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As Time Goes by!

As time goes by, Jim Sinclairs "formula" shows to be true!

Jim’s Formula:
September 1, 2006

1) First interest rates rise affecting the drivers of the US economy, housing, but before that auto production goes from bull to a bear markets.
2) This impacts many other industries and the jobs report. An economy is either rising at a rising rate or business activity is falling at an increasing rate. That is economic law 101. There is no such thing in any market as a Plateau of Prosperity or Cinderella - Goldilocks situations.
3) We have witnessed the Dow rise on economic news indicating deceleration of activity. This continues until major corporations announced poor earnings, making the Dow fall faster than it rose, moving it deeply into the red.
4) The formula economically is inherent in #2 which is lower economic activity equals lower profits.
5) Lower profits leads to lower Federal Tax revenues.
6) Lower Federal tax revenues in the face of increased Federal spending causes geometric, not arithmetic, rises in the US Federal Budget deficit. This is also true for cities & States as it is for the Federal government.
7) The increased US Federal Budget deficit in the face of a US Trade Deficit increases the US Current Account Deficit.
8) The US Current Account Balance is the speedometer of the money exiting the US into world markets (deficit).
9) It is this deficit that must be met by incoming investment in the US in any form. It could be anything from businesses, equities to Treasury instruments. We are already seeing a fall off in the situation of developing nations carrying the spending habits of industrial nations; a contradiction in terms.
10) If the investment by non US entities fails to meet the exiting dollars by all means, then the US must turn within to finance the shortfall.
11) Assuming the US turns inside to finance all maturities, interest rates will rise with the long term rates moving fastest regardless of prevailing business conditions.
12) This will further contract business activity and start a downward spiral of unparalleled dimension because the size of US debt already issued is of unparalleled dimension.
Therefore as you get to #12 you are automatically right back at #1. This is an economic downward spiral.

I heard all this "slow business" as negative to gold talk in the 70s. It was totally wrong then. It will be exactly the same now.

We now see that the government is turning to itself to fund its own spending.. now Most States are having a hard time financing there daily operations... read the Formula... its a play by play description!



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Schiff misses on this one

Schiff didn't account for 2 things.

The inflation caused in 1995-2005 would reverse itself through bank writedowns and shift hard and suddenly into deflation. This caused a huge dropoff in commodities, which facilitated...

A drop in crude, the US's number 1 import...which has shifted the trade deficit very suddenly in our favor. Our trade deficit is just about 1/2 of where it was when Schiff wrote this article.

We are no longer seeing a dropoff in other nations willingness to bear our deficit and finance our borrowing. In fact, treasuries have not been so cheap in 60 years, and they're selling everything they can print. This seems to argue that there are plenty of willing buyers of the US federal debt, when the "formula" depends on less willing buyers.

A huge factor in economic activity (besides the availability of credit) is the price of energy. It factors heavily into every stage of the economic cycle. We haven't yet seen the benefit that $1.71 gasoline brings to the table because Americans have largely saved this leftover money.

Assuming further economic collapse is to assume that Americans are going to magically turn into a nation of savers and suddenly lose their love of consumption.

Do you want to base your economic decisions on the faith that Americans will continue to save?

I sure wouldn't.

actually your whole post to

actually your whole post to this thread has nothing to do with Sinclairs Formula.. as read all 12 points he is right on this is exactly what we are seeing in the economy over the past 3 years!

"When governments fear the people there is liberty. When the people fear the government there is tyranny."
-Thomas Jefferson

I am more concerned about the return of my money than the return on my money. --Mark Twain

We are no longer seeing a

We are no longer seeing a dropoff in other nations willingness to bear our deficit and finance our borrowing. In fact, treasuries have not been so cheap in 60 years, and they're selling everything they can print.

this is easy when you are buying your own treasuries! at the same time you push interest rates lower hoping to get people buying houses again..
You walk down the same path JZ but you only look at the scenery on one side of the road.. Now, as you think this might be the bottom or by summertime you think we will be coming out of this.. I don't think so! but we will see.. only 5 short months away! you said last novemeber now was the time to buy a house.. do you realize that houses have continued to come down in price on average about 15% per month since you gave that buy signal?

"When governments fear the people there is liberty. When the people fear the government there is tyranny."
-Thomas Jefferson

I am more concerned about the return of my money than the return on my money. --Mark Twain

Be fair

First, we don't have reliable numbers beyond 10/08 on home prices, so none of us really know what the true values are.

Second..."an average of about 15% per month"? Honestly, where did you pull that statistic from?

Do you know that 84% of all statistics are made up on the spot?

The housing market has bottomed, but only on the bottom end. A market recovery in real estate starts at the bottom...starter homes in blue collar yet stable areas. Those have found a bottom. There still will be some declines in Miami Beach, but we have found the bottom.

The declines in California and Florida will overshadow the recovery in more normal areas for some time to come...but the bottom has been hit. It's a slow process to begin to soak up all the excess inventory sitting out there, but the process will begin at the bottom.

This last few months have been a jolt of panic, and the result is panic selling. Real estate (reasonable houses, mind you, not McMansions) during this jolt has crossed under what would be considered fair value and now is a bargain.

I watch Case Shiller carefully, the November report is due out tomorrow. We'll see what it says.

You, like many other market watchers and analysts

Completely ignore the alarming rate at which people are losing their jobs. One without a job cannot purchase a home, no matter how reasonable the price. $1.80 gas is still expensive when you have no income coming in.

Coupled with the fact that you have to have a near perfect credit rating to be approved for a mortgage.

http://federalfallacy.com

1.71 gas?? you are getting

1.71 gas?? you are getting hosed! it's under a 1.50 here! I've bought it at 1.32!

"When governments fear the people there is liberty. When the people fear the government there is tyranny."
-Thomas Jefferson

I am more concerned about the return of my money than the return on my money. --Mark Twain

Don't I know

I know a ton about the oil industry...some things will always be a mystery to me.

It was $1.35 in early December, with crude at $40 or so. Crude is still in that range, but now it's $1.73?

I'm still happy to pay $1.73 though....it sure beats $4.19

My bad

Schiff, Sinclaire...pretty much say the same thing.

I get them confused.

Bump

for discussion.

"We can see with our eyes, hear with our ears and feel with our touch, but we understand with our hearts."