[quote]Headhunter wrote:
[quote]JEATON wrote:
[quote]on edge wrote:
[quote]dmaddox wrote:
[quote]on edge wrote:
[quote]on edge wrote:
I’ve observed over the past ten years or so that when the market makes a huge one day drop and recovers quickly, it’s basically foretelling where it’s going. In other words it drops fast and recovers. It then consolidates for a few days before dropping back down to where it dipped before. It then consolidates for a few more days or even a week or two before dropping again. In my opinion the markets are in for a world of hurt in 2010.
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Now if only I could make some money off being so smart. Look for it to start consolidating again in a day or two. It will consolidate for a week or two then, who knows.
When I made the post above I was pretty sure I did know, and it would be down. Now I’m not as convinced. We might have a good run up from here. I’m considering getting back into energy maybe even OIL. Probably will just sit back and watch though.
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I plan on putting some funds to work very soon. The fear is starting to come back into the market. Yeah us. The questions is how much fear, and how long will it last.[/quote]
I agree. Does the market put in lower lows than the lows of 2008? Jeaton is a smart guy and he seams to think so. I thought so up until a couple of weeks ago. Now my thought process is something like this; The '08 lows were due to BIG problems in our country. The trigger point this time is in Europe. I don’t think Europe can take us down as low and I don’t see such extreme internal problems coming to light so soon after the banking/credit scandals. Europe is a hasbeen economy, SE Asia is an up and coming economy and will pull us along more than Europe will drag us down.
Having said that, I think lower lows are a lot more likely than higher highs any time in the next five years.
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I would say it a slightly different way. Europe is the neighbor’s crisis that temporarily diverts our attentions from our own issues. Do not forget about the bankrupt states, the coming commercial real estate crash, and the fact that we cured nothing in the first act of our crisis. We simply transferred the costs of the sins of “too big to fails” to the government, “we the people.”
As this echo of the previous manic asset bubble runs out of steam, deflationary pressures will start to exert themselves. Our current economy cannot sustain the monetary velocity necessary to keep assets inflated. I believe we are just starting to see this in oil. We now have more homes in foreclosure than any other time in recorded history.
Repost for content and context:
It is estimated that less than 5% (actually more like 2% to 3%) of our money supply consist of physical coin and paper money. The rest is created through lending by means of quantitative easing using fractional reserve banking. The remaining lions share is represented by credits and debits on electronic ledger that are moved from bank to bank. This seems to be one of the harder things for people to wrap their heads around. They say things like “the money has to be somewhere. It goes from one mans pocked to another.” It is a misunderstanding. When I ran the largest GM dealer in my zone, we handled millions of dollars in transactions per month. I rarely saw a paper bill.
When things are going well and money velocity is steadily increasing, money supply is increasing. The same dollars are being spent over and over and over again. But remember, the monetary base is not increasing. For demonstration purposes, all this additional money is simply electronic data.
If and when the commercial real estate market implodes, all of this electronic money that is tied to hard assets will be revalued. Money velocity fails to create new money at a faster pace than old money is being destroyed. When a commercial loan goes bad, and the bank eventually has to liquidate the asset, a write down occurs. If a $1 million dollar asset (loan debt) is liquidated for $300,000.00, the the money supply has now decreased by $700,000.00.
Something else to consider. In an economy that is dominated by fractional reserve lending, the value of the assets are not inherent to the asset. The value is determined by both the promise and the ability to pay the loan backed by the asset. When the promise and ability to pay becomes worthless (ie default) the value of the underlying asset deflates. It the economy is not growing at a sufficient rate and such defaults on promises grow, deflation begins to take center stage. [/quote]
The trouble with deflation is that it gives government the opportunity to create new money without seeming consequence. We’re seeing that now with all the massive debt (debt is money). But no one can predict what will be the outcome. We do know however that, in uncertain times, people turn to gold and silver. So even if a deflation hits, those will likely hold value.
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There are always consequences, and in the case of government action, mostly unintended.
Also, reexamine your last statement. If by uncertain times, you mean inflationary times, then I would agree. History, however, does not support your hypothesis in times of deflationary depressions.
