A legitimate argument. Trust is the key here though. The average person is not afraid of losing their savings account and therefore we shouldn't see a run on the banks. The American banking system is one of the most secure systems in the world. I think it would be highly unlikely that foreign investment would not "save" big American banks if they were in trouble. There are massive sovereign funds that have no place to put their money. They would be the first to step up to the plate in that scenario.
The FDIC is about trust. (deja-vu...have I already said that). You're are always going to have companies trying to skirt the laws. The difference is that in 1930, they could do it without consequences. Now, with the SEC, there ain't no free lunch. Sooner or later the pied piper is going to catch up to these companies and investors know it. HUGE difference. bologna. One of the prime reasons that the economy recovered from the great depression was because classical economics were thrown out the window and the government started spending money which increased demand and saved people's jobs. Tell me...if people stop spending money, where is the cash flow going to come from for corporations? If corporations have no cash flow, how are they going to pay their employees? If corporations can't pay their employees, how are they going to keep their jobs? If people lose their jobs, how are they going to spend money to stimulate the economy? You see the vicious cycle? Government spending is the proxy against this.
The problem is one of the biggest massive sovereign fund is China. They over the last decade or so bought about $1.0 trillion long term treasuries. They over paid for them - bought them with low yields resulting in a flat yield curve. Did this to keep the dollar strong so the American consumer would buy what they exported. They don't need the American consumer as they did. Their economy is no longer dependent on the US or at least what I read. They also deposited tons of money in our banks - they wanted to keep the dollar strong. I wouldn't characterize our economic relationship with China as one based on trust. It is mutual self interest. It will be more of the dollar weakening that sovereign funds will pull back but not out. In 1930 the dollar was backed by gold. So I agree, you can not compare 1930 with 2008. There is no comparison. I also don't think though China or other sovereign funds will sell off their treasuries or will there be a major disintermediation of desposits by banks from sovereign funds. It is not in any major economy's best interest to see our banking system collapse. Because we are still the world's largest economy and there would be a devestating domino effect for other nations. So it is those nations including China want to keep our banking system going. What I think is going to happen is we are going to see the end of cheap money especially on long time deposits. The end of 5.5 percent 30 year fixed mortgages. They'll buy our treasuries and desposit in our banks. But, they are going to make us pay more for it. This will impact the economy. The long bond market is not beholden to the Fed. It's a different ball game than 1930. I agree there is no comparison. Except for one thing. If a person can't or won't pay off the loan on his/her home then that has not changed and it has the same effect.
Actually I see just the opposite for US stocks simply because my definition of short term and long term may differ from yours. Short term, eleven months (11) : Bull rush into beaten down US stocks,"The Fed" saved the day, elections, Sub prime quiets down, 1600 S&P high. Long term, ten to fifteen years (10-15) : The onset of the ââ¬Ëbaby boomerââ¬â¢ retirements and the consequent liquidation of TRILLIONS of dollars of the Social Security Trust Fund at a time of rising inflation and historic low rates, will create an environment of endless stock market liquidations and lower P.E. expectations. The rise of socialism in politics in the U.S. with higher taxes and capital flight will also make stocks start to look unattractive compared with commodities and other country stock markets. This means little, if you are an intraday trader but looking for bottoms in the market to buy undervalued bargains in US stocks, is an exercise in futility imo for the average trader/investor. ~For those who really due their homework, this is the opportunity of a lifetime.~
The S&P 500's PE is about 19 today, and its historical average is 15. By holding earnings constant (although they are currently declining), the index must decline 20% just to match the historical average. The two most recent long-term bull markets started when the S&P 500 PE was single digits (6 in 1949; 8 in 1982).
I think the market still has a long way to go down before total capitulation. However in the carnage there will be many excellent opportunities for either trades or long term investments. Global economy is going to grow no matter what happens with the US and commodities are in a long term uptrend. There will be a disconnect between the commodity stocks and commodity prices and probably US multinationals that will be profiting large from overseas revenues in fast growing economies.
That is all you have here, perma bears hanging for morsels, when the market is down. They daytrade to the downside.
You are absolutely right. We are about to break away from rest of the growing and prosperous world. They will move on with or without us. We can have our fears of recessions, bouts of depression and insecurities and doubts. We can gore ourselves into pain and loathing but the world will move on. Look what we did to our real estate and housing by feeling greedy and insecure? Do you want to do the same to our national wealth? I see a lot of negativity, depression, self doubt, character weakness, and an overall sense of doom and gloom that has turned our markets what they are now going nowhere, cutting our nations wealth, and making us all poor. Every time the market goes down we get poorer. Do your country a favor, keep this market up, and let everyone prosper.
Already issued stocks do not create any wealth. The market can be used as a source of finance to start new companies. That is the main strength of the market. Saying that keeping the market up will make people prosper is an illusion. You need production to create wealth, otherwise a ponzi scheme would also be viewed as creating wealth. I believe that the US will continue to be the best financial center in the world. Most everything that has been developed in modern finance has been created in the US. Other parts of the world are implementating it, but the brain power is still attracted to the US. We must salute the educated and talented people of the world who work to build US market and the world. They come from all corners of the world. Next time you see one, stop and say thank you.
Shouldn't you be buying something (risk) when everyone else is scared to buy it? Or do you propose buying when everyone else has piled into an asset class? Maybe you'd like to wait for corp bond spreads to converge to 20bp above treasuries before getting long? Also, the S&P going to 1000 would actually be fantastic for anyone with a reasonable, but not 100%, allocation to stocks. You could go 150-200% long there with virtually no long-term risk, and make a killing as the market trades back to the 2007 highs.