Michael Panzner on financial liquidity and asset prices

Writing in Seeking Alpha yesterday, Michael Panzner (author of Financial Armageddon - my review here) comments on an article by Yale economics professor Robert J Schiller, which discusses the notion and possible consequences of excess "liquidity" in the world economy. For Panzner's own website promoting his very bearish view on the American economy, see here.

Peter Schiff on US monetary policy

Peter Schiff's latest commentary (today in Forex Street) pours scorn on the Treasury Secretary's professed commitment to a strong dollar, and points out that Ben Bernanke's reasons for a stronger Chinese yuan (renminbi) also imply higher interest rates AND higher consumer prices in the US.

Schiff concludes with the same recommendations as in his book, Crash Proof (my review here): buy gold (he's selling Australian Perth Mint Certificates through a dedicated website) and selected foreign (i.e. non-US) equities.

Fragility of the stockmarket

Ben Steverman in Business Week (20 July) gives reasons to worry about the US stockmarket, one of them being the amount of borrowed money powering it, which is something Richard Daughty also comments on (see link in previous post). A credit contraction could trigger a collapse in stock prices.

My comment: this might sound like a reason to hold cash, but the hyper-inflation scenario espoused by some is predicated on what they expect will be the response of the government to the threat of a depression.

The Mogambo Guru agrees with Jim Puplava

Richard Daughty submits another gonzo rant to GoldSeek, coming to the same conclusion as Jim Puplava at Financial Sense: buy gold, silver and oil.

Puplava on inflation, commodities

Financial Sense, July 14: Jim Puplava discusses inflation figures and the management of our perceptions of inflation.

The effects of expanding the money supply must, he feels, eventually spill over from assets to consumer prices. He sees three scenarios:

1. A credit contraction, leading to recession.
2. An inadequate credit expansion, resulting in consumer price inflation.
3. A change in public perception of inflation. If people expect their money to become progressively worthless, they will eventually try to get rid of it as fast as possible, in exchange for tangible things.

Conclusions:

• Cut unnecessary living expenses, shop smarter.
• Avoid bonds.
• Because there is no sign of (1) or (2) above happening, we are heading for a US hyperinflationary depression, perhaps starting around the same time as the oil crisis, i.e. 2009. So invest in tangibles: gold, silver, oil.

By the way - some thought-provoking replies to listeners:

• Puplava agrees that Israel may be sitting on a valuable oil field!
• He says creditor nations in Asia may have a deflationary depression, while ours will be inflationary.
• He notes that Iran now demands payment from Japan in yen, not US dollars.

Puplava on debt and credit

Financial Sense, 14 July: Jim Puplava notes that there is a US credit contraction underway. Real incomes are falling by 6% per year; bank credit is going down; the quality of loans is worsening.

Consumers appear to loading up their credit cards to maintain living standards, but this is more expensive than mortgages; the Federal Reserve is buying Treasury bonds to keep the interest rates down, hoping to prevent a real estate recession from becoming a depression.

Consequently, Puplava anticipates lower discretionary spending and a cut in interest rates by the end of the year.

Puplava on the coming oil crisis

Jim Puplava's Financial Sense, 14 July (3rd hour transcript): this leads with the coming energy crisis, especially in oil. Puplava's programme features an interview with Basil Gelpke, who has made a documentary on oil called "A Crude Awakening".

Demand is rising, and will continue to do so even if there is a world economic slowdown, because the developing world aspires to Western standards of living; supply is not keeping pace, as exploration and extraction become more difficult and expensive. R&D in alternatives has been inadequate. The crunch could start as early as 2009.

Jim draws two broad conclusions:

1. Prepare to live in a world where energy is much more expensive. There are obvious implications for your transportation and housing.
2. Invest in energy stocks.