Market Currents
It appears that many investors are commemorating the fourth anniversary of the bankruptcy of...
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Friday, September 14, 2012, 8:04 PM ETIt appears that many investors are commemorating the fourth anniversary of the bankruptcy of Lehman Brothers by telling themselves that any Lehman-like danger has passed, and staging a huge rally in its honor, says Mark Hulbert. Actually, he quips, the real impetus was that the Fed basically concluded that the economy is in such horrible shape that it needs even more life support. This all goes to show how inscrutable — and, therefore, ultimately unpredictable — the markets can be.
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- Technology makes manufacturing in US possible again because robots do not earn wages.
- US has natural resources others do not have.
- US has highly educated scientists. The ones missing are being imported.
The experiment that might fail is not limited to the US but more a global scale collapse of economy which can always happen. Eventually it will happen. There is a chance though it won't be during our live time.
slowly?
And last I checked, the world doesn't actually work in gold. At least not the 3 largest economies in the world, that represent almost half of global gdp.
That's the beauty of the chart. It's extremely clear that there were three big bubbles, each larger than the one that came before it, in the 1920s, the late 1950s and 60s, and 1990s. Aside from these bubbles, somewhere between 5 and 20 grams of gold would buy you the S&P. So yes, of course that's not representative of the true value of stocks (the "true value" of gold is meaningless; gold is the unit of value with which we measure other things).
Someone interested in prognosticating would look at this chart and draw a few conclusions. First, stocks probably have a bit farther to fall in real terms. Second, we can expect that we are entering a period of sideways action in stocks. It's unclear how long it will last, however, as each successive cycle has been shorter and steeper: prior to the Age of the Fed, these bubble cycles did not exist at all, the first interbubble period lasted about 16 years, the second only about 10 and with greater volatility. Third, we can expect a tremendous bubble to be brewing in the 2020s that will take the S&P to a level above 180 grams of gold. It's possible that the apparent shortening of these bubble cycles could move this even sooner. Finally, one may also conclude that 10 grams of gold is a great price at which to buy the S&P 500, and probably represents approximate fair value; if the market is priced above 40 grams, it is very likely that most (but not all) stocks are overpriced. Under those circumstances one needs to be very cautious about the fundamental assumptions one uses in attempting to value a company. For momentum traders, however, get long at 40 and ride the walrus.
Obviously, we have a small sample size here. This could easily all be wrong. But it is backed up by logic as well: we had no major bubbles before the Fed came along, and it has greatly increased the aggressiveness of monetary stimulus over time. More monetary stimulus, bigger bubbles and bigger crashes. Both history and reason favour these outcomes. Would I trade on it? I would not. But I do use this knowledge when considering how much of my money to invest and whether I'm getting a good price on something I want to own.
My problem with the gold standard is that why should money supply be determined by the rate at which we can get a metal out of the ground? If, to control the supply of gold, the government, or fed, or guards at Fort Knox, or whoever, bans new gold from coming into the country, or buys all the new gold, it is in fact controlling the supply of money, and you have now created the same problem as the Fed: you have some person, or group of people, who is controlling the supply of money.
I think crisises have become more prominent because money moves too quickly for people to fully comprehend, and there is too great of an ability to leverage up in the short term, with no real control of anything. Why do stock trades need to be measured in milliseconds, if I cant do anything else in the world in a millisecond? The private sector has become too fast and too smart for Washington to understand or oversee, partly because of the fact Washington is a bunch of old men and women more worried about re-election than the good of the country. Lack of understanding of how the economy works, how the world works, how compromise is needed, and of a world outside of D.C has limited our leaders ability to plan for the future, or to help us prosper. Congress, or the regulators, will never see the next bubble coming, because they are too busy looking at the past bubble. Investors, on the other hand, are so desperate to make the money they lost in the last bubble back, that they inflate the new bubble.
Thats my Saturday morning rant. Everyone go watch college football!
Just don't sell shovels. That will keep the supply fixed.
Humor just in case you missed it.
And the US is backstopping ALL bank deposits through the end of the year, so what could cause a Lehman style bank run?
That has to be in the top 3 possible events. All hell would break loose and I am sure Iran would look to block all oil out of the ME and drive the price to $200 or more which would put everyone into recession.