September 18, 2007

WOW

Wow.  Wow.  Fed cuts 50 basis points.

The Fed did the only thing it could do, given the circumstances.  Now people can maybe keep their homes, maybe we don't slide into recession.

But oil goes to $93 and gold to $800, and people think twice about buying corn.  Meanwhile GS goes to 220 and the Dow to 15000.  And the split between rich and poor becomes visibly wider.

Oh, you want a psychiatry angle.  Ok.  Zero percent chance of universal healthcare in the next 5 years.

 

(disclosure: long gold, GS, GOOG; short Iran and Angelina Jolie.) 







Comments

I'm thinking I'm just going... (Below threshold)

September 18, 2007 3:29 PM | Posted by Zack: | Reply

I'm thinking I'm just going to borrow as much as I can get my hands on and plow it all into gold. Why not?

Alone's response: because the gains will be short lived. Gold goes up for two reasons. First, as a hedge against inflation. Second, as a hedge against weakening currencies. With the rates lower, the dollar becomes worth less; so cash loses value. Ordinarily, you could put your money into stocks or another currency-- esp. euro or canadian dollar, but the recessionary pressures are worldwide-- you'll see rates falling everywhere. So all of those currencies weaken, and all that's left is stocks, gold, or oil. The problem is that at some point, oil is so high that it either cuts into business profits (consider airlines vs. jet fuel) or it inhibits growth (oil higher means all goods become more expensive (because whoever made them had to pay for oil/gas/heating,etc-- that's why high oil prices are inflationary). If this happens, you get global slowdown again. Stocks fall, etc. So gold may actually be close to a top, because it has been bid up in anticipation of rate cuts and weakened dollar and inflation, but high oil prices may slow down growth-- leading to a fall in gold. Which is why I own gold, but I also own GOOG.

Alone's second addendum: I forgot an obvious point: borrowing money (and being charged interest) to buy gold should theoretically be a net neutral maneuver, as the gold price should follow the interest rate. this is not the case with stocks (or oil.)

Alone's third addendum: wow, I just realized something else. Not to pick on you, but your comment "borrow money and put it into gold" is EXACTLY the "Moral Hazard" dilemma the Fed had (see previous post.) http://thelastpsychiatrist.com/2007/08/interest_rates_and_the_moral_h.html
It didn't want to make borrowing easier (i.e. lower rates) out of fear that people would borrow more than they should in order to leverage it. That's what got us into the subprime mess in the first place-- people borrowing money that they really couldn't cover to buy houses they really couldn't afford (at the inflated prices.) The fact that you made this comment means the Fed was right to worry about rate cuts creating excessive speculation. On second thought, maybe gold is a good idea after all.

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Since when has the federal ... (Below threshold)

September 18, 2007 8:33 PM | Posted by steve: | Reply

Since when has the federal government cared what they could afford?

And remember,with universal health care comes socialized medicine. Be careful what you wish for.

Alone's response: I'm no t saying I want (or don't want) universal healthcare. I'm only saying that such talk has momentum only in recessions, and as of 2:30 today, we weren't in a recession. Low unemployment= most people get coverage= no one cares much about getting it from the govt. Though, widening the gap between rich and poor may mean more jobs that don't have medical benefits (Walmart, etc)-- hence only the five year hold.

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Why short on Angelina Jolie... (Below threshold)

September 19, 2007 12:12 PM | Posted by Whatever: | Reply

Why short on Angelina Jolie?

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That 'zero chance' turned o... (Below threshold)

November 12, 2012 7:47 PM | Posted by horn: | Reply

That 'zero chance' turned out to be 100% less than 2 years later. Interesting.

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Unfortunate of him to write... (Below threshold)

November 12, 2012 10:06 PM | Posted, in reply to horn's comment, by Rajan: | Reply

Unfortunate of him to write that one, yes.

But I'd say his crystal ball has proved to be quite accurate. To me it looks like he understand what's relevant and not. If everyone followed Alones market strategy, we would all become wealthy.

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