Recession in a Bull Market

Recession Depression Inflationary Deflationary Is there a new word?!!? Any description equates to more than a "problem" for Joe Plummer and you and me. The Fed and Treasury departments have outspent capacity. All as a reresult so far, of the devastation of Credit default swaps (CDSs) and Credit crunch which crash was reactionary to a mere 2.5% of mortgage failures. Experts who know, are not being quoted in the media because the fear ratio would be truly catastrophic. 2.5% of all that's out there is all we've seen impact from so far? How much money is IN credit Default Swaps? One estimate, (no one really knows because they were totally unregulated) puts the value (pre crash) at $50tn to $60tn (That's $60 TRILLION!) How much more damage would there be from foreclosures? If all things remained equal to status of a year ago, just the "toxic" subprime debt might represent 10%. That means it would have all played out under "normal conditions in about another two or three years! But add a little abnormal conditioning of a stock market that at first, held some restraint, then began wild sell offs, then profit taking investments and day trading, then more fear driven selling such that wild Ws typify the graphics. Now,many stock companies not invested in problem loans, not in financial stress or heavy debt load themselves,have seen their market capitalization shrink to record lows because there is precious little level-headedness nor value consideration in the markets now. So next, the companies MUST get loans to factor production even if contracted. But lenders: BANKS are leery of every misstep into quicksand and fear to lend. Layoffs ensue. Consumers, (all those layed-off homeowners) curtail buying and begin last ditch efforts to hang on to their over-mortgaged homes. Nearly all the ones who were sub prime, "stated income only" type loans (like the ones Acorn and Fannie a Freddie and Congress under Reid, Dodd, Frank and ...OBAMA? decided to allow) or adjustable "pick your payment" loans hit the wall. As they do so we see a second wave crashing: The US auto industry collapses. A third wave starts as markets continue to slide, and regular salt of the earth homeowners; two wage earners with too much mortgage, feel the pinch of one spouse layoffs and we start to see 10% or even 20% of all loans in default. That might be AS BIG AS 20% OF $60TN! ($12tn!!!!) Do we still think a couple of $ Trillion from the Fed will stem the tide? (It reminds me of the breaking of the Grand Teton Dam in Idaho. Two giant Caterpillar tractors were pushing huge piles of rock and gravel into the water on the dam to try to slow and plug the leak, but it only acted like a super abrasive and opened the leak even faster. Both behemouth tractors were pulled in and were found having been washed over ten miles downstream. The entire town downstream was erased by the ensuing flood) Add to market instability the impact of a presidential election year, (always a downward pulling event due to uncertainty caused by all the rhetoric and untested potential leaders, made more uncertain by market conditions and so goes the downward spiral). What may be happening could be the "perfect economic storm". Recession? Depression? Inflation? Deflation? Maybe we'll have to invent a new word?!!? how bout Reinflationary Economic, Controlled, Unmedicated Castration? What comes next? another 9/11? Look out! I just wish I was wrong.

C.C. The world is not going into a recession, That would mean this would be a normal SHORT cycle Inflationary Contraction of the worlds' economy (usually a 4-6 year cycle). The last 2 cycles were not allowed to happen. They would have cleared out the distortions in the economy, but our leaders decided to pump more $$ into the world's economies to avoid those recessions. This was catastrophic!! The debt levels of the world grew to unpayable and unstable proportions. The world appears to be going into a LONG cycle DEFLATIONARY Contraction of the economy. The difference from an INFLATIONARY contraction is as follows: INFLATIONARY Contraction: the economy contracts slightly but all is well and prices and wages continue to rise and this makes old debts continue to shrink over time. This a GOOD thing. DEFLATIONARY CONTRACTION: First there is a default on the oversized debt bubble. This causes loss of money circulating in the economy (hence Fed $$$ injections to try to stop that). This causes slower spending of consumers and they begin saving more money out of fear. This causes job losses and less buying. Product prices drop to attract buyers, this causes buyers to wait to buy because the price will be cheaper in the future. Wages drop to accomodate prices and so on. This cycle only stops slowly and after it bottoms out long enough for all to see and regain confidence in the system. All the Fed money printing will eventually cause inflation in the future. The Fed will have to raise interest rates to slow down inflation and this mess gets uglier. This cycle happens every three generations (Long Economic Cycle) in the Western World (428 years). First generation goes through it and they keep their money in the mattress. Their offspring remember the bad times but starts to spend some $$. Third generation, Baby Boomers have no memory of the bad times and no fear, so they overspend and speculate to the moon, default on debt and cycle repeats. Do your own research. I pray I am wrong................................

It is so easy to blame somebody and so easy to forecast our future. I honestly believe that there is nobody to blame but ourselves.Our economic model is 66% us the consumer.How can we blame that remaining 34%. We buy everything even kitchen sink made in somewhere and blame government for it. We are willing to pay $ 4 for galon of gasoline and blame oil companies for it.We are buying houses for zillions of dollars knowing we can't repay it.And blaming the banks for it.Me made a mess on the stock market and blame greedy bankers for it. We elect our representatives which go to Washington and then blame them for incompetency. It is time to look into a mirror and stop blaming somebody else. The same applies to forecasting.Even the people who have the best information available can't forecast what will happen tomorrow. Bufett lost 20% so far this year and he has very able economic team with him. I have lost a bit less than 20% and with no help at all.I have lost 40% on the stocks and gain 5 % on fixea income. With 50/50 distribution the loss is 17.5 % Am I smarter investor,obviously no. But I don't take media advice seriously but what I take seriously is who I send to Washington to spend my money.But unfortunately most of us don't take this seriously and blame somebody else. We all should look into mirror.and that includes the media.Stop inventing and start reporting the facts.We all will be better off. .

A few nights ago I started reading Alvin and Heidi Toffler's book Revultionary Wealth. A new term popped up. De-Synchronization. I don't want to touch on details what is but the term made me think of the present volitile market. Of course all trading markets synchronized with thier time zones. Now is it possiple that present markets are knocked off thier time? Whilest at the sametime the market bottom comfounds every economic expert and pundit. Also could the international markets be thrown off by this de-synchronization. Anything is possiple. So could these markets with its violent swings of the pendulum be in the process of de-synchronization? think about it.

I wrote a piece in 2000 titled "Suppose they gave a Depression and nobody came" The premise was based on on Bush is to Hoover as ________ is to FDR I thought the ______ was going to be Hillary Clinton but it turned out to be Mr. Obama The point besides the self -congratulatory nature of me, is that there is so much 401k money out there that the "experts" will just keep rotating in and out. My thoughts are also buttressed by the nanny state government bussing in more money to keep the bs going. Many have already said we are right now in a worse state than the Depression of the 1930's yet we continue to not quite feel the pain (YET??) as a nation. If you have lost a job you would maybe disagree with me on this. It is still possible to get to that Depression that might be better defined as when the government is doing most of the hiring or subsidizing companies to hire. There has to be a REAL catalyst as only so many cars, so many homes etc can be bought. What will the new cycle be? Dont know. But I dont think it is going to be anytime before 3 + years.

cheryl - (and your team) What happens if all the big shifts are being caused by institutional players, like hedge funds and the like? Wouldn't that mean there is no true reading of the markets? They would be unnaturally compromised in value, both upwards and downwards. In global markets, as well as in the US, huge shifts are occurring - but since the 60's, mostly institutions and huge funds own the products available - and they are propped up by credit, not real money. Since they are now having to support real money and use something closer to standard accounting practices, will any company be able to sustain its value over the next 15 years? In some cases right now, entire companies are being purchased for less than the price of all the stock that could be purchased on the open market. Doesn't that tell you something about the problems we face? - cricketdiane

CC real interesting. Bull market in a recession? Darling u may be onto something. But think bigger and global. Becouse they're now calling this a global recession too. With volitity as the norm in the global market due to depressed house market,credit crunch etc I believe the markes are going to be W graph for sometime. But u are onto something here. Afterall where some businesses are feeling painful contractions within the market from consumers, some businesses Big Lotts are picking for example. As for predicing the market bottom I believe this market has comfounded and confuse econominist alike becouse now I believe this market is going to prove everyone wrong. Like the presidental election this market is in constant flux.

'Not very accurate to compare this market to one 25+ years ago. Back then, most trading was controlled on the floor of the NYSE, now it's unnecessary becuase anyone with an Internet connection can trade. We're also trading on the penny and not the 1/8. People are stocking up on low-cost necessities because there is fear that their income may contact. That is an indicator of confidence. Cheryl, a Bull Market anytime this year? Do you have any idea what is happening in this country?

Also... Look at the KIND of companies these are. These are overstock, rejected, or out of date products. This means RETAIL everywhere else will be hit HARD. Read between the lines here. "Hey everyone - Dollar General/Tree/Family Dollar is up - times must be ? " no, if THOSE stores are up, it means the OTHERS are DOWN. NOT a good sign. Besides, would you dare give a child ANY product from China ? from any of these places ? There are SO many recalls dated from China for OTC meds. Bottom line with the dollar stores, wal-mart included. You get what you pay for. Or in Alexis's case when she and her husband filled up a cart at Target for $700 and didn't know what they had spent their money on ? I guess you sometimes don't KNOW what you pay for either.

I'd say with introduction of software driven trading? It's not appropriate to use bull/bear anymore. It's a mechanized market.