A Topsy Turvy World

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The following just cried out for an ECONOMIC response.

I've mentioned this before in posts, and it's just my opinion, but I think that inflation is here and active in the high end of almost all collectible markets. With the stock market at all time highs (due to cheap money floating around), and banks actually charging people to store their money (see article Friday in WSJ), there's no incentive to "save" money via traditional channels (interest bearing accounts, bonds, etc.). So, this money has to go somewhere. So, people with money appear to be purchasing hard assets (cars, art, real estate) which is then pushing prices higher every day. I've been buying cars now heavily for the past 5 years because I thought they were better investments than the stock market or bonds, etc. I've also bought some real estate. The mantra is to borrow as much as you can at low *fixed* rates these days, as the impending inflation is coming soon. There's all this talk about deflation, and the like, but the fact of the matter is that the money supply has been expanded significantly, and there's more money now chasing a fixed number of assets. That is why, in my opinion, we've seen such gains in the car market. It's a neat asset that is appreciating, and it's way more fun to own than stocks or bonds! Wayne

The Federal Reserve has been in an activist mode with regards to monetary policy since 2008. The effort has been to provide massive amounts of liquidity into the global economy in order to stave off MASSIVE DEFLATION and the attending economic recession or depression. However no matter what the FED does it has not been able to suppress the nose dive of a deflating economy. What they have done is prop up the system, stabilize it and have it grow at an anemic 2% year over year growth rate, which when considering the population growth of roughly 1.6% to 1.8% means that there is virtually NO GROWTH in the economy at all.

As an anecdote with regards to the state of the economy, while watching a Joesph E Banks commercial on the TV. A year ago they were offering buy one, get one free, several months ago they were offering buy one and get two for free, lately it has been buy one get three for free. This would suggest that demand for consumer goods is in ever downward spiral in spite of monetary policy. As far as inflation goes, energy and food prices seem to be in an inflationary spiral. However lately the price of oil has dropped into the $80 a barrel range as the global economy is slowing. This drop will put pressure on high cost of extraction suppliers in the US and abroad. Food is a bit more of a conundrum as being in an inflationary spiral, but a simple answer lies just beneath the surface of the matter and that is 48M Americans receive Food Stamps and as such the Federal government is subsidizing the food industry.

Then we come to the collectable markets, where Mr Wayne is largely correct. However if one were to look at the various collectable markets this phenomenon is nothing new. Since the end of WW2 Americans have become collectors and as such prices have risen steadily (one might say this has been due to Americans having disposable income). Since 2008 various segments of the collectible market have become hot, as Mr Wayne says partly being due to not having other more traditional avenues of making a positive return on the money.The other portion is that fear of holding on to an ever weakening currency is driving said prices of collectibles as a hedge. The Equity market has been guaranteed by the FED's monetary policies of QE and as such has not seen a real correction since and as such has become the flavor of choice among investors with some casting a jaundiced eye of wariness on Equities.

Where Mr Wayne is off the mark is when he includes Real Estate in the hot market zone. Here he does not fully realize the impact of the FED's purchasing of roughly 750B USD in Mortgage Backed securities from Freddy and Fannie. This purchase has allowed the holding unto substantial quantities of Shadow Inventory in an off the market and vacant status. This then like the Equities market has provided a floor of stabilization underneath said market. Thus shorting the on the market supply which has driven prices to above the replacement cost of construction. Which adverted a real meltdown of RE in the United States in early 2012. Further with a shortened supply of homes on the market, it has caused somewhat of a resurgence of new home construction which has created jobs. So again we come to a rigged market in a topsy turvy world.

[lane912]

the question is-
Can we have the mechanic fix the race car while we are in full tilt boogie around Indianapolis speedway, or do we relay need to come into the pits and have the motor torn down?

[wdfifteen]

Topsy turvy indeed. Next thing you know they'll be talking about cars on PARF.

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Originally Posted by wdfifteen

Topsy turvy indeed. Next thing you know they'll be talking about cars on PARF.

First of all this does not meet the parameters of political nor religious...and that is why I prefaced with economic...which is not under the purview of PARF...

Sorry!

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Originally Posted by lane912

the question is-
Can we have the mechanic fix the race car while we are in full tilt boogie around Indianapolis speedway, or do we relay need to come into the pits and have the motor torn down?

The thinking in 2008 and 2009 was myopic in that the thinking was that the crisis was just another crisis that could be dealt with and the economy would within a reasonable amount of time return to what had been before. Over time those notions have been met with a growing awareness with every disappointment that the economic landscape had irrevocably changed from what had been normal before.

The truth of the matter is that the block is cracked and we are on the back side of the track dumping oil at an alarming rate. It is just a matter of time before the motor throws a rod right through the block and the whole motor just seizes.

In other word there is no fixing it, there just is the way forward with a failure of the system in the future to be replaced with another paradigm. The only question is will we be able to coast into the pits or will the motor blow apart on the track spewing parts in every direction?