In fact, I am so convinced that Robertson has it right, I’ve been trying to find someone that understands “CMS Rate Caps” so I can enter an order to duplicate his trade. Even if I’m wrong, these things are some kind of leap option so I know my maximum exposure at the outset.

Giacomo

PS – Does anyone know who I might go to that can execute orders in these Rate Cap vehicles. The houses I’ve dealt with are all familiar with Robertson’s video, but no one seems to know anything about these particular derivatives.

“still buying US treasuries but shifting purchases to shorter maturities to be less exposed to a US fiscal implosion, and initiating a massive domestic stimulus program that emphasizes domestic consumption”

their massive stimulus program is going into more overcapacity and speculation (in commodities, RE, and stocks). they do not have enough internal demand to “go it alone” so to speak. they need their US and Euro customers as they are mercantilists.

How about Japan in the last 20 years? I guess you can argue the Japanese economy has not improved yet. And perhaps that is our fate, years of a stagnant economy with low T bond rates.

Gold. How high must future inflation be to make gold worth over $1,000 an ounce. Quite high. If inflation runs briefly at 15% from 2011 to 2015 then a gold price of $1,100 now is probably perfectly sane. Alternatively, if inflation rises to a more or less permanent plateau of about 6%-7% (from an averge of 3%) then today’s gold prices will ultimately make sense. For now it is speculation that inflation trumps deflation. Currently the money supply is growing at a torrid pace in China but consumer prices are falling. The additional liquidity is going into asset speculation and infrastructure projects. Same in the US and much of Europe.

I doubt anyone has a clue just how much bad debt the world’s financial institutions hold. The estimates from the Fed, IMF, big bank analysts, etc in 2007 and 2008 seem to have been wildly understated. It is moving target anyway. Credit issues are no longer in focus, which makes them dangerous.

Equities usually do very poorly (in the short-term) during periods of high inflation due to the increase in the discount rate used to calculate what a reasonable P/E would be (that creates a great buying opportunity), but ultimately over the long run (say 20 years) equities keep up with inflation quite well so long as you don’t buy them (and better yet sell them to buy later) at bubblish market peaks (1965, 1972, 2000). From a long-term perspective the market is not cheap nor especially expensive right now. In the short-run, it might be expensive (if we quickly see deflation or inflation pick up or profit margins deteriorate due to lack of sales increases following all the cost cutting.) Or it might be inexpensive, if inflation stays low but positive, interest rates stay low and margins continue to improve (Goldilocks scenario).

The key question is whether there will be a significantly better buying opportunity in the near future (next year or two) or not. When will Mr. Market suffer his next depressive episode?

I find it very interesting that China just did their first bond offering denominated in their own currency, which was very well received by the markets. everyone who follows the ascendancy of China kinda assumes, i think, that the baton hand-off from the US to China will take many decades and is some kind of abstract, distant threat like global warming. Granted, China’s export growth model has always been based on selling to the US consumer, which locks China into the US economy and forces them to support a strong dollar. In public, China is not saying anything that would damage its vast dollar reserve and USTreasury holdings, but by their actions, it’s clear that they are accelerating their timeline to decouple from the US economy and their forced support of the US dollar, ie using their dollars to buy up hard assets all over the world, still buying US treasuries but shifting purchases to shorter maturities to be less exposed to a US fiscal implosion, and initiating a massive domestic stimulus program that emphasizes domestic consumption.

With the domestic currency bond offering, we are now seeing China take baby steps towards developing robust, domestic capital markets. Developing a local debt market is very important, i think, because it gives China more legitimacy than its equity markets alone, which are still viewed as highly speculative. Although debt has been toxic to the US economy, I think it is key to China’s development as it tries to grow an internal consumer market.

Things are happening so fast with respect to China that I don’t think you can think of the relative fall of the US and the rise of China in terms of decades anymore. I don’t know when, but someday a lot sooner than we think, China will float its currency. After that, the inevitable will happen where China stops buying US Treasuries. If Robertson is right, this will be a nuclear bomb for the US economy and we will be living in a totally different world.