Scalper1 News
Deflation is turning into a global threat. Falling prices are bad for the economy, not good. Until government becomes willing to spend buy gold, buy bonds and buy defense stocks just in case. Today’s Great Deflation is creating a lot of casualties. Among the most interesting are big banks’ trading desks and hedge funds. Inconceivable does not mean what they think it does. Goldman Sachs (NYSE: GS ) blamed “volatility” for a bad trading quarter. (Why isn’t it volatility when prices go up?) JPMorgan Chase (NYSE: JPM ) talked up legal costs and nasty regulators rather than admit that their traders got things horribly wrong. Despite all this, the bank’s shares fell below book value , what I like to call the “Mendoza Line” of banking. JPMorgan Chase CEO Jamie Dimon is desperate to keep his bank together because, in the face of ruinous trading losses, many hedge funds are facing, well, ruin. John Paulsen and Carl Icahn got killed by the deflation in oil. Everest Capital saw its main fund wiped out by the Swiss Franc’s sudden revaluation, done in the face of continuing European deflation, and it cost West Ham the shirt off their backs . FXCM (NYSE: FXCM ) was forced into an emergency rescue due its customers’ losses in currencies. Funds have been forced to cut their losses on soybeans. Even the computers are getting killed. Deflation means a shortage of buyers in the face of abundant supply. It is precisely what the world faced in the early 1930s. Unfortunately both policymakers and traders are acting as they did then. They refuse to acknowledge the reality that, without buyers, markets can’t clear, and they’re doing everything they can to discourage buyers as a matter of policy. John Mason is right. The business model of the big banks is flawed . So are their political models. The world is threatened by squeezed margins, cuts in production, business contraction, falling wages – the same negative spiral that Japan has suffered from for two decades. The most dangerous delusion is that the problem will take care of itself and that demand will magically “materialize” because there are so many bargains out there. It didn’t in the 1930s, and it won’t in the 2010s. What the hedge funds and the big banks should be doing is getting on the phone to policymakers and telling them to buy, buy, buy, to spend, spend, spend. Maybe send Elizabeth Warren’s PAC a check. Streetwise Research’s call to buy gold is, unfortunately, good short-term advice. So is the call to hold strong bonds, especially U.S. government bonds, which despite their tiny yields have kept going up in price, delivering big capital gains over the last six months. But that’s short-term advice. At some point governments will realize they need to spend big to stimulate domestic demand and whip deflation. I hope they do it before public demand switches to guns from butter but, just in case, you might want to keep some Boeing (NYSE: BA ) in your portfolio. Scalper1 News
Scalper1 News