Lately, excessive executive compensation is attracting attention. Various sources are reporting that executive compensation in the “new economy” is reaching levels unseen before. Avarage executive pay is hundreds of times of avarage employee pay. This is orders of magnitudes higher than how it used to be. Are we jealous? Yes. Should we stop this practice of excessive pay for the executives? Yes. But the reason we should do so is not based on our emotions of envy. It is based on the necessity that I will explain now.
Currently, a CEO’s success is evaluated based on the money his company earns during his service time. He comes into power, company makes billions, he takes his salary, bonus, cashes options and walks away. Next year the company may go bankrupt. But why would he care? We have seen this game play out time and again, especially in the financial sector where two years ago avarage employee bonus was 600,000 USD. And a NYC restaurant was boasting about wine sales to Wall Street types for 30,000 USD a bottle. Now some of those employees are laid off and their companies are on life support. What was the purpose of paying these people -who run their companies a ground- that much money? The CEO and employees who cashout a lifetime of pay check in a year do not have the incentive to make the right decisions for the long run. They cannot bite the bullet and say no to sin if they have to forfeit short term profits. The shareholders must reign in and force them to do so. For that to happen, the government needs to stop bailing out these companies so that share holders get punished for their utter lack of care over what company they invest in. Otherwise indifference will continue and the good and the bad will not be sorted out. We must let the free markets work without government intervention so that the truth shall prevail and we can follow the truth instead of the desire of our hearts.
Let us say the share holders woke up and want to do something. What can they do? They can do the following:
1. Cap executive salary at 4, 5 times the avarage employee salary.
2. Provide attractively priced stock options that will vest (regardless of whether the executive is still in the office or not) in the next 20 years as part of the total benefits.
This way executives can still get good pay over the long run if their companies perform well which makes their options worth more. And they will have some incentive to make long term decisions because their pay depends on it.
If the government wants to interfere with the markets, it should add the following:
1. Do not tax dividends.
2. Tax capital gains at a prohibitive rate such as 80%.
This will have the following effects:
1. Encourage the companies to pay dividends as a way to pay the shareholders.
2. Remove the hope of getting rich through speculation of higher and higher prices that cause bubbles.
It is not success to merely paint a positive picture to propell the stock price higher so that shareholders are happy and the executive can get his pay. Propelling prices based on hopes and wishes is a lie and it is almost criminal.
If a business is sucessful, it should be able to generate cash and pay dividends. Why should I have to sell my company to make money? I should be able to own it and make money through dividends.
Currently, the WALL Street is nothing more than a casino. Those who get out at the right time will run away with the money. Others who do not have time to study and time the market will be left behind as usual. Some compare this great recession to the deflationary crash of great depression. Pension plans, 401Ks, individual savings are all invested in stocks or risky bonds. A decline can wipe out huge amount of wealth that we think we have.
Many people’s retirement is at stake and it is sad to see few are aware that they are gambling it away. There are sharks who trade these markets at the 401k accounts’ expense and they will certainly benefit from this indifference and run away with the money. Executive pay plays a role in the true valuation of these companies and we need to fix it for an honest financial market.
Wednesday, September 1, 2010
Wednesday, August 18, 2010
Fractional Reserve Banking is the Cause of the Crash
The problem is not with democrats or republicans. They are both the same. Government intervention into the free markets in the form of FED, FDIC, Fannie, Freddie is the cause of our problems. So, why did the government create them? Let me explain the whole adventure shortly.
In the past economy seemed to be doing OK solely due to credit inflation that FED has fostered. FED made it easy to borrow. America borrowed and spent. When we borrow money, banks create new money and give it to us. They do not lend existing money. Here is how banks create money.
http://www.tradingstocks.net/html/banks_create_money.html
This new money expands the money supply. It makes it easy to earn. Our economy is now addicted to the ever expanding credit supply. People are happy to have a job, they do not save, consumer economy myth encourages them to spend, thus they do not care that there is inflation. When it is time to buy a home, they happy to promise their lifetime earnings to a bank who creates money out of thin air by making false promises that it never intends to keep. Slavery of the masses is another matter to be discussed in another post.
For decades, our total debt (not federal debt, but the debt people owe) increased faster than the GDP. For every unit of GDP increase, we had to borrow more and more every year. This is the system bankers have created to ensure that more and more of us are in debt. They created the FED so that in a time of inevitable bust like this, FED can save the banks while average Joe goes bankrupt and looses his home to the bank. Why does ordinary Joe is guaranteed to go bankrupt and loose his home to the bank?? Let me explain that too.
All of our money supply is bank credit. It is borrowed money. It needs to be paid back as principal + interest. The interest portion is not even created yet. Borrowing MUST increase exponentially so that principal+interest amount exists in the economy so that people can earn it and pay back what they owe. What happens when borrowing stops? Deflationary crash occurs. Debt problem:
http://www.tradingstocks.net/html/inflation_deflation_credit_bub.html
There is a limit to how much people can borrow. To make it last what did they do? They allowed people to deduct mortgage interest from income while calculating tax. That made mortgage more attractive. So people borrowed more and injected new money into the economy. This new money makes the current administration look good. In fact, they guarantee a future bankruptcy but who cares. As long as they get re-elected...
http://www.tradingstocks.net/html/housing_market_bubble_bust_cyc.html
Government talked about the American Dream and Affordable Housing. Now home prices are becoming affordable, but instead of celebrating, they are scared to death, they are trying to inflate prices again. They want the housing bubble back. Home prices are down, sales volume is down. After prime borrowers were exhausted, they changed the rules to allow sub-prime borrowers get big mortgages. No 20% down, liar loans were all to inflate total credit. Now sub-prime is exhausted and the crash has started. 8K tax credit won't work. Home prices must increase exponentially to sustain a recovery. People must borrow HUGE amounts to provide new money to the economy. Who is gonna do that??? Here is why FED's easy money policy does not work beyond some point: Jaguar Inflation
http://www.tradingstocks.net/html/jaguar_inflation.html
Where does that leave us? It leaves us at the top of the greatest bubble ever! What ever you do, make sure you do not take on more debt! Pay off existing debt! If you have existing savings in cash or cash equivalents such as short term US treasuries you should be fine for a few years. At the bottom of depression you may have to jump out of US dollars if FED freaks out and really prints money!
All of the prices, and salaries you see around you were based on inflated credit that happened over 50 years. It is based on a money supply that is almost entirely bank credit. People borrowed and borrowed and spent. The amount of money borrowed reached sky high. You earned in good times! Now, it is reversing course! Deflationary crash is here!
http://www.tradingstocks.net/html/prepare_for_market_crash.html
Even though at an individual level borrowing with interest may seem fair, at macro-economic level, interest based monetary system is guaranteed to fail. What is worse is that the bankers who run this country made sure that the government agreed to bail them out at tax payer expense.
The fix is to get the banks out of money creation business. Nationalize banks that fail. Abolish the FED. Let the treasury print it's own money. Entire America should not be a slave of bankers paying interest for the money that they create out of nothing.
In the past economy seemed to be doing OK solely due to credit inflation that FED has fostered. FED made it easy to borrow. America borrowed and spent. When we borrow money, banks create new money and give it to us. They do not lend existing money. Here is how banks create money.
http://www.tradingstocks.net/html/banks_create_money.html
This new money expands the money supply. It makes it easy to earn. Our economy is now addicted to the ever expanding credit supply. People are happy to have a job, they do not save, consumer economy myth encourages them to spend, thus they do not care that there is inflation. When it is time to buy a home, they happy to promise their lifetime earnings to a bank who creates money out of thin air by making false promises that it never intends to keep. Slavery of the masses is another matter to be discussed in another post.
For decades, our total debt (not federal debt, but the debt people owe) increased faster than the GDP. For every unit of GDP increase, we had to borrow more and more every year. This is the system bankers have created to ensure that more and more of us are in debt. They created the FED so that in a time of inevitable bust like this, FED can save the banks while average Joe goes bankrupt and looses his home to the bank. Why does ordinary Joe is guaranteed to go bankrupt and loose his home to the bank?? Let me explain that too.
All of our money supply is bank credit. It is borrowed money. It needs to be paid back as principal + interest. The interest portion is not even created yet. Borrowing MUST increase exponentially so that principal+interest amount exists in the economy so that people can earn it and pay back what they owe. What happens when borrowing stops? Deflationary crash occurs. Debt problem:
http://www.tradingstocks.net/html/inflation_deflation_credit_bub.html
There is a limit to how much people can borrow. To make it last what did they do? They allowed people to deduct mortgage interest from income while calculating tax. That made mortgage more attractive. So people borrowed more and injected new money into the economy. This new money makes the current administration look good. In fact, they guarantee a future bankruptcy but who cares. As long as they get re-elected...
http://www.tradingstocks.net/html/housing_market_bubble_bust_cyc.html
Government talked about the American Dream and Affordable Housing. Now home prices are becoming affordable, but instead of celebrating, they are scared to death, they are trying to inflate prices again. They want the housing bubble back. Home prices are down, sales volume is down. After prime borrowers were exhausted, they changed the rules to allow sub-prime borrowers get big mortgages. No 20% down, liar loans were all to inflate total credit. Now sub-prime is exhausted and the crash has started. 8K tax credit won't work. Home prices must increase exponentially to sustain a recovery. People must borrow HUGE amounts to provide new money to the economy. Who is gonna do that??? Here is why FED's easy money policy does not work beyond some point: Jaguar Inflation
http://www.tradingstocks.net/html/jaguar_inflation.html
Where does that leave us? It leaves us at the top of the greatest bubble ever! What ever you do, make sure you do not take on more debt! Pay off existing debt! If you have existing savings in cash or cash equivalents such as short term US treasuries you should be fine for a few years. At the bottom of depression you may have to jump out of US dollars if FED freaks out and really prints money!
All of the prices, and salaries you see around you were based on inflated credit that happened over 50 years. It is based on a money supply that is almost entirely bank credit. People borrowed and borrowed and spent. The amount of money borrowed reached sky high. You earned in good times! Now, it is reversing course! Deflationary crash is here!
http://www.tradingstocks.net/html/prepare_for_market_crash.html
Even though at an individual level borrowing with interest may seem fair, at macro-economic level, interest based monetary system is guaranteed to fail. What is worse is that the bankers who run this country made sure that the government agreed to bail them out at tax payer expense.
The fix is to get the banks out of money creation business. Nationalize banks that fail. Abolish the FED. Let the treasury print it's own money. Entire America should not be a slave of bankers paying interest for the money that they create out of nothing.
Thursday, July 8, 2010
Can Bernanke Fix the Economy?
GDP is up, but debt is up even more. It is a borrowed recovery. The idea that the government can fix the economy is a myth. Social mood directs the markets, economy, politics. Government intervention only makes things worse. FDIC, FED, Fannie, Freddie are the cause of our problems. Free markets, small government, less tax is the way to go. The government does not have the vision for economic progress. They only make impossible promisses and when things go south, they demand bailout at tax payer expense.
The government should have stopped messing with the economy long time ago. Their so called good intentions cause the crash. FED has been inflating the money supply (bank credit) for the last 50 years. It exploded exponentially, much faster than the GDP. In other words, as every day passes by, it takes more and more borrowed money to create $1 increase in GDP. This is because the real economy is shrinking and wall street, finance, and other non-productive sectors are expanding.
We need financial instutions just like an engine needs oil. But look what happened: At the top of the housing boom, the number of realtors was more than the number of factory workers in the US. This is the financial mania mentality where people think they will all get rich without creating something. Not only that, this shows the sad state of the population where they don't have the capacity to create something and sell.
Where does that leave us? It leaves us at the top of the rally that was right before the real crash in Great Depression:
http://www.tradingstocks.net/html/2010_stock_market_forecast.html
We cannot borrow and recover. Borrowing is the cause of the problem. More borrowing will not solve it. I wish the Keynesians would understand common sense economics. Consumer economy is a myth. It is a way to put the American public to sleep while the multinational corporations pillage and plunder their wealth until there is nothing left.
Why is government not doing anything? Well, government works for the capitalist elite. Nobody else. Don't believe it when government says they want to help the home owners. Homeowners are the banks. When government talks about Affordable Housing, it really means they want higher home prices so that people can take bigger mortgages and be the slaves of the banks for their entire life.
Why does the government do this?? Because when we borrow, banks create money. This new money makes it easy to earn and makes the government look good. Banks don't lend existing money. This is why Obama is telling the banks to lend. Almost all of our money supply is created this way. It is bank credit. When we borrowed we created the principal. Now the banks want us to pay back principal + interest. The interest is not even created yet. So if the borrowing stops, the economy stops:
http://www.tradingstocks.net/html/jaguar_inflation.html
To delay the inevitable, the government allowed the banks to give sub-prime mortgages so that a new portion of the population could borrow and money would be created. No 20% down. Liar loans... Constant increase in money supply would make the government look good, and it would give the impression that they managed the economy well. This is how banks create money out of thin air:
http://www.tradingstocks.net/html/banks_create_money.html
This tendency has accelerated since Reagan. Thus the stock market bubble of 1980s and 1990s. Now they ran out of people to lend money to. Thus the music stops. The bubbles pop one after the other. The debt is all time high and the real economy is not able to carry the weight anymore:
http://www.tradingstocks.net/html/inflation_deflation_credit_bub.html
We have borrowed from the future. When the future arrives, it will be paid back one way or another. There is no free lunch. People say we will print money and pay. Printing money only changes who pays for it. In a global economy, it does not matter who pays, it will cause the crash.
The cause is in place. The effect will follow. FED already made the mistake of inflating the credit bubble. When it deflates, economy will crash. It cannot be avoided.
The government should have stopped messing with the economy long time ago. Their so called good intentions cause the crash. FED has been inflating the money supply (bank credit) for the last 50 years. It exploded exponentially, much faster than the GDP. In other words, as every day passes by, it takes more and more borrowed money to create $1 increase in GDP. This is because the real economy is shrinking and wall street, finance, and other non-productive sectors are expanding.
We need financial instutions just like an engine needs oil. But look what happened: At the top of the housing boom, the number of realtors was more than the number of factory workers in the US. This is the financial mania mentality where people think they will all get rich without creating something. Not only that, this shows the sad state of the population where they don't have the capacity to create something and sell.
Where does that leave us? It leaves us at the top of the rally that was right before the real crash in Great Depression:
http://www.tradingstocks.net/html/2010_stock_market_forecast.html
We cannot borrow and recover. Borrowing is the cause of the problem. More borrowing will not solve it. I wish the Keynesians would understand common sense economics. Consumer economy is a myth. It is a way to put the American public to sleep while the multinational corporations pillage and plunder their wealth until there is nothing left.
Why is government not doing anything? Well, government works for the capitalist elite. Nobody else. Don't believe it when government says they want to help the home owners. Homeowners are the banks. When government talks about Affordable Housing, it really means they want higher home prices so that people can take bigger mortgages and be the slaves of the banks for their entire life.
Why does the government do this?? Because when we borrow, banks create money. This new money makes it easy to earn and makes the government look good. Banks don't lend existing money. This is why Obama is telling the banks to lend. Almost all of our money supply is created this way. It is bank credit. When we borrowed we created the principal. Now the banks want us to pay back principal + interest. The interest is not even created yet. So if the borrowing stops, the economy stops:
http://www.tradingstocks.net/html/jaguar_inflation.html
To delay the inevitable, the government allowed the banks to give sub-prime mortgages so that a new portion of the population could borrow and money would be created. No 20% down. Liar loans... Constant increase in money supply would make the government look good, and it would give the impression that they managed the economy well. This is how banks create money out of thin air:
http://www.tradingstocks.net/html/banks_create_money.html
This tendency has accelerated since Reagan. Thus the stock market bubble of 1980s and 1990s. Now they ran out of people to lend money to. Thus the music stops. The bubbles pop one after the other. The debt is all time high and the real economy is not able to carry the weight anymore:
http://www.tradingstocks.net/html/inflation_deflation_credit_bub.html
We have borrowed from the future. When the future arrives, it will be paid back one way or another. There is no free lunch. People say we will print money and pay. Printing money only changes who pays for it. In a global economy, it does not matter who pays, it will cause the crash.
The cause is in place. The effect will follow. FED already made the mistake of inflating the credit bubble. When it deflates, economy will crash. It cannot be avoided.
Sunday, July 4, 2010
Stay Away From Bond Market!
I keep hearing how high the bond market is flying. This is typical of a top. It makes the news now. But the time to buy the bonds was long ago when they were crushed and nobody wanted to hear about them.
Bonds are a bubble! US dollar is the place to be for the next 1-2 years. Not stocks. Not bonds. US dollar rally is real. 2008 was just the warm up in this deflationary crash. FED printed a trillion and inflation is nowhere to be seen! Do you know why? Let me explain.
Our money supply is NOT printed dollars. It is bank credit. We printed 2 trillion dollars. But we borrowed 50 to 300 trillion over many decades. This debt becomes our money supply. And it needs to be paid back with interest! Banks create money when we borrow:
http://www.tradingstocks.net/html/banks_create_money.html
At a given time principal+ interest does not exist. It will only exist with more borrowing, so that people can earn and pay it back. When the borrowing slows down, it becomes hard to find US dollars to pay back the debt. That is why when the economy goes down, US dollar rallies and everything else falls, including Gold.
We are at the early stages of a deflationary crash. The debt levels in the society are too high. This is why starting with 2006 housing top, economy started to come down. We ran out of borrowers! Thus we were not able to inflate the money supply as needed!
http://www.tradingstocks.net/html/inflation_deflation_credit_bub.html
Sub-prime was intentional. No 20% down. Uncle sam wants you to borrow the full amount! Liar loans were OK, as long as you borrowed, all was fair! And then the music stopped. Now they pay you 8K home buyer credit so that you may borrow!
http://www.tradingstocks.net/html/housing_market_bubble_bust_cyc.html
The crash will go into history books. We are in Kondratieff Winter. The debt is the problem. Debt is denominated in US dollars, not Gold! To pay debt, people must find US dollars. Gold is not in a bull market either:
http://www.tradingstocks.net/html/gold_bull_or_bubble.html
US state and local governments are going bust. They are cutting jobs. Banks are kept alive at tax payer expense. Fannie, Freddie loosing billions, may reach a trillion, just so that cheap mortgage is available so that banks can sell their over prices homes to the home buyers. Stay away from bonds. Bonds are a bubble.
http://www.tradingstocks.net/html/investors_jump_into_fire.html
This is going to be a single dip depression. Stock market has head and shoulders pattern. 2000 is left shoulder, 2007 is head, 2010 is right shoulder. Stocks can go down lower than you can imagine. Get out while you can. Nothing has been fixed. We have borrowed and spent on consumer debt. We are not increasing our productive capacity or competitive edge. Borrowing from China to consume more Chinese products is not going to be a recovery. This is a dead end.
http://www.tradingstocks.net/html/latest_opinion.html
Cash is the place to be for a while. Soon your USD will buy more stocks, more homes, more oil, more gold. Deflationary crash is coming.
Bonds are a bubble! US dollar is the place to be for the next 1-2 years. Not stocks. Not bonds. US dollar rally is real. 2008 was just the warm up in this deflationary crash. FED printed a trillion and inflation is nowhere to be seen! Do you know why? Let me explain.
Our money supply is NOT printed dollars. It is bank credit. We printed 2 trillion dollars. But we borrowed 50 to 300 trillion over many decades. This debt becomes our money supply. And it needs to be paid back with interest! Banks create money when we borrow:
http://www.tradingstocks.net/html/banks_create_money.html
At a given time principal+ interest does not exist. It will only exist with more borrowing, so that people can earn and pay it back. When the borrowing slows down, it becomes hard to find US dollars to pay back the debt. That is why when the economy goes down, US dollar rallies and everything else falls, including Gold.
We are at the early stages of a deflationary crash. The debt levels in the society are too high. This is why starting with 2006 housing top, economy started to come down. We ran out of borrowers! Thus we were not able to inflate the money supply as needed!
http://www.tradingstocks.net/html/inflation_deflation_credit_bub.html
Sub-prime was intentional. No 20% down. Uncle sam wants you to borrow the full amount! Liar loans were OK, as long as you borrowed, all was fair! And then the music stopped. Now they pay you 8K home buyer credit so that you may borrow!
http://www.tradingstocks.net/html/housing_market_bubble_bust_cyc.html
The crash will go into history books. We are in Kondratieff Winter. The debt is the problem. Debt is denominated in US dollars, not Gold! To pay debt, people must find US dollars. Gold is not in a bull market either:
http://www.tradingstocks.net/html/gold_bull_or_bubble.html
US state and local governments are going bust. They are cutting jobs. Banks are kept alive at tax payer expense. Fannie, Freddie loosing billions, may reach a trillion, just so that cheap mortgage is available so that banks can sell their over prices homes to the home buyers. Stay away from bonds. Bonds are a bubble.
http://www.tradingstocks.net/html/investors_jump_into_fire.html
This is going to be a single dip depression. Stock market has head and shoulders pattern. 2000 is left shoulder, 2007 is head, 2010 is right shoulder. Stocks can go down lower than you can imagine. Get out while you can. Nothing has been fixed. We have borrowed and spent on consumer debt. We are not increasing our productive capacity or competitive edge. Borrowing from China to consume more Chinese products is not going to be a recovery. This is a dead end.
http://www.tradingstocks.net/html/latest_opinion.html
Cash is the place to be for a while. Soon your USD will buy more stocks, more homes, more oil, more gold. Deflationary crash is coming.
Tuesday, June 22, 2010
Home Sales Down Despite Tax Credits
Recent Yahoo Finance article shows home sales are down despite the tax credits that were offered to home buyers.
http://finance.yahoo.com/news/May-home-sales-dip-as-housing-apf-1632613040.html?x=0&sec=topStories&pos=2&asset=&ccode=
This is another example of how government programs that are designed to create false demand fail. Why does the government run this desperate program?
Uncle Sam wants YOU to buy a house! And an expensive one! Seriously. That is the only game in town. Let me explain why.
When we borrow money, banks create brand new money. They do not lend existing money. Here is how banks create money:
http://www.tradingstocks.net/html/banks_create_money.html
This is called credit inflation. FED has been inflating credit for the last 50 years faster than GDP growth. This extra money in the economy makes it easier to earn it. People feel good. They forget that entire money supply is borrowed bank credit that needs to be paid back someday with interest!
This flood of money makes the current administration look good. Remember all the talk about "Affordable Housing"? And right after the government promised American dream come true, they made mortgage easy, and propelled the home prices. That is not really affordable housing. Now finally the home prices are coming down, and instead of celebrating that home prices are affordable they are trying to propel them up again. This is because uncle sam wants you to borrow money so that banks create money! As simple as that. The more you borrow, the better it is. This is the only tool that the government has to make it look like they are doing good. Here is how the government uses home prices and easy mortgage to inflate the money supply:
http://www.tradingstocks.net/html/housing_market_bubble_bust_cyc.html
Expensive is NOT good. Stocks should be cheap. Why would you want to own something that does not pay a dividend? Homes should be cheap. Why would you want an expensive house? Until these things get cheap, we are NOT going to be wealthy. If people are not able to afford a home, then higher prices are not good.
Anyway, now you get the idea. This is why government subsidizes mortgages with interest deduction from income. That is a direct wealth transfer from renters / owners to the banks and makes it more attractive to buy expensive homes so that people borrow big, banks create money and inject it into the economy. That is why cash for clunkers. So that you borrow and buy a car. That is why 8K first time home buyer credit. Sounds like a good plan, right? Well, there is a limit to how much people can borrow. When the entire population reaches it's natural limit, the bust arrives and the same process reverses itself, and it is called deflation:
http://www.tradingstocks.net/html/inflation_deflation_credit_bub.html
http://finance.yahoo.com/news/May-home-sales-dip-as-housing-apf-1632613040.html?x=0&sec=topStories&pos=2&asset=&ccode=
This is another example of how government programs that are designed to create false demand fail. Why does the government run this desperate program?
Uncle Sam wants YOU to buy a house! And an expensive one! Seriously. That is the only game in town. Let me explain why.
When we borrow money, banks create brand new money. They do not lend existing money. Here is how banks create money:
http://www.tradingstocks.net/html/banks_create_money.html
This is called credit inflation. FED has been inflating credit for the last 50 years faster than GDP growth. This extra money in the economy makes it easier to earn it. People feel good. They forget that entire money supply is borrowed bank credit that needs to be paid back someday with interest!
This flood of money makes the current administration look good. Remember all the talk about "Affordable Housing"? And right after the government promised American dream come true, they made mortgage easy, and propelled the home prices. That is not really affordable housing. Now finally the home prices are coming down, and instead of celebrating that home prices are affordable they are trying to propel them up again. This is because uncle sam wants you to borrow money so that banks create money! As simple as that. The more you borrow, the better it is. This is the only tool that the government has to make it look like they are doing good. Here is how the government uses home prices and easy mortgage to inflate the money supply:
http://www.tradingstocks.net/html/housing_market_bubble_bust_cyc.html
Expensive is NOT good. Stocks should be cheap. Why would you want to own something that does not pay a dividend? Homes should be cheap. Why would you want an expensive house? Until these things get cheap, we are NOT going to be wealthy. If people are not able to afford a home, then higher prices are not good.
Anyway, now you get the idea. This is why government subsidizes mortgages with interest deduction from income. That is a direct wealth transfer from renters / owners to the banks and makes it more attractive to buy expensive homes so that people borrow big, banks create money and inject it into the economy. That is why cash for clunkers. So that you borrow and buy a car. That is why 8K first time home buyer credit. Sounds like a good plan, right? Well, there is a limit to how much people can borrow. When the entire population reaches it's natural limit, the bust arrives and the same process reverses itself, and it is called deflation:
http://www.tradingstocks.net/html/inflation_deflation_credit_bub.html
How to Identify a Stock Market Top
Today a financial article made the claim that market timing is not possible and the performance of your portfolio depends on luck:
http://finance.yahoo.com/news/One-Big-Thing-We-Dont-Know-nytimes-2119843318.html?x=0&sec=topStories&pos=6&asset=&ccode=
The article correctly mentions that there are very long (20-40 years) periods where stocks do not perform as good as bonds. This information is largely ignored by the mainstream media who likes to present the buy and hold case for stocks.
There are various technical analysis tools that makes it possible to measure the maturity of a rally or a decline so that you may line up the ods in your favor. Buy and Hold definately does not work and it is displayed by example in this decade and in many decades in the past.
It is possible to identify the market trend via simple tools like moving averages. It is possible to identify a tiring market via advance decline ratios. We can suspect a pending crash when we see accumulation-distribution index declining while stocks are advancing. We have successfully used this many times in our latest stock market forcast service:
http://www.tradingstocks.net/html/latest_opinion.html
Daily sentiment index works as a contratrian indicator. For example back in March 2009, only 3% of traders were bullish and that was a bottom. Fast forward to April 2010, we had 92% of traders bullish on S&P 500 and that made us suspect a stock market top. Here are many other technical indicators that scream when stars are lined up to signal a market top:
http://www.tradingstocks.net/html/spot_stock_market_top.html
It is true that there is nothing certain about financial markets. But it is not purely luck. You can use technical analysis to turn the ods in your favor. Markets are probabilistic and if you know what is more likely you can allocate your protfolio accordingly and perform much better than random trades.
http://finance.yahoo.com/news/One-Big-Thing-We-Dont-Know-nytimes-2119843318.html?x=0&sec=topStories&pos=6&asset=&ccode=
The article correctly mentions that there are very long (20-40 years) periods where stocks do not perform as good as bonds. This information is largely ignored by the mainstream media who likes to present the buy and hold case for stocks.
There are various technical analysis tools that makes it possible to measure the maturity of a rally or a decline so that you may line up the ods in your favor. Buy and Hold definately does not work and it is displayed by example in this decade and in many decades in the past.
It is possible to identify the market trend via simple tools like moving averages. It is possible to identify a tiring market via advance decline ratios. We can suspect a pending crash when we see accumulation-distribution index declining while stocks are advancing. We have successfully used this many times in our latest stock market forcast service:
http://www.tradingstocks.net/html/latest_opinion.html
Daily sentiment index works as a contratrian indicator. For example back in March 2009, only 3% of traders were bullish and that was a bottom. Fast forward to April 2010, we had 92% of traders bullish on S&P 500 and that made us suspect a stock market top. Here are many other technical indicators that scream when stars are lined up to signal a market top:
http://www.tradingstocks.net/html/spot_stock_market_top.html
It is true that there is nothing certain about financial markets. But it is not purely luck. You can use technical analysis to turn the ods in your favor. Markets are probabilistic and if you know what is more likely you can allocate your protfolio accordingly and perform much better than random trades.
Austerity Measures and Deflation
Deflationary crash continues. As we hear more and more austerity action, we will see less and less spending and as debt deflates, money supply will continue to shrink. UK, other European nations, many US states and local governments are going to cut spending and start saving:
http://www.marketwatch.com/story/uk-plans-59-billion-of-spending-cuts-new-taxes-2010-06-22
This trend of austerity is deflationary. Here is what else is deflationary in the current economic environment:
http://www.tradingstocks.net/html/signs_of_deflation.html
In the past economy seemed to be doing OK solely due to credit inflation that FED and other central banks have fostered. FED made it easy to borrow. The world borrowed and spent. When we borrow money, banks create new money and give it to us. They do not lend existing money. Here is how banks create money.
http://www.tradingstocks.net/html/banks_create_money.html
This new money expands the money supply. It makes it easy to earn. Our economy is now addicted to the ever expanding credit supply. For decades, our total debt (not federal debt, but the debt people owe) increased faster than the GDP. For every unit of GDP increase, we had to borrow more and more every year.
Why does it matter? Well, all of our money supply is bank credit. It is borrowed money. It needs to be paid back as principal + interest. The interest portion is not even created yet. Borrowing MUST increase exponentially so that principal+interest amount exists in the economy so that people can earn it and pay back what they owe. What happens when borrowing stops? Deflationary crash occurs. Debt problem:
http://www.tradingstocks.net/html/inflation_deflation_credit_bub.html
There is a limit to how much people can borrow. To make it last what did they do? They allowed people to deduct mortgage interest from income while calculating tax. That made mortgage more attractive. So people borrowed more and injected new money into the economy. This new money makes the current administration look good. In fact, they guarantee a future bankruptcy but who cares. As long as they get re-elected...
http://www.tradingstocks.net/html/housing_market_bubble_bust_cyc.html
Government talked about the American Dream and Affordable Housing. Now home prices are becoming affordable, but instead of celebrating, they are scared to death, they are trying to inflate prices again. Home prices are down, sales volume is down. After prime borrowers were exhausted, they changed the rules to allow sub-prime borrowers get big mortgages. No 20% down, liar loans were all to inflate total credit. Now sub-prime is exhausted and the crash has started. 8K tax credit won't work. Home prices must increase exponentially to sustain a recovery. People must borrow HUGE amounts to provide new money to the economy. Who is gonna do that??? Here is why FED's easy money policy does not work beyond some point:
http://www.tradingstocks.net/html/jaguar_inflation.html
Where does that leave us? It leaves us at the top of the greatest bubble ever! What ever you do, make sure you do not take on more debt! Pay off existing debt! If you have existing savings in cash or cash equivalents such as short term US treasuries you should be fine for a few years. At the bottom of depression you may have to jump out of US dollars if FED freaks out and really prints money!
All of the prices, and salaries you see around you were based on inflated credit that happened over 50 years. It is based on a money supply that is almost entirely bank credit. People borrowed and borrowed and spent. The amount of money borrowed reached sky high. You earned in good times! Now, it is reversing course!
Deflation is here! Understand the economic environment we are in:
http://www.tradingstocks.net/html/prepare_for_market_crash.html
Austerity measures are the harbinger of the tidal wave that will wipe us out. Deflationary crash is not over. 2008 was just the warm up. Japan had it for 20 years. Do not think we are immune.
http://www.marketwatch.com/story/uk-plans-59-billion-of-spending-cuts-new-taxes-2010-06-22
This trend of austerity is deflationary. Here is what else is deflationary in the current economic environment:
http://www.tradingstocks.net/html/signs_of_deflation.html
In the past economy seemed to be doing OK solely due to credit inflation that FED and other central banks have fostered. FED made it easy to borrow. The world borrowed and spent. When we borrow money, banks create new money and give it to us. They do not lend existing money. Here is how banks create money.
http://www.tradingstocks.net/html/banks_create_money.html
This new money expands the money supply. It makes it easy to earn. Our economy is now addicted to the ever expanding credit supply. For decades, our total debt (not federal debt, but the debt people owe) increased faster than the GDP. For every unit of GDP increase, we had to borrow more and more every year.
Why does it matter? Well, all of our money supply is bank credit. It is borrowed money. It needs to be paid back as principal + interest. The interest portion is not even created yet. Borrowing MUST increase exponentially so that principal+interest amount exists in the economy so that people can earn it and pay back what they owe. What happens when borrowing stops? Deflationary crash occurs. Debt problem:
http://www.tradingstocks.net/html/inflation_deflation_credit_bub.html
There is a limit to how much people can borrow. To make it last what did they do? They allowed people to deduct mortgage interest from income while calculating tax. That made mortgage more attractive. So people borrowed more and injected new money into the economy. This new money makes the current administration look good. In fact, they guarantee a future bankruptcy but who cares. As long as they get re-elected...
http://www.tradingstocks.net/html/housing_market_bubble_bust_cyc.html
Government talked about the American Dream and Affordable Housing. Now home prices are becoming affordable, but instead of celebrating, they are scared to death, they are trying to inflate prices again. Home prices are down, sales volume is down. After prime borrowers were exhausted, they changed the rules to allow sub-prime borrowers get big mortgages. No 20% down, liar loans were all to inflate total credit. Now sub-prime is exhausted and the crash has started. 8K tax credit won't work. Home prices must increase exponentially to sustain a recovery. People must borrow HUGE amounts to provide new money to the economy. Who is gonna do that??? Here is why FED's easy money policy does not work beyond some point:
http://www.tradingstocks.net/html/jaguar_inflation.html
Where does that leave us? It leaves us at the top of the greatest bubble ever! What ever you do, make sure you do not take on more debt! Pay off existing debt! If you have existing savings in cash or cash equivalents such as short term US treasuries you should be fine for a few years. At the bottom of depression you may have to jump out of US dollars if FED freaks out and really prints money!
All of the prices, and salaries you see around you were based on inflated credit that happened over 50 years. It is based on a money supply that is almost entirely bank credit. People borrowed and borrowed and spent. The amount of money borrowed reached sky high. You earned in good times! Now, it is reversing course!
Deflation is here! Understand the economic environment we are in:
http://www.tradingstocks.net/html/prepare_for_market_crash.html
Austerity measures are the harbinger of the tidal wave that will wipe us out. Deflationary crash is not over. 2008 was just the warm up. Japan had it for 20 years. Do not think we are immune.
Subscribe to:
Posts (Atom)