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...
Friday, August 21, 2009
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/
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