Reality Intrudes
This could be it folks. So much for the vaunted bailout our befuddled politicians were so proud of Friday; it didn’t work, even on Friday. Now it is (Black?) Monday:
Asian Market Indices
European Market Indices
Expect ours to tank again on opening.
Hot tip: Go long on wheelbarrows and short on wallets and purses. The FED has only one tool left: Treasury printing presses. Expect an emergency cut in Prime to or near 0%… they will be giving the stuff away and begging us to go spend it, so everyone may soon need a wheelbarrow. â—„Daveâ–º
Dave, this may be the time to buy stock.
From Forbes Magazine, Wesbury & Stein,
“In other words, any economic problems that the U.S. faces in the next few months or quarters is temporary. Financial markets have priced in Armageddon, and as a result still present one of the greatest buying opportunities of our lifetimes”.
Sure, John. If you are in your thirties with a depression proof job and plenty of time to wait for the market to recover, have excess capital you can afford to lose, and like gambling… this could be a great buying opportunity. As an entrepreneur, I always preferred to invest in my own businesses where I could control the rate of growth.
A few hours after I made that post, the market was down about 800 points, although it recovered half of that by closing. We’ll see what tomorrow brings. I am not sure how one would go about selecting stocks to bet on at this point. Even fundamentally sound businesses with real assets are at risk of not being able to borrow operating capital in this market. Just about any company, however sound, is at risk that its customers may not be able to buy its products during the depression.
As I have said elsewhere, gold and silver seem like the best hedge against the hyperinflationary depression that is now undoubtedly our fate. I don’t look at my metal as an investment, but as insurance to preserve my wealth through the inept machinations that the government will now go through attempting to keep us from having to pay the piper for the credit binge we have been surviving on for so long. The harder they try, the worse and more prolonged the depression will be. Good luck. â—„Daveâ–º
So Dave,
what is it to be, run away inflation, stagflation or deflation. The prophets of doom are whipping up hysteria and seriously aggravating the problems. Two motives, drive the stock down to unreasonably low levels then steal the resulting bargains and create a bad political climate for the administration with the November elections in the wings. If the problems are handled responsibly we will go through a serious recession lasting about two years. If O’bama gets elected all bets are off, he will probably screw the economy up like Roosevelt did in the 1930s.
Probably all three, John. We are obviously in the throes of a massive deflation of the value of real estate and other assets. Trillions of dollars of supposed wealth is vanishing into thin air. Of course, the FED is pulling it back out of the ether to inflate the currency, which is further depreciating the value of dollar denominated assets. Even with this massive deflation, you can expect the dollar price of an ounce of gold to meet or exceed the DJIA in the not too distant future.
What that price will be will depend on how much more fiat currency they find it necessary to create. One thing is for sure. With over $50 Trillion in unfunded liabilities on Washington’s off-budget books (mostly SSI and Medicare), there is no other way for them to meet them than to monetize their debt by continuing to inflate the currency to steal it from the savers. We retirees may continue to receive our monthly SSI checks, but will be lucky to be able to fill up a gas tank with one.
How clever will stock market investors still think they are when the DJIA finally hits $20K; but an ounce of gold is also $20K and a gallon of gasoline costs $80? The last time I calculated it from what figures I could find that were already a couple of years old, based on the quantity of FED funny money circulating, an ounce of gold was actually worth $12,600.
I heard an uncommonly forthright politician being interviewed the other day, who said if we tried to go back on the gold standard with the current level of gold owned by the FED and the amount of currency in circulation, it would be pegged at about $20K an ounce today. If the American people understood the implication of that, there would be a revolution tomorrow.
As for stagflation, count on that too. We are about to have massive layoffs in the financial services industry, which I suspect will ripple right through the economy. In the near future, those not lucky enough to have jobs producing goods and services people actually need and will continue to pay for, are going to find themselves unemployed at the same time the currency is being inflated to pay SSI and the inevitable Federal unemployment insurance the panderers in congress will not be able to resist. It will take some time for America to get back to being a nation of producers and savers, instead of a nation of consumers and borrowers.
Agreed on Obama; but on the economy, McCain is no better. Neither of these guys understands or values capitalism. They both just voted for the ill-conceived and pork laden $850B bailout bill, knowing full well that the government does not have the money, has no way to raise it, and nobody to borrow it from… they will just have to print it. So much for McCain’s promise to make those politicians demanding earmarks famous by exposing their wanton greed.
Worse, did you hear McCain tonight call for the government to spend another $300B buying up all the defaulting home mortgages, revaluing the homes, and giving the erstwhile owner a government mortgage he can afford? I was stunned! He may be able to call himself a Republican, but he sure isn’t a capitalist. â—„Daveâ–º
No argument on McCain. The difference between he and O’balmy is that O’ is a Progressive (code word for socialist). McCane is just a pragmatist doing whatever his gut tells him will work to achieve his immediate ends. The only proper role of government is to confess that it is their mess that they created and buy up all the sub standard loans they pressured lenders into making, foreclose on the ones not making payments then over time liquidate the equity. Reduce the bank deposit insurance back to $100,000 dollars, and only one deposit per person. This would immediately drive funds back into the market, but probably only the bond market to start with. So far my bond holdings are still in positive territory but I have seen some erosion of the book value of my stock holdings. I put a small portion of my assets into gold and silver nearly forty years ago to be used in absolutely catastrophic emergencies, but so far the wheelbarrows are still in the shed.
I am afraid you may be deluding yourself, John. Had you cashed out either a bond or stock certificate a year ago, how many gallons of gasoline, or pounds of coffee, or cans of beans, could you have bought with the proceeds? Now, do the same thing today.
The difference in the quantity of these commodities your paper now represents, is the amount of wealth you lost in the market over the past year, regardless of how many green government IOU’s you could receive for selling them. Unless you are an astute, active, and frequently lucky day trader, I’d venture to guess you are not even close to being in positive territory. If you are conservatively holding stocks long-term, I know you are not.
Do you have any stocks you have held for forty years? It would be interesting to run the same exercise with an ounce of gold and compare their buying power forty years ago and today. Inflation is insidious, and it can only get worse. Every day we hear about another several hundred billions of dollars being created out of the rare air in central bank’s board rooms and being desperately pumped into the economy.
Where is the $50 Trillion in unfunded liabilities going to come from to pay the Boomers SSI? With only two workers paying in for every retiree taking out, that Ponzi Scheme is about to collapse. Fair or not, like it or not, they have no other choice but to monetize their debt.
I have no doubt whatever that the market will appear to “recover” as the Dow heads toward $20K; but watch what the price of commodities does at the same time. Those congratulating themselves for their stock price appreciation will have to be naively ignoring the loss of actual wealth those inflated prices represent. Keep the bearings lubricated in your wheelbarrows. â—„Daveâ–º
Will markets tank tomorrow? It is a crap shoot. Indicators such a reduced oil bubble and European and Asian Government’s on board the odds do shift. This has to be the best thing to happen to Republicans in the long run. Watch and wait.
Phil
Hi Phil. Welcome aboard. The market should be up today; futures are up; overseas markets are up; but watch the last half hour. I am starting to suspect some of this may be a deliberate Jihad attack by the sons of Allah. Use one of those interactive charts to plot the past couple of weeks of the Dow with a volume overlay. Notice what happens in the last half hour every day. Wouldn’t you think that if there were that kind of volume at play every day, that it might be seen during the upward spikes too? Remember, they suspended short selling, so it seems counter intuitive that so many players would turn an erstwhile rally into a panic selling rout just before the close every day. â—„Daveâ–º
Hi Dave,
The Market did have a nice ring to it today. Sustained momentum. Seems like with all of the Government’s Nationalizing their banks and banks rescuing other banks, the Governments buying up shares that something had to click in the right direction. I do think the oil bubble being popped is more of a manipulation than a market correction. The Son’s of Allah may well have a role in this as they have the capital, influence and motivation.
I suspect if you were going to buy stock, Friday was the day. I have to agree with you about gold. I wish I’d bought when it was $200. It also is a hard asset they cannot take from you.
I have never seen Government folks scramble like they have recently. Very scary times.
I have to get used to this new forum. Thanks for welcoming me in.
Phil
That is like saying the dice are finally warming up in a crap game, Phil. I would think one would have to be an inveterate gambler to even consider putting any cash in the market right now. Yes, there is relief that the world’s central banks and governments are coordinating their efforts to solve the liquidity crisis; but that is only benefiting nervous banks and traders. It does little for the small business or farmer who needs a credit line to operate, or auto dealers who need financing to sell their products. Unemployment is climbing rapidly, and our economy is being crushed. Sooner or later, the market will notice that and head south again. Count on it.
Meanwhile, as I keep harping on, the massive infusion of brand new green IOU’s is just eating away at the buying power of our savings. So what if the hyper currency inflation “saves” the market and permits it to go back up to $14K, if it then takes $14K to buy what $7K would have bought last year? Either way, the investor lost half of his wealth. They are stealing us blind and most of us don’t even know it and/or can’t understand it. The demagogues have us blaming “greedy” businesses for raising prices, rather than the politicians for permitting the bankers to inflate the currency.
We would be infinitely better off if all the “scrambling” politicians admitted that they don’t have a clue; got the hell out of the way and stopped trying to fix it; allowed the market to crash completely and correct itself unmolested; abolished the Federal Reserve and returned to a constitutional gold/silver standard for our money; and passed the Fair Tax to attract foreign capital back into productive endeavors here in the land of the free and once industrious. â—„Daveâ–º
On Oct 13 Dave said “Remember, they suspended short selling, so it seems counter intuitive that so many players would turn an erstwhile rally into a panic selling rout just before the close every day.”
The ban on short selling was for only 935 of the market stocks, mainly financials. The ban ended at midnight on October the 8th. It appeared to have no discernible effect on the covered stocks. Shorting causes a sell order at the establishment of the short which is followed by a buy order at a hopefully lower price taking place at the latest when the short closes.
I am not clever enough to estimate the short term future of the market. In the long term I expect a depression when the perfect storm comes together. Baby Boomer retirement, Increased Social Security (SS) demand with a fall in SS income and run away demands for government funded medical services. I expect the economy to somewhat recover over the next two years As to the next “big one” probably after 2012 and before 2020. I will probably be wrong, but I have to make some fuzzy estimates to guide my actions. I don’t think things would be nearly as bad today if Schultz & company hadn’t panicked everybody.
I have to agree with you. The Government money presses will certainly be working overtime to our detriment.
Natural selection on a worldwide basis might have resulted in the destabilization of governments as the financial system collapsed. The robber barons would be hung or have to hide in obscure parts of the world. Mobs in the streets, chaos as nations are invaded and looted and the world order falls to third world levels. None of the pundits really went into detail as to the consequences of a financial collapse. Perhaps it is not a bad idea to let them fail and self correct but this correction would have made 1929 look like a Sunday picnic.
I have to agree that the fix, all trillion plus, is but an expensive bandaid. Time is not on our side as John so well pointed out. I am definitely not an expert but I can see it coming, why can’t they see it?
Phil
They can see it coming Phil. They just think that they will always be in control of the situation, and the buck can be passed to other generations. Of course the “nation” will not necessarily end up looking like the one we love. Bush’s present move on the banks is characteristic of fascism, they are nominally private organisations but government controlled. Wells Fargo dragged their feet but eventually succumbed. What puzzles me is how people who are supposed to be economists do all the wrong things. Increasing bank insurance was bound to encourage the flight of even more money from the market. Temporarily stopping short trading removed one of the checks on downward momentum (A short-seller has to buy stock to make his profit). Putting the banks under control of people who will not have the best interests of the banks at heart is hardly calculated to inspire confidence. I hear of mutual fund assets fleeing to foreign countries. What we really need is to drop the capital gains tax, the government to buy up the bad loans it encouraged businesses to make. Extend the Bush tax cut (I may have missed something here, Obama said he is not going to increase taxes below ~250,000 dollars but if the Bush cut expires that will be an increase). Then sit aside and let the market correct itself. The whole mess would be history in two years.