Inflation? Deflation? Headwinds? Tailwinds?

Looking at different private investment reports that people send me to try and get a picture of what various advisors are saying to their subscribers. This one jumped off the page at me from Stansbury and Associates,

“Here’s the number I keep thinking about: $700,000. Right now, Americans owe almost $700,000 per family. That’s all government debt, all private debt, and all corporate debt currently outstanding. That’s not future obligations. That’s what we owe today. Taking the Producer Price Index rate of inflation (5.5%) and adding a reasonable risk premium to it (say 2.5%), financing this debt legitimately would cost us something around 8% in interest annually. That’s $56,000 in interest annually per family, which is also about the amount of total (average) household income.

Think about that for a minute. Just to finance our debts legitimately would consume all our national income: We’re broke.

That’s why I’m certain the Fed will continue to print money and monetize our government and mortgage debt. Unless we want to default and reorganize our obligations, printing vast quantities of new money is the only option.”

 

Chilling.

But the Van Eck Hotline offers this tonic,

“Yes, the U.S. budget deficit and debt are a long-term threat to the economy. However, they are not going to be the governing factors during the time ahead. When it comes to the decisions of investors, homebuyers, business owners/managers and consumers – long-term projections based on things that have not taken shape yet – are of little value. While I tend to take a broad view of the economy, I believe it is a mistake to look so far ahead that all sight of the here and now is lost. Some of the biggest names in global finance have been making the rounds in the financial media during the past week – declaring the recent S&P news to be the story of the year. They believe that the yields on U.S. Treasury debt paper will soon be forced higher and will therefore put an end to the recovery in the economy and send stocks lower in the process. So far though, the markets are not backing up such views. I promise to keep a close eye on this situation. A time may come when the high level of U.S. debt will convince me to turn negative on my outlook for the U.S. economy. However, there are too many other factors pulling in a bullish direction these days to bring about such a change any time soon.”

There is no doubt that Republicans want to put pessimistic ideas into the marketplace of ideas, and that Democrats want to look at the bright side. They both know that 2012 is a big election. Perhaps the penultimate election for our times. It’s interesting to see what financial advisors are saying, and more importantly what they are doing with their money.

Lots of hedge funds have pulled away from as much US dollar exposure as they can. That ought to tell you something.

But the Comstock Value fund thinks we are headed toward much slower growth summing it up this way.

“All in all, we see the tailwinds that have helped the economy and markets over the past year suddenly turning into headwinds. We expect to see downward revisions in both economic growth and corporate earnings in the period ahead. At the same time, according to “Investors’ Intelligence” , the bears seem to have thrown in the towel as the percentage of bears dropped to 15.7%, the lowest since December 1999. The spread between the percentage bullish and the percentage bearish soared to 41.6, the widest since October 2007, when the market peaked. Just as in early 2000 and late 2007, investors are in a state of denial, ignoring all of the bad news that is certainly no secret. “

Additionally, Hoising Management says,

“The evidence of the past three years seems clear in that monetary and fiscal policy have been unable to improve the average American’s standard of living. Time will be required to reestablish balance sheets to more normal levels, and in the interim disinflationary/deflationary tendencies will be ascendant. This environment is favorable for holders of long dated Treasuries. Positioning for an inflation boom will prove to be disappointing.”

The tea leaves are extremely difficult to read right now. I am still bullish the overall market. I am not watching day to day commodity prices for signs of inflation. I am watching developments on the ground. Do they get the corn crop in by May 10? How will tornadoes through the south affect cotton planting? Will we have a good growing season producing a bumper crop? When does the mideast situation shake out and stabilize?

I am beginning to get less worried about the default of the EU countries(figure Germany cannot abandon them and they will restructure leading to slower growth), US debt (because it won’t be settled until after November 2012), and some other over riding macro economic trends. Debt is a huge problem, but just not for the short run market action.

Buy the dips.

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