Fed May Cut Rate to 1%, Signal Steps to Save Economy (Update3)

http://www.bloomberg.com/apps/news?pid=20601087&sid=akIBdT0ahxAA&refer=home So what does this really mean?

Might be time to buy gold and commodities again.

bchadwick Wrote: ------------------------------------------------------- > Might be time to buy gold and commodities again. …or sell if money floods into the $ on the view of a US recovery and future rate cuts elsewhere? Little bit of both?

Would you say gold got sold off in a deflation panic? I swear to myself that I will only be a cashflow searching value investor for life (which eliminates most gold related investments) but I am drawn to the shiny yellow stuff because of my deep seated fear of panic inflation scenarios. It’s like a disease. I need to see a market shrink. I have this fear…

We have deflation because of asset price collapses, and that has driven gold down, but it is almost certain that we will be inflating the dollar to 1) stimulate the economy, and 2) reduce the real value of our debt. Given the time it takes for new money to enter the economy, it will also be tricky to figure out when you’ve injected enough new money into the system, so overshoot is very likely. Gold can still go down, but my guess is that the moment the market appears to have bottomed, gold will start to become attractive again. Just an opinion, I’m more that 50% confident of this, but not substantially more (given how I’ve missed this call in the past).

bchadwick Wrote: ------------------------------------------------------- > Might be time to buy gold and commodities again. Not yet. Maybe when monetary policy starts working, but right now monetary policy is broken. You have breakeven inflation at zero pretty much across the entire U.S. Treasury curve. No sense to lend (or borrow). That’s why banks are hoarding cash and using injected capital to acquire/merge. I got a great question that I’m sure many capitalist system skeptics could answer: Why didn’t the Treasury/Fed simply use the $700 billion to set up a bank to stimulate lending? Or set up a number of banks to provide competition? Why didn’t they take these steps? > Gold can still go down, but my guess is that the moment the market appears to have bottomed. we’re probably over a year away from the market discounting an economic recovering in my opinion. I think Gold is dead money until then.

i had a doubt: any insight why japan didnt have any hyperinflation/run away inflation inspite of all the ultra ultra loose money in the 90s and most of this decade?. they seemed to have consistent deflation. did they end up exporting the inflation via yen carry trades?

I can’t beleive they CUT! Bunch of pansies!!!

<> It’s the conservative mentality of the Japanese people. They are good savers. Maybe they became that way because of the wars, lack of confidence in the social safety net, or maybe it’s genetic. Maybe it has something to do with their island culture or their farming?

Hell you need Spenders and Savers…

All those yen the Japanese were giving away didn’t end up staying in the economy, but were immediately exported elsewhere to do the carry trade, so the local economy didn’t benefit much. I guess it did effectively export inflation. Now that the attractiveness of other pairs is substantially diminished in the financial crisis, a lot of yen are returning to Japan, and should benefit the economy more. That would seem to explain the recent strengthening of the yen even as the dollar strengthens. Those with a long term perspective might want to overweight Japanese stocks slightly right now, to the extent that there is stock exposure at all.