Ask iTulip: Why is the stock market so f*cked?

[FRED]

http://www.itulip.com/images/askitulip.jpgDear iTulip,

For weeks now the stock market's porpoised like Flipper on crack at a 1970s TV revival. Up 200+ then down 200+ and on and on. What gives? Why is the stock market so f*cked? Also, EJ was on CNBC early this year full of negativity on my fave asset class, alternative energy. Said "don't buy solar stocks, go to cash." Did I miss the ride listening to this guy?

Signed, Cramer Fan

Dear Cramer Fan,

First of all, Flipper was a dolphin not a porpoise and she died in 1972. That is, coincidentally, the year the US punted the international gold standard and the dollar began its slow demise. But to answer your question, the market is looking very April 2000 to us when the market crashed up and down for a few weeks before finally deciding to continue in the direction that we warned readers about in March that year. This time, we warned subscribers Dec. 27, 2007 that we'd enetered a debt deflation bear market ala US 1930s and Japan 1990s, year one. Invest at your own risk, rallies par for the course.

As for the advice on CNBC that had the show's producers scratching their heads – "cash" is not an asset class on the investor shows – here's a recent report from SolarFeeds (http://solarfeeds.com/index.php?option=com_content&view=article&id=2667:solar-stocks-looking-for-a-bottom-investor-ideas&catid=51:51&Itemid=56##), a site that tracks solar company stocks since the time of EJ's call:

<table border="0" cellpadding="0" cellspacing="0" width="492"><tbody><tr><td valign="bottom" width="111">Symbol
</td> <td valign="bottom" width="253">Company Name
</td> <td valign="bottom" width="128">Performance %
</td> </tr> <tr> <td valign="bottom" width="111">AKNS
</td> <td valign="bottom" width="253">Akeena Solar, Inc.
</td> <td valign="bottom" width="128">-44.5
</td> </tr> <tr> <td valign="bottom" width="111">ASTI
</td> <td valign="bottom" width="253">Ascent Solar Technologies, Inc.
</td> <td valign="bottom" width="128">-66.3
</td> </tr> <tr> <td valign="bottom" width="111">CSIQ
</td> <td valign="bottom" width="253">Canadian Solar Inc.
</td> <td valign="bottom" width="128">-3.2
</td> </tr> <tr> <td valign="bottom" width="111">CSUN
</td> <td valign="bottom" width="253">China Sunergy Company Ltd.
</td> <td valign="bottom" width="128">-55.4
</td> </tr> <tr> <td valign="bottom" width="111">DSTI
</td> <td valign="bottom" width="253">DayStar Technologies Inc.
</td> <td valign="bottom" width="128">-52.8
</td> </tr> <tr> <td valign="bottom" width="111">EMKR
</td> <td valign="bottom" width="253">EMCORE Corporation
</td> <td valign="bottom" width="128">-68.4
</td> </tr> <tr> <td valign="bottom" width="111">ENER
</td> <td valign="bottom" width="253">Energy Conversion Devices Inc
</td> <td valign="bottom" width="128">82.2
</td> </tr> <tr> <td valign="bottom" width="111">ESLR
</td> <td valign="bottom" width="253">Evergreen Solar, Inc.
</td> <td valign="bottom" width="128">-49.2
</td> </tr> <tr> <td valign="bottom" width="111">FSLR
</td> <td valign="bottom" width="253">First Solar, Inc.
</td> <td valign="bottom" width="128">-0.1
</td> </tr> <tr> <td valign="bottom" width="111">JASO
</td> <td valign="bottom" width="253">JA Solar Holdings Co., Ltd
</td> <td valign="bottom" width="128">-39.8
</td> </tr> <tr> <td valign="bottom" width="111">LDK
</td> <td valign="bottom" width="253">LDK Solar Company Ltd.
</td> <td valign="bottom" width="128">-30.4
</td> </tr> <tr> <td valign="bottom" width="111">SOLF
</td> <td valign="bottom" width="253">Solarfun Power Holdings Co.
</td> <td valign="bottom" width="128">-61.7
</td> </tr> <tr> <td valign="bottom" width="111">SPIR
</td> <td valign="bottom" width="253">Spire Corporation
</td> <td valign="bottom" width="128">-51.6
</td> </tr> <tr> <td valign="bottom" width="111">SPWR
</td> <td valign="bottom" width="253">Sunpower Corporation
</td> <td valign="bottom" width="128">-44.6
</td> </tr> <tr> <td valign="bottom" width="111">STP
</td> <td valign="bottom" width="253">Suntech Power Holdings
</td> <td valign="bottom" width="128">-60.3
</td> </tr> <tr> <td valign="bottom" width="111">TSL
</td> <td valign="bottom" width="253">Trina Solar Limited
</td> <td valign="bottom" width="128">-52.4
</td> </tr> <tr> <td valign="bottom" width="111">WFR
</td> <td valign="bottom" width="253">MEMC Electronic Materials, Inc.
</td> <td valign="bottom" width="128">-49.2
</td> </tr> <tr> <td valign="bottom" width="111">YGE
</td> <td valign="bottom" width="253">Yingli Green Energy Holding
</td> <td valign="bottom" width="128">-62.0
</td> </tr> <tr> <td valign="bottom" width="111">
</td> <td valign="bottom" width="253">
</td> <td valign="bottom" width="128"></td> </tr> <tr> <td valign="bottom" width="111">
</td> <td valign="bottom" width="253">Generally Followed Indexes
</td> <td valign="bottom" width="128"></td> </tr> <tr> <td valign="bottom" width="111">
</td> <td valign="bottom" width="253">
</td> <td valign="bottom" width="128"></td> </tr> <tr> <td valign="bottom" width="111">DJIA
</td> <td valign="bottom" width="253">Dow Jones
</td> <td valign="bottom" width="128">-16.1
</td> </tr> <tr> <td valign="bottom" width="111">SPX
</td> <td valign="bottom" width="253">S& P 500
</td> <td valign="bottom" width="128">-15.9
</td> </tr> <tr> <td valign="bottom" width="111">NASD
</td> <td valign="bottom" width="253">Nasdaq
</td> <td valign="bottom" width="128">-14.6
</td></tr></tbody></table>
You missed the ride, alright – down into the solar heated cash furnace from hell. At least burning your money that way doesn't produce any greedhouse (http://www.youtube.com/watch?v=N5cmKNjVv-g) gases.

iTulip Select (http://www.itulip.com/forums/showthread.php?t=1032): The Investment Thesis for the Next Cycle™
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[touchring]

Cramer: Yes the Stock Market Has Finally Bottomed (http://www.cnbc.com/id/25932873)

[Spartacus]

definition of cash:

the stuff you use to get more margin with

see also:
" a fool and his ..."
"unicorn"

This reminded me - there was great book by the author of the Fletch series - Gregory Mcdonald I think.

Somebody bent on mischief had stockpiled trillions of dollars worth of US currency that had been collected by banks - ripped/dirty bills destined for destruction.

This person then gave the bills, $100,000 at a pop, to everyone in select communities.

Some communities (farm towns with everyone leveraged to the hilt) emptied out as the entire indebted population sought to escape the debt and abscond with the cash.

Some communities "imploded" - I forget the exact characteristics McDonald suggested led to this result - all civic activity ended as people sought ways to secure the cash against possible theft

It wasn't the greatest work of fiction, but pretty good & I had forgotten about it completely (and its surprising insights into current events) until I read this article.


As for the advice on CNBC that had the show's producers scratching their heads – "cash" is not an asset class on the investor shows – here's a recent report from SolarFeeds (http://solarfeeds.com/index.php?option=com_content&view=article&id=2667:solar-stocks-looking-for-a-bottom-investor-ideas&catid=51:51&Itemid=56##), a site that tracks solar company stocks:

[metalman]

definition of cash:

the stuff you use to get more margin with

see also:
" a fool and his ..."
"unicorn"

This reminded me - there was great book by the author of the Fletch series - Gregory Mcdonald I think.

Somebody bent on mischief had stockpiled trillions of dollars worth of US currency that had been collected by banks - ripped/dirty bills destined for destruction.

This person then gave the bills, $100,000 at a pop, to everyone in select communities.

Some communities (farm towns with everyone leveraged to the hilt) emptied out as the entire indebted population sought to escape the debt and abscond with the cash.

Some communities "imploded" - I forget the exact characteristics McDonald suggested led to this result - all civic activity ended as people sought ways to secure the cash against possible theft

It wasn't the greatest work of fiction, but pretty good & I had forgotten about it completely (and its surprising insights into current events) until I read this article.

noticed ej hasn't been on cnbc since. said the 'c' word... 'cash' :D

[FRED]

Cramer: Yes the Stock Market Has Finally Bottomed (http://www.cnbc.com/id/25932873)

He's still at it. (http://www.itulip.com/awards.htm#Cramer)

[magicvent]

Can someone here please help me understand the following:

If we are in a debt deflation, why do we want to hold gold. Based on the comments I've read on itulip, gold will go down in deflation.
Reference to prior posts would be appreciated.
Thank you

[FRED]

Can someone here please help me understand the following:

If we are in a debt deflation, why do we want to hold gold. Based on the comments I've read on itulip, gold will go down in deflation.
Reference to prior posts would be appreciated.
Thank you

There are two ways to deflate debt: default and monetary inflation. Our theory since 2001 is that governments will always choose the second option because it results in less unemployment and, governments believe, is more manageable from a policy standpoint.

[tombat1913]

If we are in a debt deflation, why do we want to hold gold. Based on the comments I've read on itulip, gold will go down in deflation.
Debt deflation not monetary deflation. BIG difference.

[sunny129]

Debt deflation not monetary deflation. BIG difference.

So What's the effect on the purchasing power of US $? Which asset category benefits and how to profit from it?

[touchring]

He's still at it. (http://www.itulip.com/awards.htm#Cramer)



Ha, Abbey was calling market bottom as well.

[tombat1913]

So What's the effect on the purchasing power of US $? Which asset category benefits and how to profit from it?
Think about it this way.

Say you go out right now and get a fixed rate loan for $100,000 and buy 10 units "Hard Asset X".

Over the next ten years they keep the printing presses hot and create a metric-butt-ton on money, therefore the value (purchasing power) of the dollar goes down. After that ten years $100,000 dollars isn't worth near as much as it was before, it won't even buy 3 units of "Hard Asset X" now. Because you have a fixed rate you get to pay off 10 units of "Hard Asset X" for the amount that would now get you less than 3 units.

Thus the currency has been inflated, the debt has been deflated in the sense that it's cheaper to pay off than before. To answer your question the purchasing power of the dollar goes down.

I have even heard that in Germany after World War 2 when all of the inflation from building the war machine was through and the currency was nearly worthless many farmers could pay off the loan on their entire farm by selling a few eggs.

My example is an oversimplification of a much more complex picture that I don't even claim to understand, but I think the overall concept is the same.

[metalman]

Think about it this way.

Say you go out right now and get a fixed rate loan for $100,000 and buy 10 units "Hard Asset X".

Over the next ten years they keep the printing presses hot and create a metric-butt-ton on money, therefore the value (purchasing power) of the dollar goes down. After that ten years $100,000 dollars isn't worth near as much as it was before, it won't even buy 3 units of "Hard Asset X" now. Because you have a fixed rate you get to pay off 10 units of "Hard Asset X" for the amount that would now get you less than 3 units.

Thus the currency has been inflated, the debt has been deflated in the sense that it's cheaper to pay off than before. To answer your question the purchasing power of the dollar goes down.

I have even heard that in Germany after World War 2 when all of the inflation from building the war machine was through and the currency was nearly worthless many farmers could pay off the loan on their entire farm by selling a few eggs.

My example is an oversimplification of a much more complex picture that I don't even claim to understand, but I think the overall concept is the same.

earlier fred put up a close to home example in a chart today. the great usa inflation of the 1970s deflated a pile of debt.

[touchring]

I have even heard that in Germany after World War 2 when all of the inflation from building the war machine was through and the currency was nearly worthless many farmers could pay off the loan on their entire farm by selling a few eggs


so i can look forward to paying for my manhatten loft using a truck of eggs? :D

[rchdenton]

Okay with your analysis over 10 year inflationary period - after all that is what made real estate so very profitable.

Another way of looking at it in the short term is that cash has appreciated 16.1% this year against the assets represented by the DJI.

Cash can be a perfectly sound income producing asset class in its own right. Total return to date this year would seem to 18 to 20%.
(I'm very happy with that).

The reported inflation figures are relevant to the value of your income but are misleading when applied to income earning assets.

We are living through through asset deflation not inflation.

This is really important and I only realised it recently as I have always thought cash pretty poor as an investment (having grown up in the seventies). Any one else who can throw a bit more light on the subject?