Money outflow from both stocks and bonds
Posted by Frugal on February 20th, 2008
So we have stocks failing to rally, and bonds falling in values. This is just NOT GOOD. Most of the bonds are falling in value due to credit crisis, but now treasury bonds are also falling due to today’s inflation report. We now have a deflation going on in both stocks and bonds.
It appears that there is no place to hide your cash. Yes, cash is king in deflation. Before this cycle of deflation is over, you will most likely lose money in whatever assets you choose to put in.
Before government and Fed can stablize the financial markets, the downward trend is with us. I was expecting a retest low in March, but it looks like we may stay low all the way to May.
In any case, if we do have a panic low going down, it would be the last best chance to lock in your loans, since bonds will almost always rise during panic. In case you are interested, I’m collecting people’s info to collectively bargain for a better deal for refinancing or getting a loan. You can look at this post for more details on joining me.
Frugal at Housing market will have a very cold winter
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February 20th, 2008 at 10:57 am
Mortgage rates went up substantially compared to where it was last week.. What do you think it might go from here..
February 20th, 2008 at 12:38 pm
I would say metals like gold, silver, etc, will appreciate during this time along with the rest of the commodities.
This is also a good time to consider placing your cash in foreign currencies as the dollar will continue to fall as the Fed pumps in more liquidity.
February 20th, 2008 at 10:13 pm
Your analysis is very interesting. The onlything I think that will continue to appreciate will be the commodities. Wheat, corn, gold, silver, platanum and oil.
M
http://milesmakesamillion.blogspot.com/
February 22nd, 2008 at 12:25 am
Soulfire,
I am not so sure about the future of the dollar. Currency rates are based on relative positions. It’s true that there is now more evidence of consumer inflation and currencies with high inflation tend to fall in value relative to others, there is increasing evidence that other central banks are also stoking inflation and the dollar may perform relatively better against the Euro and the Yen than is expected. In fact there appears to be some movement in the currency markets – we are likely to see a big dollar rise in the next 3-4 months.
This will (in the short term at least) lead to a fall in tradable commodity prices. Might it make more sense to think about ag commodities?
February 22nd, 2008 at 6:32 pm
Frugal and Crew,
Consider international equities. There are plenty of great opportunities in europe or asia.
Best,
James
February 23rd, 2008 at 2:34 am
If you will the value of stocks will drop, why don’t you short the whole market?
February 23rd, 2008 at 3:01 pm
Doug,
I agree that currency rates are based on relative strength bewteen countries and the US slowing down will have worldwide impacts. However, I think the subprime/credit problems the US is experiencing will be far worse than other countires, which will increase the downward pressure on the dollar as the Fed attempts to come to the rescue. The dollar is going to take quite a beating before this is over. I see any rises in the dollar as shorting opportunities and similarly any drops in tradable commodities are buying opportunities.