Posted on 09/29/2009 5:45:53 PM PDT by MinorityRepublican
One thing seemed clear during the darkest days of recession and bear market: The rules of investing had changed. Investors of all stripes, from big guns at giant financial institutions to the guy chatting you up at the cocktail party, were trying to figure out how to operate in the new paradigm. Pimco CEO Mohamed El-Erian dubbed it "the New Normal," and GMO money manager Jeremy Grantham, who'd warned us all that this was coming, looked forward from here and saw "seven lean years."
But is it really different this time? From a big-picture perspective, the stock market to this point actually has behaved pretty much as it usually does in recessions: falling in anticipation of the economic downturn and rebounding hard before the economy starts growing again, with cyclical sectors leading the way down and back up. "With the benefit of hindsight, the market really did perform as you might have expected," says Todd Salamone, senior vice president of research for Schaeffer's Investment Research in Chicago. "The game hasn't changed."
The investing climate is surely different than it was pre-crash. But the fact that the market mostly has followed the usual script through the recession suggests that long-term investors shouldn't throw the old wisdom out the window. To the contrary, their recent experiences should help them use that wisdom. "Today's investors now have a once-in-a-generation bear market and recession under their belts," says Jim Stack, market historian and editor of the InvesTech Market Analyst. "They can draw on what they’ve learned to make better decisions in the future."
This Bear Looks Oddly Familiar
Stocks historically begin falling before a recession, as they did this time: The market peaked Oct. 9, 2007, two months before the official start of the recession, as determined by the National Bureau of Economic Research.
(Excerpt) Read more at cbsnews.com ...
"Seemed"? I'll tell you what, hoss, this shindig isn't over yet. It has only just begun.
I’m not up on some of the latest commodities.
How are Tar, Feathers and Pitchforks doing?
This economic "event" is not over by any means.
One very simple example can put it all into perspective.
In 2008 there were approximately 4 billion single dollar bills in circulation. This year there is approximately 1.7 trillion dollar bills in circulation.
Put simply we are "printing" our way out of the Bear Market.
I believe that sometime this coming winter or spring we are going to see hyper-inflation and the true value of the dollar will come home to roost for all of us.
While I am not screaming the sky is falling, I am equally not saying this "economic tsunami" is anywhere near running its course!
It ain’t over. Dr. Marc Faber saying the Fed is following the same path as Zimbabwe.
“We’ve only just begun....”
The Carpenters
Anybody who hasn’t missed the exact inverse relationship between the prospects of health care reform passing and the stock market hasn’t been paying attention. Every day there’s bad news for health care reform package, the market goes up. The worse the news, the higher the move.
Conversely, when the news is “good” for health care reform (i.e., it might happen), the market tanks. The market does NOT want health care reform. Too many industries affected (in a communist way).
In a normal economy you would be right. I don't think so this time. The Fed and Treasury have printed a lot of excess money, which the Fed has been using to buy T-Bills. IOW, the excess money is sitting in the Fed, or Treasury it's not in the economy.
Also, and probably more significant Banks are not lending. The credit crisis happened at the same time as the recession. New businesses are not being created. Existing businesses are not expanding and real estate is still declining in value.
” The Fed and Treasury have printed a lot of excess money, which the Fed has been using to buy T-Bills. IOW, the excess money is sitting in the Fed, or Treasury it’s not in the economy.”
The Treasury issues debt, not money. The Fed can convert that Treasury debt into high-powered money by purchasing it on the secondary market. The Fed isn’t permitted to purchase debt directly from the Treasury.
When the Fed buys T-Bills the newly created money goes directly to the bank that held the T-Bill. IOW it’s in the economy, in the banking system. There is no money sitting idle at the Fed or the Treasury.
“Also, and probably more significant Banks are not lending. The credit crisis happened at the same time as the recession.”
The credit crisis is the cause of the recession. Banks aren’t lending because their balance sheets are a wreck. The loans that they hold as assets have been cratering as people default on those loans. Banks have been using the new money that they get from the Fed to prop up their damaged balance sheets. Banks won’t be lending until their assets can support new loans.
We aren’t going to see hyperinflation. We may not even see any inflation worth taking into account. The amount of credit that is disappearing out of the economy via debt default and asset devaluation is dwarfing the dramatic increase in the monetary base. Monetary velocity is low. Banks aren’t lending. There is excess capacity on a global scale. These aren’t the sort of conditions that support inflation.
Thanks for your inputs. I hope you are correct. I am pretty much a consumer when it comes to economics and was only repeating what I saw on a Fox News program.
bttt
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