One idea that intrigues me with the "pushing on a string" is the idea that the increase in the money supply, coupled with the lowering of the interest rates, is helping with the financial firms and the sub-prime stuff, as well as buying time for homeowners (i.e. adjustable mortgages won't go up quite as much quite as quickly) -- and this helps the financial companies too.
But this comes at a cost, as those who have lots of money are seeking safe havens after Mr. Housing Bubble are piling into commodities (thereby driving the prices up) at the same time that the secular growth of India and China is driving the commodities up; and of course the increase of the money supply helps too.
So in the short term, what Joe six-pack sees is a lot of talk of "the sky is falling" and all of the policies designed to help "the big banks and Wall Street", while he is faced with skyrocketing gas and grocery bills, and rumors of layoffs coming, just after he thought he had escaped the outsourcing wave. And he has too much credit card debt, SUV loans, and home equity loans for the banks to give a damn...so the feds are providing backstopping to the banks, but they are not passing it on to the beleaguered consumer. (*)
So there is a "Hobson's choice" in the near term: save us from deflation, or screw the dollar and invite inflation?
...and all this, in an election year when the Republicans have no heir apparent to the one President who cannot sound smooth, or sell a political or fiscal policy, to save his life.
Moving on to your post.
What do you mean by "a generational sale"? As in, "once in a generation, so buy now?"
I'd like too, but I don't have enough spare investment money to pick the DEC Computers over Microsoft. Recall the CEO of Bear Stearns was denying any problems just 72 hours before the collapse: how am I to know which investments are "safe"? You know, "don't try to catch a falling knife" and all that.
For the nonce, I took a gander for several hundred bucks in TMA ; I bought at $2.40 a share, and I've lost money, but not interest. Can you suggest a way to figure out what the dilution would do to the share price once the company recovers (i.e., if the company hadn't plummeted from $11 or $12 /share, and suddenly all the convertible bonds bought today were converted to shares at 75 cents, what would the share price get diluted to?)
As far as soundly capitalized real estate, I am worried that there has been a glut of commercial real estate (in general) lately, so I am not sure that rents will hold. However, if a company holds long-term leases, (say of medical office plazas), and the tenant has to pay the upkeep (I forget the technical term for that kind of lease), that would be a good deal.
(*) So therefore, the average person will see less employment opportunity, a withdrawal of credit necessary to buy luxury items, and the cost of staples skyrocketing. Otherwise known as "a falling standard of living".
How much is due to the hangover from easy credit, how much from globalization, how much to govt. debt...?
Americans as a whole have reduced their net savings rate to zero, and the trade deficit moved to negative 5% of GDP to replace those missing savings with imported capital. That zero net savings rate is composed of a modest class of savers, maybe a quarter, and a larger class of borrowers, maybe half, with a quarter or so not in either group.
No policy conceivable could possibly have prevented the currency of a nation acting in that manner and on that scale for half a dozen years, from falling, against both other currencies and commodity prices. The boom allowed temporary trading gains to outweigh the debts being contracted for it, as long as prices were moving rapidly in one predictable direction. But that was temporary, and as soon as those price increases drove long interest rates high enough, had to reverse.
Present commodity prices are a bubble, just like real estate 4 years ago and stock 8 years ago. Money doesn't literally "pile in" to an asset class, however. The amount of money is unaffected by people's trading actions and asset preferences - there is a seller for every buyer - and the commodities in existence likewise. Higher prices do call forth additional supply, at the expense of less urgent branches of production. But that is precisely a restoring force (eventually any high enough demand will create new supply that swamps it) and not a continuation of the herding preference that causes the price spike.
By generational sale I mean yes, that your sons and daughters might again see US financials this cheap in their lifetimes, but you will not. As for the knife adage, it is simply momentum traders looking in the rear view mirror. No one can call the turns in prices for this or that asset. But you do not need to call bottoms to profit from wild price movements. Momentum players using borrowed money think they need to, that any movement against them ever is ruinous. That is why they are condemned by mathematical law to lose in the end, as a group.
The solution is to call levels and not turns. If you know prices are in the bottom half of their cyclical range, you needn't care when they turn or whether their present direction is down or up. You just invest gradually, not all at once, and thereby achieve an *average* price for all you buy.
In fact, by mathematical law, if you invest the same amount per unit time in an asset bouncing around in price, you are certain to achieve a better than average price, and a better one, the more violently it bounces around. You are buying fewer shares when the price is high and more when the price is low, if you invest the same amount continually. If in addition you only turn this "on" in the lower half of price oscillations, you are essentially guaranteed far better than average prices.
The only real requirement is that the asset continue to exist later, or have a positive long term expected return, and that you can hold it as long as necessary without ever being forced to sell against your will, but a margin call or whatever. If you can't be forced to sell and got a better than average price, what do you care if the price is better still the day after tomorrow? You just buy some more.
Calling levels is consistently more profitable than calling timing, and it is much easier to do, in the sense of the level of skill required. It takes discipline, and an apparently rare contrarian mindset, and a longer time horizon than frantic day traders (or year traders - the average, pro or amateur, only holds a stock for 1-2 years, and over those periods they might as well go to Vegas and bet on a wheel).