Optimism destroyed the finances of folks in the aftermath of the LAST credit bubble blow-up (commonly referred to as "The Great Depression"). While it appears that TOTAL credit is indeed expanding, the total credit available to buy goods and services appears to be contracting.
What's that mean? That the value of the US$ against the goods and services it can buy in Topeka, Kansas will actually go UP, irrespective of how the US$ trades against the other major currencies (for a while, anyway). By extension, this also means that Oil will probably go down in price, the U.S. equity markets will fall, and even Gold and Silver will become cheaper in US$ terms. It hurts me to say this, but for Americans living and spending in America the US$ is probably a better place to be at this moment than the alternatives - Real Estate, precious metals, equities, corporate bonds, etc... (notice I left out Treasury paper).
Why? Because, the banks are in no position to lend, and people are in no condition to borrow. While the government is most certainly monetizing the debt, and this will certainly have an effect eventually, particularly when the baby boomers start to draw benefits, said monetization is definitely being overwhelmed by credit contraction in the commercial economy at this moment in time, and that will likely be the case for the next couple of years.
I reserve the right to change my views if something changes in the data, but what I am getting at is that there will be a double dip recession in a quarter or 2, a nasty double dip at that, with all its concomitant effects on employment, housing prices, energy consumption, stock prices, bond defaults, etc...
How much worse could it get? A great deal worse, I am starting to believe. I read with interest the government's GDP report. I must say that I am in agreement with Mike Shedlock on this issue: that the government stimulus programs only succeeded in moving demand UP BY A QUARTER OR TWO. So when we get out to the time that the government borrowed the demand FROM, it won't be there. Now, multiply that by the FACT that the commercial Real Estate mortgage default wave has not hit yet, and the FACT that the banks have not cleaned up ANY of the toxic loans on their books (that the TARP was originally intended for), and the FACT that consumers are going to continue to de-leverage (pay off debt and/or save money), and I cannot be convinced that things are not going to get a whole lot worse for the markets and the employment prospects of people not currently employed by the government.
And, no, I have not changed my mind on the long term for Gold and Silver... but I have been at this for a long time. People sell what they have to sell, or what's left that has any value, in order to raise cash to pay bills, margin calls, etc... I am going to hold my bullion, but I am not going to buy paper Gold or Gold shares until they get beat up. As the Mad Scientist likes to say, "when you should be buying you won't want to", because you will be too afraid. My bet is people are going to be so scared they are going to "soil their boots" as it runs down their legs.
Look, I could be wrong. Maybe the assets on the bank's balance sheets aren't drek. Maybe the consumer will come out swinging this holiday shopping season. Maybe employment will pick up with the next new new technology. But I doubt it. And don't go by the U.S. equity market. The market can go higher from here before it sh*t's the bed. They don't ring a bell at the top or the bottom.
If you have money, this is no time to part with it. There is no house you have to buy, no investment you just have to make. The time will come, because the U.S. administration seems intent on spending/devaluing us into prosperity - even though it has been tried dozens of times and failed each attempt. This ain't the moment for heros. It is time to survive.
This is coming from a long time US$ bear. This does not mean that the US$ cannot continue to fall against the Dollar Index - it could, but as I have said a zillion times before: Markets zig and zag, they don't zig and zig. Nothing moves in only one direction, and the US$ has been moving in only one direction for some time. Given the above scenario, I think the asset prices I mentioned are going to decline against the US$, and that is the only ratio that really matters.
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If you buy my argument, then housing has not bottomed yet. In fact, it would mean that it has a ways to go - particularly in California, Florida, and Metropolitan New York. This is no time to be buying in one of these tax starved locals. Also, if you buy my argument, paying private college prices to wind up under or un-employed is about as appealing as the proverbial "turd in a punchbowl". Debt of ALL kinds, mortgage, auto, student, credit card... WHATEVER, is to be avoided at all costs, until the aggregate available collateral and earnings within the economy is sufficient to support the aggregate debt. When will that be? Years from now, as in 5 to 10 years. And by then we will be walking head first into the wipe out caused by the underfunded U.S. Something for Nothing programs - Medicare and Social Security.
The next 10 years you are likely to feel like you are riding a dragon, or you've got a tiger by the balls... and "anybody with fast hands can catch a tiger by the balls, but it takes a real hero to keep on squeezing". If you let go, you are going to lose everything anyway, so you might as well try to hold on, and figure it out.
Libertariananimal (at) gmail (dot) com