Twang money - again

Pencils made from recycled money

Fiat currency can be expanded at will, but in a credit crunch can contract as easily, so I've previously nicknamed it "twang money". But it turns out there actually once was a medium of exchange known as "twang money" - the Hungarian pengo. It ended up as the worst case of inflation in history: someone writes in to today's Daily Mail (page 77) to say that by 1946, all the Hungarian banknotes in circulation, taken together, were worth one-thousandth of a US cent.

However, consider the potential uses of many tons of durable paper with run-resistant colours: wallpaper, sweet wrappers, firelighters... So for me, the story is about the buying opportunity when pessimism ignores intrinsic value.

The Clashing Rocks

Martin Hutchinson (Money Morning, today) sees the Fed caught between a rock and a hard place: as the dollar drops, oil and commodity prices go up and so American inflation worsens; if the dollar is supported by higher interest rates, the already-frail housing market stalls and maybe dives.

It's said that the Chinese pictogram for "crisis" combines the ideas of "threat" and "opportunity". Hutchinson offers ideas for those who want to take advantage: invest in...

• Japan
• gold
• natural resources
• Canadian oil
• - and a Korean bank.

"Wall of Worry" poll results

It seems respondents are as much confused as I am, about which way to go. I quoted Benjamin Graham's advice for passive investors, which is to strike some balance between equities and high-quality bonds, anywhere from 25:75 to 75:25, with a default position of 50:50.

The results are almost exactly divided: 8 at the top end for equities, 8 at the bottom for bonds, 7 voting for a 50:50 split, and one for 65% equities/35% bonds.

Another snort to keep going

Chris Ciovacco in SafeHaven today reads the historical charts and concludes that recent multiple Federal Reserve rate cuts are slightly bullish indicators:

... From my perspective, almost all the items above slightly favor the reflation trade over gloom-and-doom. However, the edge is small enough to remain diversified while keeping a close eye on the stock market's 50 and 200-day moving averages.

This would chime with Jim Puplava's assessment that "more of the same" will buy us a little more time until the system is exhausted, which he expects to happen around 2009 onwards.

There's never just one cockroach in the kitchen

... says Warren Buffett, at the trial of a former Freddie Mac chief executive.

Crazy like a fox?

I've received this unsolicited mail today. As Wavy Gravy said at Woodstock, there's a little bit of Heaven in every disaster... or is there?

Uncle Sam and John Bull

We're in it together (picture source)

Financial Sense yesterday: Adrian Ash points out that the UK has problems similar to America's, and draws comparisons with the economic situation of the 1970s. That word "stagflation" is being spoken again. He's another gold bug.

Frank Barbera looks at the ongoing credit crunch, with Structured Investment Vehicles looking for a rollover investment of £100 billion within the next few months, just as the market in commercial paper is drying up:

Bottom Line: It is simply a long way from over. So what do investors do while trying to make an honest buck? The answer is to expect more turmoil and periodic severe bouts of selling pressure rippling through the financial markets. We are looking at the battle between monetary reflation and debt deflation playing out on the grand stage.

Other bears look at the Thirties for their model. We have an advantage, in that we have the 70s and the 30s to learn from; they didn't have themselves in their history books. As Mark Twain said, "The past does not repeat itself, but it rhymes."

( Picture source)