Dooms Day Deflationary Depression Article?

I am not forecasting or supporting a doomsday scenario, just that the economy has a ways to go, and recovery may not be fully realized in 2010 like forecasters hope.

The stock market is complete ignoring the whole POTENTIAL for inflation right now. They are assuming the economy will turn around in 2010 with NO room for error.

I am not in this camp

I am not in Prechter’s camp either; not seeing a depression, but we were close to launching that in 2008 a number of times.

If one follows every tick of the market as I do professionally, and around the clock, we were losing major players one by one.

In just a few days (Fall 2008), LEH collapsed, AIG was rescued, FNM/FRE was rescued, MER was about to tank until a deal for BAC to buy them, only that technically failed as BAC nearly collapsed with that deal, plus BAC’s own bad books, and the 2007 purchase of Countrywide (CFC).

I heard this same thing back in late 2007, that the real estate market would turn around every quarter and this continued through 2008, then it was pushed to 2009, now it is pushed to 2010. So what happens in 2010?

There is a lot of expectation that everything is going to be fine in 2010. We'll sure, that would be nice for the economy, but will it?

Based on the 100's and 100's of articles I have read and collected over especially the last 2+ years, my view is that:

1. Banks will still be dealing with large mortgage loan losses, credit card losses, auto loan losses, and commercial real estate losses. I don’t see a sudden clean slate by consumers in 2010 that there are not going to be any big write offs.

2. Getting Crude and Slippery: Oil prices have gone from $38 bbl this year to a whopping $58 bbl in less than 6 months - a 52.63% increase in oil prices. And gas prices have risen accordingly.

http://www.bloomberg.com/markets/commodities/energ...

There is concern that there is money speculating that oil prices could hit $70+bbl this year or by 1st Q next year or higher if the economy really does turn around.

Higher oil prices (higher gas prices) will do 2 things.

1. Raise transportation costs for consumers, (driving cost) and EVERYTHING we buy (because it is shipped, flown or eventually trucked to us – and that costs money). This should decrease consumer spending and traveling. This event occurred as we recall in the summer of 2008, when oil prices shot to $147 bbl. I don’t see that again for awhile, but someday that may be the norm.

2. High oil prices might make Obama upset because he can't control oil prices no matter what legislation he demands. But he might then use that as a reason why "American's need more fuel efficient cars" argument, and then tell what is left of the Big 3, what kind of cars they are going to build and Americans are only going to drive what the government says they can drive.

“Barack Obama and Nancy Pelosi now want to bail out Detroit once more, while mandating that the Big Three build "green" cars. If consumers really wanted green cars, no mandate would be necessary.”

http://online.wsj.com/article/SB122645159441719325...

Higher oil and commodities prices can be interpreted as early INFLATIONARY signs.

This is what the FED was likely looking at in 2004-2006 when they said they were concerned about inflation. We had no other inflation. It was all commodity inflation. So the FED raised rates from 1.0% to 5.25% in the Fed Funds Rate (FFR) over 2 years - a 425% increase, and no one thought this would impact the housing or credit markets? The result as we all know now, crashed the economy like a 1929 style run on the bank panic - which occurred many times in 2008.

The FED, finally realizing the “ooops, I did it again,” eventually reversed all the (2004-2006) rate hikes and has moved to historical record low FFR.

http://www.newyorkfed.org/markets/statistics/dlyra...

Recall in history that the FED raised rates during the Great Depression. Not exactly the monetary policy one wants during a crashing economy.

“According to Ben Bernanke, the current Chairman of the Federal Reserve, the stock market crash (of 1929) and the subsequent (Great) Depression were actually caused by tight monetary policies that the Federal Reserve instituted at that time.”

http://useconomy.about.com/od/grossdomesticproduct...

Under Fed Greenspan, the FED raised rates from 1998-2000, and that was the end to the .com bubble.

And Fed Chair Bernanke got the Housing / Credit Crash that nearly torched the entire U.S. (and global) financial system. To be fair, the Fed isn’t 100% responsible, they were just blind to the economy and put high octane fuel (aggressive rate increases) to a fire (real estate-credit bubble) that was ready to engulf the global economy.

I was critical of the FED in the late 1990’s to about 2002. I wrote about all this extensively back then to my private client group. I was critical of the FED in 2004-2008 for the above (rate hike) reasons. Hence, my opinion of economists. I think Uncle Ben gets it now.

The low rates can help spur an economy to recover because the low loan cost to banks and consumers can help expand business, and refi consumer debt, assuming one can get a loan. The gov is encouraging us to spend. Isn’t this what got us into this mess?

But people are still not spending according to the latest retail data.

"Retail Sales Stall on Consumer Caution" (05-14-2009)

http://online.wsj.com/article/SB123025036865134309...

So oil can push inflation. And the FED is trying to bring the massive damaged heart patient (the economy) back, but people aren't spending.

Now what is left to work with?

We'll we have government that is printing more money that will surpass Bush and all prior US Presidents is U.S. history combined over the next 10 years.

“Bush Deficit vs. Obama Deficit in Pictures”

http://blog.heritage.org/2009/03/24/bush-deficit-v...

These massive spending bills are supposed to be the Obama government's thinking that we can "spend our way out of debt." Really? At what cost?

02-16-2009

“The Obama Budget: Spending, Taxes, and Doubling the National Debt”

http://www.heritage.org/Research/Budget/upload/bg_...

Oh, there is a cost to all this?

The cost and risk is inflation. I starting discussing this issue back in what, summer 2008 and more so during all the bailouts in the fall 2008, and ever since. I also talked about people putting some funds in TIPS (Treasury Inflation-Protected Securities) to hedge against inflation.

http://www.treasurydirect.gov/indiv/products/prod_...

I am now reviewing the original article link (poster’s question).

I think it is not unreasonable that we retrace ½ the gains made over the last 8-9 weeks. Technically, we should do exactly that. I have posted this a few times over the last week or so that this is necessary. We can’t just go a straight line up with no real retracement.

I also agree, and have posted prior to the article that this is not a “New Bull Market.”

http://answers.yahoo.com/question/index;_ylt=AkO21...

Just because a market goes up for 8 weeks, does not make it a Bull Market. The last Bull Market was from the early 1990’s to March 2000. That was a tech boom which resulted from the end of the Cold War. So what is behind this so called, “New Bull Market?”

Consumers losing 500,000+ jobs a month?

1 out of 10 people on food stamps?

“One in 10 Americans gets help to buy food”

http://uk.reuters.com/article/usTopNews/idUKTRE531...

A massive return to consumer spending? No.

“Consumers Are Saving More and Spending Less”

http://www.nytimes.com/2009/02/03/business/economy...

http://www.philly.com/philly/business/personal_fin...

A new tech boom? Don’t think so.

“Silicon Valley unemployment rate jumps to record 11%”

http://www.mercurynews.com/ci_12165116

So where is the Bull Market again?

We’ll, I guess if you call unlimited gov spending a “Bull Market” then sure.

I also agree about the state and Federal tax revenues are down. This is not rocket science. This is part of a recession: Decreased retail sales, lost jobs, lower property values and foreclosures. I posted more on this on Y!A in greater detail I think in April 2009.

So what does all this mean?

We’ll if I had to guess, I would prob argue at this point that we may have a long multi-year sideways trend in the economy. I don’t think 2010 will be like we are “partying like it’s 1999.” (Even that guy was off only by 3 months from the .com market top. He released the album back in 1982, and he didn’t even know he was a market forecaster!)

http://en.wikipedia.org/wiki/1999_(album)

I am not on the super Bear camp as I was from Spring 2007-Mar 2008. I’m “cautiously neutral” right now on the market.

What we DON’T need is more government deficit spending, more government control over business, more government taxes on the people. If that is the agenda, then forget 2010, and we can see a prolonged recovery over years not, “all done” in 6-7 more months.

(RE: Thmbs dn: I had not even finished, and already got a couple H8rs. What is up with that?)

I have pretty much cited history throughout, and articles to support. So if one doesn’t agree that is fine, but they might want to go back and look at the history books.

Oh, and for the other poster:

“printing money causes inflation is nice, but has no basis in reality or the historical data.”

Really? I’m not sure what planet this theory came from, but it is not shared by the general view of Wall Str

Robert Prechter has been right ONCE, that does not mean he knows any more about the future than you do, it just means he was right once about two decades ago....don't you think it would be reasonable to expect his track record to be a little better if he actually had any idea what he was talking about?

If you had ignored him invested $2,596 in the Dow the day before the "crash" he so cleverly foresaw and had ignored him, today it would be worth $8,284, an average annual return of 9% or so with zero stress.

Or you could have pulled out on his advise, invested in gold at about $422 an ounce, and today it would be worth twice as much (instead of the four times as much that "risky" stock market investments have yielded).

Your "firm belief" that printing money causes inflation is nice, but has no basis in reality or the historical data; Prechter is just a hysterical voice trying to make himself more important than he actually is...

(Sorry, Bob, but thems the facts...)

He's not the first person to suggest this senario, here's another author whose thesis is deflation is much more a concern than inflation. It really has to do with the difference between quantitative easing and credit easing, which is not something many people are aware of. This is a great article worth reading which was written about a month ago.

http://www.scribd.com/doc/14468282/Clarium-Investm...

Well yes i belive in dooms day and as a muslim we are told clear signs which are apparing in the world slowly and surly and the religion also sheaks of the acctual day how with will happen and what all will be done on the day ,So Ya sure its happening but only and only GOD knows when .