Thanks a lot for the answers. About 1. you are right about food prices and much of what has gone sharply up due to oil prices.
there has been also what I like to call “hiffen inflation” for a long time that cannot be reversed: ie. tons and tons of products (not just food) being momentarily discontinued in a certain form only to reappear later in a repacked manner with the same price or a slight increase but 2/3 of the original quantity…

Regarding the “stagflation” I wonder why after all these type of cycles they can’t figure yet out how to gauge how much money is being or needs to be printed to reflate the economy so as to slow down at a certain breaking point when
inflation may occur. Grant you must be a difficult problem but
there are seriously smart people out there. That’s why I was asking about Simons’ s hedge fund (he is a very famous mathematician). His modus operandi is top secret and his employees are some really bright mathematicians, computer scientists, etc.

Thanks again!

Thanks for the prop. In regard to your questions:

1. I htink inflation is the greater long term problem simply based on the fact that the Fed is going to keep the Fed Funds rate at a very low rate for an extended period in order for the banks to repair their balance sheets. The problem with that is that too much money will be printed to reflate the economy. In that process, I think we may very well suffer from a currency devaluation literally around the world even while the economy slows. This phenomena is known as stagflation. Warren Buffet has similar concerns and has voiced them. Even with the decrease in the prices of a number of commodities the price for food at the store has not coem down that much.

2. I think hedge funds are down more than 20% and perhaps 30-40%. A number of them hav ese tup “side accounts” for illiquid investmetns that they can not sell in this current market. As the dust settles it wiillbecome evidnet that they have not properly marked those investments properly. They are basically putting the losses off until later which is exactly what the banks are doing.

3. I am not sure of Simon’s performance but I do know that hsi funds have lost app 17% of their assets under management. That decline is actual admirable. Forecasts by hedge fund research units indicate that the hedge fund industry as a whole may lose upwards of 50% of their assets from the peak set last June.

1. flight of personnel and human capital from Wall st.

2. injection fo monetary capital from investors seeking outsized returns given the low rates of returns generated by bonds after the Fed decreased interest rates after 9/11 and the equity implosion following the collapse of the Nasdaq (internet bubble) at the turn of the century.

I think we are entering a period where investors will want safety of principal and will actually not take enough risk. This is what occurs when a bubble deflates. as time passes and peopel forget the lessosn learned during this cycle, we will likely once again repeat them but that won’t be for a while.

I encourage her to work and save and if need be with a minimum shortfall she should approach the school to work out whatever shortfall may occur.

Believe me it is my pleasure. I enjoy the discourse.

The dealers and suppliers for these makes obviously need to adapt QUICKLY or they may very well suffer the same fate.

This is all about projecting confidence where there isn’t any to be had. Sort of like Obama’s campaign.

It might be better to inject some capitol into business directly. We have done it with the banks in order for them to lend, but they are still reluctant to do any lending. There was a systematic world wide banking failure that caused the Great Depression because credit had ceased. The governments are propping up the banks, but they are still not issuing credit. In other words, we will have the same end result to the economy if we had simply let the banks fail.

I plan to wait till next week to get a better feel for market direction, but at this point in time, I expect to continue to buy only puts.

As awful as it may sound, I hope you are right.

We will be lucky to contain unemployment to 9% in 2009.

Unemployment may reach as high as 30% by next Xmas, things are moving that fast.

This is a “World Economy” fueled by instant communication and there is simply no real camparison to any past economic crisis.

Avoid the “Sucker Bubbles” like the one created today.

“Real Players” are sitting back waiting for any “good news” and then they dump big bucks to start a rally.

They are in and out early making a profit for the short term. The odds are stacked against you in this type of action.

It’s how the “Game” is played in a Market that is downsizing. The “smart” guys take it from the “dumb” ones.

If you have cash, be patient and wait for the bottom —- at around 5200.

Another great article LD.

Your performing a great service NQ & Larry — Thanks & Keep it up!

BTW, the ^VIX went down nicely today. It was up at record levels yesterday and that seems to suggest a reversal is close at hand. Friday’s action was the proof of the pudding but the Timothy thing was the trigger.

Oh, and what I’m saying is, this is the time to buy stocks. Some individual stocks could be lower later as earnings disappoint but this is a great time to buy a tech leader like AAPL.

Question: what makes you believe inflation is a greater long term risk at this point?

I thought it was until a few week ago but now I was doubting. On the other hand the fact that gold has remained unchanged while oil has dive is certainly an interesting point.

Question: do you believe that in truth hedge funds are down closer to 40% (than 20-25%) ?

Question: Do you know how Simons’s hedge fund — Renaissance Tech. Co.– which is well known for outperforming big time has done lately?

Thanks again!

That would be horrible.

One could speculate that they would get the same treatment as AIG. No body had a clue about the fact that our national debt is out of control and this cannot continue.
I live north of Detroit and these people seem to live in a bubble and have no undestanding of what the population outside of the auto industry feels.

The reality is that the auto industry will have to downsize and realign thier supplier base. This will happen as tier 2 and 3 people are nimble and some will survive.

Yes it will be painfull, but so was my decrease in equity from the stock market. The rest of the country is just not ready to bail out the auto concentration in MI, OH and MO.

As they start shutting down plants as they will have to because the market place will force it, they will loose allies. So it is a downward spiral