SeeTheLight

U.S. Economy: Partying Like It's Still 2005 and How to Turn Things Around

Excellent article.

Unfortunately your voice and many of the others on Seeking Alpha are very much in the minority. The majority isn't interested in paying the piper... ever. They will keep looking for an easy exit until the next time, until there are no easy exits and a depression like no other arrives.

How many times can we repeat the bubble-jobless recovery-bubble cycle, I don't know but I have a feeling this is the last time since the Lender of Last Resort is becoming over-leveraged.

The fact is just like your teenagers that have to make their own mistakes, the US and the world must make a big one right now. The "I want it now" lifestyle that has infected the global psyche simply will not die until there is no way it can be resurrected.

Thus it will be long and painful. No one will listen to your well versed arguments and logical rational thinking, because its hard and they are used to easy. They don't want to hear and they won't.
Only after the fact will they face up to the fact of "What were you thinking" and realize "I don't know".

The only thing is, we are not there yet, no one is saying that yet. They are all trying to figure out how to get back to the old normal, how to have the V-shaped recovery, how we can put this bump in the road behind us. Except its not a bump in the road, its just the bump in front of the crater ahead and the music is going full blast so no one in the majority will hear the warnings until its too late.

Good Luck all

Equities Shrug Off Protectionist Fears

It's a good thing that Yellen is suggesting that the fed will likely tighten before the unemployment rate hits 5%, because with the amount of off-shoring of jobs during this downturn, I'm not sure getting back below 5% unemployment is in the cards for a very, very long time, if ever.

The only concern about the increase in retail sales is that PPI grew 1.7 percent (against an expectation of 0.8%), so how much of those sales increases were just the cost of inflation creeping in. I guess we can all be extremely happy that we are fighting off deflation only to find ourselves on stagflation's doorstep.

Good Luck all.

Stimulus Can't Save the Stock Market

This follows very closely what I believe. That the stimulus is propping up a global zombie economy similar to Japan. Can the markets continue to rally while the stimulus continues to go full blast? Of course, but even MS Europe's bullish outlook shows a 71% bullish retracement, of which we've already accomplished over 55%! That's followed by another 25% correction. How is that good risk reward at these levels?

Already China has toyed with removing stimulus (via credit tightening) and the response? A 25% drop in Shanghai over a two week period. The US consumer is punch drunk and on the mat. Any new discussion of additional stimulus will be political suicide, so the question is how long can the current stimulus prop up the market? I don't have the answer but I want to be on the sidelines when the medicine starts wearing off, because it is not going to be pretty.

I just keep looking at the risk / reward and saying is it worth chasing that 10-15% upside when the downside is at least as much or much more? Until then I remain in cash / gold / silver and some UUP just in case we get a flight to safety. Of course I will continue to trade equities judiciously based on individual risk/reward merits too, but in small amounts.

Good Luck all

Canadian Dollar Rattled by Shanghai Meltdown, Interventionist Talk

With Shanghai tanking, its only a matter of time before the TSX catches on. I've sold most of my longs in anticipation of a pullback. Commodities may provide some cushioning for the Canadian economy but it will be very volatile trade with the Loonie moving rapidly in response.

Still, I do agree with most of the posters, that Canada is better positioned relative to the US when the eventual recovery occurs.

Global Markets Weekly Trading Preview: Does This Rally Have Legs?

All the bad news is quietly being ignored, the lack of significant volume allows for market makers to pull end of day "stick saves" in the last 15 minutes of trading on any day where the market seems to be significantly down and the analysts on CNBC seem worried about a pullback. Every down day is just another excuse for "buying on the dip". We will continue to rally until something significant happens, another Bear or Lehman or return to Mark to Market, a bad treasury auction, or other unexpected situation, then we are off to the races. Of course this rally is all an illusion driven bear market rally, but do not fight the tape, I repeat, do not fight the tape. Just have your stops in and be ready to sell when we get a technical breakdown. Until then remain long, because as the old saying goes the market can remain irrational longer than you can remain solvent.

Our Coming Depression

Heavy doom & gloom. Undoubtedly it is bad and it will get worse. America was definitely living beyond its means and will suffer the hangover of a long party. Instead of accepting the hangover after the dot com bust it kept drinking.

Yes there are parallels to the great depression, but there are some things that are different than in the past. The author notes some of them in that instead of reducing the money supply in response, it is adding more liquidity. This is unprecedented, is the author correct. I know not.

The other thing we have now that we didn't have in the past is the Internet, a grass roots method to inform the general public outside the main street media. In another Seeking Alpha article, another author talked about how financial markets and even the dollar are all based on trust. That trust has been shaken.

The fact is the only way we can truly get to a full depression is if collectively the world gets so panicked that everyone goes into a bunker and hides (the protectionism noted above).

I have no political affiliation to either American political party since I am Canadian. But the author makes the assumption that the democrats will get elected and their policies will exasperate the situation.

Personally, I see this article as irresponsible. It is well written, and has an easy to follow logic, and let's face it, it is a definite possibility. But even as it commends the American people for their reaction to the bailout bill, it condemns them to make the same mistakes of the past. Is the scenario outlined above possible? Yes, but only if everyone buys into it. Trust is key here.

I think everyone needs to accept that the party in America is over, and it will be hard. But if people irresponsibly incite panic it will be worse.

Will you lose money? Yes. But so will everyone else in the world, we will all be a little poorer (a period of deflation will occur), but if the underlying value returns it just means that everything will be cheaper and hey you might be able to buy something with a dollar then.

I commend the author for a well written article that has described accurately where we are today and the hard road ahead, but as someone who is clearly intelligent I find it hard to fathom why he would not consider the impact of his words and how they are just another irresponsible act on top of all the others.

I hope this helps those who are considering burying themselves in a storm shelter. By trying to help everyone else calm down maybe we can make sure the future is merely painful instead of catastrophic.

Bailout Bill Passes; What Happens Now?

An insightful article. But one question that concerns me with this statement:

"Looking at deflation in terms of money supply (money that is actually lent) and credit (marked to market), the proper conclusion is the bailout bill does not change the picture, and that picture remains deflation."

I'm not sure I agree with the conclusion in the short term. Here's why. You suggest the money supply has not been increased. But if the fed printing presses pay for the 700B then the money supply is increased, it buys the bad debt and allows (again in the short term) for banks to supposedly be more appropriately leveraged. Here is the question. Do the banks turn around and lend that money (increased by the money multiplier of going through the bank system). Short term that cash infusion (whether printed or by foreign investment in T-bills), will cause an increase in the money supply if the banks loan the proceeds of the sales out. Which if I recall is the intention of the bailout in the first place, allow banks to get back to lending.

Medium to Long term I agree with you, the USA is overinflated and the only way back to equilibrium is deflation (assuming the US and its citizens ever decides to pay back their debt).

I'm interested in your thoughts in response to this Michael.

Cheers.

The Economy Won't Be Ignored

Sorry when I said "smallest spending" above I meant "smallest per capita spending on government programs"

The Economy Won't Be Ignored

@ Socalism... So your recommendation is to cut taxes and cut spending more than you cut taxes? Remember the US is already running a deficit. So if your policy is to cut taxes, (which the bailout plans to do), you will need to cut spending as follows:

spending cut >= tax cut + annual deficit

Ok, I'll play along. Where to cut? Medicare - what medicare? Defence - would be nice to get the troops out of Iraq, but what about Iran's nukes, social security? - its already not enough to retire on, why not zero that out.

America already has the smallest spending of the G7 countries (yes the rest are socialist countries). But hey, perhaps the US can be run on a dollar fifty.

I think you are dreaming, cutting spending just means you end up paying for it anyways. Not in tax but the price in goods.

It really is irrelevant, either solution could work, the key being that the US can not keep running a deficit and increasing the debt.

The Economy Won't Be Ignored

Plus, the new bailout has tax breaks. So its back to the policy that got America into this mess in the first place, run up the debt, pay for it later.

Except the price tag of paying it later gets more and more expensive. Long term effect of the bailout, net negative. Sadly the original bailout was less damaging long term. But it's an election year. Throw money out the windows.

I understand you need to grease the financial engine here, but the right way was to increase taxes, not increase debt. The pass the buck policy of America continues. More credit, cheaper, bubble onward.

Fool me once shame on you, fool me twice shame on me.