Suntzu,

I agree wholeheartedly about the situation of the US government as well as the American citizen.  I'm going to be a devil's advocate, however, and suggest that a sovereign nation as large and militarily powerful as the US has never in history hit a debt wall like a developing nation has in the recent past (Argentina, Mexico).  As long as there are people willing to lend, this increase in debt at the personal and governmental level is expansionary. Now I know this summer there has been evidence that the Japanese and Chinese have not increased their US dollar holdings, but other nations have come to pick up the slack.  I also agree that the situation is getting worse and not better but is this macro theme really investable?  I mean, I've had bearish bets by pulling out of the market only to find 6 months later that I've missed a 15% rally.  I've pulled out of the markets because of what I thought portended a recession only to find the mildest recession in history. I find investing based on macro themes like this take a very long time horizon.  Because of this you can miss bull market rallys even in the midst of a secular bear market.  Hyman Minsky coined the phrase "stability breeds instability". I've heard this quote in a different way - everything is stable until it isn't.  It's just too hard too call when the end game is here and there maybe other investable themes in the meantime.  There has been more gas let out of the credit bubble recently but only time will tell whether we'll see a good whacking credit contraction.

Beez

Beez,

You make some great points and I'd like to respond to them. I know you are playing devil's advocate.

As for the debt wall, everybody said that nuclear powers don't default until 1998 when Russia did. The reason I actually looked at the Treasury stats is because some Wall St. yahoo was going on in a Bloomberg article about how all of the petrodollars will flow to Treasuries because they are the most liquid market in the world. I seriously doubt this hypothesis and wanted a closer look at what the situation was. I think the demand for dollars comes from other central banks trying to devalue their currencies in lock-step with dollars rather than the desire to invest in US gov't debt.

As for the investability of macro themes, anybody who was in BRIC securities handily outperformed US securities over the last few years. In the short term the volatility can be rough, but it is usually worth it. Right now, my Stokblogs portfolio is down about 20%, but I'll stick with it because of 2 reasons:

1. I am usually six months to two years too early for investment themes. It's the most important thing I personally have to work on to make myself a better investor.

2. I remember 2000. I did my research and was convinced that oil was going to rise substantially. I bought oil stocks and income trusts and oil proceeded to go from $20 to $15. Three years later it was at $45. In the long run it was a wobble. At the time, it seemed like that 25% drop was the end of the world. I stuck to my guns and made out okay.

Finally, the whole "everything is stable until it isn't" argument is just another way of saying only liars buy the bottoms and sell the tops. It's true that nobody knows the future and exact timing is impossible. I usually figure for my long term investments if I get the year right I'm doing okay. Jim Rogers always says he's a terrible trader and can't time anything. He makes a boatload of money being in something for the majority of the run though.

SunTzu

Suntzu,

I admire your patience.  If there's one thing all investors could learn to do better is to be patient.  This involves ignoring the emotional part of the brain that gives you all the wrong signals at the wrong times. i.e. being greedy or feeling the need to be in the market when everyone is making money.  Also the reverse when there's blood in the streets, the brain tends to shy away from making further bets when one's portfolio is already down significantly.

I've read some Doug Casey and although I don't always agree with his extreme pessimism, he has been around the markets awhile and he's been through bulls and bears.  He predicts a bad credit deflation intermixed with some hyperinflation especially of currency, gold, commodities and energy.

I'm also bullish on energy but I'm more scared shitless about the peak in world oil production.  I've been following the posts on www.theoildrum.com and although sometimes very technical, they've had numerous number crunchers and industry types hash through production profiles of Ghawar oil field in Saudi Arabia.  Without getting into the details, there is mounting evidence that this king of oil fields is starting to water out and that as saudi oil production peaks, smaller fields world wide will not be able to make up for natural declines in aging oil fields.  There's nothing magical about decline rates or peaking of production but our entire existence and society is based upon cheap energy, and i'm afraid this is about to change. I really believe, our governments, markets, and main stream media aren't really giving this any serious thought.  The market pundits keep referring to terror premiums, hurricane season, and hedge funds as to the reason for high oil prices.

I follow the oil markets closely and I believe the current prices of oil suggest that the days of cheap oil are over.  I hate making a statement like that because I've seen too many experts make prognostications that turn out to be false.  But I'm putting my money where my mouth is as about half my real world portfolio is weighted in energy - E&Ps, offshore drillers, NG income trusts, as well as rig serving and drillers.  The other half of my portfolio is precious metals.

Sorry for the long post, but in conclusion, trends sometimes do take on a life of their own and they go on longer than many can predict.  That's why I think the pain associated with triple deficits will be slow in coming.  The trend for energy prices however...........

Beez

Des

Beezwax,

I was reading Doug Noland this morning and he wrote the following:

First, and foremost, when the Fed began aggressive post-tech Bubble “mopping-up” accommodation in early 2001, the dollar index traded near 120 (today 78.22). Approaching $6.0 TN, international reserves assets have inflated about three-fold since 2001. Chinese reserves have ballooned from about $170bn to $1.434 TN. The price of oil is up almost three-fold; gold almost the same. The price of copper has inflated from about $80 to $350, lagging some of the other industrial metals. The price of wheat is up more than three-fold. The Goldman Sachs Commodities index rallied from 250 to 550. Brazil’s Bovespa equities index has inflated from about 15,000 to 62,500; the Mexican Bolsa 5,000 to 32,500; Russia’s RTS 130 to 2,100; the Shanghai Composite from about 2,000 to 6,000; and India’s Sensex 4,000 to 18,000.

Personally, I don't think it is coincidence that international reserves tripled and oil and gold followed suit. IMHO, the increase in the money supply and the price of oil and gold correlate quite well over longer periods.

Elsewhere in the article he points out that China's reserves have reached $1.43 trillion. This is a rise of 45% over the last year! Wall St. would like to think this money is going to Treasuries, but I think it will be going elsewhere. Personally, I think the Chinese will be using a lot of this money to buy resources and resource producing assets. Just a thought.

SunTzu