Posted on 11/20/2008 8:25:28 PM PST by SeekAndFind
so if deflation is here, we should just be hoarding cash NOW and not buying extra groceries etc.....won't they be cheaper with deflation.....OR will they become more scarce, since many companies will fail and supplies diminish.....
$ ping
Gary K weighs in:
On The Ledge Again!
http://www.garyk.com/
By Gary Kaltbaum | TradingMarkets.com
Gary Kaltbaum is an investment adviser with over 18 years experience, and a Fox News Channel Business Contributor. Gary is the author of The Investors Edge. Mr. Kaltbaum is also the host of the nationally syndicated radio show “Investors Edge” on over 50 radio stations. Gary is also editor and publisher of “Gary Kaltbaum’s Trendwatch”... a weekly and monthly technical analysis research report for the institutional investor.
Before I get into the technicals, a few things to ponder:
Why is GE having to raise more capital? Is GE just another company who has lied about the condition they are in?
Is CITI next? As you know, I have been calling for single digits in CITI for months. Man...did I get flak for that one! Not anymore. The problem for CITI is not what I think - but as always - what the market thinks. The market forced FNM, FRE, AIG, LEH, BSC and the rest’s hand. CITI is acting like the rest of the cadavers. I think there is a decent chance CITI is next. I cannot believe I am saying that. Prince Alwaleed cannot be a happy man.
Yesterday’s nonsense on Capital Hill is symbolic of corporate culture run amok. How these imbeciles can fly on private planes to ask for money is beyond reason. I must also say I get sick to my stomach every time I see Bob Nardelli...who walked into Home Depot, took out about $250 million...left the company’s culture in shambles...and immediately gets a job running Chrysler.
The credit markets are locked up, do not believe the pundits that are saying credit markets are thawing. All one has to do is see the plunge in U.S. Treasury rates. The latest move was set off by the bumbling, mumbling, stumbling and pitiful fool named Paulson, who publicly announced he changed his mind. This TARP vote will go down in history as one of the stupidest yes votes in history, and I am proud I was against it vociferously. (I think that is a word!)
It continues to amaze me how easily so many fell for this crap when it was proposed by one of the people who caused all these problems. Again, Paulson lobbied this same Congress years ago to raise the leverage for companies like Goldman Sachs...and of course, Paulson ran Goldman Sachs. This was an easy puzzle to put together. Paulson actually argued that “the financial markets are much more stable today than before the TARP”. Who is he trying to kid? ABX and CMBX spreads are predicting a not so nice outcome. I gather this man is counting down the days when he can get out of this job.
Every major index (except the DOW) has broken into new bear market low ground. The DOW always holds best during these drops as money parks itself into megacap companies that pervade the DOW. The only good news here is that the thousands of bottom callers will finally be shut up. The bad news is that the internals are horrid...and buying continues to be anemic into the massive supply of stock that keeps hitting the market. In fact, in the past two days, the internals have been as bad as I have ever seen.
I am not one to give targets but I am one that knows if a market is ready to turn or not. So far, not. There is underlying support down at the last bear market lows at 7200 DOW and 768 S&P. It amazes me, I actually have to mention these levels. This recent ridiculous whipsawing we have been seeing has now only led to another leg down. We may get some waterfall action here because of the break but not sure. I remain in 100% cash and I remain up in this bear market for the ages.
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That is consistent with my statement about the Velocity of Circulation dropping.
This interest rate is projecting almost NO inflation for thirty years.
And you know what is said about Monetary policy “You can’t push on a string” so it probably is not the answer to the looming recession.
Like, *PING*, dudes.
Generally and theoretically the bond market moves in an opposite direction to the stock market. Fear drives money out of stocks and into the bond market for safety not return. As the price of a bond goes UP the interest rate it pays goes DOWN. This gives a self-correcting mechanism to the investment market as lower interest rates produces more investment everything else equal. So lower interest rates are “bad” in that they are the symptoms of reduced economic activity.
Your second question is more complex but can be approached by realizing that deflation makes Cash more valuable since prices have falled. It hurts savers though because interest rates fall as well. If you have invested in real assets their prices stagnate or fall hence their rate of return drops. If you had invested in Treasuries then you profit since their prices have increased as does the principal you invested in purchasing them.
The solution to deflation is also a cause of deflation. You want to spend money more slowly since it is becoming more valuable but spending money more slowly means economic growth slows which becomes a self fulfilling prophecy.
Hence, there will be a massive push for even more federal spending as a means of keeping income growth from falling rapidly.
Economics is not called “the dismal science” for nothing.
Or possibly a substantial deflation followed by a slow inflation.
bookmark
Hey thats my question
That really clears it up for me
4 later
Could the Chinese be dumping their Treasuries for cash to move on AIG or one or more of the car companies?
ping!
Because under the Federal Reserve System new money can only be created by new DEBT and right now nobody wants more debt because we are drowning in it.
So no new money is being created. Old debt is being defaulted upon. Or paid down at a furious rate due to the anticipation of a declining money supply.
Hence deflation.
Ping!
Inflation (or more properly “DEFLATION of the value of money”) Takes a good while to work into the system. The inflationary times of the 1970s actually took over 5 years to ramp up after years of goosing the money supply. The first “shock” came with the arab oil embargo in 1973, but we had been running a guns and butter economy since 1966.
That is the good part. The bad part is that once inflation gets imbedded in the general flow of the economy, it is extremely difficult to get out.
The fed is absolutely terrified of the deflationary implosion they have seen in Japan for the last 20 years. So much so that they are committed to do the same dumbass stuff the BOJ did and hope that the results will be better.
Three quarters of our problem has been federal reserve policy of goosing money supply. The other fourth comes when they try to “address” the problems they create.
The federal reserve is stupid, corrupt, incompetent, and horribly destructive. They have pissed away over 96% of the value of the dollar in less than 100 years simply by being allowed to ratchet up the money supply far in excess above the rate of growth our economy has experienced. The curve has been practically asymptotic for the last 27 years or so.
That depends on what cash you hold. Right now, dollars are okay- but that’s not likely to last.
Gold, silver , etc are ultimately king, because right now they’re cheap in dollar terms. Other currencies might be okay, maybe not. Depends on what goofy worldwide scheme the central planners are coming up with.
Borrowing from who?
Where’s that money going to come from? The monetary base is being expanded one way or another.
I’m completely ignorant here, but how can we have deflation when the government if printing money like crazy?
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The gov’t is printing money like crazy but not as crazily as the lenders (currently receiving the gov’t largess) were doing for the last 8+ years by granting credit to everyone and anyone...
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