Thursday, November 29, 2007

Depression 2006 no Travel Agent Needed

This blog “The Depression of 2006” gets a suggestion now and then to change the year until "I get it right." The year picked might not seem like much, but is important. It leaves room for perspective. Everyone can remember the 1929 depression from history class. The fact overlooked by the history books is that no one in 1929 thought they were even in a recession. Prosperity had reached a permanent plateau. The economic machine had been fine tuned and there would be no more economic dips. The word recession had not been invented. Technology had blossomed. New to this generation were, the telephone, the car, electric lights, the airplane and indoor plumbing. It wasn't until 1931 that everyone knew they were in a depression.

Here we are in 2007. Two weeks ago there was a 10% chance of a recession, now this week it’s more like 50%. Do you get the idea that a recession is only something you can see from the rear view mirror? The government will never make the call that a recession is in our midst. They have to deny it at all cost. Otherwise it could become a self feeding downward spiral.

Right now we have governors running around trying to save over leveraged home owners. This is really hard to figure out. The homeowner today can walk away from a home and probably not even have to consider bankruptcy. Get them to stay in that “home” an extra two years and enjoy the 200K drop in value. That’s an even worse mess. In six months we have progressed from “Canaries in coal mines” to “Horses and barn doors.” To top it off, the politicians are getting ready to pass laws to protect the homeowner from being looted ever again. There is nothing your politician can do to stop people from doing stupid things, that’s how they got elected in the first place!

We have a stock market that’s down 200, up 400, down 200. If you had a car that ran like that, your nose would be broken from hitting the windshield repeatedly. This is what you could label a bear market. Burn the Shorts until they fade away and then it is down we go forever (it will seem like that unless you're under 30 and have some time to burn until retirement).

Now we hear that a Florida State investment pool has suspended withdrawals. They had 27 billion two weeks ago and now have 18 billion, with 3 billion drawn out yesterday. This is where the cities, counties and school districts parked their spare cash before payday to earn a little more. The question comes up, will the teachers be paid this payday? We’re lucky that that didn’t happen in Kalifornia (methinks I should keep quiet). For the short bus crowd, this is a run on the bank. The SIV bailout or the homeowner refi, was going to be done with OPM (other people’s money). Now everyone wants to take the “my money” out of OPM.

So we have “The depression of 2006”, it’s just like 1929. Let’s see, add three years, and that would make 2009 as the year to watch. You will know then that you have arrived. The only damn problem is, no one wanted to take the trip. Talk about ingratitude, the depression of a life time, what an experience! No ticket needed, front row seats for everyone. And you thought you needed a travel agent!


Anonymous said...

Interesting viewpoint, but please check "your/you're":


Alice Cook said...

I think the name is just fine. You are absolutely right; no one knew back in 1929 that a great depression was on its way.


Jim in San Marcos said...

Hi Anon 9:18

Got it, thanks

Anonymous said...

This website should be required reading for America`s high school students. (OK, maybe the porn insinuations would have to be toned down a bit, hee hee)
But seriously, what I wouldn`t have gave to have had this kind of knowledge when I was younger.
It`s one thing to tell somebody that hard times are coming, but to bring it out in this kind of detail inspires action, such as getting yourself out of debt, and staying that way.
This is an incredible website, worthy of subsription fees IMO.

Anonymous said...

B. Franklin said "haste makes waste" and he is correct...I left the c out of subscription.
My apologies.

Anonymous said...

well actually it would be 2008...1931 is two years from have an excellent view of the future, unfortunately.

Jim in San Marcos said...

Hi Anon 6:27

Thank you for the compliment.

As for spelling, I'm the worlds worst. Here is a free program that checks your spelling on INTERNET sites like this. You highlite the text and right click and this IeSpell checks out your post. It's a pretty slick little error catcher.

Jim in San Marcos said...

Hi Anon 7:41

Dates get somewhat fuzzy going back to 1929. Most of what is written about the time figured that by 1931 we were well into the depression, which probably began in 1928. So we are looking at 3 to 4 years. The year 2008 has a full 12 months ahead of it, so it could prove interesting.

You are right, the error is mine

Thanks for pointing it out.

Anonymous said...

My grandfather always said they were broke in the 20's they just didn't know it yet.

I am always saying this is a very exciting time to live. You only get to see times like these once in a lifetime. Should be a wild ride all the way down..

Jim in San Marcos said...

Hi 1/29/2009

Nice pun!

Anonymous said...

Talking about the stock market “that’s down 200, up 400, down 200”
I’ve been wondering lately, watching the market fluctuate the way it has, if we’re in a pre-crashing up phase right now. Looking at a Dow Jones Industrial Average chart from 1920-1940, there’s a period from about February 1929 to somewhere around June 1929 where it fluctuates from 300 to 325 or something pretty close to that. Right after the fluctuation, the Dow skyrocketed towards the 381 mark, to me, this was the DOW crashing up (before it bounced down to the bottom in 1932). Now this model is not a close parallel to the troubles in our economy, but could it be a piece of insight at the indecisive fluctuating we have every other week the media refers to as a “volatile week”. Is this fluctuation a prelude to the apex?
It’s bizarre out there. Any bad news about anything just bounces off the stock market like it has some sort of force field around it. Here’s a quote I like…

“Stocks rallied again Friday(11-30-07) after the chairman of the Federal Reserved warned bluntly that the economy is sinking fast. The market focused on one part of Bernanke's message -- that the central bank would likely cut interest rates again in a few weeks.”

So Christmas (rate cut) might come early, huh? Seriously, this makes absolutely no sense. With news like that, and the stock market “rallying”, this house of cards could reach unfathomable heights.

And you mentioned “It wasn't until 1931 that everyone knew they were in a depression.
“, I think it was 1932 when Texas finally realized there really was a depression. I hear they’re still selling houses in Texas right now as if there was nothing wrong.

“Right now we have governors running around trying to save over leveraged home owners” Aren’t they just buying time? Or are they going to make the house payments, too???

“Florida State investment pool has suspended withdrawals” That’s interesting stuff!
Fund Run… sounds catchy (and contagious), like a marathon race??? Would you get a free T-shirt, too?

Jim in San Marcos said...

Hi Cranky

Sure looks like things are getting worse at a faster rate. The Wall Street Journal says that Recession has a 60% chance. So by Friday it should be close to 100%.

The carnival atmosphere is getting more apparent.

These SIV's are dead horses, and I don't see anybody that wants to buy one. You just about need a hand gun in order to sell one.

I guess after they take the shirt off of your back, that's what might be left, a T-shirt.

gaius marius said...

i think, for what it's worth, that your date might actually be late, not early -- but that the declines in wealth, purchasing power and asset classes are disguised somewhat by the devaluation of the dollar.

for example -- demoninated in dollars, the s&p is trading very near the all-time-high levels first established in 2000.

but denominated in barrels of oil, or ounces of gold, or bushels of wheat, or even euros -- one gets a very different picture of how asset classes have fared since 2000. in terms of ounces of gold, the s&p is down 60% -- but even in terms of euros, the seven year total return is very significantly negative.

many of us have broadly confused increasing indebtedness and a depreciating currency for wealth creation. the verity of that statement will probably only become widely evident in a prolonged credit liquidation event.

Anonymous said...

The main difference this time is that the money will be no good once the government starts trying to print there way out of this. In this regard I think that one has to hedge cash against assets to have anything of value left after the final devaluation. (i.e. have cash in government bonds, and borrow cash to buy real assets, bonds can be cashed in to buy the necessities as prices increase, and the real assets will gain in value as inflation increases.) Strange solution, but it seems to make sense for an inflationary environment.