John wrote:To all:
I would like to warn people against the easy seduction of believing
that "the worst is over," that "there'll be nothing worse than long
recession" and that "there won't be a panic."
I pretty much agree with you John but just so everyone understands what you mean when you use the terms "panic", "crash", and "plunge" can you explain in detail what YOUR understanding of these terms are?
As a reference this is what investorwords has (which isn't specific at all by the way):http://www.investorwords.com/3574/panic.htmlhttp://www.investorwords.com/1190/crash.htmlhttp://www.investorwords.com/3718/plunge.html
Plunge and crash have essentially the same definition but you got all upset when I equated them so your definition must be very specific. When you said a plunge was imminent, what exactly was your timeframe?
I do appreciate you describing what you call a "generational panic and crash":
"An elemental force of nature, where millions or even tens of millions of Boomers and Generation-Xers in countries around the world, never having seen anything like this before, and not having believed it was even possible, suddenly try to sell everything in a mass panic. This will bring down computer systems for hours, perhaps even for a day or two, as people watch tv in glazed horror as their life savings disappear"
Not sure how what happened in '29 fits this scenario though. And by "computer systems" are you just talking about online brokerages? I can see that, many of them had trouble even during the '08 market dives (well at least brief disruptions of service lasting up to 15 minutes). This was much worse during the 2000 market plunges by the way. For what its worth, when computer systems crash in a market panic/crash, GET ON THE PHONE AND BUY. That's what I did in 2000 and I made a small fortune selling literally the next day on the after panic relief bounces.
Regarding panics - what I saw in the 50% '08 stock market dive last year certainly looked like a panic so I'd like to know why you think it wasn't one? I had a coworker literally go to the hospital because of a "panic attack" due to extreme worry about his investments (he also took all his money out at the bottom). A good friend liquidated his entire 401k (hundreds of thousands) on THE VERY DAY of the Oct '08 low. Masses of people were so paranoid that they briefly PAID the government to hold their money as short term treasury yields actually dipped below zero
for the first time EVER. People were dumping tax free, high rated muni bonds for 60 cents on the dollar (I bought a bunch of them by the way, they are now back to par value already). What exactly do you expect to see in a "panic" by your understanding? We aren't going to have people lined up at banks to withdrawal funds in any sort of widespread manner because of FDIC insurance. A mad rush out of money markets and into treasuries with no or even negative returns already happened. I'm not saying we won't get MORE panics, but I'm just dying to know why you think what we just went though was NOT a panic...
Also in your latest article you say:
John wrote: "price/earnings ratios (also called "valuations"), and this is the major factor analyzed by most automated stock buy/sell programs"
What is your source for this information because I don't believe its true. I happen to be good friends with a program trader at Merrill Lynch. How many program traders do you know? Do they really tell you that their programs are based on P/E ratios??
John wrote:Prior to the panic, there will be no need for the government to
"print" an unlimited amount of money, since the political paralysis in
Washington will prevent it from happening.
Is there really political paralysis? Republicans are not going along with Democrats, but don't the Dems have enough votes to pass almost anything? The only thing they don't have is a filibuster proof majority, but do you think they will really need one? The current political wrangling seems like pure show to me...
Regarding inflation/deflation. Monetary VELOCITY has plummeted, this is equally as important as money supply in the inflation/deflation dynamic. It will be difficult if not impossible to have any serious lasting inflation in an environment with low monetary velocity, and government stimulus is not likely to improve velocity. The most I can envision is a temporary uptick in inflation that lasts for a short while (6-12 months). Remember that the financial markets are a DISCOUNTING mechanism. They have already priced in this uptick in inflation. The market isn't always right of course, but its the best guide we have.
John wrote:After the generational panic and crash, we can only guess what's
going to happen. My view is that the US dollar will be the only
island of stability remaining in the world, because of its use
throughout the world as a reserve currency. At least at first, it
will still be politically impossible to "print" an unlimited amount
of money, but that may change as the crisis begins to gather steam.
Quite the contrary! BECAUSE the dollar is considered the "go to" currency in times of instability or panic, it makes it even EASIER for us to print money without immediate repercussions. This is exactly what we've been doing! This is how we can have $3 trillion in bailouts, deficits, and stimulus, all borrowed at extremely low rates and accompanied by a strong dollar. A plunging dollar (and rapidly rising treasury rates) would be necessary to END the massive printing of money.
John wrote:On the subject of the fiscal stimulus: It's possible, as Richard
Koo's theory states, that there won't even be any need to "print"
lots of money, since most of the fiscal expenditures will come back
to the government in the form of investments in Treasuries.
Ugh! One more definition that needs clarification. The term printing money
is often misunderstood. Its a figure of speech, not meant to be taken literally. The massive increase in treasuries = debt = printing money.