I am stuck. I will not buy here because I want to be there in a few years, and cannot buy there unless I turn it over to others...

That was me less than a year ago in Nor-cal, D&G. Hang in there, it can happen.

[doom&gloom]

Re: Bonds:John Williams

That was me less than a year ago in Nor-cal, D&G. Hang in there, it can happen.

Oh it could easily happen tomorrow, but for ripping one kid out of HS for his last three years.

Plus the missus says she will retire like me at the end of that three years, and she keeps us in healthcare. Then again, with Obamacare that may well be moot soon.

[shiny!]

Re: Bonds:John Williams

I have a friend who has a rental in Maywood, Il -- not the classiest of people live in Maywood. he git stuck wiht a 'professional tenant' and it took him a year to get the guy out -- sans rent. Quite a mess.

Living in the NorthWest but longing for Florida, I am stuck. I will not buy here because I want to be there in a few years, and cannot buy there unless I turnit over to others...

Florida? FLORIDA??? Been there twice and can't see the attraction. The cockroaches... ugh!

[doom&gloom]

Re: Bonds:John Williams

Florida? FLORIDA??? Been there twice and can't see the attraction. The cockroaches... ugh!

Warm weather, warm water, year round boating, sunshine, no state income tax.

The only other option is Texas.

Last October the Missus and I were in Vero Beach,Fl. Granted it was off season but it was a nice clean beach town. For $550k I can get a house on the Indian River with canal access to the river and later the ocean. Not saying that's where we go, but that really appeals to me.

[shiny!]

Re: Bonds:John Williams

Warm weather, warm water, year round boating, sunshine, no state income tax.

The only other option is Texas.

Last October the Missus and I were in Vero Beach,Fl. Granted it was off season but it was a nice clean beach town. For $550k I can get a house on the Indian River with canal access to the river and later the ocean. Not saying that's where we go, but that really appeals to me.

I'll leave Florida to you, then. You can have the ocean. I like to sit and look at it, but not go in it. Almost got eaten by sharks when I was a kid. I'm thinking of moving back to Texas. No income tax is appealing, as is the arts culture in the Austin area and the Texas Hill Country. But the cockroaches! Why is it the states with no income tax have such huge frikkin cockroaches???

Arizona has year-round sunshine and mild winters, except for the northern parts which get a lot of snow. Nice, if you like snow. And it's blessed with low humidity and not-so-huge cockroaches. There are lakes for boating. After Katrina we had a boon of snowbirds who came here for the winter instead of going to Florida. Once they spent a winter here, most of them said they'd never return to Florida. Just another option to consider :-)