Wednesday, January 09, 2008
The Coming Bear Market
It looks like it may be time to move out of the U.S. stock market and into overseas markets and commodities. One option is purchasing I-bonds offered by the Treasury -- they look like a safe hedge against inflation.
China is allowing the yuan to rise a bit now. The dollar remains weak. Oil is way up. The Fed is trying to loosen monetary policy -- though Bernanke is generally known as an inflation hawk. With the price of imports sure to go up because of the currencies and oil, prices should be set to rise. At the same time, consumer spending looks to be fading as a result of the mortgage crisis. A sure stormy petrel: AT&T's CEO reports that many of its customers are having their internet and phone service disconnected as they are unable to pay their bills. Homeowners no longer feel flush on perpetually rising home value, and are unable to pull cash out of their houses through home equity loans. Stagflation looks to be near.
Update [1/10/08]: Looks like the Fed will continue to loosen monetary policy by taking interest rates down again this month. Fed Chairman Ben Bernanke says that the Fed will keep an eye on inflation, but that a lower rate is necessary to help stave off the coming recession.