Investing- Yet Another Opinion

Consumer Confidence Collapses As “Recession” Returns

2010-07-16T08:32:00.001-07:00

NO MATTER WHAT, the only thing that will pick the economy up is the strength of the consumer.. Where is it? When will it come back? Please do not expect us to get out of this mess anytime soon...

http://247wallst.com/2010/07/16/consumer-confidence-collapses-as-recession-returns/

-

Fwd: The Fed: Fed to mull stimulus moves just in case

2010-07-14T12:04:00.001-07:00

The Fed: Fed to mull stimulus moves just in case

via MarketWatch.com - Top Stories on 7/14/10

Federal Reserve officials agreed in June that it would be a good idea to study what to do if the economy were to worsen severely, according to a summary of the closed-door June meeting released on Wednesday.

Why would the fed do this if there is nothing to worry about?

How to Play 2010's Hot Stock Trends

2010-07-14T09:48:00.001-07:00

How to Play 2010's Hot Stock Trends

via Fool.com: The Motley Fool on 7/14/10

The second quarter created headwinds, but some investors have still profited.

Bing and Yahoo! Gang Up on Google

2010-07-14T08:45:00.001-07:00

Bing and Yahoo! Gang Up on Google

via Fool.com: The Motley Fool on 7/14/10

comScore needs to clear away the contextual smoke and mirrors for its number to matter.

...Sounds like some motivation for google. Could this make google explode??

Overbought Market Could Take a Dip

2010-07-14T08:34:00.001-07:00

Overbought Market Could Take a Dip

via T3Live Blog by Scott Redler on 7/14/10

By: Scott Redler

From 1010 to about 1099, that's 90 handles in a pretty short time period. Lots of stocks had nice calculated moves, and some can continue, but next few days can be tricky. Earnings so far are doing better than thought, so this move can be supported. But no reason why S&P can't trade down to 1075-1080 first. It doesn't have to, but the first lukewarm report may trigger some profit taking. I've been long stocks and tried to be short SPY last two days as the move has been large. I never try and get all the juice, just the meat and potatoes.

TECH
AAPL got hit hard yesterday on iPhone concerns yesterday. It's down $3 this morning, see how it handles yesterday's low.
AMZN squeezed me hard yesterday. I will try a short again today for a day trade.
SNDK was a nice quick short yesterday on the AAPL news, today could be tricky, watch how AAPL trades.
VMW acts great near hold highs. No set up here until earnings.
BIDU also acts well
GOOG big bounce back to almost 500. I would take some profits if you can.
RIMM nice oversold bounce back into earnings gap, stock got a push up with AAPL weakness.

BANKS were the trade yesterday, most broke downtrend.
GS was great long at 138.50. Sold some around 140 and it should continue to 144-145.
JPM last time I sent it was 37.50 now it's 40+ hard to buy now. Could rest before numbers tomorrow.
BAC nice snap back to almost 16. I can't buy here.

CASINOS gave us nice trades.
LVS triggered through my 23.70 price and now could see 24.50-25.
MGM sent out note around 9.20-9.40 it's now at my quick target of 10.50-10.70. I sold some.

AIG triggered yesterday. Sent out note to buy around 36.50, yesterday it went to 38. Still has some room.

CNAM hearing quarter will be good, and stock is misunderstood. I bought some and will buy more if it trades through 3.30-3.40 with volume.

BP was a great short yesterday and could see more downside to the 35.50 area.

THIS IS A VERY TRICKY TIME NOW, MARKET IS VERY OVERBOUGHT. But it doesn't HAVE to do anything. Stay calculated, and not stubborn.

I am in Tier two short the market though, and if they push us early towards 111 in the SPY I will add more for a cost average trade but this could be painful. This potent up move- typically leads to another eventually, but I think as traders this is an area to get a nice short if done right.

A Winning Strategy for Any Market

2010-07-14T08:09:00.001-07:00

A Winning Strategy for Any Market

via Fool.com: The Motley Fool on 7/14/10

Paired trades can win even when stocks fall.

14 Dividend Stocks With Dividend Growth Potential

2010-07-14T06:52:00.001-07:00

14 Dividend Stocks With Dividend Growth Potential

via Long Investment Ideas from Seeking Alpha by Dividend Growth Investor on 7/14/10

Dobromir Stoyanov submits:

Over the past 80 years, stocks have returned almost 10% annually. Dividends have accounted for approximately 40% of average annual returns. At the same time inflation has averaged 3% annually. These numbers are all averages however – investors cannot expect to generate 10% per year in total returns every single year. Stock returns fluctuate over time. While stock prices gyrate wildly up and down dividends provide a more stable component of total returns.

The relative stability of dividend payments makes them an ideal source of retirement income for individuals looking to live off their investments. Not only are dividend payments stable however, but they also tend to rise faster than the rate of inflation over time. Over the past 80 years, dividends have increased by 5.4% on average, which was almost 2.4% higher than the rate of inflation. Earnings per share, which is the ultimate driver behind dividend growth, increased by 5.50% over the same time period. Without earnings growth, companies could not afford to raise distributions consistently.

Complete Story »

Economic Report: U.S. June budget deficit $68 billion: Treasury

2010-07-13T13:47:00.001-07:00

Sent to you by Austin via Google Reader:

Economic Report: U.S. June budget deficit $68 billion: Treasury

via MarketWatch.com - Top Stories on 7/13/10

The U.S. government ran a budget deficit of $68 billion in June, the Treasury Department reported Tuesday, and said that the deficit was a little more than $1 trillion for the first nine months of fiscal year 2010.

Things you can do from here:

Subscribe to MarketWatch.com - Top Stories using Google Reader
Get started using Google Reader to easily keep up with all your favorite sites

2010-07-12T07:25:00.000-07:00

"3 Black Swans That May Alter Our Path to Armageddon

http://seekingalpha.com/article/214003-3-black-swans-that-may-alter-our-path-to-armageddon?source=dashboard_stocks-sectors

1. China spends their massive horde of dollar reserves and unleashes quantitative easing 2.0 in a BIG way:
2. Medical costs, rather than rise sharply over the next two decades decrease in rate of change and even begin shrinking:
3. The financial crisis triggers transformative productivity gains that increase efficiency and streamline innovation."

Generated feed for "http://seekingalpha.com/dashboard/sector?source=headtabs"

2010-07-12T07:16:00.000-07:00

Generated feed for "http://seekingalpha.com/dashboard/sector?source=headtabs": "

Gold & Precious Metals. Commodities Week: Oil and Copper Rise, Natural Gas Falls, Gold Unchanged. Sun July 11, 2010 • Sumit Roy • USO...
Semis. Is Intel a Bargain Ahead of Earnings? Sun July 11, 2010 • Wall St. Cheat Sheet • INTC • Comment!
Retail. International Speedway Faced Headwinds, Is a Potential Pickup. Sun July 11, 2010 • Wall St. Cheat Sheet • ISCA • Comment!

WSJ: "So What Exactly Caused The Financial Crisis"

2010-02-23T09:29:00.000-08:00

February 23,2010 "So What Exactly Caused The Financial Crisis" By David Wessel

Interesting Article in the Wall Street Journal

The article implies that this crisis is apart of a natural cycle adding a calming effect to what has happened to our economy and what will happen in the near future. I am still not convinced that we should be calm. This sort of crisis happened in the 1930's and was only saved by a "freak occurrence"(WWII).

I see either mass deflation ahead of us or, if the government is lucky enough, another "freak occurrence".
...Im not sure either scenarios will be very pleasant.

Some Key Points:

** “It’s wrong to blame this crisis on subprime mortgage lending, he says. Rather, this crisis is best seen as the latest of a series of banking crises throughout history.”

** “Repo is money… But, like other privately created bank money, it is vulnerable to a shock, which may cause depositors to rationally withdraw en masse, an event which the banking system — in this case the shadow banking system — cannot withstand alone.”

** “The fundamentals of subprime [mortgages] were not bad enough by themselves to have created trillions in losses globally.”

** “The crisis was not a one-time, unique, event. The problem is structural.”

** “There have been banking panics throughout U.S. history, with private bank notes, with demand deposits, and now with repo. The economy needs banks and banking. But bank liabilities have a vulnerability.”

More on Fiat Currency -There's a lot you DO NOT UNDERSTAND

2010-02-15T11:30:00.000-08:00

Some what of a follow up to my Japan articles on deflation and government debt: 
I found this blogger, Joe Firestone, that explains rather thoroughly the myths and truths behind fiat currency.

Here’s the link to his Article : Myths, Scares, Lies, and Deadly Innocent Frauds: Part One

Some Key Points:

** “All the deadly innocent frauds (difs) are frauds in light of the changeover of the United States to a fiat money system during the Nixon Administration.”

  ** “Under a fiat monetary system, money is an accepted medium of exchange only because the government requires it for tax payments.” - Warren Mosler

** “The federal government has no more money at its disposal when the federal budget is in surplus, than when the budget is in deficit. Total federal expense is whatever the federal government chooses it to be.” - Warren Mosler

  ** “The government is no more able to spend money when there is a trust fund than when no such fund exists. The only financial constraints, under a fiat monetary system, are self imposed.” -Warren Mosler

** “Put simply the Government declares it (Fiat Currency) into existence, in whatever quantity it likes. (It has no boundaries)”  ** “Since the Government has an unlimited authority to create its own currency, it is obviously false to say that it is or must be constrained in its spending by its ability either to tax or to borrow.”

** “The Government never can have any solvency problem”

** Why is Obama putting monetary restraints on stimulus? Does he not understand the power of our fiat currency? Does he not want to take on criticism from people who do not understand the power of our fiat currency? Is he being too cautious? Or is it just what is best for our economy?

-
A

Share

Japan's Economy Part II -Is Their Debt Really That Bad?

2010-02-05T10:16:00.000-08:00

With the understanding that deflation is not necessarily a horrible force but a needed and natural force that keeps the economy in line, we can now move on to debunking the common view of government debt:

The Japanese economy is much like the United State's so, once again, I will refer to our economy instead of Japan’s to analyze the economic style.

In the US economy the consumer strengthens the business which strengthens the government:

*If consumers do not have money to spend, then businesses do not get paid; If businesses do not get paid, then they weaken; Weak businesses lead to a weak government.

*If businesses become weak and do not have money to pay employees, then the consumer will no longer have money to spend; The consumer becomes weak and this leads to a weak government.

*The strength of the government relies completely on the flow of cash between businesses and consumers.

In our current (US) economy the consumer is weak, businesses are weak, and the government is weak. This weakness stems directly from debt (the result of past unaffordable purchases with credit). -Our economy has fallen into what seems to be an unbreakable cycle of debt because businesses and individuals do not have enough money to boost the economy.

What if the government could boost the economy with their money though? Wait, I thought the government has hit a debt wall too. Where would they get the money from? Won’t the dollar default if the government lends too much?

The common belief that the US government risks defaulting on its currency as it lends out more money is a myth. This belief only held true when the US government used a fixed currency, like during The Great Depression when the run on banks occurred. At the time, currency was fixed and paper money was backed by gold. The run exposed banks that were lending out more paper representations of gold then actual gold stored in their reserves, resulting in many individuals losing money. That was under a FIXED CURRENCY though, a run on the banks is no longer a concern because the US now uses a fiat currency. This means that the amount of paper money in circulation is no longer limited to a fixed amount.

The value of a single dollar, under fiat currency, does not correspond with a concrete substance -like fixed currency does. It corresponds directly with the perceived worth of the US economy divided by the total dollars in circulation. An economies perceived worth is how much the country’s services and products are worth to other countries, not the strength of their currency against other currencies (US economic value = US currency value = US perceived worth = how much other countries need the US). For example, a country is not going to stop paying for a service that the US provides best just because one hundred paper representatives of their currency equals a thousand paper representatives of ours. This means that the amount of dollar bills in circulation does not effect the value of US currency as a whole; in other words, the US can never default on its currency through debt to its economy because it can always just create more money.

If the US government cannot default on its currency through debt, it can safely relieve the debts of our businesses and consumers by taking in debt. This can be done by reducing taxes. (The extra money saved from not paying the normal taxed amount can go towards paying off debt.)

The cleansing of business and consumer debt will ultimately strengthen the economy. Obviously, this will exponentially raise government debt but as business and consumer debt diminishes the government will slowly move into good standing (government strength as a direct reflection of its businesses’ and consumers’ strength). The only “downside” to this would be mass deflation, which, as explained in part I, is actually not a “downside” at all, but a part of the natural flow of a healthy economy.

This is exactly what Japan’s government did and is still doing to fix its economy. It reduced tax intake so that its economy can strengthen. Now, the common belief is that Japan is living miserably but because they are moving away from unhealthy amounts of inflation they benefit from a lower crime rate and a lower unemployment rate then the US -among other things.

Lower unemployment rate? ..Here’s a graph for you:

Now, the US criticizes Japan for its actions. Is that fair? What is really going on here?

Japan's Economy Part I -Is Deflation Really that Bad?

2010-01-29T11:42:00.000-08:00

In the January 19, 2010, The Wall Street Journal Alison Tudor along with Kenneth McCallum ("Rating Agency Knocks Japan's Outlook") described how Standard & Poor’s warned Japan of a downgrade, unless “policy makers can reverse [the] deflationary spiral”. It reads that, “Investors began to raise questions about the sustainability of government debt”.

Uh.. Wait, What? Why are we knocking Japan? In my opinion, they are doing a better job with their economy then the US is with ours.

So why do I think this? Well, contrary to common belief I do not think their deflation or debt is a problem at all. I also think their economy is a lot more natural then ours, and because of that, a lot healthier too.

First I will touch on deflation, then government debt will follow in the next post:

The Japanese economy is much like the United State's so I will refer to our economy instead of Japan’s to analyze the economic style.

Why does deflation have to be bad? Everyone is always painting deflation as a bad, horrible, retched force -why?

Deflation is natural. It is the natural force that follows inflation, this can be seen in any 10 year graph of the Dow Jones Industrial Average (the one represented below is from the wsj.com website). These fluctuations between inflation and deflation are commonly recognized as the business cycle.

The business cycle explains that the economy is always pushing itself towards a neutral, or beginning point. For the sake of this article, we will call this beginning point: point zero (zero).

The economy is the product of all past inflationary and deflationary changes:

Economy = (inflation - deflation)

So, with the natural (beginning) point of the economy being zero:

(Inflation - Deflation) = 0 or 0 - 0 = 0

In looking at the Dow Jones decade chart it can be seen that the market inflated upwards. Let’s say it inflated 5 points.

5 - 0 = 5

Here the economy inflated away from its natural point of zero -To remedy this, it deflated.

5 - 5 = 0 ...The business cycle did its job and equalized the economy. This is a very simple idea that is understood and counted on by many investors.

But What About The Big Picture?

If we look at the Dow Jones Chart dating back to the 1900s (around its inception), we can see that from the 1900s to the 1930s the economy inflated and deflated many times but always ended up around the same point. This changed after the 1930s though when the economy began an upward trend.

After the Great Depression (around 1930) the government stepped up its control over the economy through various bills, acts, and boards. The goal was to keep another large depression from happening again and to keep the economy growing (inflating). The government found a way to manipulate the natural cycle of the economy so that it worked in their favor. They turned deflation into an always losing villain and inflation into the hero that always prevailed in the end (hence, our current view that deflation is bad).

If we take a look at the economy equation again, with government manipulation now considered, we would find something like:

(80,000 - 0) = 80,000

For the economy to equalize itself it would have to deflate by 80,000, but the government suppresses this natural force. It is important to understand that as inflation grows to new heights, its deflationary counter force grows stronger. How long can the government keep a force that grows stronger the longer it is suppressed from breaking through and bringing the economy back to its natural state?

It seems to me that inflation is the power hungry villain here and deflation is the honest, dignified, man that might (will?) prevail in the end.

The question needs to be asked, would you rather an economy that is higher then nature intended and backed by man made elements -therefore making it prone to failure? or would you rather an economy thats natural and backed by natural elements -therefore giving it a more solid base (less prone to failure)?

**The US is still manipulating their economy to inflate it every year, Japan is letting its economy fall back into an un-manipulated (natural) economy.

..more on the government debt in my next post

-
A

WSJ: "The Profit and Pain of Stimulus"

2010-01-25T12:32:00.000-08:00

The article “The Profit and Pain of Stimulus” (The Wall Street Journal), by Tom Laureicella, explains the skepticism investors have “concerning how much of the market’s rebound was driven by improving fundamentals and how much by government stimulus.” -A topic I talked about back in September (A + B = Get Ready For Another Market Dip).

The article can be located in section C1 of the 01/25/10 issue. Here is the online link: The Profit and Pain of Stimulus

Buy Low-Sell High Stock Pick 01/25/10

2010-01-25T10:00:00.000-08:00

Based on company quality and low price, relative to its 52-week high, todays Buy Low-Sell High company to look at is Gilead Sciences, Inc. (NASDAQ: GILD).

Some information, courtesy of yahoo finance:

Description:

Gilead Sciences, Inc., a biopharmaceutical company, engages in the discovery, development, and commercialization of therapeutics for the treatment of life-threatening infectious diseases. Its products include Truvada, Viread, Atripla, and Emtriva for the treatment of human immunodeficiency virus infection in adults; Hepsera, an oral formulation for the treatment of chronic hepatitis B; AmBisome, amphotericin B liposome injection to treat serious invasive fungal infections; Flolan, an injected medication for the long-term intravenous treatment of primary pulmonary hypertension and pulmonary hypertension; and Vistide, an antiviral medication for the treatment of cytomegalovirus retinitis in patients with acquired immunodeficiency syndrome (AIDS). The company also offers Tamiflu, an oral antiviral for the treatment and prevention of influenza A and B; Macugen, an intravitreal injection for the treatment of neovascular age-related macular degeneration; Letairis, an endothelin receptor antagonist for the treatment of pulmonary arterial hypertension in patients with WHO Class II or III symptoms; and Cicletanine, which is being evaluated for the treatment of pulmonary arterial hypertension. Gilead Sciences has operations in North America, Europe, and Australia. The company has research collaborations with Abbott Laboratories, Inc.; Novartis Institutes for BioMedical Research, Inc.; Novartis Vaccines and Diagnostics, Inc.; Genelabs Technologies, Inc.; Achillion Pharmaceuticals, Inc.; Japan Tobacco, Inc.; Parion Sciences, Inc.; LG Life Sciences, Ltd.; and University of Texas System. It also has commercial collaborations with Astellas Pharma, Inc.; Emory University; F. Hoffmann-La Roche, Ltd.; Pfizer, Inc.; Dainippon Sumitomo Pharma Co., Ltd.; OSI Pharmaceuticals, Inc.; GlaxoSmithKline, Inc.; Japan Tobacco, Inc.; and Bristol-Myers Squibb Company. The company was founded in 1987 and is headquartered in Foster City, California.

One Year Graph:

Some Stats:

01/25/10 Open: 46.15

52 Week Range: 40.62 - 53.28

6 Month Range: 42.55 - 49.81

3 Month Range: 42.55 - 47.49

P/E Ratio: 17.96

I think it's time to reconsider my very first post on blogspot...

2009-12-27T09:32:00.000-08:00

The debt problem is still present. Why has the economy been on the rise? is it just consumer faith pushing the market up? will we ever realize our debt?

I suggest reading the post again before considering your 2010 options...

http://anotheropinion-investing.blogspot.com/2009/09/b-get-ready-for-another-market-dip-how.html

Predictions for 2010, Mike Shedlock and Michael Hampton (STRONGLY RECOMMEND LISTENING TO THIS)

2009-12-22T08:37:00.000-08:00

Interesting 40 minute interview with Mike Shedlock and Michael Hampton.
Some highlights:
-The real depression is coming in 2010
-Gold will hold pretty strong but get ready for a dip
-Other commodities (other then gold) are going to see a huge dip
-The dollar has a large chance of strengthening
-We need depreciation to get out of this problem
-We might be seeing a "W,W,W,W,W" recovery

http://commoditywatch.podbean.com/2009/12/21/predictions-for-2010-number-3-mish-and-dr-bubb/

Share

A Way To Get Out Of This Mess.. (NO MORE DEBT!)

2009-12-05T21:04:00.000-08:00

From the Journal of Economic Issues, "The Natural Rate of Interest is Zero"

This paper describes how the natural rate of interest is zero, how the government can let this natural rate happen, and how it can fix the massive debt problem we are in today.

While the paper makes great sense, I do not believe the economy is willing to pay the price of fixing our debt problem. The "fix" points to a long spread of depreciation, much like, if not the same as, Japan. But is depreciation necessarily a bad thing? If you look at the s&p 500, the market has continually been on the rise. Sure, we have had cycles of depreciation, but is it plausible to never depreciate on a greater scale?

Here's the link:
http://moslereconomics.com/wp-content/graphs/2009/07/natural-rate-is-zero.PDF

Future Debt Crisis? (BUY COMMODITIES)

2009-11-23T09:16:00.000-08:00

The Wall Street Journal article, “The Coming Deficit Disaster” , points at the Obama Administration’s inability to reduce the U.S deficit and the Administration’s plan to not attack the deficit until next year. It explains that,

“The federal government ran a 2009 deficit of $1.4 trillion—the highest since World War II—as spending reached nearly 25% of GDP and total revenues fell below 15% of GDP. Shortfalls like these have not been seen in more than 50 years... spending far outpaces revenues... Our national debt is projected to stand at $17.1 trillion 10 years from now, or over $50,000 per American. By 2019, according to the Congressional Budget Office's (CBO) analysis of the president's budget, the budget deficit will still be roughly $1 trillion, even though the economic situation will have improved and revenues will be above historical norms.”

It then goes on to ask,

“At what point, some financial analysts ask, do rating agencies downgrade the United States? When do lenders price additional risk to federal borrowing, leading to a damaging spike in interest rates? How quickly will international investors flee the dollar for a new reserve currency? And how will the resulting higher interest rates, diminished dollar, higher inflation, and economic distress manifest itself? Given the president's recent reception in China—friendly but fruitless—these answers may come sooner than any of us would like... In short, any combination of what is moving through Congress is economically dangerous and invites the rapid acceleration of a debt crisis.”

Now, wait a minute... A debt crisis in our future??? I thought we were in a debt crisis?

It is important to read this article with commodities in mind because they are negatively correlated to the dollar. As the Obama Administration lets the U.S deficit grow, the value of the dollar is falling. This is causing the dollar to grow increasingly risky, making it less attractive to both lenders and borrowers. (I highlight In my post "A+B= Get Ready for Another Market Dip" one of the ways the government is not reducing debt but is merely replacing credit with stimulus.)

As the currency of the world, the dollar is held to high standards. Failing these standards could be catastrophic to the U.S economy and it seems we might be doing just that. When the market realizes this deficit problem, you can be sure that the value of the dollar will shrink to new lows and the value of commodities will skyrocket.

Take a look at the following etf’s that track certain or all of the commodities: SPDR Gold Shares (GLD), U.S. Oil (USO), iShares Silver Trust (SLV), and PowerShares DB Commodity Index Fund (DBC). I am expecting to see new record highs in this area of the market for 2010.

-
A

Young Investor: Trust the Cycle

2009-11-11T12:54:00.000-08:00

The S&P Index (max) According to Yahoo's Basic Chart:

SPY (max) According To Yahoo's Basic Chart:

The obvious cyclical trend of the S&P 500 and its tracking etfs, specifically "Standard and Poor's 500 Index Depository Receipts" (SPY: AMEX), clearly show that the market travels through high and low points while its value steadily increases. As you can see right now, it is still working its way out of a low. This means there is still value to be earned. From a “trust based” analysis, even if the market is headed for another huge drop, this etf is bound to produce earnings in 5-10 years.

If you are a young investor like myself, you have nothing but time on your side. It would be wise to buy a few shares of SPY and forget about them, or if your an active investor and the market does drop again, BUY BUY BUY MORE! The etf’s value will rise higher then todays price eventually (be patient). The economy just saw huge losses and, as is with all stocks/etf’s, you want to buy low, sell high. Its a good investment for future, safe, monetary gains.

The world is not going to end in the coming years and neither will the market. Have faith in the index.

and..

...If, by chance, I am wrong: The world will end, the market will collapse, you will not need money and none of this will matter anyway,

and..

...you will not be able to say, "I told you so" either.

**I still think the economy is headed for another downward turn. There is still too much debt present in the market and I am weary about the unemployment rate. BUT I am also a firm believer in trusting the cyclicality of the market and that is where the majority of this post stems from.

BWAHAHAHAHAHA -Michael Ruppert and the economy failing

2009-10-27T14:24:00.001-07:00

A little over the top, but Michael Ruppert's predictions of America's economic future. It brings up very good points, such as peak oil and the economic pyramid scheme. I am interested to see the final product.

A + B = Get Ready For Another Market Dip, -How stimulus is replacing credit

2009-09-30T13:40:00.000-07:00

If you are like myself, you might find your market forecast changing with every article you read or TV show you watch. We are constantly being bombarded by complex analyses that tend to be biased and, honestly, pretty confusing. Using syllogisms I am going to build a concrete equation that can, in very simple terms, explain today’s market and how it is replicating the cause of our initial recession in ’07.

To be blunt, a full recovery (this year) is not possible. With the amount of debt the consumer is still holding onto, the economy can only be doing this well because of artificial factors. Some Debt Numbers: Seasonally adjusted consumer debt peaked at 2.519 trillion dollars in ’07. Currently consumer debt is 2.472 trillion-only dropping about 2%. The DSR (ratio of debt payments to personal income) at its peak in ’07 was 13.90, it is now 13.11-about a 6% drop. This leaves around 98% of the debt which got us into this mess still lingering in the economy; the consumer, as a whole, is not able to pay off about 94% of that debt.

First, how we got into this situation:

In ’07 the economy witnessed a debt bubble pop. The bubble was created with the new ability consumers came to possess in the late 1900’s, called paying with credit. This massive credit explosion pushed the economy to new heights. In order to keep up with consumer purchases, new businesses were created, and established businesses grew exponentially. When consumers began to default on their credit in ’07, the economic climb hit a wall and began its decent. So what happened?

Lets first establish our equation:

A consumer makes purchases based on what he “needs” and what he “wants”. Both “needs” and “wants” are established by the spending power of the consumer. (A consumer cannot buy what his money does not qualify him to buy.)

From this we get:

Purchases = (Needs + Wants)

where (Needs + Wants) = Spending Power

Which results in the equation:

Purchases = Spending Power

Purchases are also related to the size of the market. When consumers buy more (demand) the market will grow to meet that demand (supply). It is the basic supply and demand theory: consumers asked for more to buy (demand), businesses responded by expanding (supply). For example, if consumers asked for a million bushels of corn when only one farm existed, more farms would be made to meet the million bushel quota the consumers asked for.

This shows us that:

Purchases = Demand

and

Businesses = Supply

...Purchases are the demand to the supply of businesses:

Demand = Supply

Purchases = Business

This brings us to the economic concept that the amount of businesses in the economy are related to the amount of spending power the consumer has as a whole.

Purchases = Business

Purchases = (Needs + Wants)

(Needs + Wants) = Business

Resulting in the main equation of this article:

Business = Spending Power

How Credit Effected The Equation:

The ability to use credit allowed the consumer to use more spending power than it possessed, creating a “false spending power. This “false spending power” increased the “needs” and “wants” of the consumer, resulting in the creation of more, and larger, businesses:

(Credit) + (Spending Power) = False Spending Power

Using the same substitution as above:

False Spending Power = Inflated Purchases

Inflated Purchases = Inflated (Needs + Wants)

Inflated (Needs + Wants) = Business Inflated by Credit

Our main equation with credit involved:

False Spending Power = Business Inflated by Credit

The Bubble Pop:

In the years leading up to the ’07 market crash the consumer’s use of credit was inflating their purchasing power, and this created a false demand (as shown above). In order for supply to meet this false demand more businesses were created and existing businesses grew larger. When the “false demand by credit” was exposed in ’07 the equation became uneven.

To Clarify...

The main equation during the bubble build up:

False Spending Power(Demand) = Businesses Inflated by Credit(Supply)

The main equation after the bubble popped in ‘07:

Spending Power(Demand) < Businesses Inflated by Credit(Supply)

The “Spending Power to Businesses” equation, like all supply and demand equations, began to equalize itself when the economy realized it did not have as much demand (spending power) as it thought. Since the average consumer cannot simply create their own money, the “spending power” side became fixed which put downward pressure on the “businesses inflated by credit” side of the equation. This is when companies started to see huge drops in earnings. Consumers were not able to buy what they used to and supply was too high, thus exposing the economy’s overabundance of businesses. Now, a business surplus that is being pressed down results in contractions and bankruptcies.

Why Does it Seem Like a Market Turnaround is in Sight?

-Because the government took credit’s place in the equation:

Before government intervention:

Spending Power < Businesses (Still too high, but slowly shrinking)

Which should bring the economy back to square one:

Spending Power = Businesses

But...

Luckily(?) for the consumer, the government began creating money. As it is well known, the government cannot increase spending power. They can only fool the consumer into thinking they have increased spending power by giving them more dollars to hold (when more dollars are put into the economy, the value of the dollar decreases):

Dollar = Spending Power = Dollar x More Dollars

Essentially, the government feeds dollars into the economy, “Stimulus”, and the spending power side of the equation does not change:

(Dollar x Stimulus) / Stimulus = Spending Power

But the consumer thinks that:

Dollar + Stimulus = Spending Power + Stimulus = False Spending Power

This heightens consumer confidence, which causes them to purchase more. As we already established, businesses respond to demand by increasing production:

False Spending Power = Businesses Inflated by Stimulus

Look familiar?

In conclusion:

The problem we created can only be fixed when the economy reaches an un-artificial equality between spending power and businesses. As I have shown, the government is not treating the problem, it is just treating the symptoms. By only treating the symptoms, a falsely inflated market is-once again-being created. Thus, our economy is not much healthier then it was during the debt build up; expect to see a repeat of the ’07 recession in the near future.

Get ready for a fun ride.

-
A

Just a start

2009-09-27T19:14:00.000-07:00

Let's see where this takes us.

Investing- Yet Another Opinion

Consumer Confidence Collapses As “Recession” Returns

Fwd: The Fed: Fed to mull stimulus moves just in case

The Fed: Fed to mull stimulus moves just in case

How to Play 2010's Hot Stock Trends

How to Play 2010's Hot Stock Trends

Bing and Yahoo! Gang Up on Google

Bing and Yahoo! Gang Up on Google via Fool.com: The Motley Fool on 7/14/10 comScore needs to clear away the contextual smoke and mirrors for its number to matter.

Overbought Market Could Take a Dip

Overbought Market Could Take a Dip

A Winning Strategy for Any Market

A Winning Strategy for Any Market

14 Dividend Stocks With Dividend Growth Potential

14 Dividend Stocks With Dividend Growth Potential

Economic Report: U.S. June budget deficit $68 billion: Treasury

Sent to you by Austin via Google Reader:

Economic Report: U.S. June budget deficit $68 billion: Treasury

Things you can do from here:

Generated feed for "http://seekingalpha.com/dashboard/sector?source=headtabs"

WSJ: "So What Exactly Caused The Financial Crisis"

More on Fiat Currency -There's a lot you DO NOT UNDERSTAND

Japan's Economy Part II -Is Their Debt Really That Bad?

Japan's Economy Part I -Is Deflation Really that Bad?

WSJ: "The Profit and Pain of Stimulus"

Buy Low-Sell High Stock Pick 01/25/10

I think it's time to reconsider my very first post on blogspot...

Predictions for 2010, Mike Shedlock and Michael Hampton (STRONGLY RECOMMEND LISTENING TO THIS)

A Way To Get Out Of This Mess.. (NO MORE DEBT!)

Future Debt Crisis? (BUY COMMODITIES)

Young Investor: Trust the Cycle

BWAHAHAHAHAHA -Michael Ruppert and the economy failing

A + B = Get Ready For Another Market Dip, -How stimulus is replacing credit

Just a start

Bing and Yahoo! Gang Up on Google

via Fool.com: The Motley Fool on 7/14/10

comScore needs to clear away the contextual smoke and mirrors for its number to matter.