Monday Thoughts – Printing Press


Observing the market this morning, I can see the strength of the Nasdaq index which is simply amazing. Europe had a weak showing in their markets and the US markets opened down – but it wasn’t more than 90 minutes that the “party index” (Nasdaq) went positive.

The Nasdaq tends to be the more pollyanna of the various market indices often showing strength even after other indices show weakness. The difference lies in the fact that the Nasdaq is full of tech stocks which I have discussed in the past as being permanently overhyped. In past articles I have mentioned how private businesses would usually sell for 3-5xs cash flow but tech stocks sell at 40+ times cash flow because there is a remote outside chance everyone in the world will want their product.

Anyway, in macro news, oil and gas prices popped last week – likely in anticipation of the summer travel season, or in traders’ expectations about the market’s anticipation of the summer driving season :). And, as I mentioned in an article last week, if the economy recovers, demand for oil will increase back over the supply/demand equillibrium and we will see prices approach $100 barrel again.

Timeout for a Couple of Interesting Posts

GM’s bankruptcy is “more probable’ reports Calculated Risk (who doubted that?).

This story about “Darth Greenspan” looked funny to me: Mises

The Printing Press Worries Me

More and more I fear the printing press. My thanks to my financial mentors for jolting me awake to this problem. I am hoping to the same for you. Our government is borrowing, spending, and printing their way to attempted recovery. Please understand, it will NEVER be like it was 3 years ago. These people never learn – you watch them come on TV and say they need to stabilize the housing sector – c’mon that is not going to create growth.

Americans need to face facts – it is good that people are saving more, spending less and building reserves. Savings creates reserves that can be invested in real growth. Investing creates slower, but steadier and sturdier growth (of course it can go faster but a moderate speed I think is optimal). Borrowing and spending to create paper ‘wealth” does not endure, though it feels good for a while. But like a drug, the crash is very painful. If we could embrace savings so that people are more secure, then they can invest and spend off of a more stable base.

The problem is, this won’t happen. The voting results show me that this is the wussiest generation in American history. People don’t want to face the hard truths and cut spending – they want to spend AND they approve of our borrowing to fund that (people can say what they want but their voting patterns support this). With this said, we will certainly inflate everything. My fellow citizens’ voting has forced me to protect myself by owning precious metals and taking other steps to protect from inflation.

I hope you are taking steps to protect yourself. And just as an FYI, let me list a few ways that inflation will hit you:

1. Water bill

2. Electric bill (gas, coal, etc)

3. Heating bill (oil & gas)

4. Property taxes (pensions for municipal employees, higher materials costs to maintain municipal assets)

5. Food (we import a lot and worldwide food demand is rising)

6. Lower pay raises (American employers may not be able to afford to keep pay raises in line with cost increases)

7. Pensions not keeping up with costs (fixed income recipients will be hit hardest)

Be careful out there everyone. Inflation will really hit us in the next 2 years.

Chris Grande