The Coming World Crash or the Coming Dollar Inflation

Dennis Mangan, a blogger I admire (except for his obsession with Mexican immigrants to California) points to a telephone interview given by Jim Rogers, George Soros's partner in the famous Quantum hedge fund. His arguments are very serious and have convinced me. Yet only three days ago I agreed with Brad De Long that stocks should be priced much higher. It is so confusing. Rogers says:

"You can't believe how bad it's going to get before it gets any better. It's going to be a disaster for many people who don't have a clue about what happens when a real estate bubble pops. It is going to be a huge mess," said Rogers, who has put his $15 million belle epoque mansion on Manhattan's Upper West Side on the market and is planning to move to Asia. "Real estate prices will go down 40-50 percent in bubble areas. There will be massive defaults. This time it'll be worse because we haven't had this kind of speculative buying in U.S. history," Rogers said. "When markets turn from bubble to reality, a lot of people get burned."

"When you have a financial crisis, it reverberates in other financial markets, especially in those with speculative excess. Right now, there is huge speculative excess in emerging markets around the world. There will be a lot of money coming out of emerging markets. When the last bubble burst in Japan stock prices went down 85 percent despite the country's high savings rate and huge balance of payment surplus. This is the end of the liquidity party," said Rogers. "Some emerging markets will go down 80 percent, some will go down 50 percent. Some will most probably collapse."

On the other hand, Japan's long recession as well as the Crash of 1927 were caused by restrictive monetary policies, which is a lesson that have been learned, I hope. So the current insolvency and illiquidity can be solved by inflation, and in fact the American dollar is depreciating quite fast (4 - 6% a year, I presume). Maybe Bernanke can avoid a crash by printing dollar papers. If so, the stock exchange would yet be the best refuge of value.

Gary (Hedge Fund Blog) writes:
-Former Fed Chairman Greenspan said he expects the fallout from subprime mortgage defaults to spread if home prices decline, however he sees no signs of that at this time. He also said that a 10% gain in home prices would cure the entire subprime problem. Finally, he said he sees no negative effects on consumer spending from subprime problems.
- Bear Stearns(BSC), the biggest US underwriter of mortgage bonds, said first-quarter profit rose 8% as higher revenue from trading derivatives and debt of troubled companies overcame a slowing market for home loans.
- General Electric’s(GE) commercial-finance division agreed to buy PHH Corp.(PHH) for $1.8 billion and then sell the company’s mortgage unit to Blackstone Group LP.
- Stocks will weather a surge in US subprime loan defaults because earnings growth and a robust labor market are enough to sustain the world’s largest economy, according to Credit Suisse Group.
Gary's conclusion:

Currently, subprime mortgages are investors' chief concern. Now look at the chart of the word "subprime." Maybe this time will be different, but if the word "subpime" were a stock, I would begin shorting it very soon. The CBOE total put/call is currently 1.75. It hit 1.88 earlier today, which is a very elevated level. To put that in perspective, it only exceeded this level once during the entire 2000-2003 market meltdown, which was one of the worst in U.S. history. I sense, once again, that investors have priced in the worst-case scenario rather than the most likely scenerio for U.S. stocks. This has been a hallmark characteristic of the current “negativity bubble.” I expect US stocks to trade modestly higher into the close from current levels on bargain-hunting, less concern over the I-Banking sector and short-covering

. He is right, too. With an inflating dollar, low unemployment and good salaries, American underclass may manage to pay back their mortgages. It is very confusing.

Where is a guru when I need it? The pic shows Taub Mozes, the Kallai csodarabbi unokaja, the Kalla (Hungary) miracle rebbe.