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April 7, 2009

Stocks vs Economy

-- by Dave Johnson

All the stock market types are looking for signs and yelling "Yes! Yes!" and saying that we have "hit bottom" and this is a "buying opportunity." The same thing is happening with real estate types.

They still live in a world where the economy goes on in cycles, same as it ever was, and prices always go up. Actually that started for both stocks and real estate in the early 80s -- when the economy decoupled from the people. That's when things changed and everyone started running up debt -- people running up debt just to get by because wages had stopped rising, companies running up debt because "leverage" was the path to riches.

Meanwhile the economists are seeing the signs and running around yelling "OH MY GOD!" because they ahve never seen anything like this before, and it just keeps getting worse, and they don't see how we're going to get out.

How many times and how badly do people need to be burned before they learn a lesson?

It reminds me of something I saw some years ago. I used to commute "over the hill" from Santa Cruz to Silicon Valley. This was a winding highway over a mountain, with very steep curves. In the winter it would get very slippery and there were lots of bad accidents because people would go just too fast. I eventually learned to just drive the speed limit and relax, but others just wouldn't.

One day I was in the inevitable crawl due to an accident for maybe half an hour. Eventually coming to the accident there was a body just lying there, covered with a yellow plastic tarp. Two cars were completely smashed, obviously from driving too fast and losing control. There was only one lane open with police flagging us through, but it was moving slowly as everyone took a long look.

Within a quarter mile people were passing me at 80mph, swerving from the slipperyness, cutting people off. It's like the lesson right in front of them just had not been seen.

Posted by Dave Johnson at April 7, 2009 9:15 AM


Comments

supporting your theme, note the convergence in these two articles. Bank bailout picture is grim.

The first article shows the entire us system books in an non technical way.

The second article explains why buying devalued assets does not make the banks solvent.

At least 2 Trillion more will collapse. Geithner has .1 Trillion ready to come to the rescue under the PPIP. He is off one decimal point X 2.


http://seekingalpha.com/article/130115-bail-out-for-dummies-part-i

http://hussmanfunds.com/wmc/wmc090330.htm


Posted by: Mace [TypeKey Profile Page] at April 8, 2009 4:07 PM

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