Friday, July 10, 2009

Finances for the Long Haul

I once said this downturn in the economy may be known as the second Great Depression, or by the symbol GD2. So for the time being I will be writing a monthly column to summarise the world economics picture as I see it.

Well, on this third monthly installment, I have to first mention that I was initially wrong about the price of gas. Rather than going up another 10 cents, it dropped several cents, and looks now like it will drop another several cents. This is doubly good, both because it will grease the way for our profits and it means that China is not as big of a threat this year as I thought. Our profit is, as always, China's loss.

But, to be fair, everything went down this past month. The dreaded "double dip recession?" Who knows. But I once said it would keep getting worse until this fall, and it now looks, again, like that may be right.

There will be more on the subject of gas prices posted under "Energy" in the last couple of days in July. This will be the month to watch oil prices, as the going price on a barrel of crude, over the course of the month of July is one of the best indicators for the price of gas next spring. Of course, there is always the fly in the ointment - amateur speculators. These are the people who drove the price to $147 dollars a barrel last year.

I would have thought most of the amateur traders and speculators would learn from getting burnt in the dot com bubble burst of 2001, and getting burnt again in the housing bubble burst of 2007, but I just heard (on CNBC Fast Money) they are still playing a significant role in trading oil futures.

There was a joke on the Net's a few years ago about where is a fool and their money when I need them. Maybe we have found where they are: day traders and the government. Both have been throwing money into the markets like drunken sailors.

The last couple of weeks, bottom dropped out of the 2-year bond market, indicating that recovery and the move into very high inflation rates now looks more than two years away, but I don't want to forecast it that far out. It is highly likely the markets will rally suddenly and catch those of us who are wary by surprise.

I am still not advocating buying gold at this time (unless the price falls below $900), but I am not advocating against it either. See the numbers here.

There is a real worry some years out that the economy will undergo a round of high inflation coupled with phony numbers from the government. This happened about 5 or so years back. As one economist put it: "there isn't any inflation, but everything costs twice as much."

My basic advice still hasn't changed any. The five rules still apply.

So buckle your seat belts, and hang on. The ride is likely to be bumpy.

1 comment:

Pilgrim said...

The 5 rules are very good.

I'm unqualified to reply to any of the rest of your post. :-)