You just made the case for a natural collapse. Credit markets are frozen because most banks hold the old maid. Consumer/Business markets are frozen because there's too much uncertainty surrounding a possible financial collapse, and the broader effect it'll have on the economy. The answer is to let all the crap banks fail, massive layoffs, dispose all the worthless assets, undergo a severe recession, than start anew in 18-24 months. Banks will lend commercially and amongst themselves once the losers go bankrupt and uncertainty resolves itself. Only the strong are left standing, and life goes on. Right now, uncertainty dominates and will continue to do so because the weak and insolvent only survive by the good graces of Bernacke and Paulson. This "recovery" is forging its roots in bankrupt companies, worthless debt, over-valued assets and opaque accounting. The only recovery we're gonna see is an inflationary one and that will lead to even bigger problems. The FED has fucked everything up since the Great Depression. Now, all of a sudden, they're not gonna overshoot CPI when M0 has gone parabolic and Bank reserves held at the FED are nearing Trillions? Its more wishful thinking. And the nation abounds with it. Every TV-Head you talk to you regurgitates the same mantra. Inflation might be a danger down the road, but the FED will deal with it!!! Yea, they sure will. With 20% interest rates. Guess where "Deflation" is gonna be then? Real high. Real, real, real high.
Reagan spent his way out of the 1980s recession (which was also quite massive), with unprecedented government spending in defense. This led to the great Bull market of the 1980s. This administration will do the same. The big losers ... those holding U.S. dollars which are sure to value as inflation takes hold .. but that is a ways off. No hyperinflation, just above average, since consumers are not spending, and without money velocity, there is no inflation. China and others holding dollar reserves have a choice .. they can keep the dollars in 2% Treasuries, or buy U.S. equities. I am betting that they buy up the equities.
The markets may do X, Y, or Z. Why worry about that when you can find individual trade opportunities where the probability of it doing Y is 90% and the market is only pricing in X? Depending on overall stock market direction for your profits is a risky game unless you can predict it with high probability - which most cannot, most of the time. There are plenty of opportunities around which will work whether the S&P closes 2009 at 1200 or 500. Go find those instead of coin flipping.
I daytrade fx with technicals. The fundamental stuff, I'm just a hobbiest. Its good to keep an eye on the future, tho
I hate the stress of day trading or even short term swing trading. I am not going to guess short term moves .. because it is a game of musical chairs. I am confident of the long term trend, doubling up, and making a bunch of money with very little effort. When the market stalls when the money fuel is running out (I'll know when the CNBC talking heads invite the public back in), I'll move out. I may go short, but my guess is that the market is going to go into a trading range once this is done, as Daytraders play among themselves. I may play, or just go on to doing something else.
Whoever told you that should be shot. The Recession of '82 was <i>caused</i> by a tightening of the money supply necessary to squeeze inflation out of the economy. The recession was precipitated by the Fed on purpose and was necessary. Spending would have been inflationary. Huge tax cuts and normal expectations of inflation (which lowered the cost of capital, obviously, and made more projects profitable) laid the foundation for the boom that followed. China and others holding dollar reserves have a choice .. they can keep the dollars in 2% Treasuries, or buy U.S. equities. I am betting that they buy up the equities. [/QUOTE] Doubt it. Governments don't usually invest directly in foreign equities (although Sovereign wealth funds do). Of you mean foreign direct investment, then you might have a point. But only if we can avoid becoming Japan (stagnating since 1990), which I don't think we will. Otherwise, the return on equity in any country in Asia and some of Europe is much better than in the U.S. There seems to be an impression that Keynsian economics ever works. It turned a normal depression (which is what recessions were called before the 1930's) into a decade long event. Pump priming is a myth and willy nilly printing money in the face of falling production always leads to hyperinflation. You can't centrally plan a complex 13 trillion dollar. 300 million person economy.
Seems to me, when all the fundamental relationships decouple and gyrate around seemingly "illogical" events, it means we're at the end of the curve. Academic micro and macro is all about what Markets and Central Bankers do under normal conditions guided by pragmatic reasoning. Unfortunately, our Central Bankers (Greenspan) threw conventional wisdom out the window and opted to inflate one Bubble into the next to save us from the last one. All for political expediency. Or who knows what else.... So now we're entering our third (or perhaps fourth Bubble iteration) without suffering a major corrective action. This new Bubble will consume all the others and should get quite hairy. The problem with this whole deflationary argument is deflation is going to happen regardless. Whether its now or 5 years down the road (if we even last that long), its gonna happen. Prices always rise quicker than wages, so with each new bubble comes more debt and overproduction locked in with fewer dollars and more bankruptcies that simply cannot pay it back! Its the insidious lie of securitization and endless 30 year financing that somehow each Bubble top can always be paid off "down the road". Well, there's only so much debt any one person or economy can handle with so much income. We've already exceeded that point, evidently. And now Bernacke plans to inflate us into another one to save the banks. If each Bubble destroys more wealth than the last, then the next should prove especially spectacular since this current Bubble - if left to its own devices - would have brought down half the American Banking System and half the value of the DOW/SPY. The next Bubble will ramp things up to new highs - maybe DOW 20K etc - and lay complete devastation to American Banks and the Markets. Think near total collapse of everything. Wages. Corporations. Savings. Banks. The Dollar. Argentina sounds about right. Oh well. Who cares? I'm sure we'll all be just fine. After all, our Grandparents muddled through the Great Depression okay...
Nice argument not to invest. If I was you, I would short big time. Let me know when you are shorting, because I am looking for some cheap buys.
Achilles, Bubbles have occurred throughout history and economies have developed and grown. Bubbles themselves are not the problem. I fear the Argentina scenario because, unlike throughout most of history, governments now take much more active roles in economies and spring into action when a bubble bursts. This distorts incentives and leads to unintended consequences, which lead to more government action to prevent the negative results of its previous actions. The housing bubble had its roots in monetary policy and congressional economic engineering in response to the tech bubble bursting, for example. Once the endless intervention strangles all economic growth, the economy collapses. This is a much worse scenario than that which precipitated the Great Depression. This is more like a South American scenario or, at best, Japan since 1990.