Financial topics

[herman19745]

And my other questions are :

How come that, although the toxic assets of CDO, CDS etc are US origin, the DJIA is still strong ? Apparently everybody still trust the US (in a economical sense) ?

Why is the dollar becoming stronger although the debt of the US is growing exponential ? Because lets face it, Chinese and Russian SWF's can buy the whole US now.

How can the US survive now that all manufacturing jobs are outsourced to China and that service jobs are outsourced to India ?

[gtate]

From: Peter Schiff <PSchiff@europac.net>
To: j8272@aol.com
Sent: Tue, 21 Oct 2008 4:28 pm
Subject: RE: Dollar discusion

I disagree in that the dollar is intrinsically worthless and will
approximate that value based on the policies we are perusing.

John,

This is a response received from Peter Schiff regarding the Dollar's eventual decline..at some point the bubble in tresuries will pop and the rest of the world will discontinue financing the USA debt and unfunded liabilities?

GTate

[John]

Dear Herman,

> In these times of doom & gloom on the stock markets I have some
> questions.

> Already now the stockmarkets in Europe are down with 60% and more
> since 2007. The private investor is already gone out of the
> markets. Most sell-off's are now done by banks, hedge funds etc.

> A lot of banks are nationalized.

> So why do you think a huge panic will come ? In my opinion this
> panic already happened. I can imagine that we will have a deep
> recession in 2009/2010 with a lot of layoff's etc, but everybody
> knows that. But thats no reason to panic.

The reason that a generational panic MUST occur is part of
generational theory. VERY briefly: Each generational bubble
occurs when the generations of people who survived the previous panic
and crash have all disappeared (died or retired), all at once. Thus,
the dot-com bubble of 1995 occurred when the survivors of the 1929
crash had retired. With those survivors gone, all the rules, laws
and regulations that were developed to prevent a new crash are
ignored or repealed by the younger generations, until the credit
abuses get so great that a new crash occurs.

That's the best I can do in a brief paragraph. If you really want to
dig into the subject, you'll need to read some of the articles on the
main web site. Here are some good ones to start with:

** Basics of Generational Dynamics
** http://www.generationaldynamics.com/cgi ... 0.i.basics

** List of major Generational Dynamics predictions
** http://www.generationaldynamics.com/cgi ... redictions

** The bubble that broke the world
** http://www.generationaldynamics.com/cgi ... rett071009

** How to compute the 'real value' of the stock market.
** http://www.generationaldynamics.com/cgi ... anic070820

** System Dynamics and the Failure of Macroeconomics Theory
** http://www.generationaldynamics.com/cgi ... acro061025

> How come that, although the toxic assets of CDO, CDS etc are US
> origin, the DJIA is still strong ? Apparently everybody still
> trust the US (in a economical sense) ?

The DJIA has been bolstered by numerous bailouts in the last year.

> Why is the dollar becoming stronger although the debt of the US is
> growing exponential ? Because lets face it, Chinese and Russian
> SWF's can buy the whole US now.

The dollar is becoming stronger because it's in a deflationary
spiral. The credit bubble created tens or hundreds of trillions of
dollars in money (dollars), and so the dollar became weaker. Now
that the bubble is deflating, and all that money is being destroyed,
the dollar is becoming stronger again.

I've discussed this quite a bit in this thread and in the following
thread:

** Inflation, deflation, gold and currencies
http://generationaldynamics.com/forum/v ... ?f=14&t=12

Read through these two threads for more information.

> How can the US survive now that all manufacturing jobs are
> outsourced to China and that service jobs are outsourced to
> India?

Well, not all of them. There will be a new Great Depression, and a
great deal of suffering. There will also be a world war. There is
no guarantee that the US will survive.

Sincerely,

John

[John]

> From: Peter Schiff <PSchiff@europac.net>
> To: j8272@aol.com
> Sent: Tue, 21 Oct 2008 4:28 pm
> Subject: RE: Dollar discusion

> I disagree in that the dollar is intrinsically worthless and will
> approximate that value based on the policies we are perusing.

> John,

> This is a response received from Peter Schiff regarding the
> Dollar's eventual decline..at some point the bubble in tresuries
> will pop and the rest of the world will discontinue financing the
> USA debt and unfunded liabilities?

This claim makes absolutely no sense at all.

The US owes China, Japan and other countries $5 trillion.

If those countries were to take actions to destroy the value of the
dollar, then the US would owe these countries nothing, since the
debts are denominated in dollars.

China, Japan and the other countries will look for ways to bail out
the US, just as the US bailed out many other countries in the past.

As a final point, you have to separate the fate of the US from the
fate of the dollar. The fact that the US is in debt does not mean
that the dollar becomes worthless.

Sincerely,

John

[Matt1989]

If a financial panic was a necessity, then the generational cycle could not continue without one. I don't see this as being the case.

A financial panic is very likely since all the ingredients are in place, but the only thing inherent to the saeculum is some sort of panic/shock/whatever occurring in a 4T. It doesn't have to be financial. Nevertheless, it's hard to see how a panic is avoidable when everything is about fall down.

[mosullivan]

Hi John,

I am glad I found this page. I was previously of the belief that a hyperinflationary environment would ensue. However, when I sit down and think just how velocity of money could transpire in this environment, Its hard to argue. Everyone I know is cutting back, saving, reducing debt, etc. The only analyst I knew who got this right told me a year ago, get into US treasuries.

I am currently 50/50 short t bills and bullion, but reconsidering the later. Based upon what I have read on your site, I am guessing you are some percentage combination of cash/short ? Would you care to elaborate? Do you see gold as a loser here as liquidation continues?


Enjoy the site...Mile

[mannfm11]

My 2 cents. The dollar has value because it was set up that way. You couldn't cash Chinese money on the international market if you took a gun with you. Second, that is all the collateralized paper they have in Russia and China. Try to own any property in those countries and you will find out what their money is worth, nothing. You are standing on the dollar. The world doesn't trade without the US and there isn't another economy that will take its place any time soon. The Russians can't roll $600 billion in debt, so you have to know they don't really have a trillion dollars as someone said. I venture that much of the money they have in those countries moved there as investments. I also believe that the multinational corporations, not the governments of the world control this cash flow. The multinationals could move out of China tomorrow. The dollar has very little to do with the United States government and a lot to do with world banking. Peter Schiff is going to turn out to be the wrongest expert out there.

[mannfm11]

I don't know how to quote John, though I made an attempt once. In any case, you responded to my post from Friday the 24th. I think you pretty much agreed with me. We are watching an event. We saw the Dow lose 3000 points in a week, close to 30%. 2000 of it happened between Tuesday October 7 and Friday morning October 10. 1987 wasn't a public sell off, but a futures generated sell off that was akin to an insurance program. The entire group out there was doing the same thing. The game was to sell 10% short on the futures market every 3% down, so when 30% was wiped out, 100% was covered. Some guys actually knew this was going on and bought the bottom tick. There was a lot of money games going on too with the dollar in the tank and bond yields headed for Mars on the upside. That was a pretty fast market. I mentioned 2000 because I am looking at this market in another style than I did prior to recent market action. The Nasdaq lost 40% in 2 weeks (Prechter said that was the fastest crash of that degree of any major market in history). That is a crash by any method I know. The Nasdaq had a value then that was 100% of GDP. The market in 1929 was only 80% of GDP. We are now close to 100%, which is why this market isn't the bargain they think it is. The Nasdaq also waved beautifully and bottomed interday at 1000. I was watching.

My reasoning there was that there was a crash in 2000. Look at the prices. I recall EMC hit $100. I think it settled at $7 and got back to $15 or so. Yahoo peaked at $150. It is under $15 now. Nortel went to $1 as did Lucent, which was one of the 10 most valuable stocks on the market. MSFT bottomed at $20 early and has never made it back to $40 coming down from $60. CSCO did the same thing as did INTC, GE and other huge caps. There were amazing cap values wiped out in 2000. I had to look at it in slow motion myself and in terms of EWP, it is a violation for the market to have done what it did following and maintain a big bear count. But, EWP was developed in the 1930's from observations in the 1920's and prior using gold backed currency, not housing backed currency. They didn't interfere with markets back then. The sameness is the credit bubble that appeared both times and the difference was they were able to keep the credit bubble going this time for another 6 or 7 years through the use of implied government guarantees in home mortgages. This creates the expandeed Flat we see, the double tops on the SPX and the now steady 1 year decline. The older people never got back in the market for the most part if they got out.

I do believe most of the public is still in the market. I have tried to tell men near retirement to get out. They don't understand. If I am correct, there won't be a good place to get out, as we are now not in the crash phase, but the liquidation phase (C wave is always a crash in that it is steady downward pressure, which is why the bulls don't understand the market). People don't understand that the financial sector has more debt than there is cash in money market accounts and checking accounts and savings accounts. Credit card debt is a bump in the road and I doubt the average family has over $20,000 in their accounts, meaning if there are 100 million families, only about $2 trillion belongs to households. The other money belongs to business and other entities.

So, instead of the panic and bounce, I am looking for a steady liquidation. Remember, this crash happened after the bailout, when I am sure the public believed the problem was fixed with so much money thrown at it. I believe the people alive during the 1929 crash knew what the Fed did didn't work, but as you said, they are all dead. They also went broke buying this thing on the way down. This generation has been trained to stay in the market and buy the dips, so they will be annihilated financially. it is tempting to jump in here as there are values that haven't been seen in years, but there is also an economic tragedy that has never been seen before. We might not see a publc panic, it might be institutional instead.

[mosullivan]

I am glad I found this board in the midst of disinformation out there. I believe Schiff is getting airtime as he was early to call housing. His wrong thesis that Europe and Asia would decouple and provide a safe haven as the US crashed has been somewhat ignored. Also, his incessant spewing about the rest of the world lending to dumb American's being the only problem out there has gone on too long. Someone needs to call his attention to the other worldwide housing bubbles (Dubai, Spain, Canada perhaps)...the refusal to see the dollar strength and talk of the dollar going to 0 while Asia rises just goes with his following Jim Rogers. PS is speaking to 2 books (clients and his 2nd publication) For him to admit dollar long term place to be means the new book goes in the tank. Sad to say but many think he's god!

I recently learned that my gold stocks were too positively correlated to the DOW and general market. No one stays in a gold junior as they default on their mortgage payment.

I appreciate the comments here and would be curious to hear others thoughts on whether precious metals will hold as the crisis. I need to really rethink that one (holding PMs here)

[mannfm11]

Doug Noland of Prudent Bear was writing about the GSE bubble in 2000, which is where I got a lot of my information. I read him weekly. I don't believe anyone can say for sure, but my best estimate is that if credit shrinks, paper goes up. I think you make a good point that people that lose their houses will be out of their metals. I believe this time we are seeing retail get sucked in on the way down. When the guy on either side of you thinks it is time to buy gold, it is time to sell. Markets aren't for common people, which goes right past the middle and upper middle class, who believes they belong in the speculating class. I have spent a lot more time studying markets than i spent studying for grade school, high school and a bachelors degree combined, many times more and that is what I deduce. There is a cry in the gold and silver circles that they can't get enough of what they sell. They are also upside down on their supplies, as the market has collapsed to some degree. I think gold holds up better than silver, as I don't believe silver can be considered precious unless they manage to get it into a real bubble. There is around 160,000 metric tons of gold around the world, currently worth around $25 million a ton. That makes about $4 trillion if you valued all of it. I think there is about $900 billion in US currency, which is collateralized by sovereign debt. The rest of the money is collateralized by the property you stand on.

Prechter said that gold would go to $100. I think he regrets saying that, but I don't doubt he might be right. The power of this crunch is amazing, as we are seeing countries pop like light bulbs in a rain storm. Remember, credit has to expand by about 5% annually to stay even and at some point even more. It appears that when there are so many going toward the exits, you need even more money even though it is actually disappearing faster than it is being made for distribution. Money no longer exists when it is used to pay bank credit and banks don't have a money account, contrary to popular believe in the classical sense. They don't operate with money so much as they operate with capital. Capital is what is in short supply.

If you hold gold, there really isn't any reason to get rid of all of it. Even if you took a bath in the market, having 6 months to a year of living expenses in gold is a good idea. I am not talking about your mortgage payment, but for food and energy and other things. The prudent thing would be to pay off your house, contrary to what financial planners say. I have studied finance for over 30 years in some fashion and I have never really understood the concept of financial planners, as they are trained to say what Wall Street has told them to say. Wall Street makes their money selling, not buying stocks. You might note the $200 oil targets by Goldman near the top, the $1500 target by Goldman for gold near the top, the Abby Jo targets of 1800 on the SPX near the top. The buy and hold forever game. The really important stuff is rarely ever taught anywhere.