Slope of Hope Blog Posts

Slope initially began as a blog, so this is where most of the website’s content resides. Here we have tens of thousands of posts dating back over a decade. These are listed in reverse chronological order. Click on any category icon below to see posts tagged with that particular subject, or click on a word in the category cloud on the right side of the screen for more specific choices.

The Fog of War

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It seems to me the mass of humanity seems wisest only when disaster has recently struck. After the dot-com crash, everyone – and I mean everyone – clucked their tongues, shook their heads, and took on a bemused grin at the silly souls of 1999 who bid worthless stocks up to heaven. "What were they thinking? How could they believe those p/e's? I never would have done that!"

But then a new bubble started – the housing bubble. And it all made sense at the time. They aren't making any more land, after all, are they? And housing prices have never gone down. Interest rates are really low, and you've got a lot of first-time homeowners coming on the scene. I mean, it all makes sense.

So the the entire financial world is pushed to the brink (and only Lehman was allowed its own natural death; everyone else was artificially saved), and here again, everyone gets Instantly Wise. It's so obvious now how fraudulent and inflated it was, isn't it? Of course.

But we're in fog-land again. From Jim Cramer on up, everyone has figured out that it's silly to ignore the obvious reasons the market is going up. Don't fight the Fed, right? I mean, the writing's on the wall! Bernanke has made it crystal clear. It all makes so much sense.

And yet, whenever the next big fall comes – whether it's next week, next year, or five years hence – the Instantly Wise will wonder how on earth we could have deluded ourselves. How could we have missed the fact the Chinese were about to pull the rug out from under us? How could we have assumed hyperinflation wouldn't take place? What were we thinking?

Wait, we're not there yet. We aren't in Wise mode. We're again in the bubble, and only a fool isn't taking advantage of it. Enjoy the ride.


Behind the Scenes (by BKudla)

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As we watch the Federal Reserve launch QEII, and other programs to "support" growth in our economy, many of us are saying this will ruin us, we will have a run on the dollar, etc. and these guys can't be that stupid, can they.  Then there are those of us that try to pierce the veil to determine what is really the strategic end game here.  Here is my take, and before I share it, I don't necessarily endorse it or morally judge it.  That is when I lose money.  I am simply trying to see if I can get an edge.

The Federal Reserve has taken the role of executing our trade policy, this is nice and convenient for the Administration, as they can appear reasonable in public, and say things like, we support a strong dollar, and a rising Yuan would be helpful, while behind the scenes we have declared war on the Mercanilist nations. 

From a currency perspective, the players of world are divided into three camps;

  • The resource currency countries such as Australia, the Gulf States, Canada, South  Africa, Russia, etc.
  • The Mercanilist nations, which are of two flavors;
    • The overt, which simply tie the nations currency to ours, such as China.
    • The indirects, which use a variety of regulatory, tax, currency and trade policy to artificially support exports and suppress imports.  Those would be Germany, Brazil, any other Southeast Asian nation, and Japan.
  • The rest of the nations are not engaged or relevant in this fight, but will still suffer collateral damage.

The U.S. has put themselves in a box by allowing their budgets and current account deficits to become unsustainable (the why or whose fault it is, is irrelevant). We have been trying to rebalance global trade to save ourselves, and at the same time been printing dollars (along with every other consuming nation) to reinflate the world economy.

The Mercanilists and the Resource countries like things just the way they are now. But, they are vulnerable; by tying to our dollar, and having a high need for raw material imports, we are now in a position to cause them great pain, unless they revalue their currencies.

So my thesis is, we are playing a great game of chicken to see how long these countries can stand the internal inflation and the havoc of higher food and fuel prices on their populations, and the reduced profits for their business owners.  The squealing has already begun.

Brazil is having great difficulty handling the money flows, Korea, Japan and Germany are concerned enough to take this fight public, and China is struggling with higher food and fuel prices, and disappearing margins.  Here in America, the Federal Reserve has maybe a six month window before higher fuel and food costs embed themselves into the supply chain and come out with intolerable retail price increases. 

Between now and then, expect this new money to flow into hard assets that are internationally trade able.  These prices, I suspect will rise far faster than most expect, with high volatility throughout this complex and within it.  That is where I am positioned. When our energy and food prices get too high, we will force the Fed's hand to stop (Average gasoline in the $3.75-$4.00 range). That is when I step off. I suspect after this, a new managed world trade policy will be hammered out if we did not tip the world over the falls into real deflation and depression.

One man's view