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Prechter's Social Mood

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A Simple - but important question : is the social mood changing?

 

If so, for a great reflation to work how will the Government and Central Banks get the people to go along with it in the face of a social mood change? It's one thing to get the helicopters and B52's in the air, it's another to force people to spend. I sense a mood change and that is why Government and Central Banks are working overtime to get it back to where it was.

 

Prechter's view.

The Primary Precondition of Deflation

 

Deflation requires a precondition: a major societal buildup in the extension of credit (and its flip side, the assumption of debt). Austrian economists Ludwig von Mises and Friedrich Hayek warned of the consequences of credit expansion, as have a handful of other economists, who today are mostly ignored. Bank credit and Elliott wave expert Hamilton Bolton, in a 1957 letter, summarized his observations this way:

 

In reading a history of major depressions in the U.S. from 1830 on, I was impressed with the following:

 

All were set off by a deflation of excess credit. This was the one factor in common.

 

Sometimes the excess-of-credit situation seemed to last years before the bubble broke.

 

Some outside event, such as a major failure, brought the thing to a head, but the signs were visible many months, and in some cases years, in advance.

 

None was ever quite like the last, so that the public was always fooled thereby.

 

Some panics occurred under great government surpluses of revenue (1837, for instance) and some under great government deficits.

 

Credit is credit, whether non-self-liquidating or self-liquidating.

 

Deflation of non-self-liquidating credit usually produces the greater slumps.

 

Self-liquidating credit is a loan that is paid back, with interest, in a moderately short time from production. Production facilitated by the loan - for business start-up or expansion, for example - generates the financial return that makes repayment possible. The full transaction adds value to the economy.

 

Non-self-liquidating credit is a loan that is not tied to production and tends to stay in the system. When financial institutions lend for consumer purchases such as cars, boats or homes, or for speculations such as the purchase of stock certificates, no production effort is tied to the loan. Interest payments on such loans stress some other source of income. Contrary to nearly ubiquitous belief, such lending is almost always counter-productive; it adds costs to the economy, not value. If someone needs a cheap car to get to work, then a loan to buy it adds value to the economy; if someone wants a new SUV to consume, then a loan to buy it does not add value to the economy. Advocates claim that such loans "stimulate production," but they ignore the cost of the required debt service, which burdens production. They also ignore the subtle deterioration in the quality of spending choices due to the shift of buying power from people who have demonstrated a superior ability to invest or produce (creditors) to those who have demonstrated primarily a superior ability to consume (debtors).

 

Near the end of a major expansion, few creditors expect default, which is why they lend freely to weak borrowers. Few borrowers expect their fortunes to change, which is why they borrow freely. Deflation involves a substantial amount of involuntary debt liquidation because almost no one expects deflation before it starts.

 

===============================

 

Why Deflationary Crashes and Depressions Go Together

 

A deflationary crash is characterized in part by a persistent, sustained, deep, general decline in people's desire and ability to lend and borrow. A depression is characterized in part by a persistent, sustained, deep, general decline in production. Since a decline in production reduces debtors' means to repay and service debt, a depression supports deflation. Since a decline in credit reduces new investment in economic activity, deflation supports depression. Because both credit and production support prices for investment assets, their prices fall in a deflationary depression. As asset prices fall, people lose wealth, which reduces their ability to offer credit, service debt and support production. This mix of forces is self-reinforcing.

 

The U.S. has experienced two major deflationary depressions, which lasted from 1835 to 1842 and from 1929 to 1932 respectively. Each one followed a period of substantial credit expansion. Credit expansion schemes have always ended in bust. The credit expansion scheme fostered by worldwide central banking (see Chapter 10) is the greatest ever. The bust, however long it takes, will be commensurate. If my outlook is correct, the deflationary crash that lies ahead will be even bigger than the two largest such episodes of the past 200 years.

 

http://www.elliottwave.com/deflation/

 

The social mood which seems to be happening today is best described in this paragraph.

 

"The psychological aspect of deflation...cannot be overstated," Prechter continues. "When the social mood trend changes from optimism to pessimism, creditors, debtors, producers and consumers change their primary orientation from expansion to conservation. As creditors become more conservative, they slow their lending. As debtors and potential debtors become more conservative, they borrow less or not at all. As producers become more conservative, they reduce expansion plans. As consumers become more conservative, they save more and spend less. These behaviors reduce the "velocity" of money, i.e., the speed with which it circulates to make purchases, thus putting downside pressure on prices. These forces reverse the former trend."

 

http://www.safehaven.com/article-3009.htm

 

And the market mood has yet to change despite many countries throwing billions of dollars at the problem.

 

Stocks falter as fears persist

 

Stock markets have lost ground, erasing earlier gains as nervous investors remained concerned that the financial crisis would lead to a world recession.

 

On Wall Street, the Dow Jones was down 0.43% despite opening higher.

 

European shares followed their US counterparts lower, with the FTSE 100 ending down 1.2% and France's Cac 40 down 1.55% by the close of trade.

 

Investors had earlier taken some comfort from Wednesday's co-ordinated rate cuts and a UK bank rescue plan.

 

"A lot of people believe the bottom has been reached but that doesn't mean volatility hasn't gone away," said Howard Wheeldon, senior strategist at BGC Partners.

 

"The underlying fear is how much hell we have in terms of recession," he added.

 

http://news.bbc.co.uk/1/hi/business/7660568.stm

 

Oct. 9 (Bloomberg) -- U.S. stocks slid for a seventh day as higher borrowing costs and slower consumer spending spurred concern carmakers, insurers and energy companies will be the next victims of the credit crisis.

 

General Motors Corp. tumbled as much as 22 percent, heading for its lowest close in 58 years, and Ford Motor Co. slumped 12 percent. XL Capital Ltd., the Bermuda-based insurer, lost as much as 60 percent on concern investment losses will weigh on results. Exxon Mobil Corp. led the Standard & Poor's 500 Energy Index to its lowest level in two years, while a gauge of financial stocks sank to an almost 12-year low as the three- month Libor rate climbed to the highest of the year.

 

``The sickening slide in the market is unbelievable,'' said Jerome Dodson, a fund manager who oversees $1.7 billion at San Francisco-based Parnassus Investments. ``Investors are worried about the freezing up of the credit markets. We've had bear markets like this before, but the credit markets were functioning normally.''

 

http://www.bloomberg.com/apps/news?pid=206...&refer=home

 

And what happened to Japan in the 90's? This sums it up nicely.

 

Japan had the same overvaluation problem in their stock and real estate market at the end of 1989. Their real estate market was even more over valued than the U.S. was in 2006 and declined by about 44%. Japan tried to do the same thing we are doing now to alleviate the pain of both asset bubbles bursting. They brought their interest rates down to close to zero, and tried to print their way out. However, by 1991 their money supply collapsed since the banks refused to lend to questionable borrowers and well healed potential borrowers would not bother taking out loans. This is the old concept of "pushing on a string" and the attempt of government intervention dragged out the Japanese deflationary bear market for years. Their stock market declined from 39,000 on the Nikkei Average in late 1989 to about 7,400 in 2003 before doubling since then. Their real estate market is still bouncing around a bottom after declining every year for 18 years (see attached NDR chart).

 

http://www.fxstreet.com/fundamental/analys...2008-06-13.html

 

I also don't see the great de-coupling happening in metals/energy and commodities that the likes of Puplava, Morgan, King, etc on Financial Sense talk about. Gold being the obvious exception, as long as it is not the gold miners. Anyone who bought into miners 6 months ago are probably now sitting on big losses. It's ok for Jim Puplava to talk about 30-40% corrections being the norm and you should go to the beach and not think about it, but this latest fall back has been brutal, the jury is still out on whether this is something more than just a correction. Thus far, money has not gone into these sectors as a safe haven, time will tell if it does.

 

And what's the price of oil today? It's a long way back to $160, not that it got there. In fact, the price of oil is now a lot closer to Art Laffer's $35 prediction than Zepatta George's $160.

 

So, there is an awful lot of asset deflation about right now and I feel that there is a good chance that the attempt to reflate things will fail as the social mood is changing. What do you think the people will do? Everyone I talk to seems to be shutting up shop and spending less, it seems to me that the powers that be have got one hell of a job on their hands to change this mood.

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Simple question, is the social mood changing? If so, for a great reflation to work how will the Government and Central Banks get the people to go along with it in the face of a social mood change? It's one thing to get the helicopters and B52's in the air, it's another to force people to spend. I sense a mood change and that is why Government and Central Banks are working overtime to get it back to where it was.

 

Prechter's view.

 

 

The social mood which seems to be happening today is best described in this paragraph.

 

 

 

And the market mood has yet to change despite many countries throwing billions of dollars at the problem.

 

 

 

And what happened to Japan in the 90's? This sums it up nicely.

 

 

 

I also don't see the great de-coupling happening in metals/energy and commodities that the likes of Puplava, Morgan, King, etc on Financial Sense talk about. Gold being the obvious exception, as long as it is not the gold miners. Anyone who bought into miners 6 months ago are probably now sitting on big losses. It's ok for Jim Puplava to talk about 30-40% corrections being the norm and you should go to the beach and not think about it, but this latest fall back has been brutal, the jury is still out on whether this is something more than just a correction. Thus far, money has not gone into these sectors as a safe haven, time will tell if it does.

 

And what's the price of oil today? It's a long way back to $160, not that it got there. In fact, the price of oil is now a lot closer to Art Laffer's $35 prediction than Zepatta George's $160.

 

So, there is an awful lot of asset deflation about right now and I feel that there is a good chance that the attempt to reflate things will fail as the social mood is changing. What do you think the people will do? Everyone I talk to seems to be shutting up shop and spending less, it seems to me that the powers that be have got one hell of a job on their hands to change this mood.

 

its funny i was looking at the dow today thinking this reflation aint gonna happen for a long time

 

although i do still think very high and possibly hyper inflation will result given the governments response

 

edit to add - i think gold will do well anyway - no counterparty risk - its real money etc

 

and they aint got deflation in Iceland at the moment

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its funny i was looking at the dow today thinking this reflation aint gonna happen for a long time

 

although i do still think very high and possibly hyper inflation will result given the governments response

I agree, they will try to inflate their way out of this, they have no choice, that is what the inflationary money economy is all about. I don't believe that they want hyperinflation, but they may end up with it if it goes wrong, it's just that the case for deflation is getting a lot stronger as the social mood seems to be changing.

 

The Dow is now below 9000, another -400+ day, they haven't bought into the inflationist argument yet, and I doubt you can force people to.

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Is anyone going to buy into further credit expansion? Seems to me that confidence is shot in this system. Are you going to spend and borrow more in the immediate future?

 

Failure Of The Fiat Currency System

 

By Colin Twiggs

October 9, 2008 6:30 a.m. ET (9:30 p.m. AET)

 

There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of the voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.

 

~ Ludwig von Mises

 

What we are facing is no mere speed bump in the road to prosperity. The looming threat of credit expansion has been ignored by regulators for the past three decades and we now face a crisis of confidence in the financial system. Unfortunately the only tool that central banks have available is to lower interest rates to artificially low levels in an attempt to support falling asset prices. If they succeed, and demand for credit again expands, we are being set up for another financial collapse in the not too distant future. If they fail, we face the mother of all credit contractions and a global recession that will be remembered in a similar light to the 1930s.

 

Neither alternative is very inviting, but we should hope for the former in order to buy ourselves some time. I see politicians and commentators talking about rescue packages and running off lists of what needs to be done. Most are band aid solutions that may provide some temporary respite but do not address the underlying distortions in the economy.

 

Continued credit expansion will merely create further problems in the financial system. Central banks have not shown sufficient restraint to contain credit expansion. There always seems to be a crisis that requires "exceptional measures" (i.e. credit expansion). And when the crisis is over the credit expansion remains, possibly due to political pressure.

 

http://www.incrediblecharts.com/tradingdia...0-09_yields.php

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Is anyone going to buy into further credit expansion? Seems to me that confidence is shot in this system. Are you going to spend and borrow more in the immediate future?

 

 

this article seemed appropriate

 

think he was warning of a crisis a few months ago but i cant find the article now

 

is it too late for him to be voted in

 

The Austrian School and the Meltdown

 

by Ron Paul

by Ron Paul

 

 

DIGG THIS

 

The financial meltdown the economists of the Austrian School predicted has arrived.

 

We are in this crisis because of an excess of artificially created credit at the hands of the Federal Reserve System. The solution being proposed? More artificial credit by the Federal Reserve. No liquidation of bad debt and malinvestment is to be allowed. By doing more of the same, we will only continue and intensify the distortions in our economy – all the capital misallocation, all the malinvestment – and prevent the market's attempt to re-establish rational pricing of houses and other assets.

 

Last night the president addressed the nation about the financial crisis. There is no point in going through his remarks line by line, since I'd only be repeating what I've been saying over and over – not just for the past several days, but for years and even decades.

 

Still, at least a few observations are necessary.

 

The president assures us that his administration "is working with Congress to address the root cause behind much of the instability in our markets." Care to take a guess at whether the Federal Reserve and its money creation spree were even mentioned?

 

We are told that "low interest rates" led to excessive borrowing, but we are not told how these low interest rates came about. They were a deliberate policy of the Federal Reserve. As always, artificially low interest rates distort the market. Entrepreneurs engage in malinvestments – investments that do not make sense in light of current resource availability, that occur in more temporally remote stages of the capital structure than the pattern of consumer demand can support, and that would not have been made at all if the interest rate had been permitted to tell the truth instead of being toyed with by the Fed.

 

Not a word about any of that, of course, because Americans might then discover how the great wise men in Washington caused this great debacle. Better to keep scapegoating the mortgage industry or "wildcat capitalism" (as if we actually have a pure free market!).

 

Speaking about Fannie Mae and Freddie Mac, the president said: "Because these companies were chartered by Congress, many believed they were guaranteed by the federal government. This allowed them to borrow enormous sums of money, fuel the market for questionable investments, and put our financial system at risk."

 

Doesn't that prove the foolishness of chartering Fannie and Freddie in the first place? Doesn't that suggest that maybe, just maybe, government may have contributed to this mess? And of course, by bailing out Fannie and Freddie, hasn't the federal government shown that the "many" who "believed they were guaranteed by the federal government" were in fact correct?

 

Then come the scare tactics. If we don't give dictatorial powers to the Treasury Secretary "the stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet." Left unsaid, naturally, is that with the bailout and all the money and credit that must be produced out of thin air to fund it, the value of your retirement account will drop anyway, because the value of the dollar will suffer a precipitous decline. As for home prices, they are obviously much too high, and supply and demand cannot equilibrate if government insists on propping them up.

 

It's the same destructive strategy that government tried during the Great Depression: prop up prices all costs. The Depression went on for over a decade. On the other hand, when liquidation was allowed to occur in the equally devastating downturn of 1921, the economy recovered within less than a year.

 

The president also tells us that Senators McCain and Obama will join him at the White House today in order to figure out how to get the bipartisan bailout passed. The two senators would do their country much more good if they stayed on the campaign trail debating which one is the bigger celebrity, or whatever it is that occupies their attention these days.

 

F.A. Hayek won the Nobel Prize for showing how central banks' manipulation of interest rates creates the boom-bust cycle with which we are sadly familiar. In 1932, in the depths of the Great Depression, he described the foolish policies being pursued in his day – and which are being proposed, just as destructively, in our own:

 

Instead of furthering the inevitable liquidation of the maladjustments brought about by the boom during the last three years, all conceivable means have been used to prevent that readjustment from taking place; and one of these means, which has been repeatedly tried though without success, from the earliest to the most recent stages of depression, has been this deliberate policy of credit expansion….

 

To combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about; because we are suffering from a misdirection of production, we want to create further misdirection – a procedure that can only lead to a much more severe crisis as soon as the credit expansion comes to an end…. It is probably to this experiment, together with the attempts to prevent liquidation once the crisis had come, that we owe the exceptional severity and duration of the depression.

 

The only thing we learn from history, I am afraid, is that we do not learn from history.

 

The very people who have spent the past several years assuring us that the economy is fundamentally sound, and who themselves foolishly cheered the extension of all these novel kinds of mortgages, are the ones who now claim to be the experts who will restore prosperity! Just how spectacularly wrong, how utterly without a clue, does someone have to be before his expert status is called into question?

 

Oh, and did you notice that the bailout is now being called a "rescue plan"? I guess "bailout" wasn't sitting too well with the American people.

 

The very people who with somber faces tell us of their deep concern for the spread of democracy around the world are the ones most insistent on forcing a bill through Congress that the American people overwhelmingly oppose. The very fact that some of you seem to think you're supposed to have a voice in all this actually seems to annoy them.

 

I continue to urge you to contact your representatives and give them a piece of your mind. I myself am doing everything I can to promote the correct point of view on the crisis. Be sure also to educate yourselves on these subjects – the Campaign for Liberty blog is an excellent place to start. Read the posts, ask questions in the comment section, and learn.

 

H.G. Wells once said that civilization was in a race between education and catastrophe. Let us learn the truth and spread it as far and wide as our circumstances allow. For the truth is the greatest weapon we have.

 

 

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Wow!

 

Shipping rates for transporting raw materials to the great manufacturing economies of the world, as measured by the Baltic Exchange Dry Index, have halved over the past month - and have fallen 75% since mid-May.

 

This index is normally seen as a leading indicator of global economic activity.

 

Shipping containers being loaded on to lorryIn recent years it's been buoyed by China's voracious appetite for the world's natural resources, especially iron ore.

 

There may be one or two exceptional factors depressing shipping rates, such as a decision by China (which may turn out to be temporary) to consume from its vast stockpile of iron ore rather than bring in more.

 

But the fall in rates is redolent of a global economy on the turn, in a pretty sharp negative direction.

 

It's the backdrop to yesterday's forecast by the IMF that the world's economy will grow at 3% in 2009 - which is on the cusp of what it regards as a global recession.

 

And it's the context for the co-ordinated cuts in interest rates by central banks, from China, to Europe to North America - which extended overnight to rate cuts by South Korea, Taiwan and Hong Kong.

 

The emergency action by the authorities to reverse the direction of the global economic supertanker away from a seriously impoverishing economic downturn also includes the lending of taxpayer's money to banks on a mindboggling scale.

 

This is absolutely essential, if banks aren't going to dramatically reduce what they lend to households and businesses and to ensure that at least some of the reduction in official rates is passed on to customers.

 

But the world's banks are becoming seriously dependent on incremental funding from central banks, and special additional liquidity provided by finance ministries, to make up for the seizing up of money markets - which in turn stems from the fear that grips managers of vast pools of cash (typically our pensions and long-term savings) and makes them wary of lending money to any bank where there's even the faintest smell of trouble ahead.

 

The money managers are switching their investments into government bonds and official national debt in its various forms, on the assumption that we as taxpayers are always good for our debts - although the recent behaviour of the Icelandic government in apparently failing to honour its deposit insurance guarantee to Icesave customers makes that a slightly more courageous assumption than it was.

 

What's happening, therefore, is that money managers are lending to governments like ours, and those governments are then recycling that money to the banks.

 

The perfect illustration of this is the £250bn guarantee announced yesterday by HM Treasury for short and medium-turn debt issued by our banks - that should allow them (phew!) to refinance their debts as they fall due in the next two or three years.

 

There's quite a big question - for later - about how on earth we wean the so-called commercial banks off their addiction to borrowing from the state.

 

And if the addiction can't be broken, there'll surely be big implications for how banks are permitted to behave (should a taxpayer-supported institution be paying any of its employees 800 times average earnings, which a few that are now utterly dependent on taxpayer support have been doing?).

 

But for now the pressing issue is how we can pull the global economy out of the deleveraging vortex, how we can crush the devastating phenomenon of banks collectively atoning for their past sin of lending too much by lending too little.

 

No single government, not even that of the US - as Hank Paulson, the US Treasury Secretary, conceded last night - can contain the destructive power of deleveraging, of the de-facto lending strike, on its own.

 

It may require global collective action by governments on a scale we've never seen before.

 

http://www.bbc.co.uk/blogs/thereporters/ro...ing_vortex.html

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Interesting stuff and i agree with you.

 

I have never understood the hyperinflation argument and still don't. If it was that easy to reinflate, why didn't Japan succeed?

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Interesting stuff and i agree with you.

 

I have never understood the hyperinflation argument and still don't. If it was that easy to reinflate, why didn't Japan succeed?

Because the Japanese population refused to go along with it? They just stopped spending, the Japanese Government tried, and failed, to give money away. They tried the Helicopter drops, but the people were not in the mood for it. Today there is a great deal of talk about trying to bring back confidence in the banking and financial system, but no one is buying it, the banks would rather keep what money they have even if it means they bankrupt themselves in the process! As Prechter has said, crazy is the normal state of markets.

 

The report below is from Mish Shedlock's site, it's a little out of date and I wonder what the responses would be today.

 

More than one third (41%) of US workers are cutting back on utilities, nearly half have reduced food purchases (48.5%) and a large percentage are buying less clothing.

 

The national survey of US workers, conducted May 12-14, 2008, also found that younger workers (between the ages of 18 to 29) are being hit the hardest by the economy and are the most desperate about their economic future. More than one third (34.3%) of young American workers say their financial situation has caused them to “feel hopelessness or despair about their economic future.” That compares with 28.8% of workers age 30 to 49, 23.5% of workers 50-64 and 17.9% of workers 65 or older.

 

Nearly a third (31.4%) of workers report being occasionally kept awake at night because they worry they will not meet housing payments, credit cards, or other personal expenses, 36.8% of whom were between the ages of 18 and 29.

 

And nearly one fourth (23.4%) of US workers say their financial situation has distracted them on the job, with the most distracted being young workers, age 18 to 29 (36.8%).

 

“US workers are hurting on multiple fronts, and their pain is growing,” stated Kenna.

 

“This year’s poll clearly illustrates exactly how damaging the current state of the US economy is to its workers.” In particular, with gas prices topping $4 a gallon this summer, more than a quarter of workers (25.7%) are already choosing alternatives to driving into work – such as carpooling or public transportation; 35.9% were between the ages of 18 and 29, with more females (32%) than males (23.1%) conserving.

 

==========================

 

Secular Attitude Change Underway

 

There is a secular attitude change happening right now. Boomers close to retirement are now (finally) scared to death as the equity in their houses has been vaporized. School age children are seeing homes foreclosed, and families destroyed over debt. The American consumer, who nearly everyone thinks will be back as soon as the economy picks up are mistaken.

 

Secular shifts like these come once in a lifetime. Sadly it's too late for many cash strapped boomers counting on equity in their houses for retirement.

 

Lessons Of The Great Depression Forgotten

 

The lessons of their great grandfathers who lived in the great depression era were forgotten. Over time, everyone learned to ignore the dangers of debt, risk, and leverage. Belief in the Fed and the government to bail out any problem are ingrained. Bank failures are distant memories.

 

Anyone and everyone who wanted credit got it, and on the easiest of terms: subprime, pay option arms, reckless leverage, and covenant lite debt and toggle bonds that allowed debt to be paid back with more debt. That's what it takes to hit a peak.

 

http://globaleconomicanalysis.blogspot.com...eak-credit.html

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Interesting stuff and i agree with you.

 

I have never understood the hyperinflation argument and still don't. If it was that easy to reinflate, why didn't Japan succeed?

Did they have a positive trade balance by the time? That might give you a hint towards the answer.

 

If you have a double deficit and you print the world's reserve currency, generating inflation is easy.

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It's ok for Jim Puplava to talk about 30-40% corrections being the norm and you should go to the beach and not think about it, but this latest fall back has been brutal, the jury is still out on whether this is something more than just a correction. Thus far, money has not gone into these sectors as a safe haven, time will tell if it does.

 

I have been thinking the same as you on this, but today I have seen something that has changed my viewpoint slightly.

 

Today LA Quinta Resources (LAQ.V) share price recovered 50% initially on a mere 6000 shares being bought, this later adjusted to 40% on 13000. The share ended up on a bid of 0.08 and an offer of 0.14, so a very small amount of money was involved.

 

I am now thinking that some of these juniors are so illiquid that the large movements can be reversed quite quickly.

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I have been thinking the same as you on this, but today I have seen something that has changed my viewpoint slightly.

 

Today LA Quinta Resources (LAQ.V) share price recovered 50% initially on a mere 6000 shares being bought, this later adjusted to 40% on 13000. The share ended up on a bid of 0.08 and an offer of 0.14, so a very small amount of money was involved.

 

I am now thinking that some of these juniors are so illiquid that the large movements can be reversed quite quickly.

This could happen, but in such volatile markets will you be tempted to hold on and hope that a bull run continues, or sell out at the first opportunity to preserve cash? These markets are moving so fast that many investors will be tempted to sell out and preserve something rather than sweat it out. I suppose to some degree it depends on how confident you are and whether you need the money. I do get the feeling however, that many may be hoping for a great reflation and bounce in the market so that they can get some of their paper losses back.

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This could happen, but in such volatile markets will you be tempted to hold on and hope that a bull run continues, or sell out at the first opportunity to preserve cash? These markets are moving so fast that many investors will be tempted to sell out and preserve something rather than sweat it out. I suppose to some degree it depends on how confident you are and whether you need the money. I do get the feeling however, that many may be hoping for a great reflation and bounce in the market so that they can get some of their paper losses back.

 

With certain gold juniors if you can wait a 2-4 years, with the PoG escalating, I believe you have got to be on a winner. It, as you say, depends on wether you can remain invested and ride the waves. :D

 

I have assigned 70% physical and 30% stocks.

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Excellent post and thread, No.6 !

 

We should all be learning about Austrian economics, the 1830's, and re-reading Prechter's book- it sounds like!

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Agreed, and excellent timing No.6

Pretcher was my first introduction to TA and EW etc (No wonder I have always been so bearish)!

 

Always thought he had good arguments and as the carnage continues I might just re-read his conquer the crash.

 

Out of hours on Finspreads DOW just fell to 8330 on Japan opening (theyre down 7% too), just recovered a little, currently 8400.

Amazing!

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Japan down 10% overnight and 25% in a week, and yet all the talk is that their banks are ok, the economy fundamentally sound, etc.

 

The social mood has changed, you only have to listen to the news to hear the sense of disbelief about what is going on and so far, nothing Government and Central Banks can do has changed things, if anything it has made it worse. People just don't believe anymore and in that environment I think they go conservative and try to preserve what they have, just how the powers that be change this and reflate things, I don't know. The public mood is like an ocean liner, you can't just stop it and change direction in an instant, policy makers will be praying and hoping that it is not too late.

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Simple question, is the social mood changing? If so, for a great reflation to work how will the Government and Central Banks get the people to go along with it in the face of a social mood change? It's one thing to get the helicopters and B52's in the air, it's another to force people to spend. I sense a mood change and that is why Government and Central Banks are working overtime to get it back to where it was.

 

Short Answer: Mass unemployment.

 

Longer Answer: Government works programs will get the printed money moving around the economy but those unemployed people need to be earning in order to spend.

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With certain gold juniors if you can wait a 2-4 years, with the PoG escalating, I believe you have got to be on a winner. It, as you say, depends on wether you can remain invested and ride the waves. :D

 

Maybe in nominal terms but in real terms you'll be underwater.

 

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A great post No.6, and my mind is now wavering after having believed for a long time that the financial blow-up we're witnessing will lead to extremely high/verging on hyperinflation, because of that mood change. All I can see deflating at the moment though are big-ticket goods whilst daily consumables inflate through the roof, if deflation is going to happen because of this mood change when do the daily consumables stop inflating in price - when the market perceives it as 'fair'?

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Is anyone going to buy into further credit expansion? Seems to me that confidence is shot in this system.

Are you going to spend and borrow more in the immediate future?

 

In HK, it looks like they will keep rates low, and hope that rents and property prices hold up.

Later, if/when Libor drops, they may cut mortgage rates, but probably not before the year end.

 

Is that going to make people want to buy property? No.

But landlords should be able to hold and "wait and see"

 

Short Answer: Mass unemployment.

 

Longer Answer: Government works programs will get the printed money moving around the economy but those unemployed people need to be earning in order to spend.

 

In HK they already have some big infrastructure spending programmes:

 

+ Bridge to Macau

+ Railway tunnel to Shenzhen

+ Expansion of MTR

 

There may be more coming... Let's see if President Obama sees this way forward.

Its much better than a wasteful war, since US infrastructure needs rebuilding

 

THE UK AND THE US INVESTED UNWISELY.

All that capital flooding into housing added little or nothing to efficiency of the economy, or its long term productivity.

In fact, building homes in the "stranded suburbs" like Stockton may prove to be a dead write-off.

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I agree No6. I rarely watch TV news, but I did watch a little yesterday. The "experts" were saying cut back on spending, overpay your debt. "We can all do our bit", as he put it.

 

This is a total change. It is no longer about avoiding a "slowdown", or even a recession. It is about avoiding carnage. The reality of too much debt, and it must be paid back, not expanded, is sinking in.

 

I am actually glad that the stock markets are still sinking (I think I can say freefall now, it is a term being widely used :P ). We need to unwind this mess and break the debt addiction.

 

I read yesterday that P/Es on the S&P were still at 19!! I don't know is this is historic or forecast, but either way, that has a long way down to go yet, IMHO.

 

 

What do people think that parents are telling their kids at the moment? Advising them to get into debt the minute they can? I don't think so. In the 20s, people loved debt, and developed an inflationary mindset (borrow, spend, invest). But this totally flipped for a generation or more when it all went wrong.

 

hyper, hyper? :unsure:

 

 

 

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...

hyper, hyper?[/size] :unsure:

Do you ever take into account the possibility that the demand for fiat currency could fall, like e.g. in Iceland at the moment?

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I've heard that a tsunami is impending when the tide rushes out to see further than normal at the wrong time of day.

:lol: Took me a while to figure that one out.

 

[As in it can't see far normally at the right time.]

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