I work in the field of finance, and constantly hear differing views on where our economy and the market is headed. Frankly, if I or anyone knew for sure what is to happen, we'd be retired by now and living off the earnings of our millions. However, from what I am observing and hearing, I have some ideas on what is going on and perhaps what is to come. I will share them with you, but put this out there to be scrutinized or agreed to by others. I want feedback so I can consider what your views are and factor them into my thinking. I know from past posts that some of you are smart, knowledgeable investors. I hope that this thread can serve as dialoguefor us to bounce around thoughts and ideas so we can develop or get ideas on good investment strategies for our individual circumstances going forward.
My take on the situation is this: We have an astronomically high debt load,accelerated by the recentbailouts as well as those to come,with no indication that the debt loadwill decline in the years to come. Add to that the enormous infrastructure plans of Obama, as well as growing entitilement, medicare and medicaid, social security and pensioin liabilities and we are in for unbelievable amounts ofdebt due in the years to come.Unfortunately,nobody will get elected if they tell the truth and commit to making the decisions that might help matters for this country financially, so our growing debt position is a structurally permanent one.
The gubment won't default on its debt obligations. It also won't decide tojack up taxes too much without dampening the economy due to lowerdemand for goods and services with less money in people's pockets. So what will happen is that it willprint more money to pay the debt principal and interest obligations when they come due. However, doing so is ultimately inflationary, with more dollars in the system chasing the same or fewer goods and services, even if it occurs during a recession or depression.
Bottom line, while many believe the stock market is at or near bottom, I think the spiraling effects of deleveraging on the economy and markets implies that the S&P has another 150 points OR more to go on the downside, and may stay flat for some time before showing any signs of a recovery. Also,precious metals are a good diversification and/or investment strategy going forward, as they will benefit with inflation. I wouldn't be surprised if silver more than triples over the next few years, and gold almost doubles.
It appears, to me at least, that the current fixed income markets are more focused on the deflationary impact of a recession than they are the inflationary impact of total US debt obligations requiring massive printing of dollars going forward.
One last point is the nexus between China, exports and the US. China wants its currency low relative to the US so it can continue exports. For that reason and the immediate impact of a huge cash out on spot price, it will not pull the rug from under us by dumping dollars in favor of another currency or precious metals. However, I believe that it will gradually get out of its dollar position while trying to rampup domestic demand for its production, which will cause the dollar to further weaken, interest rates to increase to attract investment dollars, etc.
But for the fedslowering of interest rates, which it can no longer do because the fed funds rate is currently bottomed out at 0 or 0.25%,I think that US debt interest obligations would right now be more expensive, requiring the printing presses and inflation to ramp up, with an immediate and commensurate decline in longer-term debt prices, increase in yields, increase in rates and increase in price of precious metals. Personally, think the best bets in the next few years arevery high grade corporate debt, whose yields are FAR higher that treasuries due to huge premiums, short-term treasuries that will reset at increasing interest rates,and precious metals.
IMO, that is an oustanding write up Doug and I fully agree with what you are saying. Your prediction on the S&P as well as Gold and Silver are right in line with what I have been thinking.
As I have stated before on here, I got out of stocks several years ago when I thougt they were WAY overpriced. Why were they overpriced? Because there was momentum in stock investing and things got WAY out of hand. IF that same momentum happens on this down trend, the S&P could very well lose significantly more than 150. Using the same logic, if gold and silver gain that momentum, the price could go through the roof. I bought my metals when gold was <$300/oz and silver was <$5/oz. While I really feel they are going farther up, I have no problem holding on to what I have, I have a tough time buying at the current levels.
I am very pleased with my 401k money sitting making 4% per year and waiting to move it over into more risky investments when I feel they are at or near the low. I know I will not time it perfect and that is not important. I didn't get out of stocks when they were at the absolute top, but they were close enough. I will hang on to my gold and silver. I have always looked at the metals as diversification as well as an investment. I know most financial people have not looked at them as an investment, but given the times we have been living in, I saw no way they could be kept down.
I know times are bad for a lot of people. Personally, for me the outlook has never been better. I work in the nuclear power field and the stance of my company is VERY positive for the future and I feel the same way. It was NOT that way 4-5 years ago. My wife is a nurse practitioner and has an excellent reputation with the local doctors and hospitals in the area. The last of our debt (our house) will be paid off within 5 years. We have worked hard to get to where we are at and made some very hard decisions regarding our finances to get to where we are at. I hope it doesn't sound like I am bragging, I consider myself very blessed to be where I am at.
I have a question for you all. Have any of you tried to buy physical gold recently. I have not, but a friend of mine said it is VERY scarce right now and the paper value of gold at around $830/oz is way below the actual street value. Just curious.
I believe finance is the reason that we are in the state that we are. I believe that we are witnessing the irreversible fall as the United States as an economic superpower. I believe we are entering a depression equal to the one in 1929. China is rising right now and will surpass us very soon. The United States sold out it manufacturing. The country that does most of the manufacturing is the country that ends up leading the world. All manufacturing is headed east and to Germany. I think we are a long way from the bottom. I wouldn't invest a dime in any American company right now, I would save it.
The solution is hard, very hard. Let the financial sector collapse and save as much manufacturing as possible. The financial sector made insane decisions, their heads must roll. In the future, the financial sector must be strictly regulated by the government. No more 50 year interest only loans.
I would say that there is a 50% chance of my life being destroyed by this. I have lost 200K in retirement saving. If I were now to lose my job (which given the valley we are about to enter is not unlikely) it would ruin me. Thank god my only debt is 95K on a 240k house.
No country in the history of the world remained on top without manufacturing. Our politicians and corporate CEOs have done irreversible damage to America. They considered only the short term and ignored the long term consequences of their actions.
Don't kid yourselves, there are no bargains out there and probably won't be for 5 to 10 years. It took decades to get us into this mess and it will take us decades to get out.
I would say that there is a 50% chance of my life being destroyed by this.
I wouldn't say that. You might have to re-adjust your goals a little, but to think there is a good chance your life might be destroyed is pretty bad.
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I have lost 200K in retirement saving. If I were now to lose my job (which given the valley we are about to enter is not unlikely) it would ruin me. Thank god my only debt is 95K on a 240k house.
If I were you and I thought there was a good chance I could lose my job, I'd be finding a way to own my house outright, ASAP. Downsize while it is possible, or whatever. You have no other debt, so you could get by a lot cheaper if you didn't have the house payment. If it was me, I would also seriously consider cashing out the remaining 401k, paying the taxes and penalty and paying off the house. I know that is drastic and most would not recommend it, but seriously think it though.
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Don't kid yourselves, there are no bargains out there and probably won't be for 5 to 10 years. It took decades to get us into this mess and it will take us decades to get out.
Don't kid yourself either. SOME people do just fine in hard times. There is one word, preparation. You have to be ready for it. The hard part is determining what you need to do to prepare. Things are certainly tough, but you have to fight and not throw in the towel.
From what I have been reading lately, when inflation rears its head, silver is looked upon for its monetary value, and will go to only about 16 or 20 times less than gold. Result, gold will go up, but silver will skyrocket, since its value is currently about 90 times less than gold. Being of the impression that silver will rise faster than gold (which will also rise), I bought a 1,000 ounce bar of silver yesterday, and expect to pick up more in the coming months. As for my retirement savings, its all in short-term government securities that will better preserve the principal than bonds that fall in value when rates rise, or the stock market that doesn't fare well when rates (company borrowing expenses) increase.
As far as housing goes, when inflation hits, many people will not be able to afford as much house, and prices will decline. However, the fed printing more money should have an offsetting effect, with more money in the system to bid UP prices. I'm not sure what the net effect will be.
If you can get a 30 year loan for 4.5%, it seems like a great deal. Though wages will lag inflation, it should end up making the payment very cheap. However, a problem could occur if you buy a lot of house so the monthly payments are high despite the low interest rate on the loan. In that case,the price of gas, food, clothing, etc. could go up so much more quickly than wages that it's hard to make the mortgage payment.
I can't help but think banks aren't looking far enough in the future to realize the risk they are taking, or don't care about the future beyond a few short years, because with large increases in inflation over the next several years, they won't earn enough on their 4.5% loans to cover the interest they will have to pay on savings accounts, etc. to attract dollars.
Do a search on "dow gold plot". Look at the plotssincethe early 1800s. History tells us that the Dow and gold prices will cross at some point. So where at? 6,000...........5,000............4,000???
10 years ago, 99.999% of the people would have laughed at the notion. I am guessing that the percent of laughers is still pretty high, but I imagine it is not as loud and is the percent is dropping.
The below article details thecatalyst of the economic collapse I was talking about. Though many aren't facing the truth, the markets will indeed reflect that truth at some point. The only question is when, within two years or ten? So far, most dire predictions I've seen that have come true were YEARS after they were predicted to occur. In my view, the single biggest problem most people have right now is thinking that the economy will get through the coming tough economic times as it hasgotten through other bad times that have occurred over the past several decades. Most have no idea whatsoever that this national debt issue is a different animal than we've ever dealt with in this country, and the time will be soon to pay the piper... Countdown Started, Engines OnDecember 14th, 2008 by Da King
I find myself wondering how long our political leaders think we can continue to live beyond our means. They haven't reached that point yet, and we're on the verge of total fiscal meltdown. What's it going to take to shake them awake ? I wonder if anything can awaken them. For over 70 years, our federal goverment has spent more money than it has taken in, leaving us massively in debt. The last time I checked, the interest alone on the federal debt was over $680 billion. That's a lot of dough we have to skim right off the top, and it's only going to get worse. Much worse. We've been hemorrhaging manufacturing jobs for over 30 years, and I haven't heard many realistic ideas coming from Washington D.C. to turn that around. I'd tell you it's a good idea to 'Buy American', but that's getting increasingly difficult to do. It's far simpler to 'Buy Chinese.' We are transforming from a nation of producers to a nation of consumers. We are sinking in $11-12 trillion in federal debt, and with $55 trillion in unfunded entitlement liabilities looming on the horizon. Both those numbers are rising fast, with no end in sight. We are handing out trillions in taxpayer funded bailouts for industry. Credit markets are freezing. Unemployment is rising. Foreclosures are rising. Government revenue is dropping, as the recession hits home to America.
And our geniuses in D.C. think this is a great time to spend a whole bunch more money. Of course, they ALWAYS think it's a great time to spend a whole bunch more money. That's the essential problem. Our federal government has been running deficits for 95% of the best boom years that America has ever seen, especially from the post-WWII period to present. If they can't balance the budget during the good times, then how on earth are they going to do it now ? Answer - they won't. Even worse, they don't even appear ready to try. One of the scariest things I've heard from President-elect Obama recently was when he said Bush "hasn't done enough" on the economy. Hasn't done enough ? The largest set of bailouts in history isn't enough ? I tremble to think what our new president would consider "enough." As part of a huge economic recovery package (aka, more federal spending), Obama wants to start a new (and mostly unnecessary) countrywide infrastructure project reminiscent of the 1950's. Such a project made sense in the 50's, it doesn't today. Little old Akron, Ohio has chipped in with 228 infrastructure requests, including a redesign of the Rt 76/Rt 77/Rt 8 interchange (unnecessary) and a fence for the Y-Bridge (unnecessary). The governors of the states recently requested $76 billion in earmarks. Apparently, there's no recession on for them. Only for us, the people. I also heard Obama say the other day that redesigning the health care system, which includes insurance for the 45 million who lack it, will be LESS EXPENSIVE than the system we have now. If Obama can provide insurance for 45 million more people and make it cost less than our current health care system, he'll have to change his name to Houdini, because that will be one hell of a magic trick. Maybe he plans to remove the doctors from the health care system. I don't know.
But maybe I'm being too pessimistic. Let's look on the bright side. Let's say that all the bailouts and enormous federal spending work, and the recession magically ends in a few years. Where will we be then ? We'll still be massively in debt, only more like $15 trillion instead of $11 trillion. All the unfunded entitlement liabilities will still be there, and that fiscal tsunami will be a few years closer. Our federal government will be MUCH larger, consuming more of the private sector, making it more difficult for us to compete. Then the baby boomers will start retiring en masse, and kaboom, economic disaster will be right back upon us, only worse. Much worse. The saddest part of all is, this could all have been easily avoided with a little fiscal responsibility.
Yes, that's the bright side, unless our politicians suddenly wake up. And I see no signs of that happening.
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Our politicians (of all parties) simply don't get it and obviously think they can spend their way out of this problem. Almost every idea they've put forth is a short term fix that eases some of the symptoms but doesn't cure or fix the underlying problems. IMHO, the fed (and many states) spend way more than they take in, don't honestly work on reducing their debt and seem to think they can live on ever increasing credit without any eventual negative fiscal results like our current financial crisis. Their latest fiasco (the bailout) is just another mismanaged expenditure of money that we didn't have and they shouldn't have spent.
As for investing, I agree that the wisest thing anybody can do is reduce their debt load with a lower interest home loan, consider paying off their home loan completely or at least down to where their new payment is ridiculously low (i.e. you could make the payment working at McDonald's, etc.) and pay off any other debts they can.
I'm not an investing expert but I think it's pretty obvious that stock, real estate and many other investments are all likely to go down further in value for at least the next year and either stagnate for a while then or continue going further down. Our country is at a huge financial crossroads and the feds and many states need to stop wasting money, trim their budgets way down, pay off their debts and stick to taking care of the basics. Surprisingly enough, many individuals need to do the same thing also. It will be a difficult lesson for some to learn but a very valuable one.
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I lack a lot when it comes to finance. In short, I see nothing good for the average American until we can stop losing good paying jobs and possibily create more good paying jobs. The average American is the majority and when the average American is loaded with debt their ability to spend is much lower. Thus I believe less spending will continue for quite some time. Those like some or many of you in this forum will most likely do quite well with investments, while many or most Americans just want to survive by keeping their jobs. Just my uneducated take.
Investing to profit in the years to come
