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thunderdownunder
05-22-09, 06:44 PM
I admit I know little of Economics and this may have been posted previously.
Its long, but as I read it, I became acutely aware that is was well thought out as a top to bottom overview.
It may support your strong views that a Bull market is all but unavoidable as new money finds its way through the system and seeks 'best returns'.
You must be aware that many appreciate your questioning 'fate accompli' - truly never boring even if sometimes it looks like a prize fight :D

http://www.debtdeflation.com/blogs/wp-content/uploads/2009/02/KeenDebtwatchNo31February2009_files/image014.gif

metalman
05-22-09, 06:56 PM
I admit I know little of Economics and this may have been posted previously.
Its long, but as I read it, I became acutely aware that is was well thought out as a top to bottom overview.
It may support your strong views that a Bull market is all but unavoidable as new money finds its way through the system and seeks 'best returns'.
You must be aware that many appreciate your questioning 'fate accompli' - truly never boring even if sometimes it looks like a prize fight :D

http://www.debtdeflation.com/blogs/wp-content/uploads/2009/02/KeenDebtwatchNo31February2009_files/image014.gif

ej's interviewed keen several times... keen says deflation not inflation. has he changed his mind?

similar arguments here...

Deflation fare thee well, we hardly knew ye – Part I: In search of real returns in an unreal world (http://www.itulip.com/forums/showthread.php?p=97954#post97954)

question... if stocks rise 88% while gold rises 160% while inflation rises 100%... per ej's if/then formula... which is the bull market, stocks or gold?

thunderdownunder
05-22-09, 10:33 PM
Exactly - All are seen as BULL's,graphed as Bull's spruked as bull's
Housing was an illiquid Bull that has reverted to a more illiquid state suffering the falling knife effect.
Gold is a small liquid market that can be controlled by the State by fixing prices or worse still banning trade.
Stocks are pinnacle liquid markets that are the major cornerstone of capital eclipsing all (All Banks would cease to function outside them)
Money flows to 'Best returns' not most returns as risk/reward determines.
Stockmarkets are the largest liquid game in town and thats where the money is headed once the punter walks through the threshold of fear to play.
Granted, inflation is the silent assassin of savings and it is coming but not as soon as you think.
There can never be inflation in a (economic) graveyard. Fear of ending up there rules at the moment.
Deflation, if it continues will "Nuke' capital(alism) as all debt is tied to asset classes. The debt and debt repayment remains while the asset diminishes in value until it becomes 'Toxic' to holder of the debt, turning into a 'Toxic liability'. As these liabilities increase they reach such mass they overwhelm Money supply and the ability to fund debt repayment (even though the liability is worth something). A chain reaction is started (has started). Note what Keen said about the actual size of the total debt ratio and what little effect these stimulus funds would do to it. Gearing works in both directions and this avalanche will eventually stop. I give a simple example with Housing.
A house is made up of three things Land, labor and materials. If a FIRE burns the house down, only the land remains. Land has some 'fluctuating' value but it still remains and can be economically used for 'best return'. End of avalanche.
Time it seems will expose the outcome. Fear will abate and greed will resume so will capital stockmarkets, so I'm with Lukester.
I just wish I could write with his understanding and force. I'm trying but ability and knowledge is sadly evident for such a complex algorithm of intertwined parts.

metalman
05-22-09, 10:41 PM
I just wish I could write with his understanding and force. I'm trying but ability and knowledge is sadly evident for such a complex algorithm of intertwined parts.

start here...

Saving, Asset-Price Inflation, and Debt-Induced Deflation (http://www.itulip.com/forums/showthread.php?p=6738#post6738)

Contemptuous
05-26-09, 07:14 PM
Thunder -

Sorry I don't check all the pages here regularly and missed your comment from the other day completely. I think that an astute post with some thought-provoking points. Stuff I think about very similarly.

I agree with you that the debt deflation has not yet been played out to completion. This is not any "choreographed" transition to inflation. The "transition" likely continues exceedingly messily, with the pools of asset deflation bubbling up all over the landscape, and other big pools of inflation beginning to well up elsewhere. They are scattered about, and they emit contradictory signals.

I agree with you, about the primary "sparking function" which the stock markets have traditionally fulfilled, and there is plenty of dry tinder.

Meanwhile we have these large pools of frightened and idled capital overlapping these large equity markets. And what these equity markets demonstrably do historically, is regularly carry out violent episodes of "spontaneous combustion".

Functioning productive companies, with cash flow and rational PE's are the fertile under-layer, and provide any market move it's staying power, but their impairment or even outright absence does not prevent the spontaneous combustion of the market on occasions.

Thunder's just pointing out the stock market is a powerful DEFIBRILLATOR for the capital markets. For the US, with the world's biggest capital markets, even if the markets are in sickly condition, this is still an invaluable TOOL to apply a strong jolt to the body. You cannot point to the past 30 years and claim that every sustained large rally was raised up on the back of sound fundamentals.

Some very large multi-year rallies have been raised on fundamentals not significantly better than these.

It is unreasonable then, to suppose that this tool will A) remain "unused" and B) will fail in the function it's carried out very predictably so many times before. When things get really ugly, the DEFIBRILLATOR is looked at with ever more seriousness by a lot of different players beyond just the Federal plunge protection team. And once it is fired up, the feedback mechanisms back into the economy sustaining it are multiple, and complex.

It's not just a case of lighting the firecracker and then having it soar until it runs out of fuel. At a certain point the entire predicament (massive inflation of the currency unit) intrudes and overrides everything else. All it required was the initial combustion, and the thing is off and running.

The image of a propped up mannikin of a stock market whose only signs of animation are due to an intravenous feed with money piped in by the Federal government is one dimensional, or portrays the stock market as less than it is.

Fact is, the stock market and the need to overcome debt deflation are a match made in heaven, not just the US, but to jump start half the world. These two things were born for each other in a situation like this. The Stock market's primary characteristic is "combustibility", while the world is looking increasingly seriously for some combustion.

Thunderdown's point is straightforward:

"The money can and does flow to 'best returns' not best risk-adjusted returns".

And:

"Stockmarkets are the largest liquid game in town and thats where the money is headed once the punter walks through the threshold of fear to play".

These comments point to the explosive vapors lingering around the equity markets. It may be a filthy scam, completely unpalatable to smart, well informed iTulipers. But that does not in any way change the fact, that it remains a powerful TOOL for governments to jump-start their economies, that there are *plenty of other participants* who will respond to it, and that ultimately it is highly unlikely that this will be overlooked.

What is the point of all of this? Just because you have many good reasons to be out of the market, does not mean that you should bend the reality around you to conform to your posture, to such an extent that you too confidently discount the potential for the market to really detonate at some point going forward.

Thunderdown is just pointing out something quite simple, that has a high likelihood of sparking, given the metastasizing money. Stock markets in the next 24 months are primed for combustion. Very simple point. And it is very easy to underestimate the size of the detonation if it occurs. I agree with that idea. And Gawd help us, but some of these 'second rate" analysts like Laszlo Birinyi and Barton Biggs, may turn out to be correct! :eek:

Methinks the slightly patrician and skeptical iTulipers are going to be in for a shock at some point, in the next 24 months. Quite an outsize shock as they were chalking up this event to only start kicking off in about 4 years.

Sorry to have missed your comment earlier Thunderdown!

Contemptuous
05-26-09, 07:19 PM
Metalman - Yes, iTulip's coverage of this point is required reading, but why come across with that implying that someone here had better read it before having any ideas on the subject of their own? Evidently I'm in a minority of opinion here, but my sense is that the points Thunderdown's made are in fact already quite astute on this question. More astute than some others here in fact.


start here...

Saving, Asset-Price Inflation, and Debt-Induced Deflation (http://www.itulip.com/forums/showthread.php?p=6738#post6738)

cjppjc
05-26-09, 07:21 PM
How much did he pay you to start this thread?:) :D

Contemptuous
05-26-09, 07:24 PM
Silly boy.
How much did he pay you to start this thread?:) :D

cjppjc
05-26-09, 07:30 PM
Silly boy.


I know. I just couldn't resist.:cool:

shadrack
05-26-09, 09:37 PM
ej's interviewed keen several times... keen says deflation not inflation. has he changed his mind?

I've also wondered about Keen's response to the inflation-like turn in the economy, since he said we would have hyper-deflation until governments create money like Zimbabwe.

I searched and saw this:

I conducted two interviews for the forthcoming June edition of ETFR (http://www.indexuniverse.com/publications/etfr.html), which will be out online in the next few days, one with an economist expecting inflation (Peter Warburton), the other with one expecting deflation (Steve Keen).http://www.indexuniverse.com/blog/5884-wheres-the-inflation.html

It appears Keen is still looking for deflation. The article is out I think, but I don't have access and they don't really have a "free registration" as they say they do.

Contemptuous
05-28-09, 04:00 AM
Keen's thesis is going to get a big shot in the arm in the next few weeks, I imagine.

shadrack
05-28-09, 11:10 AM
Keen's thesis is going to get a big shot in the arm in the next few weeks, I imagine.

I've considered putting money into energy and alt-energy partly as an inflation hedge but your remark sums up my reluctance to do so. The apparent likelihood of another substantial tumble down keeps me twiddling my thumbs.

BTW, I really like the cookbook you recommended on the paleo diet thread, I'm going to enjoy it this summer.