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I respectfully disagree with a key point of John Burns argument.
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Posted 11/25/2012 09:17 (#2715569)
Subject: I respectfully disagree with a key point of John Burns argument.

First off I want to say that I believe John's approach to the markets have obviously been correct...  up till now.  No doubt that Gold and other Precious Metals have had a good run in the uncertainty of the markets.. Also no doubt that tremendous uncertainty has forced investors into non-typical investments..  That is why we have seen things like commodities and even farm land values going up at incredible rates over the past couple of years.

However, I do not agree that this will continue to infinity.. History shows that their will be a morning after.  The only question is when?

The purpose of this post is NOT to attack John Burns.. again I appreciate his viewpoints and his sharing of ideas.. some of which I have adopted in my own outlook.  No doubt he has been correct and I thank him for making the case he has.

However this point made in a post below.. a key point.. is wrong.

"either real interest rates stay negative or the US and Fed together blow up their balance sheets."

As I've noted below.. the Fed's balance sheet has stopped expanding..

The Fed's balance sheet is no higher than it was a year ago.  John is correct in saying that we should see a response to the incredible injections done in 2008..  My response.. is that we have.. now what?  Everyone keeps looking for inflation.. and yet we have not seen it.

There are a couple of key points to remember..

1) as the economy collapsed in 2008.. the Velocity of Money fell.. therefore the Fed could inject a quantity of supply into the system without substantially increasing the money supply.. which they did.

2) Housing prices.. a key component of inflation.. collapsed.. and even today are showing life but this huge factor alone absorded a lot of inflation in other areas.. such as Energy and Food.

However, what is the outlook?  The IEA just released a report showing that the US could become an energy exporter..

Some points I could quibble with.. but no doubt we are going to bring more production online.. including NGL's which may have some implications for ethanol.. going forward.

Also we in Ag know better than anyone just how much productive capacity can be unleashed GIVEN GOOD GROWING conditions..  We are currently in a drought.. and as long as that continues.. things will be dicey.. just like they were in the early 1980's... however, by 1985.. the US was swimming in both Cheap energy.. and Cheap grain.. I don't believe it's going to happen tomorrow.. but when it starts to rain again.. there's going to be ALOT of production coming to Market... someday.

So to summarize.. John Burns was correct.. and maybe conditions still warrent his position.. However, I don't believe it's gonna last.  Although it may continue for awhile.. yet.???

My caution and reason for posting this is to..

a) join the discussion with the counterpoint
b) admit where he has been correct
c) WARN.. that BORROWED $$$ to BUY INFLATED ASSETS.. things like farmland... COULD BE A TICKING TIME BOMB..
d) admit that I could be wrong
e) offer the perspective that "we've seen this movie before" look back to the 1980's.. specifically about 1981.. if you think this thing is gonna continue...  We were in the middle of a drought back then also..

f) look at 1985.

I don't think it has to be THAT bad.. We've learned these lessons before.. (haven't we?) so rational people who LEARN FROM HISTORY are not doomed to repeat it..???  Are they???

This thing may continue for awhile.. no doubt it will continue to be bumpy.. I actually am friendly grain prices until it starts to rain.. and our forecast is for not much improvement until at least the spring.. HOWEVER, MY VIEWPOINT is to PAY DOWN DEBT!!  PAY DOWN DEBT and PAY DOWN DEBT!!!

because no doubt there will be a morning after all of this.

I respectfully yield the floor.

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