Inflation?

dollar on fireIn the investing arena, I’m hooked on “The High Tech Strategist”, a monthly newsletter by Fred Hickey (The High Tech Strategist PO Box 3133 Nashua NH 03061-3133), which presents his personal insights on our economy. Note: Hickey is one of the few experts who participate annually (spread across three issues) in Barron’s Roundtable. He’s also a big fan of Gold.

Allow me to quote or paraphrase short bits from Hickey’s newsletter, relating to a possibly impending crisis (.7p, .4c)*, of a debt-driven financial melt-down being somewhere on our country’s horizon, which might also affect longer term trends re gold:

“there is currently a sovereign credit crisis disease that seems to be spreading throughout the Western industrialized countries….”

“the biggest difference between Greece and the United States, is that Greece cannot print money (euros) to pay off its debts, while the US (and UK) can print money out of thin air as they have been doing (the so called “Quantitative Easing” or QE, programs).”

“EU eco and monetary commissioner Rehn, said to Greece: ‘Either you keep your debt under control or your debt starts controlling you’”.

“.. and other nations such as Ireland have been most proactive with drastic budget cuts enacted late last year. Portugal’s prime minister has vowed to slash its budget deficit (a record 9.3% in 2009) by more than two thirds over the next four years. Spain is requiring a near-freeze on hiring civil servants and is considering wage freezes and increasing the retirement age to 67. So some have begun to do something about their unsustainable deficits but not so the U.S.A and UK which can print money (UK is in worse trouble than the U.S., with the pound sterling plummeting).”

“we seem clueless, piling up deficits with ill-conceived bailouts and greatly expanding the size of government”.

“yes, the  U.S. dollar has rallied a sharp 8% over the past three months to an eight-month high on the DXY index. Of course, with our trade deficit widening again ($40.2 billion deficit in December) and having lost nearly 1/3 (5.7 million) of our manufacturing jobs over the past decade, we need a higher dollar like we need a hole in the head. Nevertheless, all appears calm here”.

“the government is hemorrhaging money from every pore. The Post Office is losing big, Defense is funding two ‘wars without end’, Social Security is taking in less in taxes than it is spending on benefits, the retiring baby boomer generation is upon us and almost no steps have been taken to reduce expected balloon payments.”

Most of us know all that, but cannot confidently predict the future consequences. The few of us who have spare time would need to “triangulate” the written work of the smartest and most objective commentators, to obtain a definitive handle on the variables. I know I’m sounding a bit like a conservative, which I’m not, but some conservative thinking when it’s creative and sensitive to our real needs, sounds right to me, and I’m quite nervous about our economy.


*.7p, .4c means:  .7 probability with .4 conviction; after all, probability is insufficient when a writer has a view but with less than 100% certainty. Anecdotally, Gartner Inc. used to print (for example) probability=.7 instead of .7p, let alone adding a conviction measure. It’s of course natural that Advisory firms would all prefer that their analysts’ opinions are the last word ! By the way, the conviction measure could be added by the analyst’s manager, based upon the analyst’s stature. I’ll post this on my Gartner site as well as here.

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