Double dip is coming
November 02, 2009
– Comments (9) |
RELATED TICKERS: SPY
, GLD
, CIT
OK. I lost $120 USD + $7.99 commission on my 100 shares of CIT if it goes to 0. That was nothing to my real portfolio. That is not my point. I was just testing my guessing that US government won't be so dumb to let this one fall. Indeed, it does.
US government is stimulate the wrong things
Big items like houses and cars that debt-laden US consumers cannot afford. The federal government want us to buy more. If you have old car, you should trade for a new one even though you may lose your job in a year? If you have a small house or are currently renting, you should go all in for your savings or getting more debts when the economy is bad? We simply depleted potential buyers of cars and houses for the next few years with all these stimulus money. What is coming next? Once the government stimuli stop, the music stops. Instead of stimulating hundred of millions transactions of small items, we setup more big holes for hundred of thousands clueless people to fall into.
State governments are doing the opposite of our federal one
US Fed are extending credits and printing money for large banks to lend. US Treasury is borrowing from Fed to spend and "invest". Massive printing is punishing USD toward record low versus bucket of currencies.
State governments aren't lucky as our federal one. They don't own any printing machine. They have to cut costs, laying off excessive workforces, and raise taxes.
Don't count on China to help US
A sound economy needs not only steady and sustainable productivity but healthy distributions of wealth.Yes, top 1% super rich Chinese can come and buy US mansions with cash. However, average Chinese in China won't consider buying US branded toilet papers to whip their a**es. Until massive depreciation of USD (or appreciation of Chinese Yuan), the flow is still clogged from US to China.
The second leg of recession is going to last long
Any more stimulus won't work as effective (or counter-effective must I say?) as the first one. Just like drug, unless using heavier doses, it won't work.
So I think we are going to have falling USD to cushion the sharp falling to make it a smooth and long downward correction until the middle class in US save enough and produce enough valuable goods that others want. More of the same GM or Ford cars won't help. US also need to protect its investment and intellectual properties.
The US government has made too much mistakes during the good time. It ain't doing much right things during the bad one. The fundamental problems of this crisis have not been solved --- debts. Companies like CIT, even after 101 years of operations, has loaded debts more than it can handle to weather a economy downturn. Most cyclical firms are doing better in this regards but many of them still got hit hard. To get a different result, we have to do things differently. No one in Wall Street (GS and JPM likes) today are doing any thing different. They still give massive bonus to traders in their companies instead of beefing up their book.
If we continue to trash USD to the point that not many countries want to trade with us for our Fiat money, we haven't seen the worst yet ...
Let us pray for the best and be prepared for the worst.
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