The Other View 2008
THE OTHER VIEW 2008Last entry: 1.29.08
Will Bernanke Try To Re-inflate ?
To us the dollar and the gold market have been debating for the past week, trying to figure out whether Bernanke will opt to try and reinflate the real-estate and stock market bubbles.
If he does really push the issue, starting with this week’s FED meeting, by staying with aggressive rate cuts and eventually going down to the 2.0 to 2.5 percent area in FED funds, as some commentators suggest, over the next six to eight months things will get interesting. The end result would be new highs on gold with an eventual run to the $ 2000 to $ 3000 area and new lows in the dollar. Keep in mind that In terms of the price of gold the stock market is already down over 70 percent since January 2001.
So the OTHER VIEW is this: Some traders who follow the Elliot Wave principal believe the stock market is going to drop over 90 percent in this cycle. If one believes that the purchasing value of the dollar is relevant to this kind of calculation, we could see that kind of relative drop with the stock market staying right at all time highs and gold skyrocketing to $ 3000. The math is simple 1500/300 = 5.0, 1500/3000 = 0.5. That would mean you can hold your over-priced real-estate and stock portfolio, just don’t try to buy foreign goods as the dollar plummets.
This past week the Davos Meeting was going on in Switzerland with many of the world’s prominent economic and business executives in attendance. One interview that I saw had one of these executives being asked about the current turmoil in the markets and whether he was concerned. His answer was interesting, “everyone here is an optimist, we cannot allow short-term issues to change our outlook”. He really should have said, we are all optimists and if we are wrong, we all have a golden parachutes to keep us comfortable for life. This is just more of the no-consequence economics that pervades the outlook.
And links to pertinent comments over the weekend: