Hope Springs Eternal, But Hope is Probably Misplaced

I was talking about inflection points in the slope of the SPX over the past 30 years the other day, referencing an article Birch posted and my earlier prognoses to Lady about how low we could conceivably go based on those major inflection points over the past several decades. I've pondered regularly about what major policy or other market/economy altering events created those inflection points at those times. Someone recently commented (don't recall who) that 401Ks and IRAs materialized along about the early 80s. Well, here's something else that started back decades ago too.

View attachment 5517

http://globaleconomicanalysis.blogspot.com/2009/01/brink-of-debt-disaster.html

Private debt outstanding has risen an enormous 22 times, three times faster than the economy as a whole, and fast enough to take the ratio of private debt to GDP from 117 percent to 303 percent in a little over thirty years.

The charts strongly suggest the necessary condition for resolving the debt crisis is a reduction in the outstanding volume of debt, an increase in nominal GDP, or some combination of the two, to reduce the debt-to-GDP ratio to a more sustainable level.

From this perspective, it is clear many of the existing policies being pursued in the United States and the United Kingdom will not resolve the crisis because they do not lower the debt ratio.

Expect to see a long-term period of extremely slow growth with the economy slipping into and out of deflation and recessions for years, to come. This is the path of Japan, not the path of the Weimar Republic.
Click to expand...

Chickens got to come home to roost sometime. If not now, it'll be way worse later on from the looks of that graph. Anybody who thinks gov. debt is overdone, look again. After all the debt-free discussion earlier today, think again. Debt IS a tool-and valuable when used responsibly and as short-term as possible. My mom cosigned on my first car loan where I paid 50% down and could have paid 100% but wanted to gain a credit history. Without that history, I wouldn't have gotten a major credit card and wouldn't have had an adequate credit history when I went for my first home loan with FHA, where it took me 3 months to get the loan approved and they put me under a microscope first.

My second loan was conventional 30-year fixed, 20% down, now paid off. No current debt.

Sorry I'm such a gloomy doomy, but sometimes we just need to save for awhile and accept not having instant gratification. The nation's going through that life lesson right about now, hope it's not too late for us as a nation to "get it".
 
S

Scribbler

New member
As the first of January turns today, I anxiously await the start of the trading day tomorrow.

I have been following TSP Talk for over a year now -- and I have found it a very valuable resource.

When I looked at the Guess the Dow at the End of 2009 Contest, I immediately clicked on the link. What I found was fascinating. Projections from 8000-11000... I quickly looked over the Dow component list to figure a projection for myself. My projection was certainly not as optimistic. So I decided to not be a free-rider anymore, and contribute to TSP Talk.

Everywhere I look, I see publications with lines stating 'good riddance to 2008' or words to that effect. And while I await the turn of the calendar to start the trading day tomorrow, I know that there is no significant difference in the economy between tomorrow and yesterday. The end of the year is insignificant, it is just noise.

We have been, and still are, in a deflationary environment.

In a deflationary environment, earnings drop precipitously. This is really a function of a drop in revenue, while fixed costs remain the same -- or do not fall as fast as the revenue line. Credit becomes tighter, making it harder to borrow, which becomes even harder as profits decrease. The circle continues in this manner.

In my opinion, unemployment has not peaked. There will be huge layoffs this quarter. In my opinion, housing prices have not bottomed -- if for no other reason than because unemployment has not peaked. In my opinion, equity prices have not bottomed, if for no other reason than earnings estimates are still too high.

There will be no "second half recovery" -- this should become fairly obvious around March to April, if not sooner. Everyone is looking for a bottom in equities; looking for capitulation. I don't think we will be in for the drama of the last quarter..... but I think that it will be a slow grind down over years.

Maybe I am wrong, and if I am, I will surely admit it.

Will write more tomorrow.
 
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