I got greedy, I should have called the top Monday afternoon.
We've been there, and we're not going back. The tide turned this week and we're looking down from here.
A piece of advice...if you haven't sold out of any risky positions...do it now. The dropoff is going to be quite severe, so I would do it rather quickly.
Sit out the slide, which should be beginning shortly. Get ready to watch from the sideline.
Sell...sell...sell!!!
Thursday, October 1, 2009
Monday, September 28, 2009
The last week
This week represents the calm before the storm. One last little breath of good news before we all settle in for another nightmare in our financial markets.
The Dow is sitting at about 9800 right now...it may rally to 10,000 this week, maybe not...but it's not the time for nickel and diming the market. This is a warning, get out of anything risky this week, it will probably be your last chance for quite a while to do so.
Behind the scenes right now, the real panic is starting. Small and medium sized banks are scrambling to unload a ton of commercial real estate, and they're finding no buyers to hold on to overbuilt strip malls and liquor stores. It's essentially the same situation we had last year...when everyone wants to sell a particular asset at the same time, that asset becomes valueless.
I may do a post about the mark-to-market and the effect on a bank's balance sheet, but that's a discussion for another time. In short, it's a new form of accounting that banks must do...and it's going to cause a whole lot of banks to fail.
It's going to start a chain reaction, which will hurt the markets, especially the stocks.
So...if you have your 401k in a lot of growth funds...it might be time to start trading those in for some bonds or money markets.
When I say it might be time...it is time...the time is now. Get on it, don't say I didn't warn you.
I'm not calling the top yet, but I am saying that it will happen before this week is over.
The Dow is sitting at about 9800 right now...it may rally to 10,000 this week, maybe not...but it's not the time for nickel and diming the market. This is a warning, get out of anything risky this week, it will probably be your last chance for quite a while to do so.
Behind the scenes right now, the real panic is starting. Small and medium sized banks are scrambling to unload a ton of commercial real estate, and they're finding no buyers to hold on to overbuilt strip malls and liquor stores. It's essentially the same situation we had last year...when everyone wants to sell a particular asset at the same time, that asset becomes valueless.
I may do a post about the mark-to-market and the effect on a bank's balance sheet, but that's a discussion for another time. In short, it's a new form of accounting that banks must do...and it's going to cause a whole lot of banks to fail.
It's going to start a chain reaction, which will hurt the markets, especially the stocks.
So...if you have your 401k in a lot of growth funds...it might be time to start trading those in for some bonds or money markets.
When I say it might be time...it is time...the time is now. Get on it, don't say I didn't warn you.
I'm not calling the top yet, but I am saying that it will happen before this week is over.
Tuesday, September 8, 2009
Get out of the banking sector this week
The first shoe to fall in our annual autumn crash will be the banking sector. It started the fun last year, and I have every reason to believe that it will be the same this year.
No one is talking about commercial real estate now, but by year's end it will be part of the conversation. The commercial market is almost as overextended as the housing sector...ie there's too many malls, strip malls, and drug stores to support the demand for these things. That means empty commerical buildings (seen any in your neighborhood?) which means that the banks may not be getting their loans paid on these buildings.
These things add up slowly, but then hit you in the face all at once. The real pain for businesses didn't come until late last year, and it came suddenly when everyone panicked and stopped spending their money. Now it's been a year, and those Bennigan's and Steve and Barry's closures are beginning to hit banks, and the worst spot to hit them is in their capital.
Many many banks are struggling with this, but mostly local and at most reigonal banks. The big banks haven't been lending to businesses for a while.
This will either incite the stock market fall through a rash of bank failures, but more likely Obama will be act. I'm betting that it will be a creation of bad banks the government will start. Basically, it will start buying up commercial real estate paper (buy their mortgage) and collecting them in big government owned banks. Their mission will be to split these assets up and start selling the best, slowly selling the rest once the market improves and eventually closing the banks with a zero on the dotted line.
Regardless of the actual damage done this fall...the drop in the market will occur for 2 reasons.
1) The economy is not as healthy as it would appear. We still have some pretty bad problems.
and
2) Because everyone will suddenly realize that #1 is a reality, and will be racing to sell.
It is going to occur in 2009, and the smart ones who sell out soon will be ready to scoop up the same stocks for 25% less than their sale value today.
Predict the market, don't be the fool that reacts too late. Sell your financial stocks today.
No one is talking about commercial real estate now, but by year's end it will be part of the conversation. The commercial market is almost as overextended as the housing sector...ie there's too many malls, strip malls, and drug stores to support the demand for these things. That means empty commerical buildings (seen any in your neighborhood?) which means that the banks may not be getting their loans paid on these buildings.
These things add up slowly, but then hit you in the face all at once. The real pain for businesses didn't come until late last year, and it came suddenly when everyone panicked and stopped spending their money. Now it's been a year, and those Bennigan's and Steve and Barry's closures are beginning to hit banks, and the worst spot to hit them is in their capital.
Many many banks are struggling with this, but mostly local and at most reigonal banks. The big banks haven't been lending to businesses for a while.
This will either incite the stock market fall through a rash of bank failures, but more likely Obama will be act. I'm betting that it will be a creation of bad banks the government will start. Basically, it will start buying up commercial real estate paper (buy their mortgage) and collecting them in big government owned banks. Their mission will be to split these assets up and start selling the best, slowly selling the rest once the market improves and eventually closing the banks with a zero on the dotted line.
Regardless of the actual damage done this fall...the drop in the market will occur for 2 reasons.
1) The economy is not as healthy as it would appear. We still have some pretty bad problems.
and
2) Because everyone will suddenly realize that #1 is a reality, and will be racing to sell.
It is going to occur in 2009, and the smart ones who sell out soon will be ready to scoop up the same stocks for 25% less than their sale value today.
Predict the market, don't be the fool that reacts too late. Sell your financial stocks today.
Tuesday, September 1, 2009
Not yet...
Today was a rough day...markets tanked a little bit...but this isn't it quite yet. We still have some more to climb before we start our long decent. They're right today...the markets have climbed too far without any huge fundamentals supporting it.
The tanking we saw today was most of the smart money coming back from vacation...most traders take August off and don't return until the 1st of September. They got back to their desks and were happy to see the climb had continued, but bailed because they knew it won't last.
It won't last much longer, we're going to see a tank pretty soon...but my bet is that we have a few more weeks to go.
Pay close attention to financials...they are going to lead the fall. Also, keep an eye on Friday bank failures...you're probably going to get a slew of them just before the market tank happens.
Probably a good time to start backing out of your most overpriced pieces of your portfolio. Get out of bank stocks by the end of next week for sure.
Today was bad, but we'll make up this ground by the end of the week.
Wait for it...
The tanking we saw today was most of the smart money coming back from vacation...most traders take August off and don't return until the 1st of September. They got back to their desks and were happy to see the climb had continued, but bailed because they knew it won't last.
It won't last much longer, we're going to see a tank pretty soon...but my bet is that we have a few more weeks to go.
Pay close attention to financials...they are going to lead the fall. Also, keep an eye on Friday bank failures...you're probably going to get a slew of them just before the market tank happens.
Probably a good time to start backing out of your most overpriced pieces of your portfolio. Get out of bank stocks by the end of next week for sure.
Today was bad, but we'll make up this ground by the end of the week.
Wait for it...
Friday, August 21, 2009
The cracks are starting to form...wait for it...
The markets keep chugging along this week, after some initial worry that the rise may be over.
Not just yet...we've still got some optimism to dry up before the markets can start their drop. Another month, maybe a little more...but we're getting close.
July was a pretty bad month for the small banks. Up until now, we've seen banks going under because of residential real estate...but creeping in slowly but surely are commercial real estate loan defaults. Remember last fall when it seemed every bank was going to fold? We're probably going to be getting a taste of that this year.
It won't be as widespread or huge...because it's going to be the mom and pop banks that go under, not your giants. That's because the giants saw the writing on the wall a little earlier this time, and bailed from the commercial market. Not your huge projects like Trump's building...but your strip malls, liquor stores, resale shops...local business. Most of those local businesses got their building loan from a local bank. Big banks stopped lending to these markets, and aren't interested in derivatives for these either.
Most likely, Obama is going to take some action this fall to again support the banks. At least, he is going to pump some dough into the FDIC (because they're going to run out of money soon.) It's hard to get a read on him right now, but he may do something (along with the Treasury or Federal Reserve) like opening up a series of bad banks, to dump assets no one wants for a premium...then slowly selling those assets off to close the bank with a zero.
Like I said...it's hard to guess what Obama and co. plan to do, but rest assured they are going to take action. We can only pray it will be limited.
This is the news that will drive the market lower this fall.
The cracks for this are already forming, and are plain as day when you know where to look.
Check out PPI and CPI, both measures of the value of the dollar. Both were showing mild inflation through most of this year, but with July took a tumble towards deflation. Deflation, as I've said before, is bad for debtors...and that's most of us. When banks go under, money is destroyed. Not like dollar bills are being burnt, but fake money invented by banks being destroyed has the same effect as burning dollar blls.
July was a very bad month for banks...19 banks failed. Bank failures aren't really felt from a direct sense...everyone's money is replaced and immediately available, all assets are transferred so you just write your mortgage check to someone else next month. But the effects of a bunch of banks going under at once is felt in the value of your dollar.
We're probably going to feel a mini deflation again this fall. It'll be like last fall, oil and commodities will ease down, the stock markets will come down a little harder. Housing sales is going to slow down again (they're really doing well right now.)
That means get ready to take action...don't sit on your ass and watch your retirement shrink again, get ready for it.
Get ready to sell into safe stuff...money markets and bonds...and sit out the correction.
Don't sell just yet, as we've still got a little more climbing to do, but get a gameplan together. Figure out what's most overpriced in your portfolio, get ready to sell that first. Figure out what you're buying into, but anything that won't feel a market correction.
The fundamentals are starting to look a little worse, but the optimism is going to keep up a little longer. Just know that it's coming.
I'll keep posting until I think this is the top...then I'll try to call the top. We'll see how well I guess. Then, I'll try to call a bottom when you take the money sitting on the sidelines and cherry pick underpriced stocks and especially commodities.
...wait for it...
Not just yet...we've still got some optimism to dry up before the markets can start their drop. Another month, maybe a little more...but we're getting close.
July was a pretty bad month for the small banks. Up until now, we've seen banks going under because of residential real estate...but creeping in slowly but surely are commercial real estate loan defaults. Remember last fall when it seemed every bank was going to fold? We're probably going to be getting a taste of that this year.
It won't be as widespread or huge...because it's going to be the mom and pop banks that go under, not your giants. That's because the giants saw the writing on the wall a little earlier this time, and bailed from the commercial market. Not your huge projects like Trump's building...but your strip malls, liquor stores, resale shops...local business. Most of those local businesses got their building loan from a local bank. Big banks stopped lending to these markets, and aren't interested in derivatives for these either.
Most likely, Obama is going to take some action this fall to again support the banks. At least, he is going to pump some dough into the FDIC (because they're going to run out of money soon.) It's hard to get a read on him right now, but he may do something (along with the Treasury or Federal Reserve) like opening up a series of bad banks, to dump assets no one wants for a premium...then slowly selling those assets off to close the bank with a zero.
Like I said...it's hard to guess what Obama and co. plan to do, but rest assured they are going to take action. We can only pray it will be limited.
This is the news that will drive the market lower this fall.
The cracks for this are already forming, and are plain as day when you know where to look.
Check out PPI and CPI, both measures of the value of the dollar. Both were showing mild inflation through most of this year, but with July took a tumble towards deflation. Deflation, as I've said before, is bad for debtors...and that's most of us. When banks go under, money is destroyed. Not like dollar bills are being burnt, but fake money invented by banks being destroyed has the same effect as burning dollar blls.
July was a very bad month for banks...19 banks failed. Bank failures aren't really felt from a direct sense...everyone's money is replaced and immediately available, all assets are transferred so you just write your mortgage check to someone else next month. But the effects of a bunch of banks going under at once is felt in the value of your dollar.
We're probably going to feel a mini deflation again this fall. It'll be like last fall, oil and commodities will ease down, the stock markets will come down a little harder. Housing sales is going to slow down again (they're really doing well right now.)
That means get ready to take action...don't sit on your ass and watch your retirement shrink again, get ready for it.
Get ready to sell into safe stuff...money markets and bonds...and sit out the correction.
Don't sell just yet, as we've still got a little more climbing to do, but get a gameplan together. Figure out what's most overpriced in your portfolio, get ready to sell that first. Figure out what you're buying into, but anything that won't feel a market correction.
The fundamentals are starting to look a little worse, but the optimism is going to keep up a little longer. Just know that it's coming.
I'll keep posting until I think this is the top...then I'll try to call the top. We'll see how well I guess. Then, I'll try to call a bottom when you take the money sitting on the sidelines and cherry pick underpriced stocks and especially commodities.
...wait for it...
Friday, August 7, 2009
Questions?
I try to always write in the simplest terms necessary, but if you would like anything further clarified, please feel free to ask questions...and I will do my best to respond.
Also, any questions you'd like to ask in general, please feel free to comment...I will respond asap.
Just to qualify myself as qualified...I am an amateur economist...but one who predicted the crash in oil and all other commodities, and the soaring value of the US dollar last year. I called the bottom of the gold and silver market (after advising against them for a year) in December 2008...and they haven't been close to that level since. I also predicted the bottom of the market this year, earlier this February.
Also, any questions you'd like to ask in general, please feel free to comment...I will respond asap.
Just to qualify myself as qualified...I am an amateur economist...but one who predicted the crash in oil and all other commodities, and the soaring value of the US dollar last year. I called the bottom of the gold and silver market (after advising against them for a year) in December 2008...and they haven't been close to that level since. I also predicted the bottom of the market this year, earlier this February.
The yo-yo decade
We've got some push/pull ahead in our economy. Two steps forward, one back, one forward, two back. If you're investing for the long run, to buy and hold, you may as well be saving your cash in a mattress. Honestly, if you look back at the decade most economically similar to our own (late 70's-early 80's) you'll see the market has no real direction.
We've had all of the things that gave us the economy of the 1970's. We've had a massive expansion in government (LBJ, Bush) we've had oil price shocks due to geopolitics, and years of inflation weighing on our standard of living.
In some ways, we have yet to really feel some of the problems of the 70's. We haven't gotten bit by huge inflation...yet. It's probably coming pretty soon, and it stands to be even more severe than the 1970's. For now, the serious inflation will probably have to wait a few years, we've probably got some mild inflation in the next few years.
The inflation will be limited by the amount of bank money to be lost, and the unemployment rate. For inflation to really get hot, the banks have to stop having writedowns, and jobs have to start returning. They both work against inflation.
We've had some pretty good feelings recently (not me, the loons not paying attention) but we're due for a little reality. We have put off problems in our economy for too long, and they must be felt.
The real question I have right now is...will the US swoop in and bail out the small banks, when they have the same effect as the residential real estate did on the big banks? The banks which will be hurt by this are local banks who lent money to local small businesses who are being crushed, and then they find themselves unable to sell the building the business once occupied.
Will there be a bailout for small banks? I think there will be action, but short of a full bailout (see my article describing the bailout below). I think Obama will enact some "save the American small business" bridge...either in the form of interest free loans to small banks, or some kind of pre-recievership condition before the FDIC lets them fail. Obama will do something, because he has carte blanche from congress.
I'm pretty sure talk of this kind, identifying a problem (like George II did last year) and talk of a solution to save small banks, will start tanking the markets this fall. The inevitable yo-yo...my advice, sell and buy when you think things are the crappiest.
I think the Dow will be over 10,000 this year...but I know it will fall below 8000, that is for certain.
False recovery, be sure to be ahead of the game.
Note...I'm guessing we won't see a full scale recovery, a real and lasting recovery, until at least 2016, maybe even 2020. Until then, the weeding out will continue. You should not be staying out of the markets completely, but be smart about when/how you invest.
Think about what kind of businesses will be hurt the most this fall. Certainly anything tied to consumer non-discretionary spending (Microwave ovens, custom kitchens, color TV's) will fall off pretty hard. Probaby another round of falls in the financial world, nowhere near the scope of last year's fall.
Even if you love a company in one of these categories...stay out until you think the bottom is out...then buy.
Commodities should be no exception to the rule, although depending on the level of panic, gold may hold decently. Silver should be hurt, I'm thinking it's likely overpriced now.
The auto companies will go down with the rest of them, but it may provide the buying opporitunity of a lifetime, Ford or GM only...not Chrysler. Both Ford and GM are in the middle of a massive shedding/restructuring, which along with the US consumer slowly trickling back into the showroom, will at least give you a chance to sell at 2 or 3 times what it will be worth this fall.
I'm still scoping for some fall-proof stocks, but we might just have a slide across the board.
When things do start going badly, that's when you need to start picking up some great values. Do it conservatively, don't put your nest egg into a 4 cent stock. Find some companies that fall in price only because everything else is. It is important to do your research early, so you know which ones you're keeping your eye on.
It is going to feel weird to be selling in the next month or so, when things seem better, and even weirder to be buying when the world seems to be covered in manure...but people who do so are the ones getting wealthy.
We've had all of the things that gave us the economy of the 1970's. We've had a massive expansion in government (LBJ, Bush) we've had oil price shocks due to geopolitics, and years of inflation weighing on our standard of living.
In some ways, we have yet to really feel some of the problems of the 70's. We haven't gotten bit by huge inflation...yet. It's probably coming pretty soon, and it stands to be even more severe than the 1970's. For now, the serious inflation will probably have to wait a few years, we've probably got some mild inflation in the next few years.
The inflation will be limited by the amount of bank money to be lost, and the unemployment rate. For inflation to really get hot, the banks have to stop having writedowns, and jobs have to start returning. They both work against inflation.
We've had some pretty good feelings recently (not me, the loons not paying attention) but we're due for a little reality. We have put off problems in our economy for too long, and they must be felt.
The real question I have right now is...will the US swoop in and bail out the small banks, when they have the same effect as the residential real estate did on the big banks? The banks which will be hurt by this are local banks who lent money to local small businesses who are being crushed, and then they find themselves unable to sell the building the business once occupied.
Will there be a bailout for small banks? I think there will be action, but short of a full bailout (see my article describing the bailout below). I think Obama will enact some "save the American small business" bridge...either in the form of interest free loans to small banks, or some kind of pre-recievership condition before the FDIC lets them fail. Obama will do something, because he has carte blanche from congress.
I'm pretty sure talk of this kind, identifying a problem (like George II did last year) and talk of a solution to save small banks, will start tanking the markets this fall. The inevitable yo-yo...my advice, sell and buy when you think things are the crappiest.
I think the Dow will be over 10,000 this year...but I know it will fall below 8000, that is for certain.
False recovery, be sure to be ahead of the game.
Note...I'm guessing we won't see a full scale recovery, a real and lasting recovery, until at least 2016, maybe even 2020. Until then, the weeding out will continue. You should not be staying out of the markets completely, but be smart about when/how you invest.
Think about what kind of businesses will be hurt the most this fall. Certainly anything tied to consumer non-discretionary spending (Microwave ovens, custom kitchens, color TV's) will fall off pretty hard. Probaby another round of falls in the financial world, nowhere near the scope of last year's fall.
Even if you love a company in one of these categories...stay out until you think the bottom is out...then buy.
Commodities should be no exception to the rule, although depending on the level of panic, gold may hold decently. Silver should be hurt, I'm thinking it's likely overpriced now.
The auto companies will go down with the rest of them, but it may provide the buying opporitunity of a lifetime, Ford or GM only...not Chrysler. Both Ford and GM are in the middle of a massive shedding/restructuring, which along with the US consumer slowly trickling back into the showroom, will at least give you a chance to sell at 2 or 3 times what it will be worth this fall.
I'm still scoping for some fall-proof stocks, but we might just have a slide across the board.
When things do start going badly, that's when you need to start picking up some great values. Do it conservatively, don't put your nest egg into a 4 cent stock. Find some companies that fall in price only because everything else is. It is important to do your research early, so you know which ones you're keeping your eye on.
It is going to feel weird to be selling in the next month or so, when things seem better, and even weirder to be buying when the world seems to be covered in manure...but people who do so are the ones getting wealthy.
Monday, August 3, 2009
Bait, switch, and distract
The third phase of a clever song and dance to get an artificial recovery...distract us.
They got our minds thinking of the recession being over, now it's over (still unofficially) and now they're going to distract us as long as possible to keep the recovery driving.
For some reason, President Obama decided to get involved in a worthless waste of taxpayer dollars caused by two headstrong egomaniacs who need to grow up. I'm talking about the recent arrest of Harvard Law professor Gates for trying to break into his own house.
Given, his true crime was being belligerent and impatient with a cop trying to do his job, and failing to respect an overstepping and meatheaded authority. The cop was initially trying to do his job, but then arrested and detained a man because he felt his position wasn't getting him the respect he deserved...
Whatever my opinion of the matter (they were both wrong) the president got involved in this to stir up a little controversy, back away from some inflammatory comments gracefully, and have the two men over to the White House for tea and crumpets. Sure am glad I'm paying for flying these two immature children to get together and make up.
Consider us distracted, too distracted to notice that we're still in the mud up to our necks and it'll be a little while before the economy feels normal for any amount of time. Things aren't very good, and they haven't been good since the late 1990's. We covered up the problems for quite a while, but that only made things worse. That's what putting problems off until tomorrow does...it's almost a universal law.
They won't be able to distract us forever, for before the year is out, some stuff is going to happen to remind us that we're still not quite out of the water. I would imagine it will be somehow tied to commercial real estate, which will probably start affecting smaller banks. The big names you know bailed from that market years ago, so the only big ones to fall will be small names.
That's what I imagine will be the next dip in the markets (although not as severe as the 2008 dip). It probably won't happen until at least mid-September, August is usually a slow month because most of Wall Street is sitting on the beach...basically earnings will drive stock prices, and I think they've got some plesant surprises ahead.
If you're playing time the market (which is probably going to be the only way to make money in the near future) then get ready to begin selling into some safety. Start re-evaluating value (use P/E) and get ready to sell off your higher ones first. You'd probably want to start selling faster when the Dow gets above 10k...because I sincerely doubt it will sustain much higher than that.
Now don't bail completely, stick with some, but make it safer stuff. Consumer staples, pharma, stuff like that.
Do the opposite of what most people are doing. No one is paying attention right now to the markets...now is the time to watch them like a hawk.
I love this website, not affiliated with them at all, but it's a very good tool to learn what numbers drive markets. It's not foolproof, but learn what the terms they measure mean if you want to understand markets.
http://www.bullandbearwise.com/
They got our minds thinking of the recession being over, now it's over (still unofficially) and now they're going to distract us as long as possible to keep the recovery driving.
For some reason, President Obama decided to get involved in a worthless waste of taxpayer dollars caused by two headstrong egomaniacs who need to grow up. I'm talking about the recent arrest of Harvard Law professor Gates for trying to break into his own house.
Given, his true crime was being belligerent and impatient with a cop trying to do his job, and failing to respect an overstepping and meatheaded authority. The cop was initially trying to do his job, but then arrested and detained a man because he felt his position wasn't getting him the respect he deserved...
Whatever my opinion of the matter (they were both wrong) the president got involved in this to stir up a little controversy, back away from some inflammatory comments gracefully, and have the two men over to the White House for tea and crumpets. Sure am glad I'm paying for flying these two immature children to get together and make up.
Consider us distracted, too distracted to notice that we're still in the mud up to our necks and it'll be a little while before the economy feels normal for any amount of time. Things aren't very good, and they haven't been good since the late 1990's. We covered up the problems for quite a while, but that only made things worse. That's what putting problems off until tomorrow does...it's almost a universal law.
They won't be able to distract us forever, for before the year is out, some stuff is going to happen to remind us that we're still not quite out of the water. I would imagine it will be somehow tied to commercial real estate, which will probably start affecting smaller banks. The big names you know bailed from that market years ago, so the only big ones to fall will be small names.
That's what I imagine will be the next dip in the markets (although not as severe as the 2008 dip). It probably won't happen until at least mid-September, August is usually a slow month because most of Wall Street is sitting on the beach...basically earnings will drive stock prices, and I think they've got some plesant surprises ahead.
If you're playing time the market (which is probably going to be the only way to make money in the near future) then get ready to begin selling into some safety. Start re-evaluating value (use P/E) and get ready to sell off your higher ones first. You'd probably want to start selling faster when the Dow gets above 10k...because I sincerely doubt it will sustain much higher than that.
Now don't bail completely, stick with some, but make it safer stuff. Consumer staples, pharma, stuff like that.
Do the opposite of what most people are doing. No one is paying attention right now to the markets...now is the time to watch them like a hawk.
I love this website, not affiliated with them at all, but it's a very good tool to learn what numbers drive markets. It's not foolproof, but learn what the terms they measure mean if you want to understand markets.
http://www.bullandbearwise.com/
Sunday, July 26, 2009
Who hoo! Inflation is back
They are celebrating at the Fed. They have slayed the evil dragon called deflation, for now at least.
Deflation is a horrible thing for people in debt, because it quickly can increase the amount of debt that is felt...or to put it another way the dollars you owe suddenly are worth more.
We are debtors, both individually and as a nation. Our debt burden is high, although currently sustainable, it grew at a rapid pace last fall when the dollar began climbing against almost everything.
The Fed set out to kill this deflation, because it is bad for business.
They invented some money for the banks. Doesn't really exist, never did. If you really understand the banking industry, the banks were allowed to invent a bunch of money on paper (never printed) to replace a bunch of money they lost on paper which never really existed in the first place.
The government didn't give them money, they gave them permission to commit monetary fraud. Nothing being paid back ever, they called it a capital injection...funny.
They had the luxury to do so. With all of the money being burned up suddenly in the subprime meltdown, they could "print' a huge sum of money at once, and never have a tremendous effect through inflation because you're only printing what's suddenly been lost.
I think America lost their outrage against this giveaway when we remembered that we have no clue how a bank works, how the Fed works, how the system works. We are clueless, and we have too many people shouting confusing things in our ear each day that we just shrugged our shoulders and turned our attention back to other stuff. Do you believe that America would care about the bank bailout if they found out all that happened was just a little erase/rewrite allowed on the books of specific banks?
We did it again, America, we let our elected leaders play economic god. They decided which banks get their money back (or more) from a mess most of them created, when a bank that might not have created the mess goes under as a consequence. We let them do it.
So they are blowing party horns and popping the champagne, because the dollar in your pocket is worth less than it was a few months ago.
Here's betting that they'll slowly let inflation get out of control, to the point that everyone's starting to get worried, and then they'll pull the emergency brake on the economy (with severe and quick increases in interest rates) which will stop the inflation, and they'll hope they do it quick enough to keep the economic momentum going.
This is what they are planning. They want to slowly make your money be worth less and less, so fewer people are underwater on their mortgage, so we owe less money to China and Japan (and social security recipients). If they do it long enough, wages will start to increase, because it will cheapen the cost of labor for American business.
It will work, only because most people don't know what's going on under their nose. I have faith in this, because of how many times we have let them get away with it. Paul Volker was the Fed chief under Reagan, and he was the one to quickly and dramatically raise interest rates. It killed the inflation from the late 1970's. This same man, Volker, is the chief of Obama's Economic Recovery Advisory Board. Their job, is going to be to decide how much to inflate and when to stop.
Inflation is a hidden tax on all of us, and if we keep letting our leaders put more and more burden of this tax on our shoulders, they will eventually overload us and this world will collapse.
I mention that our current level of debt is sustainable, which is to say that the debt we've already written as a nation could be paid off eventually, if we suddenly decided to live within out means as a nation and stopped borrowing altogether.
Our debt burden as a nation is (rounding down a little, I believe) about 10 trillion dollars. Takes your breath away, but think of it a few ways.
Our debt - 10 trillion
Our population - 300 million
That leaves each of us owing 35 grand or so in debt, as our burden of being part of this nation, I suppose...or our negligence in electing whom we have...you pick.
35 grand, we could pay this off in a few years. I'm not saying we will, but it could be paid back. That is, if we quit borrowing.
The truly scary thing is not the current size of our debt, but the rate at which it is increasing. If we keep up at this pace, we are going to witness a complete economic failure, not only in the United States, but the world. A complete collapse, a shutdown.
Another way of looking at our debt, compare it to GDP, our country's "salary' in layman's terms.
National debt - 10 trillion
Payments on the national debt each year - 164 billion
US GDP - 14 trillion
Compare this to a family bringing in $140,000 per year having a total debt of $100,000 (including home, cars, everything) and having monthly payments (interest only) of $136 per month.
This isn't an unbearable burden, yet, but at the rate we're letting it grow, it will eventually be unbearable.
Deflation is a horrible thing for people in debt, because it quickly can increase the amount of debt that is felt...or to put it another way the dollars you owe suddenly are worth more.
We are debtors, both individually and as a nation. Our debt burden is high, although currently sustainable, it grew at a rapid pace last fall when the dollar began climbing against almost everything.
The Fed set out to kill this deflation, because it is bad for business.
They invented some money for the banks. Doesn't really exist, never did. If you really understand the banking industry, the banks were allowed to invent a bunch of money on paper (never printed) to replace a bunch of money they lost on paper which never really existed in the first place.
The government didn't give them money, they gave them permission to commit monetary fraud. Nothing being paid back ever, they called it a capital injection...funny.
They had the luxury to do so. With all of the money being burned up suddenly in the subprime meltdown, they could "print' a huge sum of money at once, and never have a tremendous effect through inflation because you're only printing what's suddenly been lost.
I think America lost their outrage against this giveaway when we remembered that we have no clue how a bank works, how the Fed works, how the system works. We are clueless, and we have too many people shouting confusing things in our ear each day that we just shrugged our shoulders and turned our attention back to other stuff. Do you believe that America would care about the bank bailout if they found out all that happened was just a little erase/rewrite allowed on the books of specific banks?
We did it again, America, we let our elected leaders play economic god. They decided which banks get their money back (or more) from a mess most of them created, when a bank that might not have created the mess goes under as a consequence. We let them do it.
So they are blowing party horns and popping the champagne, because the dollar in your pocket is worth less than it was a few months ago.
Here's betting that they'll slowly let inflation get out of control, to the point that everyone's starting to get worried, and then they'll pull the emergency brake on the economy (with severe and quick increases in interest rates) which will stop the inflation, and they'll hope they do it quick enough to keep the economic momentum going.
This is what they are planning. They want to slowly make your money be worth less and less, so fewer people are underwater on their mortgage, so we owe less money to China and Japan (and social security recipients). If they do it long enough, wages will start to increase, because it will cheapen the cost of labor for American business.
It will work, only because most people don't know what's going on under their nose. I have faith in this, because of how many times we have let them get away with it. Paul Volker was the Fed chief under Reagan, and he was the one to quickly and dramatically raise interest rates. It killed the inflation from the late 1970's. This same man, Volker, is the chief of Obama's Economic Recovery Advisory Board. Their job, is going to be to decide how much to inflate and when to stop.
Inflation is a hidden tax on all of us, and if we keep letting our leaders put more and more burden of this tax on our shoulders, they will eventually overload us and this world will collapse.
I mention that our current level of debt is sustainable, which is to say that the debt we've already written as a nation could be paid off eventually, if we suddenly decided to live within out means as a nation and stopped borrowing altogether.
Our debt burden as a nation is (rounding down a little, I believe) about 10 trillion dollars. Takes your breath away, but think of it a few ways.
Our debt - 10 trillion
Our population - 300 million
That leaves each of us owing 35 grand or so in debt, as our burden of being part of this nation, I suppose...or our negligence in electing whom we have...you pick.
35 grand, we could pay this off in a few years. I'm not saying we will, but it could be paid back. That is, if we quit borrowing.
The truly scary thing is not the current size of our debt, but the rate at which it is increasing. If we keep up at this pace, we are going to witness a complete economic failure, not only in the United States, but the world. A complete collapse, a shutdown.
Another way of looking at our debt, compare it to GDP, our country's "salary' in layman's terms.
National debt - 10 trillion
Payments on the national debt each year - 164 billion
US GDP - 14 trillion
Compare this to a family bringing in $140,000 per year having a total debt of $100,000 (including home, cars, everything) and having monthly payments (interest only) of $136 per month.
This isn't an unbearable burden, yet, but at the rate we're letting it grow, it will eventually be unbearable.
Wednesday, July 22, 2009
Oil? Keep it
Won't it be nice someday to actually say...oil? No thanks, we don't need it. You'll see it, assuming you're going to live the next 20-30 years.
Oil is about to be marginalized...not discarded entirely...but greatly marginalized.
The main reason oil is so necessary is it's the most efficient way of running ICE's (internal combustion engines). It's easily made into a pumpable fluid, and packs a lot of btu's per weight.
Coal hasn't cut it for ICE's. It can be made to run through a liquification process, but it's not efficient. Coal worked fine for ECE (external combustion engines) like in coal powered railroad engines...but there's a limit to how small you can make ECE's and still provide some power. It doesn't work for cars.
Enter ethanol? Nah
Enter hydrogen fuel cell? Nah
Enter Energizer.
Batteries about about to solve a lot of problems with oil. If you could plug in your car at night, and run it for 10% of the cost of gasoline, wouldn't you? If you could run your car without thinking about the gas station, wouldn't you?
It's going to be possible. Electric cars haven't worked in the past because they haven't been able to store enough energy. They either had no power, and were slightly heavier than a golf cart, or had no capacity to run for long distances.
That has changed
http://www.teslamotors.com/
Tesla has made a car, albeit extremely expensive, that gives you power comparable to a sports car. Check it out.
We have just begun to see the potential for electic motors, because we have just begun to see the potential in new and improved batteries. Nanotechnology is starting to give us lithium ion batteries with 10 times the storage capacity as today's. That means that laptop you're using will have 40 hours of battery life, with a battery as heavy as the one you're using now.
The Tesla is using old technology...imagine what they'll be able to power when the get new technolgy to the market.
Oil will be just another resource just like coal or bananas in our lifetime. It's going to happen. It will lose its value as indispensible.
I personally won't miss oil, will you?
Oil is about to be marginalized...not discarded entirely...but greatly marginalized.
The main reason oil is so necessary is it's the most efficient way of running ICE's (internal combustion engines). It's easily made into a pumpable fluid, and packs a lot of btu's per weight.
Coal hasn't cut it for ICE's. It can be made to run through a liquification process, but it's not efficient. Coal worked fine for ECE (external combustion engines) like in coal powered railroad engines...but there's a limit to how small you can make ECE's and still provide some power. It doesn't work for cars.
Enter ethanol? Nah
Enter hydrogen fuel cell? Nah
Enter Energizer.
Batteries about about to solve a lot of problems with oil. If you could plug in your car at night, and run it for 10% of the cost of gasoline, wouldn't you? If you could run your car without thinking about the gas station, wouldn't you?
It's going to be possible. Electric cars haven't worked in the past because they haven't been able to store enough energy. They either had no power, and were slightly heavier than a golf cart, or had no capacity to run for long distances.
That has changed
http://www.teslamotors.com/
Tesla has made a car, albeit extremely expensive, that gives you power comparable to a sports car. Check it out.
We have just begun to see the potential for electic motors, because we have just begun to see the potential in new and improved batteries. Nanotechnology is starting to give us lithium ion batteries with 10 times the storage capacity as today's. That means that laptop you're using will have 40 hours of battery life, with a battery as heavy as the one you're using now.
The Tesla is using old technology...imagine what they'll be able to power when the get new technolgy to the market.
Oil will be just another resource just like coal or bananas in our lifetime. It's going to happen. It will lose its value as indispensible.
I personally won't miss oil, will you?
Where should I put my money?
I've been asked, by people who ignored my advice in the past, what they should be doing with their money now.
Well, right now your money should be in the market, since I recommended since February. We're experiencing a relief rally. We are toward the end of this rally, so it's probably too late to reliably buy back in right now...but there will be another serious buying opporitunity in the next 6 months.
I think this rally's going to peak at a Dow of around 10,000. It's scratching on 9K now, so I'm thinking by the end of August, we'll be there.
At this point, move stuff into more secure things. The Dow is not about to start churning like a steam engine. It's going to be up and down for quite a while still. Be smart.
If you're looking to park money long term, Caterpillar is the best option for you. With the stimulus money being thrown around, as well as the stimulus the Chinese are going to throw...it means more roads, more bridges, and more heavy equipment to build them with. Get it?
I'm not sure what will really bring the snap back in the markets...perhaps a rash of bank failures related to the commercial real estate??? Probably won't be any large banks...they bailed from that industry a long time ago. It's the mom and pop banks taking this one on the chin.
Whatever causes it...the markets will churn back into reverse before 2009 is out, so don't get greedy.
Well, right now your money should be in the market, since I recommended since February. We're experiencing a relief rally. We are toward the end of this rally, so it's probably too late to reliably buy back in right now...but there will be another serious buying opporitunity in the next 6 months.
I think this rally's going to peak at a Dow of around 10,000. It's scratching on 9K now, so I'm thinking by the end of August, we'll be there.
At this point, move stuff into more secure things. The Dow is not about to start churning like a steam engine. It's going to be up and down for quite a while still. Be smart.
If you're looking to park money long term, Caterpillar is the best option for you. With the stimulus money being thrown around, as well as the stimulus the Chinese are going to throw...it means more roads, more bridges, and more heavy equipment to build them with. Get it?
I'm not sure what will really bring the snap back in the markets...perhaps a rash of bank failures related to the commercial real estate??? Probably won't be any large banks...they bailed from that industry a long time ago. It's the mom and pop banks taking this one on the chin.
Whatever causes it...the markets will churn back into reverse before 2009 is out, so don't get greedy.
My crystal ball
I can certainly go into more specifics, but as for what I see for the economic future for this country, and this world...
First, hold on and get ready for a ride...the next 20-30 years are going to blow your mind. The computer boom will be viewed as history as a small event compared to the materials advancements that are about to be made.
We're crossing over an age, in our lifetimes. From bronze, to iron, each time man has been able to make a material harder, stronger, or more useful than the period before, it represents a serious jump.
This serious jump that will change the world, is commonly called nanotechnology.
Without going into a great amount of scientific jargon, nanotechnology is the ability to build materials molecule by molecule, placing each one in the exact position to make material to the exact specifications.
Nature has been keying us in all along...that by building something with smaller materials and controlling how you build it, you can make things much stronger. A spider web has, pound for pound, greater strength that humans have ever built...or at least until recently.
I'll certainly go into greater detail about nanotech and what it will mean for your money later. What it will mean for society will be even greater. Imagine being able to build an airplane from material stronger than tool steel and lighter than aluminum? Imagine being able to fly a commercial sized airplane with only a battery. It's coming.
Carbon nanotubes are the first real usable application, and they're under serious and vigourous development as you read this...but it is only scratching the surface.
There is also going to be an enourmous explosion in systems biology, which will basically be treating patients and developing drugs using computer technology...since computers will eventually be able to map out a human body protein by protein.
I'll stay out of the gritty details...but this is where our world is headed. I hope America has enough genius left not wasted by public education to be able to take the lead in this scientific revolution.
First, hold on and get ready for a ride...the next 20-30 years are going to blow your mind. The computer boom will be viewed as history as a small event compared to the materials advancements that are about to be made.
We're crossing over an age, in our lifetimes. From bronze, to iron, each time man has been able to make a material harder, stronger, or more useful than the period before, it represents a serious jump.
This serious jump that will change the world, is commonly called nanotechnology.
Without going into a great amount of scientific jargon, nanotechnology is the ability to build materials molecule by molecule, placing each one in the exact position to make material to the exact specifications.
Nature has been keying us in all along...that by building something with smaller materials and controlling how you build it, you can make things much stronger. A spider web has, pound for pound, greater strength that humans have ever built...or at least until recently.
I'll certainly go into greater detail about nanotech and what it will mean for your money later. What it will mean for society will be even greater. Imagine being able to build an airplane from material stronger than tool steel and lighter than aluminum? Imagine being able to fly a commercial sized airplane with only a battery. It's coming.
Carbon nanotubes are the first real usable application, and they're under serious and vigourous development as you read this...but it is only scratching the surface.
There is also going to be an enourmous explosion in systems biology, which will basically be treating patients and developing drugs using computer technology...since computers will eventually be able to map out a human body protein by protein.
I'll stay out of the gritty details...but this is where our world is headed. I hope America has enough genius left not wasted by public education to be able to take the lead in this scientific revolution.
What Just Happened?
Anyone else still left scratching their head because of the last year in economics. I think only a handful of people really understand what we just went through.
In short, what just happened was a severe and painful deflationary event. It's the first one we've felt since the 1930's, so it's not surprising that we were walking in blind.
Everyone's heard of inflation, right? It's when our money is worth less and less every year. Deflation, however, seems a more rare animal.
To understand why we experienced this sudden surge in the value of money, you have to understand fractional reserve banking...which is no easy subject to wrap your head around. I can sum it up very quickly.
Fractional reserve banking is how banks around the world do business. They are allowed to simply "invent" money that never really exists. For all of the money they claim to have, they only have to have about a dime on the dollar.
When you bought a house and took out a mortgage, the bank lent you money they did not have. They did this because other banks will take this money as payment, so it's as real as a dollar in your pocket. So you borrowed 200 grand to buy your house, but in reality the bank only really had to have 20 grand to invent that money.
Seriously...this is really how it works.
Fastforward us to 2003. We were still reeling a little from the dot.com crash, and the Federal Reserve had interest rates really low for a long time in an effort to stimulate a faltering economy through the housing market. In sum, they printed a whole lot of money in a really short period of time, and this drove the markets artifically high.
Eventually, all booms must end, and the housing boom began to fail in 2006, and really hit full momentum in the summer of 2008.
The suddenly falling property values, along with mortgages written by true blood sucking morons, caused a massive amount of mortgage defaults...people just walking away from their homes and their obligations to the bank.
The banks then suddenly became stuck with more and more homes, and less and less real money. They began scrambling in the spring of 2008 to unload as many homes, and as many investments tied to homes as they could. This resulted in a logjam, because you had so many sellers and no buyers, the mortgages were essentially worthless.
If you remember that banks must keep a dime to back up a dollar of fake money, many of these banks were getting perilously close to falling below this. When this occurs, the FDIC seizes the bank and it fails.
The result of all of these banks experiencing "liquidity issues" is the value of money begins to rise. Suddenly, banks were offering unthinkable interest rates on savings accounts, they weren't making any home loans. Basically, in a banking way of thinking, there wasn't enough money to go around.
The Fed was certainly throwing new money at the problem as fast as possible, even inventing the TAF...which is a faster way to print money for banks...but they could not get ahead of the problem.
This deflationary pressure finally popped a growing commodity market, which had the added bonus of popping the crazy oil prices (thank god!)
All of this deflation came to a head in late September/early October...when Lehmen Bros. finally failed. This was the first indication that the American public felt something was wrong.
So the President goes on TV and talks of grave danger, Bernanke's on TV, and so is Paulsen saying that we're moments away from disaster if we dont' do something quick.
So what do we get? A massive bailout package...followed by the expected outrage. How can they bail out so and so if they can't help me???
What was the bailout package anyway? In short, the Feds allowed banks to write more fake money into their books, so they wouldn't get below the dime on a dollar rule. Nothing else...we didn't ship massive amounts of printed money into bank vaults, we didn't give them gold bullion...the system doens't work that way. We simply gave the banks permission to fake it for the time being.
It's certainly more complicated than that...but in a nutshell, that's what occured.
Since then, we've seen a gradual return to normalcy. Credit unfroze in early December. The pain we've seen in the economy had nothing to do with the credit situation, but more teh result of everyone panicking at once.
I'll say it again...the recession we're in was simply caused by consumers panicking over a situation they didn't understand, they stopped spending and started saving in a hurry. This broke the camel's back for a lot of manufacturers already teetering.
Things are improving, because people believe things are improving. Don't give too much credit to the meistro's that bailed out out banks...it was a cleverly orchestrated ballet, and we bought it.
"People often confuse economics with mathematics. In reality, economics is a study of psychology with a little math." Jzneff
In short, what just happened was a severe and painful deflationary event. It's the first one we've felt since the 1930's, so it's not surprising that we were walking in blind.
Everyone's heard of inflation, right? It's when our money is worth less and less every year. Deflation, however, seems a more rare animal.
To understand why we experienced this sudden surge in the value of money, you have to understand fractional reserve banking...which is no easy subject to wrap your head around. I can sum it up very quickly.
Fractional reserve banking is how banks around the world do business. They are allowed to simply "invent" money that never really exists. For all of the money they claim to have, they only have to have about a dime on the dollar.
When you bought a house and took out a mortgage, the bank lent you money they did not have. They did this because other banks will take this money as payment, so it's as real as a dollar in your pocket. So you borrowed 200 grand to buy your house, but in reality the bank only really had to have 20 grand to invent that money.
Seriously...this is really how it works.
Fastforward us to 2003. We were still reeling a little from the dot.com crash, and the Federal Reserve had interest rates really low for a long time in an effort to stimulate a faltering economy through the housing market. In sum, they printed a whole lot of money in a really short period of time, and this drove the markets artifically high.
Eventually, all booms must end, and the housing boom began to fail in 2006, and really hit full momentum in the summer of 2008.
The suddenly falling property values, along with mortgages written by true blood sucking morons, caused a massive amount of mortgage defaults...people just walking away from their homes and their obligations to the bank.
The banks then suddenly became stuck with more and more homes, and less and less real money. They began scrambling in the spring of 2008 to unload as many homes, and as many investments tied to homes as they could. This resulted in a logjam, because you had so many sellers and no buyers, the mortgages were essentially worthless.
If you remember that banks must keep a dime to back up a dollar of fake money, many of these banks were getting perilously close to falling below this. When this occurs, the FDIC seizes the bank and it fails.
The result of all of these banks experiencing "liquidity issues" is the value of money begins to rise. Suddenly, banks were offering unthinkable interest rates on savings accounts, they weren't making any home loans. Basically, in a banking way of thinking, there wasn't enough money to go around.
The Fed was certainly throwing new money at the problem as fast as possible, even inventing the TAF...which is a faster way to print money for banks...but they could not get ahead of the problem.
This deflationary pressure finally popped a growing commodity market, which had the added bonus of popping the crazy oil prices (thank god!)
All of this deflation came to a head in late September/early October...when Lehmen Bros. finally failed. This was the first indication that the American public felt something was wrong.
So the President goes on TV and talks of grave danger, Bernanke's on TV, and so is Paulsen saying that we're moments away from disaster if we dont' do something quick.
So what do we get? A massive bailout package...followed by the expected outrage. How can they bail out so and so if they can't help me???
What was the bailout package anyway? In short, the Feds allowed banks to write more fake money into their books, so they wouldn't get below the dime on a dollar rule. Nothing else...we didn't ship massive amounts of printed money into bank vaults, we didn't give them gold bullion...the system doens't work that way. We simply gave the banks permission to fake it for the time being.
It's certainly more complicated than that...but in a nutshell, that's what occured.
Since then, we've seen a gradual return to normalcy. Credit unfroze in early December. The pain we've seen in the economy had nothing to do with the credit situation, but more teh result of everyone panicking at once.
I'll say it again...the recession we're in was simply caused by consumers panicking over a situation they didn't understand, they stopped spending and started saving in a hurry. This broke the camel's back for a lot of manufacturers already teetering.
Things are improving, because people believe things are improving. Don't give too much credit to the meistro's that bailed out out banks...it was a cleverly orchestrated ballet, and we bought it.
"People often confuse economics with mathematics. In reality, economics is a study of psychology with a little math." Jzneff
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