US Depression postoned; not prevented

[Intrinsic_Value]

I would define a recession is when the economy has gotten overheated and after a period of clearing inventories and cost cutting things carry on pretty much as they were.

A depression is when the old economic model doesn't work anymore and mal investment and non profitable industries have to be wiped away before resources are reallocated to more productive new industries and initiatives.

I would say the world is closer to the second definition than the first although Australia has fortunately been insulated against the majority of the pain felt around the world due to China's demand for our resources, whether this fortune is temporary or permanent is the big question !

Interesting way of looking at it, and i think you are presenting some good views. However i would 'opinionate' that a depression is more extreme version of yours.

To highlight a practicle example look at Victoria during the early 1990's. We were in a severe economic recession. But it wasnt a depression.
Now compare Victoria in the 1990's to whats happening in the US.
I think it makes for an interesting comparison (and yes i know we are not matching apples with apples, the US is still a super power, Victoria? ha whats that)

Trust me guys if there is a depression, you will know without a doubt. I wouldnt be surprised to see this forum cease to exist for a while.

 

[Intrinsic_Value]

So, if the US cannot go into default and it ends up mattering not whether the tax payer can fund the ever increasing interest bill is the central bank a Ponzi Bank?

I am not suggesting things will be smooth sailing.
Again its about probability/risk/financial consequences.

For all the bashing of the US$ give me an alternative currency.
And no, no gold, no commodity index etc etc, these things cannot function like cash in the current world (do any of you want to carry around a lump of iron ore to do your weekly shopping).

Or with relevance to this forum, try using commodities to settle your monthly loan repayments (i would love to see the bank managers face).
There are certain assets classes such as metals and commodities which have the POTENTIAL store of real value because of known knowns. But this doesnt mean they can replace the current system. And what is that real store of value, we know it has a definate value (ie a minimum store of value, unlike a bank note which actually has no minimum store of value except for the cost of the paper used to print the note), but what is its definate value in the current system, this is the unknown.

Why then, when global risk tolerance decreases does the US$ increase?????????
Why not the euro???????
Why in the last week as global risk tolerance decreases has the price of gold decreased?????? If uncerntainty increases the gold should also increase, but its not, not when it counts, when potential sh**t is hitting the fan. Or is it still linked to the dollar, ie dollar increases gold decreases. If so why? Which is still supreme in times of uncertainty the US$ or gold?????

 

[Intrinsic_Value]

People must remember that our economic system is adaptive based on the drive to make profits. This acts as a natural stabiliser. Why do i say based on the drive to make profits?
because people individually act in their own best interests, but collectively they form the market place, and thus their combined self serving actions act as a stabiliser and eventually a catalyst for future growth.

And look at the quarterly results comming out of the US profit season.
Beautiful sets of numbers, at least from the perspective of reinforcing my belief about the capitalist system in operation.

How will this effect equities going forward?
The key is always expectations against actual results. And these days you cant look at analysts expectations, you have to look at the 'whisper numbers'.

But the point is are these the numbers that indicate a depression???? And i'm not talking about bank/finance stocks either.

Future pull backs in equities given excessive optimism of future earnings? yes quite possible (and i have already countered for this risk), but back to what we saw in Nov 08-March 09, i VERY MUCH DOUBT IT.

 

[Aaron Sice]

1.....2.....3.....amero

 

[Amadio]

governments are always attempting to mask how bad things are.

John Williams shadow stats is an effort to expose the US govt's masking of their true financial position. Australia needs a John Williams.

This is interesting that you found this website. Many Americans don't even know about it. He interprets data that is publicly available but is conveniently ignored by the govt to make the stats look better.

For instance, he includes the numbers of unemployed those who have given up in despair of ever finding a job. The govt., however, does not count them since they are now not actively looking for job and therefore not registered as unemployed.

 

[JulieW]

Have to agree Blue Card - Amero - after the demolition of the US dollar by inflation. If the RBA is looking at our inflation and a fragile recovery then they'd faint looking at the US potential.

US has no room to move on interest rates, no expectation of a consumer led recovery, no room to do anything but wait for the markets and hope they'll pull through. But with their supersize debt there doesn't seem to be much option in the long run. No wonder the rest of the world is trying to get as far away from the US dollar as possible. I shiver at the potentials but I think the US is heading downward in a much faster descent than the British Empire ever did.

The scary thing is that we'll be hit for a six in the endgame if it plays out. Our household debt levels, foreign borrowings, housing prices, dependence on China etc will guarantee a very hard and long lesson here. I pray my fears are groundless.

I saw a film called 'The Serpent's Egg' where the tag line on the devopment of Nazi Germany was that one could see the formation before it was 'born' USA has all the ingredients necessary for a Weimar type inflation and a subsequent social reoganisation - they have the mindset and the laws and agencies in place already. It's a small tip. A very painful transition for us all I'm afraid if it should occur.

I look to the Chinese, a rather long lived empire, and they are playing lots of interesting economic cards - encouraging gold buying, changing banking rules and debt ratios, stockpiling commodities etc. No harm in copying them.

Can I ask if anyone agrees, and if so what indications (price of oil, RBA rates etc) would be your red flag warning to batten down - or is batten down now?

 

[WinstonWolfe]

For instance, he includes the numbers of unemployed those who have given up in despair of ever finding a job. The govt., however, does not count them since they are now not actively looking for job and therefore not registered as unemployed.

Yeah that's right. Actually i think the way it works is that the State Govts cover unemployment insurance for 26 weeks. Once some poor soul has used all that up, they then go onto Federal Govt funded 'extended' insurance assistance. But....funnily enough, the Federal Bureau of Labor Statistics excludes these people from the unemployed ranks.

How do they figure that, in their wildest dreams even?

Speaking of stats, our ABS is offering Aussies the opportunity to tell them how to measure CPI more accurately......I presume because they don't know how to do it fairly themselves. One suggestion is to use the same cpi measure to deflate GDP as they do to justify rate rises.

 

[Aaron Sice]

Can I ask if anyone agrees, and if so what indications (price of oil, RBA rates etc) would be your red flag warning to batten down - or is batten down now?

i'm deeply concerned. not bearish yet, just very concerned that the risk is getting harder and harder to price into any transaction.

however - i'm doing my best to sure up my financial position. i have a little gold bullion (the actual metal, not a promissary note) and a bit of cash but i'm trying very hard to accumulate CF+ property in quality areas.

it's just getting harder and harder to get credit to make money and pay back said credit.

the next 18 months will be interesting to say the least.

 

[Shadow]

US house prices are still going backwards, just not as quickly.

Your chart shows the year-on-year change, which is still negative, but US house prices have actually risen for six consecutive months, according to the Case-Shiller index.

http://www.philly.com/inquirer/business/20100127_Reports_suggest_housing_market_stabilizing.html

Reports suggest housing market stabilizing

By Alan J. Heavens

Housing markets appear to have stabilized for the moment, with Case-Shiller price indexes rising for six consecutive months...

 

[WinstonWolfe]

Your chart shows the year-on-year change, which is still negative, but US house prices have actually risen for six consecutive months, according to the Case-Shiller index.

http://www.philly.com/inquirer/business/20100127_Reports_suggest_housing_market_stabilizing.html

I'm with the horse's mouth.

 

[Aaron Sice]

doesn't WW's graph show rising prices last 6 months...? i thought it did....?

 

[WinstonWolfe]

have a look again in the morning BC.

and for the most insightful view I've seen re US property, google

An Insider's View of the

Real Estate Train Wreck

By David Galland

 

[Aaron Sice]

but - prices have come back from 20% down to 4% down - still in the negative, but rising...?

 

[Intrinsic_Value]

Your chart shows the year-on-year change, which is still negative, but US house prices have actually risen for six consecutive months, according to the Case-Shiller index.

http://www.philly.com/inquirer/business/20100127_Reports_suggest_housing_market_stabilizing.html

Both you and Winston Wolf are correct, except you are highlighting the positives and Winston the negatives.
Thats the trouble with statistics, you can manipulate them to achieve your argument.

Its funny im not a trader, but i do take on a traders mindset when looking at these sought of economic figures. Some of the best traders in the game follow the KISS principle. When trading keep things simple, dont over complicate things (which is what most amature traders do).

Now lets look at Winstons graph:
It shows a bottoming and then a nice consistent curve upwards. This is what i am interested in: the overall trend, not month to month figures. The same applies to US payrolls/jobless figures/new home building figures etc etc

This is what is giving me the confidence to invest.
Being a doom and gloomer might sound sexy in times of economic uncertainty, but its dam hard to make secure decent returns out of it.
I dont get paid to be a doom and gloomer, i dont have an agenda that needs pushing, these days i make my money from asset recycling.

Therefore at the end of the day, its simple: risk vs return.
I think i should be able to make around 50-60% profit this year from the stock market (presuming Mr Market agrees with my valuations, if he doesnt i am cash flow positive so i get paid to wait).

My biggest worry is actually residential property (again i emphasise that for those of you with controllable leverage and a long term view this comment should be ignored). I will be starting my disposals of apartments next month.

 

[Aaron Sice]

i am also very, very worried about residential.

i stil see a ton of starts coming through, but that means donkey doodles.

 

[Intrinsic_Value]

i am also very, very worried about residential.

i stil see a ton of starts coming through, but that means donkey doodles.

Well there is good and bad for you Blue Card. On the positive a ton of starts should be good for your business. So grab that money whilst you can.
In regards to the WA residential market i am nervous of commentating.
Why am i nervous:
because at the end of the day, China WILL need our resources. There will be upswings and downswings, but make no mistake on a 20 year view point, China is ascending, which means more middle class, which means more 'i want to be more like a US middle class person' which means increased lifestyle.

How does this effect WA: through the QUANTITY OF RESOURCES, rather than the price. And its the quantity that will dictate long term employment opportunities and its long term employment opportunities that will dictate the long term performance of the WA residential market.

 

[Aaron Sice]

i'm doing all i can to secure more residual income streams - ALL i can.

 

[Ausprop]

i am also very, very worried about residential.

i stil see a ton of starts coming through, but that means donkey doodles.

but i thought you were really happy about the house that you have built etc? wouldn't you sell up if you were that concerned?

 

[JulieW]

My biggest worry is actually residential property (again i emphasise that for those of you with controllable leverage and a long term view this comment should be ignored). I will be starting my disposals of apartments next month.

Which indicates you expect the residential market to go down and stay down for a significant time - or is it to do with cashflow? What is your inspiration for this move?

 

[Aaron Sice]

but i thought you were really happy about the house that you have built etc? wouldn't you sell up if you were that concerned?

PPOR is a different ball game - we all have to live somewhere.

i meant for investing, those that are neg gearing, those that are 80+ LVR etc.