Financial topics

[Trevor]

Well, it's not easy to save. Once you're in debt, it's very difficult to get out. In addition, remember that we haven't felt the full effects of the new depression. Things are bad, but not yet desperate. Once our GDP plummets and unemployment becomes 15-20 percent, we'll see the changing attitudes.

[aedens]

This topic has been discussed over 4000 years so you better trust your own balance sheet.

[Higgenbotham]

Higg, your "As incomes fell 0.8%, savings rates fell 1.3%" is a interesting social calculation which may apply to many and as we are aware half save nothing at all i did read.

The contracting per-capita disposable income explains the public's mood, even if consumers are seemingly "self-medicating" their psyches through increased (and perhaps ill-considered) holiday spending.

http://www.consumerindexes.com/

Maybe they subconsciously know it's the last hurrah. I also had the fleeting thought that this is the last semi normal holiday season I will ever see.

[Trevor]

Maybe they subconsciously know it's the last hurrah. I also had the fleeting thought that this is the last semi normal holiday season I will ever see.

and they're tired of living like monks and figure they'll have some fun one last time before everything goes to hell.

[aedens]

No, I do not agree with that mindset. It solves nothing but delays effective critical thinking
to enable the State as a solution. The Market, or the Government, there is no third way.

[aedens]

Higg, I gave it some thought on your feed back loop.
The first is the impact of margin calls on market liquidity and market operation. The second is the role of program trading
strategies. The third is the difficulty obtaining reliable information.

[Higgenbotham]

Last year I posted on the 14 month polarity inversion of the herd and the 18 month offset.

The 14 month polarity inversions were low to high or high to low separated by 14 months. The 18 months offsets were low to low or high to high separated by 18 months.

These continued to work for awhile longer than I thought they would. Now they may be inverting on the continuation of the can kicking.

So we have, going back 14 months, a stock market high on November 5, 2010 and, going back 18 months, a stock market low on July 1, 2010.

The inversions of the 14 and 18 month relationships indicate to me that it's possible either an important high was struck in the stock market last week (as 18 months from July 1 has already passed) or will happen in the first 10 days of January. At the very least, this seems to me to be the most critical time in the markets since late April. It's also possible in my view that control could be lost here and set the course for an inevitable hyperinflation. It's my guess that the markets must move down now to avoid that. Nobody knows what the markets will do and just because I made a few lucky guesses last year doesn't mean I know anything either.

[Higgenbotham]

Higg, I gave it some thought on your feed back loop.
I remembered this.
http://www.federalreserve.gov/pubs/feds ... 713pap.pdf
There were several factors that are thought, at least by some, to have increased the severity
of the market collapse that are worth discussing a bit more in depth. The first is the impact of
margin calls on market liquidity and market operation. The second is the role of program trading strategies. The third is the difficulty obtaining reliable information.

This is my Cliff Notes version of what has happened in the stock market overall since 2007. Forgetting about the prior manipulations, which were many, the S&P was on trend to achieve 1551 max by about late May 2007. The ultimate high on that run was 1556 in July. The Fed cut rates in August and September and got an additional 25 points 3 months later. I'm not so sure about the Fall 2008 panic, but think the bottom would have been 741 in November in the absence of the prior intervention. The ultimate low was an additional 75 points below 741 3 months later. The market then reversed and was on trend to achieve, I believe, 1228 max by late April 2010. The Fed intervened from August or November through June and got an additional 140 points about a year later.

Of course, this is all my theory which, although gleaned through thousands of hours of study, can't be proven. Extrapolating, there wil come a point when these interventions veer things so far off course that control will be lost. People like Dr Marc Faber can also see that without putting numbers on it. "In other words, what’s the case he’s always maintained: through our interventions, we can smooth out the business cycle. But actually if you look at the record, you have higher booms and busts and you have higher financial volatility." The Fed is the root cause of these behaviors.

If the Fed would get out of the markets and let the cost structure of US business fall to its natural level, then people would stop playing financial games to keep ahead of inflation and move on to do something productive with their lives.

[aedens]

The market did not fail, the government did. The consumer again does not see this.

[Higgenbotham]

Sample: Specifically, I believe that parasitic financial institutions have pushed the boundaries so far that they’ve put their host, the middle-class itself, at risk. One new bit of information suggests the housing front is in more perilous shape than most pundits believe.

One challenge when performing any type of analysis is that information is scattered in many different places, and even when disseminated by the government its accuracy is often times questionable.

http://www.nakedcapitalism.com/2012/01/ ... ieved.html

From our forum March 26, 2011. More and more we appear to be ahead of the curve.

Let's just take this real estate thing as an example. So you want to buy a foreclosure, OK, we have 9 months of inventory they tell you. Truth is, it's more like 4 years and probably more like infinite if the business as usual environment breaks down. But you can do that today and many are, the bank is still open, they will assign a negotiator after a few weeks and you might close in 6 months at an artificially high somewhat maintained price which is now in danger of not being maintained. If you want to buy the house for what it will ultimately be worth under free market conditions, that won't be possible and it will be maintained vacant on the market at taxpayer expense with the artificial listed price.

I would say, yes, the business as usual environment will quickly break down as the multiple converging events become the new reality.