Stock Market Craters After Senate Vote
Continue to contact your Congressmen This is not a done deal!
"The boom can last only as long as the credit expansion progresses at an ever-accelerated pace. The credit expansion boom is built on the sands of banknotes and deposits. It must collapse. There is no means of avoiding the final collapse of a boom brought about by credit expansion." - Ludwig von Mises
I've been predicting deflation for years, and I believe we're finally here. Regardless of how Congress votes tomorrow, the stock market will continue to fall and fall and fall, simply because through the boom, prices lost all touch with reality. The final collapse is here.
Did you see the auto sales numbers yesterday? Ford's sales down 32%, Chrysler down 32%. Even the sales of mighty Toyota were down 24%. GM's sales fell "only" 15%. These are depression scale numbers, people!. And it is not just in autos. The poor economic numbers are everywhere.
Even if the government bailout bill passes, and they create $700 billion for the fatcat bankers and politically connected elites, how will that help the vaunted American consumer, that parasite that drives the global economy by eating the world out of house and home?
$700 billion is a drop in the bucket compared to the trillions in assets that is being destroyed. A featured story on Yahoo! today is of a house that sold on Ebay for $1.75! The house is near Detroit, where the once mighty American auto industry is imploding. Detroit is the future of America, at least for the short term, and no amount of government 'largess' can save it.
Today the market is bouncing around at the lows it set on Monday. The only thing preventing the crash is the hope that Congress will somehow be able to fix it.
It can't. Pass or no, the stock market will crash. The American economy will collapse. Like a junkie coming off a 30 year high, it will be painful.
This is not meant to scare, but to prepare. If you're psychologically prepared, you'll be 10 steps ahead of everyone else. This is not the end of the world. The world is just changing, as it always has and always will. In the midst of this tremendous turmoil, the most important thing to remember is who you are and who you are committed to being, no matter what happens. As inspiration in that department, we have an excellent role model in Ron Paul.
With a fundamental acceptance of what is happening, and a foundation of knowing yourself and who you are committed to being, you can go about confidently looking for opportunities in the emerging world: Opportunities to help, to lead, to serve and build a better world.
Resist the temptation to live in fear and worry. Above all, have fun. We're all just passing through here, and you have more power than you can ever imagine. In closing, remember this: People consistently overestimate what they can achieve in the short run, and underestimate what they can achieve in the long run.
I cannot wait till monday
Will it swing up or down. Its like gambling. I love it.
Credit is equal to slavery.
TIme to teach people to live within their means, don't use credit, it is just modern day slavery.
grant
TIme to teach people to live
TIme to teach people to live within their means, don't use credit, it is just modern day slavery.
grant
Who do give my bank account number for my share of the $700b?
I could ask:
Where do I join this elite cadre of bankers and one-worlders? How do I get in on the vast giveaways this nation is constantly throwing money to? Where is my fair share? How do I attach to the trough?
But then I would be part of the Senate or House, and that would be too embarrassing.
But I do ask:
How can I face my grandchildren when I have burdened them beyond their ability to pay? What have I done to rid this country of these Gadianton robbers? Why have I not given my life, my fortune, and my sacred honor to the cause of liberty?
Liberty, not security. LIBERTY NOT SECURITY!
Liberty, not security. LIBERTY NOT SECURITY!
I don't believe you're right
I don't believe you're right about it being deflation. The government has been inflating every chance they get. Stimulus, Bears Stearns, Fannie, Freddie, AIG, the additional money for banks last week, etc - all inflationary.
The collapse of the stock market is not deflation in terms of the dollar. The dollars still exist, the people who sold the stocks have them. Stocks are not dollars, they are assets. When assets devalue the dollars that were used to purchase them continue to exist. Those dollars are still in the system.
Homes in that section of Detroit are really a special situation. Might as well try to sell spots in the middle of a war zone.
And what about Dr. Paul? He's been saying inflation for a long time. What is he getting wrong about it?
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Deflation Redux
The strict definitions of inflation & deflation are simply an increase in the money supply (inflation) and a decrease in the money supply (deflation).
This brings up the question, what is money? In Weimar Germany, is was paper scrip - the printed Reichmarks. The government printed them like crazy, and flooded the economy with them. It cost trillions for bread. In the morning, the amount of money it cost to buy a chicken would only buy an egg by evening! That is inflation.
There is no doubt we've seen inflation in our economy over the past few decades. Look at what has happened to the price of cars, houses, gas, food, etc. since 1980. It has gone up.
It has gone up based on increasing amounts of credit available to people, via credit cards, easy car loans, and easy mortgages. We saw the effect that easy mortgages had on home prices. They went straight up from 2000 - 2005 -- not because the government was "printing money" the way they did in Weimar Germany, but because the banking system was creating credit.
People got a mortgage they couldn't afford, bought a house, and investors got the other side of the mortgage, thinking it was an asset. Assets increased across the board, but they were only phantom assets.
The thing about paper money is that once it is out in the economy, it stays out there. It doesn't go away. And the government keeps creating more. With credit, the assets can be destroyed. As we have seen. This is why the government is desperate to create more. They're trying to keep pace with the level of asset destruction going on, but they can't! They'll never be able to.
$1 trillion in assets was destroyed in the 777 point collapse on Monday. That is deflationary.
It's not Deflation
It's Stagflation. Inflation with a negative GDP. The worst of the worst.
Sheldon Waxman
sheldonw72@gmail.com
www.thelawyer.info
www.independentcontractor.info
Sheldon Waxman
sheldonw72@gmail.com
www.independentcontractor.info
www.thelawyer.info
stagflation
http://en.wikipedia.org/wiki/Stagflation
as someone over at the CFR blogsite (yes there is one) said the other day:
imagine oil being $40 a barrel and you not being able to afford it.
I have a question for Michael...
Michael,
First, thanks for the excellent post. I read it completely, as well as your article from 2006.
My question is this: is it possible you are underestimating the power of the government (not just the Fed) to increase the money supply? In your article "The Specter of Deflation" you state that the only way to increase the money supply is to loan out the money--and that won't happen if people are not inclined to take on debt. However, the government can, and has in the past, simply mailed out checks. When someone can put money directly into people's hands it seems like they can always inflate. Thoughts?
Also, if you are correct, and we are headed towards deflation, would you agree that cash is king, and that investing in commodities (like gold) is not advisable?
Thanks in advance,
Brian
On Deflation
Hi Brian,
The Government is just one player in the market. It cannot re-inflate the whole market. As a case in point, look at how long it took the gov. to pass the $700 billion bill: Over one week. And that was just to pass the bill! They're not even handing the money out yet. And yet, last Monday, over $1 Trillion was destroyed when the Dow lost 777 points!
The government may be running the money printing presses full steam, but it is just a drop in the bucket compared to what is being destroyed. Yes, the government can send people checks. The last time they did that, many people got a $600 or $1,200 check. Wooohooo! How does that help when their house has lost $50,000 - 300,000 in value, or if their 401(k) becomes a 301(k), or a 201(k)? I know people who have and will lost millions in their retirement accounts!
Do you see what I'm getting at?
Unless and until the gov. starts sending people $100,000 checks or more, the trend will be towards deflation. Assets are being destroyed faster than the gov. can replace them.
Yes, I believe that cash is king. I believe that the prices of everything, from a cup of coffee at Starbucks to the house down the street is overvalued by the availability of cheap credit. And yes, that includes gold. If people don't have cash in their wallet, they can still put a $4 latte on their Visa. But what happens when there is no more room on the Visa? Then they don't buy the latte. And SBUX has to cut prices and/or close stores. (Which they are doing: http://www.usatoday.com/money/companies/earnings/2008-01-30-...)
The trend, for now, is for deflation. See here for more: http://www.dailypaul.com/node/66669
Thank you!
Michael
Very interesting!
Thanks for your response--it has really got me looking at things from a different perspective.
Its too late
Deflation is already here and there's no stopping it now. The $700 billion can't stop it. They have to inflate. The $700 billion is not inflationary, its only to replace value that is already lost, to try to get credit moving again. But in the mean time there's been probably another $500 billion wiped out. If they continue these bailouts, they still are not getting credit moving. And credit flow is what is required to get inflation rolling again, not covering what is already lost. The banks that do have credut available are holding it in case the storm moves in their direction. Its not a credit crisis, its a confidence crisis. The FED doesn't have any magic to turn a confidence crisis...
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"Ehhh, What's ups Doc?" B.Bunny "Scwewy Wabbit!"E. Fudd
People's Awareness Coalition: Deprogramming Sequence
The $700 billion is not
I believe you're wrong about that. A stock does have value, but a stock is not the same exact thing as its value in dollars. When a stock collapses in price that is not the same thing as dollars being destroyed, although some people believe that to be the case.
To use an example: stock buyer buys $10,000 in stock from seller. The buyer now has stock certificates in his pocket and the seller has $10k in his pocket. Then the stock collapses to zero. What happened to the dollars? Were they destroyed? No, they were not. The seller still has the $10,000 in his pocket.
What you're mistaking for dollars being destroyed was actually an asset (which was priced in dollars) that was destroyed.
The dollars still exist, therefore the $700 billion is inflationary.
...
Buy the buyer's asset is completely lost!
In your example, at the moment of the transaction, each party has an asset worth $10,000. The buyer has the stock, and the seller has the cash. Total value of the assets in the economy is $20,000. The stockholder can use that asset as a collateral for a loan. Or he just uses it to feel safe, so he can continue to spend money that he earns. For most Americans, they consider their stock accounts "savings."
But after the company goes bankrupt, the value of the assets between the two parties is only $10,000. $10,000 was destroyed! That is the essence of deflation.
When the market fell 777 points last Monday, $1 trillion in assets was destroyed! Those assets are in people's retirement accounts, hedge funds, insurance accounts, etc. Congress just passed a $700 billion spending bill, but the net result is a $300 billion deflation.
brilliantly said
"Its not a credit crisis, its a confidence crisis. The FED doesn't have any magic to turn a confidence crisis..."
you should be on the floor of the House with that line.
I agree --wish you were there instead of Pelosi
it would be a vast improvement
Libera me, let the truth break, what my fears make--Leslie Phillips
But that man should play the tyrant over God, and find Him a better man than himself, is astonishing drama indeed!~~D. Sayers
There is no difference between an authoritarian government from the right or the left...F. A.Schaeffer
Downward pressure
by institutional selling. They are trying to make things look bleak so the bailout package gets passed.
These are all institutional trades, guys.. Banks & institutions saw the effect the huge drop on Monday (after the initial bill was defeated) had on public opinion. They want a bailout package, lets them go clean up on more bad decisions, then rescued again in Bailout Mark II in 2009/2010.
Heck, if I knew the gov't would bail me out, I would be willing to take some short-term losses by selling investments, drive down prices, get the vote passed, then buy back in at a loss, because the longer-term bennies would more than make up for it.
This opinion is for entertainment purposes. It does not represent the opinions of this website, sources cited, nor my actual beliefs. I do not consent for this post to be duplicated or replicated on any internet/digital/print/other form of media. C4L4EVR
Volume at the end of the day
whats up with that?
Confidence among the fearfull
NOW is the time to be shrewd ...Move your monies to fund that will have signs of returning & safer funds ...Look to things that maybe, usually, don't do as good a return, before.....buy low sell high is the opportunity to look for ...PAY yourself interest from your 401K ,which protects & makes your fund perform in your favor....There is oppertunity to find ...It will just not be the usual places....weee
CRY UNCLE
THIS has been my point all along this ride ...Where is the problem.?.. The markets are simply flat ,with no where to want to use credit ,right now...The big boys are the problem, themselves ..They have themselves leveraged out so far, they de-CApitalized TOO much, to hold on for the long haul & now they want to cry UNCLE....ALLthe profits they made & they didn't look to the future...Is that my problem ???
weee
The time to go long is when there is blood in the streets
Just when everyone says it's all over.
Just when the stock market and economy is doomed.
Just when it's time to put your cash in a mattress and bury it in the backyard.
Just when the last thing anyone is going to tell you to do is go long.
Based on the end of the world sell pencils in the street corner predictions...I'd say it might be time to start thinking about going long.
The dollar is back with a vengeance.
Gold is getting killed.
Real estate is getting killed.
Oil is getting killed.
The Dow is getting killed.
All the dang commodities are getting killed...look at the Platinum chart...ouch!
Ford sells lousy cars and has been for along time.
Just exactly where do you think money is going to go now?
It isn't going into the things listed above is it?
You say there is no more money to go anywhere?
There are oceans of money looking for a place to go and I assure you it will find it.
Gloom and doom does not dry up oceans...it makes more people go short. As the short interest piles up the market will turn....just watch..."the Dow is dead" is the best news there is.
Start buying when the bottom is in sight. The reason markets are down is because the buy side is soft and the sell side is average.
Guess why?
THE LONG MONEY IS WAITING.
When the money likes the timing the money will get back in and the gloom and doomers will have missed the bottom...again....study some history...no graph goes up forever and no graph goes down forever.
Unify
Went long the SP500 today.
Went long the SP500 today. The down volume was so light that without volume pushing down this wants to go back up. We will see what happens with this trade...
http://FlipFlopRomney.blogspot.com
Index fund? SPDR?
Index fund? SPDR?
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"The main thing that I learned about conspiracy theory is that conspiracy theorists actually believe in a conspiracy because that is more comforting. The truth of the world is that it is chaotic..." —Alan Moore
$850,000,000
IT'S NOW EVEN BIGGER!.....LETS BE A PATRIOTIC THORNS IN THESE TRAITORS SIDE!
DO NOT LET THEM STAIN the FABRIC of this nation!
ACT NOW!
I HAVE POSTED INFORMATION AND LINKS TO HELP US OUT IN CONTACTING THESE TRAITORS:
WWW.FREEDOMSPIRIT.COM
FORGOT THE 000
TYPO
Michael,
great article. An Austrian goldbug predicted a year ago that during the crisis you can buy a house with an oz of gold (We had this in Germany during the Weimar inflation). That's true given this mornings price of the oz on the stock market (>860 $) - since you have to add the 850 $ back taxes, to be fair. And the price on Ebay I may have nearly covered with the money I found on the street yesterday ( 1.20 €). Not that I trust the Euro. I rushed into the next bakery and bought a nice sandwich for the price.
You are right, as Ron Paul said: Have Fun!
BTW I received the posters today. Thank you! I will write you an email over the week-end.
Freedom brings People together
Ron Paul was right
The Comment by JamesButlerHickok...
...in the comments section of the article states in part
"e) PREVENTING UNJUST ENRICHMENT. In making purchases under the authority of this Act, the Secretary shall take such steps as may be necessary to prevent unjust enrichment of financial institutions participating in a program established under this section, including by preventing the sale of a troubled asset to the Secretary at a higher price than what the seller paid to purchase the asset.
This subsection does not apply to troubled assets acquired in a merger or acquisition, or a purchase of assets from a financial institution in Conservatorship or receivership, or that has initiated bankruptcy proceedings under title 11, United States Code.
This section “probably indicates that JPMorgan Chase can sell the troubled assets of WaMu to the US government and make windfall profits,” notes market analyst Richard Suttmeier. “Same for Citigroup with regard to Wachovia’s troubled assets. Other future deals as well. That is a direct bailout of Wall Street on the back of taxpayers.” "
Just a thought,,.If that is the case it could this be the reason that Warren Buffett invested $5B. Who is buying major stock in GE right now (does that include GE Capital Finance?)
A very interesting article with many good points. I wish that I were better educated in this area .
Wow
"People consistently overestimate what they can achieve in the short run, and underestimate what they can achieve in the long run."
Nice.
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"Make the lie big, make it simple, keep saying it, and eventually they will believe it." -- Joseph Goebbels
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"Make the lie big, make it simple, keep saying it, and eventually they will believe it." -- Joseph Goebbels
"Stock Market Craters"
Hey, we wanted to go back to the Moon, but I didn't think they were would bring the Moon to us!
http://www.youtube.com/watch?v=kHpX5aa5Lz4
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"The main thing that I learned about conspiracy theory is that conspiracy theorists actually believe in a conspiracy because that is more comforting. The truth of the world is that it is chaotic..." —Alan Moore
I'm not really scared at
I'm not really scared at this point.... it seems like a crash is inevitable now, so why worry about it?
I'm just not sure what to do to prepare.... I have no assets to protect, so there's no point in buying gold... all I can think of doing is to stock up on food and supplies in case of inflation or a food shortage.....