Prepare to pull the trigger on speculating!

July 29th, 2010

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Back in When to start speculating again?, we mentioned that

When governments do ?something? about the deflationary pain, it will be a signal to shuffle your money back into speculation.

So, what will be the signs to watch out for?

Just a month ago, RBS warned their clients to get read for this:

Andrew Roberts, credit chief at RBS, is advising clients to read the Bernanke text very closely because the Fed is soon going to have to the pull the lever on “monster” quantitative easing (QE)”.

Marc Faber reckoned that it will happen soon and has given a rough time-frame…

When the money spigot turns on again, that’s the sign to start speculating again (note: speculate at your own risk). For those who are new, please read Bernankeism and hyper-inflation to understand the context of this article.

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  • Pete

    Is it really the right 'timing' for speculating? Does the start of QE spell higher prices for stocks in general?

    I would have thought the right timing for speculation would be after deflation has already exhausted itself (or nearly had)?

  • That's the risk of speculating. You may not know for sure that it's the right timing. Hence, speculating is not for everyone.

    Another thing to note: There may not be the time for deflation to fully run its course because Bernanke may act first to preempt that (the Panic of 2008 is traumatic enough).

  • Castor

    Why stocks specifically? Why not commodities, precious metals?

  • Arthurrobey

    According to Stoneleigh at
    http://theautomaticearth.blogspot.com/
    the FED will be ineffectual against deflation because their model is wrong.
    This view is supported by Steve Keen at
    http://www.debtdeflation.com/blogs/

  • Anonymous

    So the whole inflation/deflation debate comes down, not to economic fundamentals or theory, but to predicting what the governments and central banks will do. That seems like a much harder thing to do. To be absolutely convinced of either inflation or deflation seems to be quite a leap of faith…

  • Yes, that’s right. In Planning ahead for what?s going to happen, we quoted Marc Faber:

    It is no longer sufficient to analyze macroeconomic and microeconomic trends and individual companies and sectors; we now increasingly need the help of a political analyst who can warn us of what governments? next regulatory ?Schnapsideen? (ideas developed while heavily intoxicated) are likely to be.

    As to this being a “leap of faith,” another way to say it is ideology.

  • In general, as currencies debase economic risks increase, and speculation takes hold. Bubbles can form, capital dislocations ultimately distorting economic health, etc. But I tend to look at this particular round of QE as designed almost solely to finance US government deficits.

    I just read an interesting article that pointed out that the US is borrowing $1 for every $1 it raises in tax revenues. With spending set to go asymptotically higher over the next few years, it is likely that US treasury markets will soak up the majority of printed moneys, as well as any new savings.

    Caveat: I have been a perpetual pessimist since 2007, to the extent that I missed the great March 2009 – April 2010 rally. It’s certainly feasible to think I will be missing out on this next one!