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The latest from Mr. Simon Hunt


giofranchi
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Well stahleyp,

this is macro, so everyone can have different views and opinions. And I am not saying it could be useful for investing. They just happen to be ideas I completely agree with:

1) Throwing money at the problem will not solve the fundamental issues of insolvencies and weak balance sheets.

2) Whatever the ECB and the Federal Reserve do in the coming days won’t resolve any fundamental problems; they will just buy time and in the process make the eventual bust that much bigger.

3) …ultra easy monetary policy only buys time because the causes of the crisis are structural and fiscal. Ultra low interest rates discourage the necessary adjustments to be made at all levels, whether government, banking, corporate or households. In effect, zombie companies and governments are kept alive. And these policies encourage the financial sector to misallocate resources into speculative plays like commodities.

4) Central banks and markets are hoping that a new dose of liquidity will renew the animal spirits of companies and consumers but the reality is that we are in the midst of a depression, defined as years of rolling recessions interrupted by brief periods of recoveries. Depression will last until the process of deleveraging has run its course. That won’t be much before 2017.

5) Instead of the growth axis being centred on China it has the potential for being centred once again on the USA, providing Washington can produce sensible monetary and fiscal policies.

6) The foundation for this change rests on three developments: demographics, energy and technology.

7) America’s future will be defined by the results of the November elections as we keep saying. It is a fight between state-ism and free markets. Should Obama win a full blown run on the US dollar would be a likely result; and should Romney win America will be able to fulfil its potential growth by addressing the country’s debt and deficits and seeing that monetary policy will be on a more even keel.

These are all points I strongly agree with: and that’s why I like Mr. Simon Hunt!

Generally, I tend to believe that macro is not completely a waste of time… I know that many of you disagree with me! Anyway, this is my idea: I am fully aware that getting right every turn of the economy is impossible, but to get the “big picture” right, and act accordingly, is more common sense than macro forecasting. And might be helpful. And the “big picture”, imho, simply is: we are deleveraging and the best place to be in is America.

This being said, my defensive stance did me a great disservice ytd! I am way behind most of you! But I believe investing is a marathon, not a rush… so, we will see! :)

 

giofranchi

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3) …ultra easy monetary policy only buys time because the causes of the crisis are structural and fiscal. Ultra low interest rates discourage the necessary adjustments to be made at all levels, whether government, banking, corporate or households. In effect, zombie companies and governments are kept alive. And these policies encourage the financial sector to misallocate resources into speculative plays like commodities.

 

 

You forgot to mention the clear positives:

 

1)  refinancing mortgages at 3.5% is like giving households a large income raise they aren't finding elsewhere

2)  the payments on the new mortgages are not only lower, but they pay down faster in the early years

 

So we wind up with a beautiful outcome at the household level:

 

1)  lower debt service ratio -- they can either save or spend the excess

2)  faster deleveraging

 

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1)  lower debt service ratio -- they can either save or spend the excess

 

On the other hand, a weaker USD and a higher gasoline price are both serious drags on consumer spending…

 

Anyway, I understand your points and I agree. Monetary tools may certainly help. It remains to see if they alone are enough to solve our problems, or something more “structural” shall be required too.

 

giofranchi

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Yeah, gas at $4.0+ takes away from whatever savings you got from your lower mortgage rate.  Most people in the 5.0%+ have already refinanced...going from 4% to 3.5% doesn't do much.

 

The 2007 mindset has had a nice jolt from leverage every nickel you can out of your home equity and spend it on a Hummer.  I would expect the percentage of households refinancing their homes at lower rates and keeping the payments the same (faster deleveraging), as opposed to refinancing and taking out lump sums, is up - significantly.  The effect of high gas prices on household budgets are easily offset as the aging fleet of cars is replaced and the consumer decides between fuel efficiency and ostentatious displays of excess.  Heck, "econo-boxes" even look pretty good styling-wise these days.

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