Generational Dynamics Forum - New Site

Sprott Asset Management in Canada opines on what may happen when the stimulus slows down. The stimulus is projected to have its maximum effect on GDP this quarter.

Sprott Asset Management wrote:By the end of September 2009 this stimulus will have worn off, and along with it will vanish the greatest marginal impact of the entire stimulus package itself. According to economic forecasters like Moody’s, by 2010 the net impact of the stimulus package to real GDP will be barely over 1%.

This is not good news for “Main Street”, especially considering the dramatic increase in unemployment that we’ve witnessed recently. If the effects of stimulus wear off as quickly as they were injected, we could be in for a very difficult Fall (no pun intended). To make matters worse, this scenario is not limited to the US alone - it could potentially impact any of the other large economic powers who have instituted their own massive stimulus packages, most notably China, resulting in a simultaneous global economic decline that would make 2008 look pleasant in comparison.

http://www.sprott.com/Docs/MarketsataGl ... t_2009.pdf

From a web site reader:

Web site reader wrote: > Not seen your site before but having read it, l am concerned as l
> have money in the following spread betting accounts,

> http://www.capitalspreads.com http://www.igindex.co.uk and cityindex.co.uk

> l am short on the dow in all 3 and have enough funds to see me
> through for another 2000 pt rally. I dont think we'll make it but
> my concern is, if we crash even though mty money is in a client
> segregated account, and we crash, do they have the right to keep
> my winnings if the company breaks down.

> They have taken plenty from me in the past through being squeezed
> out of my shorts and now its my turn to get paid it sounds as
> though everyone will go bust. My segregated account is apparently
> covered by the FSA here in the UK but l dont trust anyone now.

My estimate is that you have 90%+ probability of collecting. My
guess is that you're the kind of person who's used to taking
gut-wrenching risks, so a 90%+ probability should seem pretty good to
you.

The other 10% comes from the Generational Dynamics prediction of a
full-scale generational panic, such as happened at regular intervals
in the past (Tulipomania, South Sea bubble, etc.). We're due for
such a panic now, and if it happens then all hell will break loose,
and there's no way to be sure whether segregated accounts will be
safe.

But that's not necessarily what's going to happen in the short range.
In the short range, you have the 10-30% correction that everyone's
talking about, and I know of no reason why the segregated accounts
should be in danger under those circumstances.

John

Nothing new under the sun.
1929
The Barakzai dynasty that has ruled Afghanistan since 1826 ends October 17 as King Amanullah, now 37, abdicates and flees west in a Rolls Royce along with 17 of his followers after a 10-year reign in which he has drawn up the country's first written constitution but failed to modernize Afghanistan's tribal society, although he has tried to model a secular government along the lines of Turkey's, abolished slavery, attacked corruption, created a government budget, and reorganized taxes. Mohammad Nadir Khan and his brothers take over the government and Nadir Khan is elected shah by a tribal assembly; he begins a bloody persecution of the opposition and will reign until his assassination in 1933.

Elsewhere in the Middle East, Iraq took a big step toward gaining independence from the British. The Iraqi government had, since the end of World War I and the beginning of the British Mandate in the Middle East, constantly resisted British efforts to control or restrict them. In September, Britain announced that it would support Iraq's inclusion in the League of Nations, this signaled the beginning of the end of their direct control of the region.

http://www.ndu.edu/inss/McNair/mcnair47/mcnair47.pdf
A popular Government, without popular information or the means of acquiring it, is but a Prologue to a Farce or a Tragedy; or
perhaps both. Knowledge will forever govern ignorance; And a people who mean to be their own Governors, must arm themselves with the power which
knowledge gives. JAMES MADISON to W. T. BARRY August 4, 1822

I find the comments on the previous page interesting. John mentioned a few things. One was the cash on the sidelines. I have a field day every time I read or hear that one. If cash on the sidelines went into tomatos, the guy that had the tomatos would have the cash and the other guy would have the tomatos. Being that the idiot spent all his money on tomatos, he would have to either eat them all or figure out how to get cash out of them for something else. There is no such thing as cash on the sidelines for anything, especially in a situation where liquidity is so dear. The money on the sidelines is permanent and the only way it can increase is if someone borrows on margin. Clearly it takes more cash to push the market the higher it gets. The idea of cash on the sidelines implies that someone got out of the market. It also implies that someone else got in, namely those that talk about the cash on the sidelines.

The big question is how long are people going to continue to lose money in the market. The numbers might read 9500 on the Dow and 1028 on the SPX, but the public in relation to 1500 on the peak is at about 600 now, as the stocks that have gone up are those held by the street and run up with programmed machines.

Dent was wrong. The reason stocks went up was the bubble

The bubble is the reason for the income disparity, as more financial assets are held by the creators, leading to massive profits, followed by massive losses. For example, Citi was the most profitable company in the world for awhile. Not any longer.

A page back John said

-- Income inequality

I've often wondered about the income inequality statistics. I've
been reading for years that income inequality has been increasing,
and I felt intuitively that this had to be related to the
generational financial cycle. But I've been able to find the data.

Krugman ran a column a couple of weeks ago providing a graph
showing the inequality figures.
http://krugman.blogs.nytimes.com/2009/0 ... re-gilded/

He drew the data from a paper by Emmanuel Saez at the University of
Berkeley.
http://elsa.berkeley.edu/~saez/
http://elsa.berkeley.edu/~saez/saez-USt ... s-2007.pdf

Here are a couple of graphs from the paper:

What I read from the first graph is that the high share period that began in 1920's ended around 1938-1939, i.e. the start of World War II. It did not plunge with the bottom of the depression. So whatever caused the drop was more about cultural shifts due to war than cultural shifts due to depression.

Of course, many would argue that the WWII was a time-lag result of the depression.

So, going out on a limb, the current income inequality that begin in 1980's will likely persist through the current depression. It will have to be the global war which is 5-7 years downstream which causes a drop of the income share by the upper 10%.

I've been wondering how these High Frequency Traders could be tracked. Here is an easy search to accomplish just that:

http://market-ticker.denninger.net/arch ... NYSE!.html

It also explains why volume has been only average for the seasonally low August period when I would have expected it to be truly anemic due to the strong overhead resistance levels written about here and elsewhere.

Here are the vol leaders for today:

C CITIGROUP INC 5.05 4:00PM ET Up 0.42 (9.07%) 1,196,038,494
FNM FANNIE MAE 1.93 4:00PM ET Up 0.08 (4.32%) 358,552,901
FRE FREDDIE MAC 2.24 4:00PM ET Up 0.21 (10.34%) 190,705,635
BAC BK OF AMERICA CP 17.92 4:00PM ET Up 0.13 (0.73%) 174,928,783
CIT CIT GROUP INC (DEL) 1.55 4:00PM ET Up 0.28 (22.05%) 151,640,570
AIG AMER INTL GROUP NEW 47.84 4:00PM ET Up 10.15 (26.93%) 147,749,171

All finance related and all wholly own subsidiaries of the US Gov. NYSE Listed Volume 5,785, 875,000
These 6 companies represent 38.37% of today's volume and according to Market Ticker this has been going on for weeks. The Fed just has a 1 more week before the volume returns from vacation after Labor Day for maximum effect. Who else would buy this GSE stock if not to sell it a microsecond later?

Here's the volume report from yahoo finance:
http://finance.yahoo.com/actives?e=nq

Not so sure all the bears are out of the woods #13 on the list:
SDS PT ULTRSHRT SP500 PS 42.84 3:59PM ET Down 0.25 (0.58%) 39,643,053

http://www.zerohedge.com/sites/default/ ... e_Decl.pdf

Several months ago, Bloomberg (the media company) had asked the Federal Reserve to disclose publicly how much emergency taxpayer money each bank has received so they could report it. Bernanke refused. Bloomberg filed a lawsuit. A few days ago, the judge ruled in Bloomberg's favor. The above document is the banking industry's response. My interpretation of what it says in a nutshell is: "The banking industry really needs to continue to hide our financial condition because if you report the truth to the public about how bad off we are there is a high risk of bank runs. "

Higgenbotham wrote:http://www.zerohedge.com/sites/default/ ... e_Decl.pdf

Several months ago, Bloomberg (the media company) had asked the Federal Reserve to disclose publicly how much emergency taxpayer money each bank has received so they could report it. Bernanke refused. Bloomberg filed a lawsuit. A few days ago, the judge ruled in Bloomberg's favor. The above document is the banking industry's response. My interpretation of what it says in a nutshell is: "The banking industry really needs to continue to hide our financial condition because if you report the truth to the public about how bad off we are there is a high risk of bank runs. "

And if the the game can't be continued. What will then be needed for the public to regain confidence in banks and the government?

Richard Russell wrote: No nation (the US) can be both the world's leader and world's biggest debtor. In his fight to thwart the bear market, Bernanke is sowing the seeds for the future demise of the United States. The law of unintended consequences is about to become operative.

A huge problem ahead is this -- will the dollar decline slowly, as it has been doing, or will the dollar crash, setting off a world crisis?

Prediction -- Where ever you are now will be your best situation for years to come. The trick ahead will be to hold on to what you have. I've been warning that a "hard rain is a'coming." So far, we've only experienced a drizzle.

I try to listen to a lot of people with all sorts of viewpoints, and overall, Richard Russell, who is a Dow theory expert and lived through the Great Depression, seems to have the most realistic view of what our future holds. He knows something's coming and it won't be good but he also knows that the markets will do what they need to do (to trick us?) but will ultimately express what must be expressed, in this case, that we have basically bankrupted ourselves as a nation.

What is amusing is how many people quote the esteemed Mr. Russell as being bullish on the stock market (he may well be, in the short term) and use that to try and convince other's that we are headed for a wonderfull new world of all time stock market highs.

--Fred

From a web site reader:

> Hi john. I read your piece and think its really great. Your
> outlook is exactly like mine. I am currently shorting the market
> and am expecting a huge drop once the rally stops. Since things
> are gonna happen regardless I decided to take the money I have and
> benefit from this "crisis". I recently bought an ETF called FAZ
> which works inverse the performance of the russell 1000 in hope
> that the market will go down. I would like to know what stocks you
> recommend I short or what strategy you would implement at this
> current time. I appreciate your time

I do not recommend specific stocks, and in fact the article that
you're referencing recommends that most people keep their assets in
cash.

I suggest reading through the last few weeks of the messages in this
thread, where several people have discussed what shorting strategy
they're using.

John