Thursday, January 20, 2011

Deflation Part Deux

This is an old post on my myspace from January 2008 just at the start of the sub prime collapse and before the equities crash. I post this because I think a lot of it holds true for what we are seeing right now, 2011 could see a repeat of 2008.
Originally Posted January 22 2008.

I predicted it would begin in January and dramatically accelerate in March. It seems as though the crash may come much sooner. U.S. index S&P 500 has lost 15% in the last month and a half, the NASDAQ has lost about 13% just since the start of the year. By tomorrow both should be officially in a bear market and could technically be experiencing a crash.

Over the last two days the market freefall has accelerated, as I speak some of the asian markets have lost almost 15% in two days! This is even after, or maybe because of the proposed economic stimulus plan by the Bush administration.

Now that we are up to date lets quickly look at the causes of this situation. Five months ago when I began predicting that a crash would begin around the start of the New Year these were the factors I was looking at in no particular order.

1. Wholesale lack of confidence in mortgage back securities (i.e. not just sub prime).
2. Massive nine trillion dollar U.S. debt.
3. Chinese economy that is likely slowing and whose economic figures are likely tweaked or outright falsified (communist governments are known for this).
4. Dramatic and under reported inflationary pressure.
5. Personal debt, which combined with inflationary pressure leads to lower spending levels and eventually recession then depression.
6. Most major banks are likely insolvent. For years they have manipulated their books to make debt even bad debt look like an asset but now as much of that debt has been defaulted on we will see many of the major banks collapse. Of course the controlling interests that pull the economic strings will simply consolidate these banks giving even less consumer choice.

Ok I will stop for now cause I m running longer than I would have liked. Those are some of the major issues that will cause this crash. But why has this market slide accelerated in the last couple of days.
1. A ridiculous economic stimulus plan which will further increase inflationary pressure, likelihood of U.S. insolvency, and prevent the U.S. from further funding operations through the sale of debt to foreign governments.
2. Evidence out of China that their economy may be facing many of the same issues as ours.

So let me say this week will be a horror show for the market, but it is likely the fed will jump in and cut rates dramatically giving the market a temporary boost. It will only be temporary and this would be a great time to get out of the market.

So how should you play this? Well if the fed cuts dramatically we will see a jump in the market alongside a dramatic fall in the dollar.

No comments:

Post a Comment