Two Articles on the Economy and Possible Future

[MRM]

With the market being down enough to make us all feel the pain, it's natural to wonder whether this is just the beginning of the business cycle turning down, the end of another bubble, or the start of world realignment. Your investment strategy and plans for the future depend on which alternative you think we are encountering.

Until recently I had been of the opinion that this was just he beginning of the business cycle and that we were going to see hard times for the next year or two because world demand for everything is soft and getting softer, and that it's going to be harder times than most people expect, but it's simply the business cycle and not another world-wide panic brought about by a bursting global bubble. And that's what we've seen so far. The markets are down in anticipation of poor corporate earnings and they have a ways to go as companies cut back, earnings decline further, unemployment rises and it takes a while for the business cycle to turn upward again.

More recently I read two articles that have me rethinking my analysis. The first is by David Stockman, briefly of Reagan Administration fame, who is shouting that the Chinese economy is a Ponzi scheme that is going to collapse some time in the near future. I've read enough other articles suggesting the same thing that I stopped to check this one out. I think he's right. But if he is, the collapse of China is not yet factored into the market. The lesson of The Big Short is that bubbles can defy gravity for longer than seems possible. I think China is defying gravity and we should all reevaluate our investments accordingly.

The Great China Ponzi—-An Economic And Financial Trainwreck Which Will Rattle The World | David Stockman's Contra Corner

Frankly, I'm not sure what investment is secure from a Chinese implosion. Gold will probably go down with reduced demand and increased supply as Chinese dump their gold holdings. Maybe Dollars under the mattress is a good investment.

The second article is by Thomas Friedman who isn't really an economist like Stockman, but he's a professional analysts and reporter, and he has good insights. He's not predicting the end of the world as we know it, but he's pointing out some long term trends that could come to pass.

http://www.nytimes.com/2016/01/20/opinion/what-if.html?_r=0

The point is that as you make your investment decisions, you should be open to the possibility that China is a Ponzi scheme about to go bust and that America's special place in the world, indeed the world's post-WWII trajectory toward greater prosperity, is an era about to end. At the very least these are risks to factor into your plans.

[Jandrews]

I agree with both you, and Stockman. The problem is timing it. I was convinced in 2009 that the bounce off the bottom back to around S&P 1,200 was going to be the new normal. I moved to cash and sat on it for, well....too long. We all saw what happened next. The bubble not only defied gravity, but it drifted into the stratosphere as the S&P went from 680 to 1,200 to 2,100.

The funny (not in a good way) thing is, I still think I (we) are right. And I joke with my friends that I will EVENTUALLY be right, LOL. But by that time, how much will you have lost by sitting on the sidelines waiting for "it" to happen? My friends say that they find it interesting that I am not willing to "gamble" in the biggest casino game in the world (the stock market), and that by somehow sitting on the sidelines feel as if I am NOT gambling, LOL! Very insightful when you really stop and think about these strategies.

JA

[wdfifteen]

Those two articles were concerning for someone who is on the precipice of retirement. About half of my assets are bet on those Ponzi schemes.
I always thought the Chinese manufacturing industry was a kind of "smash and grab" operation, where they took as much as they could and ran before anyone could catch them. Given the number of horror stories I've heard I'm surprised it lasted this long. I have always believed anyone who bet his company on doing business with China was a fool.
As for Stockman's complaint that government control of the economy over the past 40 years is a bad thing and bound to collapse - I don't care as long as it lasts a few more years.

[tabs]

I have been telling you adnauseam since the Fall of 2008 that there is a whole new economic paradigm at work. So with your posting of this Thread it shows that you have not been taking my analysis seriously and thus not listening. Which makes you one stupid fk.

Now the question becomes why haven't you been listening?

[Porsche-O-Phile]

^^^^^^^^^^^^^^^^^^^^^^^^
Armageddon cheerleader.

Actually that might be a good name for my new band...

[speeder]

There have been kooks like Tabs predicting the end since cavemen were riding dinosaurs. I'm sure that you could find a screed from 1954 that sounds like it was written by him. Like a broken clock, however, he is temporarily right every ten years or so when the economy adjusts itself.

There are perfectly logical reasons why everything is a Ponzi scheme and all money should be worthless for decades, yet I keep filling my tank and my stomach with it, not to mention going skiing in the Sierra mountains for the second time in 3 weeks tonight. There will be lots of other people on the chairlifts who aren't listening to Tabs.

This isn't to say that major re-alignments are not coming or that the articles above are wrong. I personally think that an economic slowdown would be a great thing in several ways, mostly having to do with the environment. The classic model of endless growth is extremely destructive and unsustainable. There needs to be growth only in specific areas. But that's a whole 'nother thread.

[Evans, Marv]

I have long thought the Chinese economy was vulnerable. I'm very far from being any kind of expert on these things, but have to rely on common sense & a gut feeling along with what I can learn. Maybe not exactly reliable and no sense of timing to go with it. Any economy going through such an expansion inherently puts itself in a situation for instability. From my viewpoint, you can only herd your workforce around for so long before that strategy weakens because of internal inefficiency and changing conditions from the outside impinging on it to promote instability. The other thing alarming to me is the construction of infrastructure and real estate mega projects standing empty after completion and generating no ROI along with their attempts at expansion on so many fronts. Those things along with internal lack of built in flexibility enabling economic activity to go with the flow, point to major problems some where along the line. Like I say I'm far from knowledgeable, so maybe my perspective is just BS or naivety. But I've been out of the market & into cash since the last US market high. If I can see a real low to get back in, OK. If things are not that bad, and I get back in at the same level, I haven't lost anything. China's economic decline will be temporary, maybe making them learn some things and will ripple through the world economy. Our markets will react even though interaction with China isn't a huge part.

[recycled sixtie]

Do you honestly believe that the govt. is going to let the economy get flushed down toilet? They are going to do whatever it takes to keep the corporations from going broke. Keeping the corporations going keeps folks employed so it is in the govt. interest.

Okay so I am an eternal optimist(the opposite of Tabs). If you buy ETF's(exchange traded funds) they say that mutual funds are outperformed by the ETF's most of the time. However I am happy to pay the 2% management fee(we pay higher fees here) so the prof. stock picker can asset allocate as he sees fit. The ETF is invested all the time. Timing the market is near impossible. $ cost averaging is probably the way to go to ride out the ups and downs.

[tabs]

For as long as there was enough global demand for Chinese product to match their production capability China was not a PONZI scheme. It was a growth story. The reason why China has not become a consumer driven society is that they do not have social safety nets as an incentive for poor decision making.

Once global demand fell and China needed to keep expanding their output so that the country would not experience the social/political pressure of civil unrest then one could make the claim of China becoming a PONZI scheme. What China did in 09 was take 500B USD out of their cash reserves and make shovel ready jobs building Ghost Cities in order to keep the wheels turning.

As I have said adnauseam the CONVENTIONAL WISDOM thought that the 08 crash was just another business cycle where the usual remedies of stimulus and provision of liquidity would soon create a return to normal economic activity. As time went on and every trick in the book was applied and found wanting as it didn't do the trick of restoring economic health the HOPE of a strong economy has started to fade. So MRM really isn't so unusual as he is is just one of the sheep in the flock.

In 2011 I told you 1.5 to 2.5 percent growth was going to be it and in early 2012 I told you that growth rate was only matching the rate of population growth. I also told you that the US economic demographic would revert to the mean of 1910. which means a large working poor class, a smallish MC and a very small Robber Baron class. of ultra wealthy. I have kept telling you since 2010 Equities was the only place to be and in September 2012 I told you SP 500 2250 without worry. We did get to SP 500 2137. Also I have said that once the FED stopped juicing the system it would falter...You can go into the archives of this Board and look up everything I have said here.

I have been telling you since 09 the moment GW went on TV there was a paradigm shift as GW spooked the herd. It was a before and an after moment as he told the world all was not well in Mudville (i watched it as it happened)..that was the bursting of the Great US Post World War 2 Prosperity Bubble. What the US government did in response is create a Sovereign Debt Bubble which was fueled by the creation of some 3.5T new USD's. All the while the US economy can not get off the ground because the US consumer is TAPPED OUT and the debt is acting as a ball and chain on the economy.. So the new question becomes when and NOT if this new Sovereign Debt Bubble goes kablewie..what makes it a WMD is the fact that the USD is the Reserve Currency and is universally held. When it goes you will have the economic effect of a nuclear war without the bombs. Meanwhile you can just see and feel the attendant stress that is being put upon the social and political fabric of the world.

Now do you want to start talking about the geopolitical situation and how it relates to the economic stresses being applied?

This is childs play people..

[tabs]

Originally Posted by recycled sixtie

Do you honestly believe that the govt. is going to let the economy get flushed down toilet? They are going to do whatever it takes to keep the corporations from going broke. Keeping the corporations going keeps folks employed so it is in the govt. interest.

Okay so I am an eternal optimist(the opposite of Tabs). If you buy ETF's(exchange traded funds) they say that mutual funds are outperformed by the ETF's most of the time. However I am happy to pay the 2% management fee(we pay higher fees here) so the prof. stock picker can asset allocate as he sees fit. The ETF is invested all the time. Timing the market is near impossible. $ cost averaging is probably the way to go to ride out the ups and downs.

That is why the debt has gone from 10.5T to 19T USD and the FED hs created roughly 3.5T NEW USD's...all to keep the economy going...and yet when they stop the juicing the economy starts to falter and slow down.

This week the CBO said this years deficit is going to go up to 570B USD.. and next year it will even be higher....who is going to be buying all that NEW DEBT?

The Chinese with an imploding economy? LOL

[tabs]

Here is the deal...the era of ECONOMIES OF SCALE is finished. economically since the 70's it was built on DEBT as the US consumer ran out of cash and MC wages stagnated and started to fall. You might say the US economy became a PONZI scheme. Then environmentally it is unsustainable as the world is stripping out finite resources to sustain the rush to consumerism.

[tabs]

Originally Posted by Porsche-O-Phile

^^^^^^^^^^^^^^^^^^^^^^^^
Armageddon cheerleader.

Actually that might be a good name for my new band...

From the perspective of being today's consumer in a consumer driven economy you can view it as being Armageddon. As your lifestyle is going to change rather drastically over time. However from tomorrows perspective it will be normal and you will get along. So it is not the end of the world, just the end of what you consider to be todays normal.

[island911]

Originally Posted by tabs

I have been telling you adnauseam since the Fall of 2008 that there is a whole new economic paradigm at work. So with your posting of this Thread it shows that you have not been taking my analysis seriously and thus not listening. Which makes you one stupid fk.

Now the question becomes why haven't you been listening?

Imma gunna guess that it's 'cuz ya call people stupid fks if they don't acknowledge your input.

Also, your input can often be rather cryptic and/or vague and/or hyperbolic.

Or perhaps, MRM just wanted an exec summary of your past input, but didn't want to bow to get it.

[shrug]

[island911]

Originally Posted by speeder

...
This isn't to say that major re-alignments are not coming or that the articles above are wrong. I personally think that an economic slowdown would be a great thing in several ways, mostly having to do with the environment. The classic model of endless growth is extremely destructive and unsustainable. There needs to be growth only in specific areas. But that's a whole 'nother thread.

Yes, if only we could return to the bad old days of farming and food distribution that would support 1/4 of todays population.

[dlockhart]

A book I would highly recommend.

[Tervuren]

The best investment you can have, is something that provides for people regardless of economic state.

[on2wheels52]

So, what shall we all do with the $XXXXXX in our IRA/401K/retirement fund that we have so diligently saved in the S&P 500 now that it isn't the place for those funds? And of course we already have a stash of gold, guns, and food. Whither go our (soon to be) worthless dollars?
Jim

[SoCal911T]

Ten bucks says this goes to PARF and another ten bucks says the Mods will let drag out way too long before moving it to PARF.

[Porsche-O-Phile]

I'm guessing buying property in a different part of the world would be a good investment as might ownership stake in a bar or liquor store - people love to drink when they're depressed.

[Geneman]

will the track fees from chin motorsports go up for cota this year? or is that also a ponzi? inquiring track rats want to know...