Saturday, March 6, 2010

DEFLATIONARY COLLAPSE?

Not without this last desperate attempt at the reinflation........it will fail but not without the last blow.....good read

When the tech bubble burst in 2000, Greenspan tried to “fix” the problem by cutting rates and printing money. Fix the problem he did … well sort of! What Greenspan did was create two new bubbles in the credit and real estate markets to replace the tech bubble that had burst. Millions of jobs were created in these two industries. Much needed jobs to replace the ones lost as the tech boom came to an end.

I think we will all admit it was one heck of a party, but like all good parties there’s a price to pay. The Hangover!

The truth is the economic boom of the mid 2000’s was built on a lie. Instead of a foundation of productivity the last bull market was founded on an ocean of liquidity. That ocean of liquidity fostered risky investments and massive speculation. It was only a matter of time before the house of cards came crashing down. And crash it did. The world suffered through the second worst bear market in history almost taking down the global financial system in the process.

Apparently the powers that be have learned nothing from this near death experience because they are back at it again, printing, printing, printing in another vain effort to create prosperity with the printing press. I dare say the average 6th grader can understand that the act of putting ink on paper does not create wealth. It’s too bad our elected officials can’t understand this.

So here we are, we’ve survived the credit crisis and all appears to be well in the world. I’m here to say that all is not well. We now have a cancer growing under the surface of the economy many times bigger than the one Greenspan created. This cancer isn’t going to show up in real estate or credit markets, that bubble has already burst, never to be inflated again. No, this time I expect the cancer is going to flare up as inflation in the commodity markets.

Witness the strange resilience of oil at $80 despite a very strong dollar the past 3 months. Gold has been holding over $1100. Sugar is at multi-year highs. Copper is less than 15% from all-time highs.

http://news.goldseek.com/GoldSeek/1267772940.php

"Get your facts first, then you can distort them as you please.” - Mark Twain

14 comments:

  1. Good post. Broke one of my rules and went over to look at the SKF board. I noticed a string over there about SPX1150, and whether AAPL making new highs can be taken as a leading indicator for market direction. AAPL tends to be positively divergent from SPX on a comparison basis, and in itself is often divergent from $NDX as a leading index. You can see on 1/5 SPX made a breakout high from consolidation while AAPL was divergent and did not make a new high, neither did NDX for that matter, so that is one example of a stock within an overall index not being a reliable indicator of market direction, even if it is part of a leading index. If NDX broke out over 1900 that would be confirmation of AAPL and tech in general starting to lead again. I see no indication yet of this occurring, with other leading tech stocks such as IBM, INTC etc locked into consolidation ranges, with mediocre performance on a relative basis to SPX even on Friday. Leading indices pass the baton occasionally, it is not always necessary for a given "leading index" to make new highs for SPX to break out, (i.e. tech versus SPX on 1/5 as mentioned). It would be more prudent to see whether AAPL holds that breakout range for entry if one wanted to play that position, but it is not something that in and of itself can be construed to lead the market. Backtrack and see where AAPL has made new highs versus NDX and SPX and it will become apparent what I mention above is true. Anyway, just thought I would post about it since it was of interest, and can also lead one into a rat hole to make assumptions about something when it is not a reliable measure of market action. - Analyze.

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  2. What this indicates is that long term rates will continue to rise thus creating the illusion of inflation...commodities will rise and stock markets will crash. Real inflation will not occur (prices will not rise) cash will not get into the hands of consumers. This will actually accelerate the time line to a deflationary collapse as you note below. Beware of gold as it will rise in the near term and could then take a big dive as deflation sets in.

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  3. Analyze good point. I see many people watching AAPL and GS as indicators for their indexes. I agree with you the index needs to confirm the move of the individual stock.

    I read a thread over on SKF where posters were admitting to their losses. Unfathomable how someone can let their bias take them down the financial grease shoot.

    KLI are you goading DNY to come back? The mention of Inflation or Deflation usually brings him out. hehehe

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  4. Thanks Temo, yep, it is easy to go along with something because it "sounds" reasonable but is not. Just like bias sounds reasonable but is a path to the poor house. - Analyze.

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  5. I would not worry too much about gold, I would be more worried about Treasuries and the current US fiat regime going forward over the next 5 years.

    The last thing you want to do is ride the next 5 years in US stocks or US bonds, the lucky ones will only get a haircut.

    Guess what Buffet is doing with the GS insider information he has privy too? Besides the railroads and utility acquisitions. His capos are preparing the take advantage of the low in the 30 year cycle coming up in 2011-15 to build up infrastructure and hard assets at taxpayer and consumers expenses in preparation for the rebound after 2015+. Was in a meeting with some of Warren's capos earlier this week and they were pretty honest about their intentions, it kind of passed right over the heads of my superiors who are suppose to be watching the hen house.

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  6. only my observation all...but consensus is we are in a deflationary death spiral....ok....then we are...problem is you gotto push that nose down and apply full throttle and we ARE...its a maneuver that IMO WILL result in exploding gold and commods...before the plane stalls for the final death dive. anyway sorry for the lazy metaphors ....We get a dose of some type of severe inflationary/stagflationary pressure before they are forced to hit the brakes just like they had to do in 1923 in Ger....probably next year...they will start tapping on the brakes this fall....market will convulse but not crash....inflation will accelerate in essentials and they will tapp more but to no avail...only taps......they know what happens when they mash and that won't be politically until october 2011

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  7. Kli, just a personal opinion, but you need to pay more attention to your blog on weekends, there are excellent points made here that could easily lead to some informative threads, but you need to engage people if you want more. I have really been surprised that no one has wanted to post to me directly - what fear do you have? Only Kli, Joe and Temo post to me, I will field any question you have, and my record speaks for itself. I do not miss often, and I am a successful pro options trader with a prestine track record. I am well aware of the sub-culture of back-stabbing that occurred on another site, which is why I left, along with becoming tired of junior charting and education,which was my original intent when I posted there. There are a myriad of choices available to individual investors, some are free, some are Investools-style ripoffs, with the best they have to offer is junior to intermediate TA, and that is a real stretch. I'm a quant model trader and do not have an ego or some agenda to swash small traders. Please keep that in mind. I had to put this out there since a couple people have another agenda that is not in your best interest. Onward and upward. - Analyze.

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  8. After I left this post I was thinking about the way it may be perceived, in other words, maybe egotisical. That was not the intent, I put it out there to give you a level of comfort that you are not following morons. To be clear, Joe is a wonderful trader with his vast experience of commodity markets, and general market perception, and remains an instructor to everyone, including me, of how to trade these markets. I bet he will boot me in the butt for the previous post lol. I believe though, that having various personalities and market perceptions is key to survival given the ponzi we trade. Temo is also an excellent analyst and easily my equal on his worst day, although he remains humble in his delivery. He's an excellent trader, along with Kli. - Analyze.

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  9. My weekends vary analyze with heavy work schedules so I can trade weekdays...so my posting like many here is erratic....also you have joe nailed analyze....he is a no prisoners mthrfkr...hard core trader.....since he doesn't need to be in this pig of a mess his demeanor is more of a "help" demeanor for us....but make no mistake if you think he is kidding when he advises us to stay out of this you are wrong. He means it. And yes I myself wish you would keep a little more updating on your T/A calls and thots...I am amazed how some readers ask me personally about miners that I might recommend stating they never saw me post the particular names ...that is why I continue to put them up every few days.....there will not be hot threads as long as GS is dumping the VIX hehehehee

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  10. Analyze, So your human after all? I read this blog daily, and posters like Joe, Red, Kli, and yourself are very helpful, giving your insight, asking for really nothing in return. Sometimes I take nothing, sometimes it is like gettin smacked in the head. Sometimes it is edifying, sometimes it is humbling. Kind of like going to church, sometimes the preacher is talking DIRECTLY TO ME, sometimes he says something that I will not need for months,or years. Thank you for contributing, I hope that someday, I will know enough to be able give hope and help to others like you all do for the readers of this blog. Preach on brothers!

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  11. There is a wealth of talent on this blog.
    No one reads a tape like Joe.
    Analyze has TA skills that are top notch and second to none.
    Red has good insights into the cycles and a thorough understanding of what is unfolding.
    Kli is a well seasonef trader who is a master when it comes to gap and scalp trades.
    Here we have the best of the skf board without all the noise.

    Check out the sideways consolidation channel on SSRI. Playing this range up and down has been working well.

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  12. Thanks Kli, I should have thought about your heavy work schedule given your occupation on the point about updates, for myself I am also erratic and cannot post much either especially during daytime. CBS, it is a rare thing if you have found a preacher who is able to talk that way. A wise oracle once told me that hope will never disappoint. Hope deferred makes the heart sick, but it will arrive once you are prepared for it, if you have the stamina to hold on and believe long enough. The battle is believing. - Analyze.

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  13. Analyze - You have articulated exactly why this blog is so important. Most of what you say is way, way over my head, but I owe a deep debt of gratitude to the generosity of kli and joe who have literally been my salvation since they deigned to talk to me on the skf board. If I knew anything intelligent to ask you, I would. You guys keep me from losing my mind in this environment we are struggling through, as kli says history in the making. - Nancy (sis)

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  14. Not working guys. It's not working. We are deflating no matter how you look at it.

    Dny

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