I think it's time to reconsider my very first post on blogspot...

The debt problem is still present. Why has the economy been on the rise? is it just consumer faith pushing the market up? will we ever realize our debt?

I suggest reading the post again before considering your 2010 options...


http://anotheropinion-investing.blogspot.com/2009/09/b-get-ready-for-another-market-dip-how.html

Predictions for 2010, Mike Shedlock and Michael Hampton (STRONGLY RECOMMEND LISTENING TO THIS)

Interesting 40 minute interview with Mike Shedlock and Michael Hampton. 
Some highlights:
-The real depression is coming in 2010
-Gold will hold pretty strong but get ready for a dip
-Other commodities (other then gold) are going to see a huge dip
-The dollar has a large chance of strengthening
-We need depreciation to get out of this problem
-We might be seeing a "W,W,W,W,W" recovery


http://commoditywatch.podbean.com/2009/12/21/predictions-for-2010-number-3-mish-and-dr-bubb/






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A Way To Get Out Of This Mess.. (NO MORE DEBT!)

From the Journal of Economic Issues, "The Natural Rate of Interest is Zero"

This paper describes how the natural rate of interest is zero, how the government can let this natural rate happen, and how it can fix the massive debt problem we are in today.

While the paper makes great sense, I do not believe the economy is willing to pay the price of fixing our debt problem. The "fix" points to a long spread of depreciation, much like, if not the same as, Japan. But is depreciation necessarily a bad thing? If you look at the s&p 500, the market has continually been on the rise. Sure, we have had cycles of depreciation, but is it plausible to never depreciate on a greater scale?


Here's the link:
http://moslereconomics.com/wp-content/graphs/2009/07/natural-rate-is-zero.PDF

Future Debt Crisis? (BUY COMMODITIES)

The Wall Street Journal article, “The Coming Deficit Disaster” , points at the Obama Administration’s inability to reduce the U.S deficit and the Administration’s plan to not attack the deficit until next year. It explains that, 

“The federal government ran a 2009 deficit of $1.4 trillion—the highest since World War II—as spending reached nearly 25% of GDP and total revenues fell below 15% of GDP. Shortfalls like these have not been seen in more than 50 years... spending far outpaces revenues... Our national debt is projected to stand at $17.1 trillion 10 years from now, or over $50,000 per American. By 2019, according to the Congressional Budget Office's (CBO) analysis of the president's budget, the budget deficit will still be roughly $1 trillion, even though the economic situation will have improved and revenues will be above historical norms.” 

It then goes on to ask, 

“At what point, some financial analysts ask, do rating agencies downgrade the United States? When do lenders price additional risk to federal borrowing, leading to a damaging spike in interest rates? How quickly will international investors flee the dollar for a new reserve currency? And how will the resulting higher interest rates, diminished dollar, higher inflation, and economic distress manifest itself? Given the president's recent reception in China—friendly but fruitless—these answers may come sooner than any of us would like... In short, any combination of what is moving through Congress is economically dangerous and invites the rapid acceleration of a debt crisis.”

Now, wait a minute... A debt crisis in our future??? I thought we were in a debt crisis?

It is important to read this article with commodities in mind because they are negatively correlated to the dollar. As the Obama Administration lets the U.S deficit grow, the value of the dollar is falling. This is causing the dollar to grow increasingly risky, making it less attractive to both lenders and borrowers.  (I highlight In my post "A+B= Get Ready for Another Market Dip" one of the ways the government is not reducing debt but is merely replacing credit with stimulus.)

As the currency of the world, the dollar is held to high standards. Failing these standards could be catastrophic to the U.S economy and it seems we might be doing just that. When the market realizes this deficit problem, you can be sure that the value of the dollar will shrink to new lows and the value of commodities will skyrocket. 

Take a look at the following etf’s that track certain or all of the commodities: SPDR Gold Shares (GLD), U.S. Oil (USO), iShares Silver Trust (SLV), and PowerShares DB Commodity Index Fund (DBC). I am expecting to see new record highs in this area of the market for 2010. 


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A

Young Investor: Trust the Cycle

The S&P Index (max) According to Yahoo's Basic Chart:

SPY (max) According To Yahoo's Basic Chart:

The obvious cyclical trend of the S&P 500 and its tracking etfs, specifically "Standard and Poor's 500 Index Depository Receipts" (SPY: AMEX), clearly show that the market travels through high and low points while its value steadily increases. As you can see right now, it is still working its way out of a low. This means there is still value to be earned. From a “trust based” analysis, even if the market is headed for another huge drop, this etf is bound to produce earnings in 5-10 years. 

If you are a young investor like myself, you have nothing but time on your side. It would be wise to buy a few shares of SPY and forget about them, or if your an active investor and the market does drop again, BUY BUY BUY MORE! The etf’s value will rise higher then todays price eventually (be patient). The economy just saw huge losses and, as is with all stocks/etf’s, you want to buy low, sell high. Its a good investment for future, safe, monetary gains.

The world is not going to end in the coming years and neither will the market. Have faith in the index.

and..

...If, by chance, I am wrong: The world will end, the market will collapse, you will not need money and none of this will matter anyway,

and..

...you will not be able to say, "I told you so" either.

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A

**I still think the economy is headed for another downward turn. There is still too much debt present in the market and I am weary about the unemployment rate. BUT I am also a firm believer in trusting the cyclicality of the market and that is where the majority of this post stems from.

BWAHAHAHAHAHA -Michael Ruppert and the economy failing

A little over the top, but Michael Ruppert's predictions of America's economic future. It brings up very good points, such as peak oil and the economic pyramid scheme. I am interested to see the final product.

A + B = Get Ready For Another Market Dip, -How stimulus is replacing credit

If you are like myself, you might find your market forecast changing with every article you read or TV show you watch. We are constantly being bombarded by complex analyses that tend to be biased and, honestly, pretty confusing. Using syllogisms I am going to build a concrete equation that can, in very simple terms, explain today’s market and how it is replicating the cause of our initial recession in ’07. 

To be blunt, a full recovery (this year) is not possible. With the amount of debt the consumer is still holding onto, the economy can only be doing this well because of artificial factors. Some Debt Numbers: Seasonally adjusted consumer debt peaked at 2.519 trillion dollars in ’07. Currently consumer debt is 2.472 trillion-only dropping about 2%. The DSR (ratio of debt payments to personal income) at its peak in ’07 was 13.90, it is now 13.11-about a 6% drop. This leaves around 98% of the debt which got us into this mess still lingering in the economy; the consumer, as a whole, is not able to pay off about 94% of that debt. 

First, how we got into this situation:

In ’07 the economy witnessed a debt bubble pop. The bubble was created with the new ability consumers came to possess in the late 1900’s, called paying with credit. This massive credit explosion pushed the economy to new heights. In order to keep up with consumer purchases, new businesses were created, and established businesses grew exponentially. When consumers began to default on their credit in ’07, the economic climb hit a wall and began its decent. So what happened? 

Lets first establish our equation: 

A consumer makes purchases based on what he “needs” and what he “wants”. Both “needs” and “wants” are established by the spending power of the consumer. (A consumer cannot buy what his money does not qualify him to buy.) 

From this we get:

Purchases = (Needs + Wants)

where (Needs + Wants) = Spending Power

Which results in the equation:

Purchases = Spending Power

Purchases are also related to the size of the market. When consumers buy more (demand) the market will grow to meet that demand (supply). It is the basic supply and demand theory: consumers asked for more to buy (demand), businesses responded by expanding (supply). For example, if consumers asked for a million bushels of corn when only one farm existed, more farms would be made to meet the million bushel quota the consumers asked for. 

This shows us that:

Purchases = Demand

and

Businesses = Supply

...Purchases are the demand to the supply of businesses:

Demand = Supply 

Purchases = Business

This brings us to the economic concept that the amount of businesses in the economy are related to the amount of spending power the consumer has as a whole. 

Purchases = Business

Purchases = (Needs + Wants)

(Needs + Wants) = Business

Resulting in the main equation of this article:

Business = Spending Power 

How Credit Effected The Equation:

The ability to use credit allowed the consumer to use more spending power than it possessed, creating a “false spending power. This “false spending power” increased the “needs” and “wants” of the consumer, resulting in the creation of more, and larger, businesses:

(Credit) + (Spending Power) = False Spending Power

Using the same substitution as above:

False Spending Power = Inflated Purchases

Inflated Purchases = Inflated (Needs + Wants)

Inflated (Needs + Wants) = Business Inflated by Credit 

Our main equation with credit involved:

False Spending Power = Business Inflated by Credit

The Bubble Pop:

In the years leading up to the ’07 market crash the consumer’s use of credit was inflating their purchasing power, and this created a false demand (as shown above). In order for supply to meet this false demand more businesses were created and existing businesses grew larger. When the “false demand by credit” was exposed in ’07 the equation became uneven. 

To Clarify... 

The main equation during the bubble build up:

False Spending Power(Demand) = Businesses Inflated by Credit(Supply)

The main equation after the bubble popped in ‘07:

Spending Power(Demand) < Businesses Inflated by Credit(Supply)

The “Spending Power to Businesses” equation, like all supply and demand equations, began to equalize itself when the economy realized it did not have as much demand (spending power) as it thought. Since the average consumer cannot simply create their own money, the “spending power” side became fixed which put downward pressure on the “businesses inflated by credit” side of the equation. This is when companies started to see huge drops in earnings. Consumers were not able to buy what they used to and supply was too high, thus exposing the economy’s overabundance of businesses. Now, a business surplus that is being pressed down results in contractions and bankruptcies.

Why Does it Seem Like a Market Turnaround is in Sight?

-Because the government took credit’s place in the equation:

Before government intervention:

Spending Power < Businesses (Still too high, but slowly shrinking)

Which should bring the economy back to square one:

Spending Power = Businesses 

But...

Luckily(?) for the consumer, the government began creating money. As it is well known, the government cannot increase spending power. They can only fool the consumer into thinking they have increased spending power by giving them more dollars to hold (when more dollars are put into the economy, the value of the dollar decreases):

Dollar = Spending Power = Dollar x More Dollars

Essentially, the government feeds dollars into the economy, “Stimulus”, and the spending power side of the equation does not change:

(Dollar x Stimulus) / Stimulus = Spending Power

But the consumer thinks that:

Dollar + Stimulus = Spending Power + Stimulus = False Spending Power

This heightens consumer confidence, which causes them to purchase more. As we already established, businesses respond to demand by increasing production:

False Spending Power = Businesses Inflated by Stimulus 

Look familiar? 

In conclusion:

The problem we created can only be fixed when the economy reaches an un-artificial equality between spending power and businesses. As I have shown, the government is not treating the problem, it is just treating the symptoms. By only treating the symptoms, a falsely inflated market is-once again-being created. Thus, our economy is not much healthier then it was during the debt build up; expect to see a repeat of the ’07 recession in the near future. 

Get ready for a fun ride. 

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A

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Just a start

Let's see where this takes us.