Financial topics

[John]

Dear Graham,

> John, for those of us that are pretty new to your website and
> don't have the time to research all you have said on how to avoid
> the current major melt down, what are the best bets to be safe?

> Is it wise to take cash advances on credit cards and stash the
> cash? Do you think people should stock up on food stuffs? My wife
> has 45k in her 401k and I have 25k in my deferred comp, both of
> which can't be taken out unless we lose our jobs or quit. I have
> heard the only other way to get at this money is to file for
> divorce, get the money and re-marry afterwards, is this worth it
> in your opinion or am I thinking crazy stuff here?

> My job is not in jeopardy, but my wife works for an airline and I
> expect it won't be long and they will go belly up (they are
> already hurting), so maybe we'll be able to get her money then.

> Or do I just invest in guns and ammo to protect what I do have!!

I don't know about credit cards -- Gordo says he loves it, but it
makes me nervous.

If your 401K is backed by Treasuries, or is invested in FDIC-insured
bank CDs, then you're probably OK. If your 401K is backed by stocks,
then kiss it goodbye. Some 401Ks permit you to move your money from
one fund to another, without having to get divorced. You probably
don't have time to do the divorce/re-marry thing anyway.

If you're already skilled in using guns for self-defense, this would
be the time to bring your skills up to date.

Sincerely,

John

[John]

Hey John, how about inviting our little friend (you KNOW who I mean) over to this forum so he can start telling you how full of crap you are again?

I have lots of "little friends" over there who would rather eat mud
than join this forum, although I know that some of them read this
forum secretly, as they would a porn site. I just hope that there
aren't too many of them who are so incredibly reckless that they're
buying stocks just because I told them not to.

Sincerely,

John

[Witchiepoo]

I just hope that there
aren't too many of them who are so incredibly reckless that they're
buying stocks just because I told them not to.

Sincerely,

John

I doubt it. Most of them don't have cash to spare in the first place, which is why they've been eagerly awaiting the downfall of the rich and famous. Careful what you wish for, eh?

Just saw that the Asian markets are down again ... this is truly amazing.

[John]

Most of them don't have cash to spare in the first place, which is why they've been eagerly awaiting the downfall of the rich and famous. Careful what you wish for, eh?

Interestingly, I just heard a similar story to this in the news. It seems that
the clerics in Iran are celebrating the downfall of the United States,
but with the fall in the price of oil, the hardliners are in a great deal
of political trouble. The Iranian people are actually fairly pro-American
anyway.

Just saw that the Asian markets are down again ... this is truly amazing.

It is amazing, and the panicked selling is accelerating.

Sincerely,

John

[Marco]

Hi all,
Id like to make a question:
who will survive the impending crack?
America is heavily indebted with China and Japan,
but Japan is the most indebted country in the world,
with something like 500% of his GDP (public and private)
If US go down, China saves will be worthless,
if Europe go down, Russia will lose their petrol customers.
Many economies in the third world survive on money from migrants
in developed countries.
Japan will finally implode?
I'm Italian, and I see much more than simple povertry loomings...

[malleni]

...My expectation, as I've said many times, is that China and Japan and
others will cancel America's debt...

That is quite a statement. Last week an old lady shot herself and was relieved of her debt. Will the world community be so understanding of Uncle Sam's affliction?

Let's think about this. If the central banks around the world forgive the US debt, their reserves will be annihilated and they'll have to raise interest rates to hold back lending from the state reserve. At the same time, the dollar will deflate and the private banks still holding t-bills in reserve will be swimming in reserves against their currency, which will cause pretty massive inflation and further demand for US dollars. Okay, great! Who wants to be first to forgive the debt? My guess is nobody, but especially not China, who obviously doesn't care about private banks, but might be interested in converting reserves entirely to RMB and gold. At that point the Yen collapses under debt and the Dollar collapses under trade deficit. Admittedly, China may face unemployment as a result of reduced export demand, but the higher prices would pay directly to the party coffers.

Also, why are you picking 1931 Germany? At that point the currency was on a gold standard. Admittedly, I don't know of the history that you mention (US, FR and GB trying to save the currency).

"...Also, why are you picking 1931 Germany? At that point the currency was on a gold standard. Admittedly, I don't know of the history that you mention (US, FR and GB trying to save the currency)..."

You have right JLak.

Sorry John - this you explained in this sentence - is simply not true.

I think that is better not to use" facts" at all, than to use wrong "facts" in discussion and explanation.

The simplest economic explanation of situation about Germany 1931in English - I found here:
http://en.wikipedia.org/wiki/Weimar_Republic
... but it is possible to find more detailed if you want to search.

In short:
"...The socialist roots of Weimar
The carefully thought-out social and political legislation introduced during the revolution was generally unappreciated by the German working classes. The two goals sought by the government, democratization and social protection of the working class, were never achieved. This has been attributed to a lack of pre-war political experience on the part of the Social Democrats.
The government had little success in confronting the twin economic crises following the war.

The permanent economic crisis was a result of lost pre-war industrial exports, the loss of supplies in raw materials and food stuffs from Alsace-Lorraine, Polish districts and the colonies along with worsening debt balances and reparations payments. Military-industrial activity had almost ceased, although controlled demobilisation kept unemployment at around one million.
The fact that the Allies continued to blockade Germany until after the Treaty of Versailles did not help matters, either.

The Allies permitted only low import levels of goods that most Germans could not afford.
After four years of war and famine, many German workers were exhausted, physically impaired and discouraged. Millions were disenchanted with capitalism and hoping for a new era.
Meanwhile the currency devalued.

The German peace delegation in France signed the Treaty of Versailles accepting mass reductions of the German military, unrealistically heavy war reparations payments, and the controversial "War Guilt Clause". Adolf Hitler later blamed the republic and its democracy for the oppressive terms of this treaty, though most current historians disregard the "stab-in-the-back" myth Hitler advocated for his own personal political gain.
...


So please, if we trying to find a connection between that Germany and today USA - it can be only on facts.

1. - The one of these facts is that both countries had (US still have) - huge (disproportional) military complex, with military industries and expense.
2. - Germany, lose the war and was not allowed to rebuild this industry, and on the another side Germany was in lack of money.
- US does not lose a big war, but losing at least two smaller one and military industry (if it is not outsourced) - has no money since the state has no money.

[John]

> But I really think that you can figure it out if you read (or
> reread) this:

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

> Take a look at what happened in 1931, and see how the US, Britain
> and France did everything they could to save the German currency.
> At that time, Germany was a debtor nation and the US was a
> creditor nation.

> Now move foward to the present day, and replace 1931 US with
> China today, and 1931 Germany with the US today.

> You'll understand why it's in the interest of China (and Japan
> and Europe and the Mideast) to do everything possible to save the
> dollar. My expectation, as I've said many times, is that China and
> Japan and others will cancel America's debt, for two reasons: (1)
> The strength of their own economies will depend on the strength of
> the American economy; and (2) They'll realize that the debts will
> never be repaid anyway.

> So take a look at The Bubble that Broke the World, and think
> about how it applies to today.

> That is quite a statement. Last week an old lady shot herself and
> was relieved of her debt. Will the world community be so
> understanding of Uncle Sam's affliction?

The world community will not be particularly understanding; they'll
mostly be extremely contemptuous and hate-filled, and this will
lead to a world war.

In the meantime, however, countries around the world will take any
desperate measure they can to keep the world from sliding further and
further into total chaos.

One of the totally desperate measures that was taken in 1931 was to
forgive Germany's debt, and my expectation is that some similar
totally desperate measure will be taken today.

> Also, why are you picking 1931 Germany? At that point the currency
> was on a gold standard. Admittedly, I don't know of the history
> that you mention (US, FR and GB trying to save the currency).

This "gold standard" concept is TOTALLY MEANINGLESS. It makes no
sense whatsoever. It makes no more sense to talk about a "gold
standard" then it would to talk about a "chrysanthemum standard" or a
"water standard."

Money today is not created by printing presses. The whole concept of
"printing money" is also TOTALLY MEANINGLESS. Money today is created
through debt. If you borrow $1000 from a bank, then you've created
$1000, because you have $1000 in your pocket, and the bank has $1000
in assets on its books.

Nobody ran any printing presses to create the current bubble. The
creation of worthless mortgage-backed securities, credit default
swaps, and other credit derivatives added hundreds of trillions of
dollars to the world, without a single dollar bill being printed.

As the credit bubble bursts, and the world heads into a massive
deflationary spiral, all those hundreds of trillions of dollars are
disappearing, without a single dollar bill being burned in an
incinerator.

Exactly the same thing happened in the 1920s, though to a much
smaller extent. Stocks were purchased on margin, investment trusts
were early forms of hedge funds, and there was a big real estate
bubble, all of which created huge amounts of money without a single
dollar bill being printed, even though there was theoretically a
"gold standard." The crash reversed all that, as is happening now.

The "gold standard" concept may have made sense centuries ago, but
in the last century it's had no meaning whatsoever.

> So please, if we trying to find a connection between that Germany
> and today USA - it can be only on facts. 1. - The one of these
> facts is that both countries had (US still have) - huge
> (disproportional) military complex, with military industries and
> expense. 2. - Germany, lose the war and was not allowed to rebuild
> this industry, and on the another side Germany was in lack of
> money. - US does not lose a big war, but losing at least two
> smaller one and military industry (if it is not outsourced) - has
> no money since the state has no money.

This is fatuous political nonsense which is also completely
irrelevant in every possible way. You're focusing on tiny political
details which are irrelevant to the big picture -- namely that in
1931 the entire world was sliding into chaos, just as is happening
today.

And when the world is sliding into chaos, the political details and
bickering are put aside, and desperate measures are taken, and that's
what's happening today, and will happen more and more in the next
year.

Sincerely,

John

John J. Xenakis
E-mail: john@GenerationalDynamics.com
Web site: http://www.GenerationalDynamics.com
Forum: http://www.GenerationalDynamics.com/forum

[Matt1989]

I went to the DJIA page on google.com I saw the market was down 500 points. I hit refresh to see a change. Down 600.

All in all, 10 seconds.

[Gordo]

Well today was the most bullish day we've had so far during the decline. Massive volume, a key reversal, end of day strength, all the major indexes made it to positive territory after a massive sell off (even though only the NASDAQ closed positive). The VXO went over 100, demonstrating an intense amount of fear not seen in decades. Again purely from a traders perspective, these are the types of things you would expect to see at a bottom. I do not by any means think this is "THE" bottom, but again looking back at history, in the '29 to '32 crash, we had massive rallies about every 6 months, and they generally lasted months, not days. So this is what you should expect. That doesn't mean it is safe to buy stocks, by any means. In fact, this is the mechanism by which (as John has pointed out) the market extracts every last dime from almost everyone, haha.

Good luck to all. Stay safe.
But seriously, don't go overboard. Idiots (and kids) with guns kill people accidentally (or intentionally) and get locked up. Cash, gold, and guns get stolen. Canned goods taste like crap and you'll probably throw them out before eating them (you can try to give them to a homeless shelter, but the homeless will throw them out too, haha). The world is not, and will not, come to an end. The majority will always be gainfully employed, and that majority will always be around to support those who are not (whether they want to or not). Crazy stuff like divorcing your wife to take out 401k money also sounds insane to me. Work with the company to try to insist that safer funds be added, or use the money market if you feel you must get out of whatever funds they have.

As for the 0% credit card money - I will add one caution - you have to be well organized and keep on top of things, or you will screw it up. I have never screwed it up, but I am very organized, use excel spreadsheets to store all details, electronic reminders, etc. Although over the years the companies have made it more idiot proof, all the major players now let you schedule automatic min payments on the due date, so the only thing you need to do is make sure the account they are drawing from has those funds in it.

[John]

Dear Gordo,

This is really good advice. The only thing I would add is what I've
said on the web log several times: We haven't yet had a generational
panic, and every theoretical analysis I've done indicates that there
MUST be one.

It's impossible to predict the date, of course, but with all the
forced selling that's going on, I believe that it must be close.

So when you write:

> I do not by any means think this is "THE" bottom, but again
> looking back at history, in the '29 to '32 crash, we had massive
> rallies about every 6 months, and they generally lasted months,
> not days. So this is what you should expect. That doesn't mean it
> is safe to buy stocks, by any means. In fact, this is the
> mechanism by which (as John has pointed out) the market extracts
> every last dime from almost everyone, haha.

I agree that this is true -- but ONLY after the generational panic
has occurred. Until that happens, you absolutely cannot count on
anything.

I would also comment on this:

> Well today was the most bullish day we've had so far during the
> decline. Massive volume, a key reversal, end of day strength, all
> the major indexes made it to positive territory after a massive
> sell off (even though only the NASDAQ closed positive). The VIX
> went over 100, demonstrating an intense amount of fear not seen in
> decades.

This is not what happened. You didn't have a "key reversal"; you had
massive reversals, sometimes of several hundred points in half an
hour. Also, you didn't have end of day strength, as gains were
sharply reversed after 3:30 pm ET. The market swung up and down over
huge intervals, 1300 points on the Dow. There has never been
anything like this day in the history of the market -- except perhaps
one of the days immediately before or after the crash in 1929.

I would contend that this is not the sign of "capitulation" that
everyone's hoping for. In fact, since nothing like this day has
happened since 1929, it's impossible to conclude that it is, since
the appropriate comparison models don't exist.

Even the pundits don't seem to agree that this was "capitulation."
The ones I heard seem to believe that it's coming soon, probably next
week, but I can't recall hearing any of them say that it's already
happened. What's required is a "panic event," and nothing like that
has happened.

Sincerely,

John