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alstry (35.13)

A Clarification of Alstrynomics

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September 13, 2009 – Comments (31)

It is funny, some people think Alstry is a perma bear.....nothing could be further from reality.

What Alstry is analyzing is the creative destruction of a system....a system that will be changed forever....it is not about being a bull or bear.....simply being aware and understanding a change.

For the past 60 years, America has been an ever growing consumer economy.  It originally started out as a production based low leverage economy and recently morphed into a primarily high leverage credit driven MASSIVE consumer based economy.

Most of our jobs and incomes are dependent on massive consumer consumption, so is the tax receipts our government depends on....without massive domestic consumption, most of us would be unemployed or making simply a fraction of what we are currently earning.  In that past ten years, much of our consumption was driven by a UNPRECEDENTED amout of borrowing.....without borrowing, much of our consumption would have never been possible. 

Now the banks are cutting off credit, raising interest rates and forcing many to save.  As we switch from a consumption economy to a savings economy.....many will not be able to adjust to much lower incomes and revenues.  Many have fixed expenses such as rent, mortgages, insurance, property taxes etc.....and many will not be able to adjust to a 30-70% reduction in income.

As a result, most American Families and Businesses will go bankrupt as we change from a consumption based economy to a savings and hopefully over time a production economy.   This problem will only be exacerbated by the massive amount of accumulated debt over the past eight years incurred at peak consumption prices.

In addition, tax receipts will evaporate due to much higher savings and less spending causing extreme stress on our federal, state, and local governments.

Again, it is not the end of the world....simply the end of an economy as you know it.  Clearly many of you are not prepared.  Niether are many of our pension fund managers, or bankers, or government officials or economists. 

This is nothing like what happened to Japan....Japan was always an export economy and its population had relatively low leverage....so when it went through its lost decade, it was really not a structural change, simply a slowing of a system.

For America, it is the radical change of a domestic consumption system based on leverage to a lower consumpton savings economy.  Most of our jobs, incomes, and expenses are based on the old system.  Changing into the new savings system will be very convulsive as revenues, incomes, and asset values evaporate.  Few will be able to make the adjustment without going bankrupt as fixed expenses are not very flexible.

The entity least prepared is government.....government consumes $6.5 trillion dollars per year and is responsible for paying the incomes of over 150,000,000 million Americans.  Such massive consumption is not feasible in a savings economy absent some massive miracle productive ramp up.  Not likely.

As a result, since few are prepared for the change, the process will be very convulsive and distressing for many.  The main problem, as Alstry sees it, is the unreasonable expectations government and bankers are setting for citizens.  Unreasonable expectations often lead to disappointment.  Disappointment among the masses can lead to unrest.  Massive dissapointment can lead to massive unrest...especially as we only bail out the chosen few Wall Street bankers.

This whole process of changing our economy from a massive domestic consumption based system dependent on leverage to a deleveraged savings economy was orchestrated by Benny B and his banker buddies.  They knew exactly what would happen when you cut off credit to a massively leveraged credit dependent economy...comparable to an addict withdrawing cold turkey.  Now we are living with the consequences as we are just in the early stages of this process as only a small amout of the total debt has been paid down.

Going forward, things will get much more convulsive as we proceed with the change.  At this point, government doesn't seem too concerned as the social distress is clearly rising over recent weeks.  My guess is the trend for anger and unrest will continue.... and government and bankers know this......unless something happens in 9.09 to distract the masses.

The last time we were a deleveraged savings society was in the sixties....go back and see what prices and incomes were back then.......and you will have a pretty good idea where we are headed.

Change is change and in the end it will likely be good for our country.  The process will only be good for citizens if they are prepared.  Are you prepared?....not for the end of the world....but the massive economic change.

When many are not prepared.....what do you think is going to happen as huge numbers of pensions, hospitals, school systems, cities, counties, states, families and businesses go bankrupt?????????

Now you know why Alstry says we must restructure the debt....so we can prepare for the change as the debt can not be serviced in the new savings system.  And if the debt can't be serviced by the masses...there are going to be lots of angry people.

Now you are beginning to understand Alstrynomics as we proceed through 9.09.

31 Comments – Post Your Own

#1) On September 13, 2009 at 2:28 AM, awallejr (85.50) wrote:

No.  Alstry is some guy who has some kind of agenda that involves exaggerating for the sake of exaggerating.  Why TMF lets you continue to spam your nonsense is beyond me. Personally I think you hurt the website in the long run.  I came here to get ideas on how to make money.  Instead TMF is letting you use this as some sort of soapbox.  Their dime, their choice. But I do think it hurts the site's credibility in the long run.

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#2) On September 13, 2009 at 6:03 AM, semper77 (32.85) wrote:

While I don't necessarily agree with everything Alstry says, I don't think he hurts the site's credibility at all. This is a forum and everyone's opinion counts. If you don't agree with it, don't visit his blog. Its pretty simple, actually...

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#3) On September 13, 2009 at 7:30 AM, alstry (35.13) wrote:

Actually, Alstrynomics doesn't exagerate that much...but does blog excessively....and that will change soon, very soon.

In not much longer than a year revenues to the S&P have declined around 25% and tax receipts to governments are declining around a similar amount.  This rate of decay on such a massive and widespread basis is unprecedented and getting worse.  Being something that is unprecedented and to call it in advance is really not exagerating....and we are still at the early stages.

In many industries the deterioration has been much more severe over the past few years including home building, autos, airlines, hotels, transporatation, architecture, finance, etc.....and now we are moving into health care and govenrment...two areas that account for over 1/2 of GDP.

The banking system is sucking money out of the economy and not putting much back in...this is what I refer to as Zombulation.....as this process continues, the velocity of money will continue to slow as fewer spend and more save.  When you are an economy dependent on more spending and fewer savings, you have a serious problem when things are leveraged and fewer are spending.

We are now at the point where the revenue slow down is reaching critical levels because it is putting many families and businesses below the minimum threshold line...the amount where they need to meet minimum monthly expenses such as property taxes, health, homeowners, and auto insurance, mortgage and rent payments, and any other credit obligations along with basic needs.

So at 17% U6 unemployment and countless of indepedent contractors and unemployed students living at home who are not counted, we have really only seen the beginning as the velocity of transactions slows further and businesses have to adjust to the declining revenues.

Alstrynomics focuses on is velocity and not money supply.  Let's say a few people had all of the money supply in America and stuck it in the bank, and the bank wasn't lending......the velocity of money would slow to a trickle and our nation's economic infastructure of massive shopping centers and office towers around the country would no longer function and shut down.

Although we are not completely there yet, that is the direction we are headed as fewer and fewer have more and more and many have less and less...Our nation is simply not structured to support a population where many have little a few have much....however, OTHER nations are structured and function around the world....it is simply not the America way of life and the change will be convulsive for many....especially as governments run out of money.

Add the fact that we have chosen a select few Wall Street Bankers to be the few with much will eventually anger many Americans as we move forward.  Especially as they appreciate it is the taxpayer that gave them the wealth and not bankers own innovation.  My guess is anger will grow materially with the Michael Moore movie as it will appeal to a large population that traditionally he turned off.

Once you start understanding wealth concentration and slowing velocity of money...you will begin to understand Alstrynomics better.  If one person spends a dollar at the butcher, and butcher spends it at the baker, and the baker spends it at the barber, and the barber spends it a the cobbler....that one dollar has been spent five times and served five people....that is velocity.  If the one person never spent it in the first place and the bank never lent it out....that same dollar would have not served any beyond the original saver.

Our economy is structured for a high velocity of money.  Our salaries are high, our houses are big, our commercial real estate foot print is massive, our health care costs are out of this world and our government needs are massive.  Over the years, the Fed has made sure velocity kept increasing......now with its zombulation policy of bailing out the banks and burning the citizens, velocity is slowing rapidly.

It is why everything is shrinking and continuing to shrink.  It is why revenues to so many industries have contracted so rapidly.  It is why asset prices are falling and continuing to fall.  You could have the biggest money supply in the world...but if it were burried in the ground, or stuck in a bank collecting little interest and that wasn't lending....it would serve little.

Zombulation is effectively causing money velocity to slow to a crawl because money is being spent to pay down debt and not goods and services.  When you have an economy infected with so much and an unsustainable amount of debt, pretty soon servicing hte debt pretty much consumes the entire cash flow of the economy unless you restructure the debt.

Look around you, the evidence is everywhere.  CRE office building sales in NY are down over 90%...new home construction down over 80% in $$$, for those that are regulars...you know the routine.  Rents are crashing around the nation as vacancies are skyrocketing. 

In a savings economy, where the velocity of money is slow, we no longer have the need for much of what is currently in America.  We don't need as many restaurants, shopping centers, office buildings, insurance companies, banks, universities, etc.....you know, those things that employed lots of people and paid lots of taxes.

Compunding the problem is too is many of the above are leveraged and debt is the primary asset in America.  As debt defaults so does the asset base of our pension funds, banks, and insurance companies causing them to fail...as they continue to fail, they will be unable to lend, velocity will slow more and the economy as we know it will change materially....it already has in many respects.

Most of you are simply mentally incapable of believing that the way of life as you know it is changing.  My guess is farmers in the 1870s were no different as about 90% were foreclosed upon and many forced to move to the cities.

Again, it is not the end of the world....just the world as you know it is changing.....and if you want to be a successful investor.....you better be aware of the change....because as velocity slows futher....very little will survive economically under the current structure.

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#4) On September 13, 2009 at 7:50 AM, alstry (35.13) wrote:

WHAT IS SO DIFFERENT THIS TIME?????

Seven months after Phoenix made its largest budget cuts in history, City Manager Frank Fairbanks has informed City Council members that the cutting may not be over.

But the revenue trend doesn't look good.

http://www.azcentral.com/community/phoenix/articles/2009/09/12/20090912phxsave0913.html

It is not just Pheonix or AZ or CA..... 

The cuts are everywhere as documented by my unending presenation of the facts with purposefully obnoxious commentary.  The continuing cuts exacerbate the slowing of velocity causing even more cuts down the road.

It is all a very foreseeable consequence of Zombulation.

As we move from a credit based consumer economy to a more savings orientated and hopefully eventually producer system....the old system and lifestyle as we know it will end.

The question is how will government deal with the fact that it no longer has much revenues coming in anymore????

That is the part that should make you very concerned as government is NOW 1/2 the economy and not used to slowing revenues.

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#5) On September 13, 2009 at 7:56 AM, alstry (35.13) wrote:

Here is the really BIG problem.

The only thing keeping the old system going is Obama running a $2 Trillion dollar deficit permitting tens of millions to consume who otherwise couldn't.

This will not be able to continue much longer becuase no nation in history has been allowed to simply print currency so its population could consume without consequences.

I now many of you want to believe it can....but it can't.

Money must have constraints and rules or it will lose respect and value around the world.  You can already see the tensions rising with trade issues....inevitably the tensions will escalate to a point where there may be no turning back....and Obama may have few choices.

9.09 will be the time when many of you finally understood MOAP.

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#6) On September 13, 2009 at 11:03 AM, topsecret09 (36.21) wrote:

   Just to Illustrate your point about consumers paying down debt Instead of spending money In the general economy... This Is exactly what I have been doing personally.Even though I have been UNEMPLOYED for almost 7 months {CONSTRUCTION TRADE} Within the last two weeks I decided to pay off my loan On my 30ft travel trailer(whiich I used to use to travel to where the construction jobs were) I paid off $27,000.00 IN DEBT. I then paid off one of my credit cards for $3,700.00. I paid the credit card off because the company DOUBLED my Interest rate,even though I had never missed a payment....  The BANKS are gouging even their BEST CUTOMERS,and they could care less. As we speak,they are coming up with new DERIVITIVES SCHEMES that will cause financial collapse number two. I hope for the sake of all fools that a few haters on this site do not cause alstray to leave permenantly,but I really would not blame him If he took his knowledge of the economy elswhere,where he Is not continually berated for expressing his opinions. Last I checked,this was still AMERICA,and Its still a place where you can have a different OPINION OR BELIEF In something without any undue harassment. Its called FREEDOM OF SPEECH. And If you do not like the concept,their are other countries that don't like It either. Its AMERICAN to be able to disagree with each other,but It Is also AMERICAN to have a CIVIL disagreement that will hopefully foster a positive outcome on the subject In question to the benefit of all people Involved....   TS

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#7) On September 13, 2009 at 11:29 AM, throwerw (29.33) wrote:

awallejr, perhaps cnbc would better suit your needs for financial advice

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#8) On September 13, 2009 at 11:42 AM, fredmahnke (< 20) wrote:

"At this point, government doesn't seem too concerned as the social distress is clearly rising over recent weeks."

I'd never thought I see it, but the above is a rare Alstry understatement,  I heard Axelroad on TV this morning say that yesterday;s protest were not indiciative of how the majortiy of Americans view our Gov't. I suspect Madame speaker will say something dumber tommorow when someone asks her about it. Can these people really not see the Anger they are inflaming ?

These people don't get it.  My response is to them is just wait, you ain;t seen nothing yet.   They are  burning money, talking about tax increases without gov;t spending prudence while too many citizens, cant  pay their mortgage or send their kids to college. they'll be told they have to buy health insurance. while the avg GS employee is paid close to a millillion a year.

This is not Iran.  Americans just will not stand for this behavior, and if gov't doesn;t wake up an listen to its citizens.  9/09 may be closer than I thought.

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#9) On September 13, 2009 at 11:47 AM, awallejr (85.50) wrote:

Bloomberg is much better.  This is a website for investing in the market.  What stocks do you see Alstry promoting in his daily blogs? As for freedom of speech, it doesn't apply to a private website. The owners of the site have the power to control content. People, however, have the right to form their own sites if they wish.  So Alstry is always free to pay money out of his pocket and form his own.

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#10) On September 13, 2009 at 11:58 AM, fredmahnke (< 20) wrote:

Awallier,

If you don't like it, why dont you stop reading it and stop complaining ?   

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#11) On September 13, 2009 at 12:09 PM, jgseattle3 (< 20) wrote:

Now you are talking!!!!!!  A lot of your blogs do not spell out your cause and effect thinking but this one does.  People may disagree with you but here you have put the arguement out that is easy to understand. 

So let me take a cut.  Short term i think your case is lost.  The government will spend to keep the system running.  At soome point I agreee this is not sustainable.  What happens then?

In the past you have made strong comments for deflation.  Here you spell out the logic.  (summary lower money supply due to slow velocty of money)  I disagree - the government is going to spend enough so the balance between private and public will change.  This is unstainable.

Result one of two things -

1)  Inflation

2)  Interest rates go up so high it crushes the economy and we have massive defaults and delfation.

Both are ugly but I think it will be inflation.

In my past CAPS life, jgseattle lost password, i ponder the affects of going from a negative savings rate to +10%.  I think this is what you are looking at.  

I think the big test to see if you are correct will be the holiday shopping season.  I thought last years would be a lot worse than it was, if this year we see a contraction that may be the start of your default chain reaction.

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#12) On September 13, 2009 at 12:09 PM, awallejr (85.50) wrote:

Because I like the site, and I already said he hurts it.  So maybe my "complaining" might help improve things by getting him "reigned in"?

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#13) On September 13, 2009 at 12:14 PM, topsecret09 (36.21) wrote:

   Awall.... Are you kidding me ????  He can form his own site,but cannot form his own OPINIONS ????  Wow,you are really obsessed with Alstry. You should really take a deep breath,step back and look at what you just said... Your contributions to this site are many,just like Alstry. You contibute with usefull Information about stocks,etc,while alstray gives his ECONOMIC  views that will EFFECT THE VERY STOCKS THAT YOU RECOMMEND. His knowledge of the economy IS EXTENSIVE,while your knowlege of Individual stocks,and trading Is also extensive... I will bet you that someday you will come to realize that what alstray Is preaching Is an Important part of the ENTIRE Investing macroeconomic picture that will become clearer as time passes. TS

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#14) On September 13, 2009 at 12:20 PM, checklist34 (99.69) wrote:

fred, awall replying and debating isnt a waste of time if it influences one or two readers.

 

alstry, japan and the US have a couple of decisive differences that favor the US over Japan.

First, their stock and real estate market bubbles leading up to their lost decade were different and more severe than ours. The money lost was eternal...  deflation prevented the levels of the late 80s from ever being reached again.

Second, population growth.  The ultimate preventitive medicine for deflation, they didn't have it.

Third, and this is the most important, they could not prevent the YEN from rising in value.  As their economy grew, their currency came to be more in demand, which created challenges for their export economy and built in deflation.  we aren't likely to have that. lol

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#15) On September 13, 2009 at 1:28 PM, awallejr (85.50) wrote:

"He can form his own site,but cannot form his own OPINIONS ???? "

He can always form his own opinions.  I have never said otherwise.  No one, however, has a "right" to do so on a privately owned website.  The owners are perfectly free to control the content.  If, however, people want to be free of restrictions from the owners of a site, they are perfectly free to start their own and say what they will, provided it doesn't violate any laws.

It is hard not to get pulled into Alstry's blogs.  I like scrolling down the current blogs.  His are always there in bold print shouting something dramatic.  You even get bombarded in the "featured post."  And when you do get caught up into a discussion on one of his threads, he abruptly abandons it and starts an entirely new one on the same topic just to keep "front page" status.  He's also chased some excellent bloggers away (floridabuilder) by his hounding. 

 "Actually, Alstrynomics doesn't exagerate that much...but does blog excessively....and that will change soon, very soon."

That remains to be seen. 

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#16) On September 13, 2009 at 1:36 PM, awallejr (85.50) wrote:

checklist34: "Second, population growth.  The ultimate preventitive medicine for deflation, they didn't have it."

Actually I think this is the most important point.  The Japanese Government is even offering to pay parents I think $3400 per year for any new child that is born.

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#17) On September 13, 2009 at 1:39 PM, alstry (35.13) wrote:

What you guys still refuse to accept is we practically no economy if we don't consume....and the Fed is making sure we don't consume....we are bailing out its banker buddies while they are cutting off credit to small business and jacking up interest rates on the consumer.

Our econonmy as you know it is simply shutting down...we are now flying less planes than we did following 9/11.....but now have lots more hotels with mortgages depdendent on those travellers that don't exist.

This is just one example, I can give you 100....a 1000.

Many of you are still living in the buggy whip world....soon you too will realize the car is taking over and the buggy whip world as you know it is over.

It is not the end of the world, it is simply evolution........but often if the change is convulsive enough it can lead to revolution.....and let me tell you....this change will be convulsive.....we simply cannot keep consuming like this anymore....and if we can't consume...most of our current occupations are gone.

People used to laugh at me when I told them 90% of the dotcoms were worthless.....I was constantly told how wrong I was for years.....

Now 80-90% of the economy as you know it will be worthless or near worthless...it has been that way for a few years....and just like the dotcom bust.....this will come to light as well.

9.09...it is here whether you like it or not.

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#18) On September 13, 2009 at 1:51 PM, NOTvuffett (< 20) wrote:

I am put off by Alsry's histrionics, and the use of third person is a joke worn thin.   But he is essentialy right:

((govt. spending) - (govt. revenue)) << $0 = unsustainable

taxation AND/OR inflation only way out

either way,it will be ugly

 

 

 

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#19) On September 13, 2009 at 1:58 PM, NOTvuffett (< 20) wrote:

oops, reversed the signs, lol

((govt. spending) - (govt. revenue)) >> $0 = unsustainable

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#20) On September 13, 2009 at 1:58 PM, awallejr (85.50) wrote:

"taxation AND/OR inflation only way out"

I think pretty much everyone has accepted this, it's why the Chinese are so pissed (all those T Bills they bought losing value), even though they made their wealth off us to begin with.

As for the consumption, yes people are conserving, but they are still buying, just different things (namely cheaper).  Those companies making those "different" things will benefit, and those companies holding out of favor inventory will not.  This, however, does not mean the country will collapse as the original author seems to suggest.

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#21) On September 13, 2009 at 2:06 PM, NOTvuffett (< 20) wrote:

awallejr, why would anybody buy a 30-yr T-bill now?

 

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#22) On September 13, 2009 at 2:20 PM, AvianFlu (36.82) wrote:

Awall:
I enjoy Alstry's rants. You are free to ignore them and read other posts that are simply stock tips. However, you might consider that an understanding of macroeconomic trends is important to making good stock selections.

Alstry:
Yes, velocity of money is an important variable. However, you ignore the importance of money supply increase at your peril. I refer you to the writings of Nobel prize winning economist Milton Friedman. It IS possible to experience a stagnant economy and rapidly rising prices at the same time, although that may seem counter-intuitive. There have been many examples throughout history.

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#23) On September 13, 2009 at 2:27 PM, awallejr (85.50) wrote:

#21:  I certainly wouldn't.

#22:  Discussing macroeconomic issues are useful.  Spamming exaggerations are not.  Plus his macro economic arguments and predictions sure have played out well these last 7 months huh?

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#24) On September 13, 2009 at 2:29 PM, alstry (35.13) wrote:

awa....

What you refuse to accept is America's fixed costs are very high....so as revenues contract to just below fixed cost....things go bankrupt....

And the biggest consumer of all is the government....now running a historically high $2 Trillion dollar deficit......

Soon you will realize we are all broke when the government is broke....trust me you will realize this....it has happened to every society before ours.

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#25) On September 13, 2009 at 2:35 PM, fredmahnke (< 20) wrote:

NOTvuffet,

Because your a bank that gets to borrow at 0% and needs to find someplace to park the money for 350BP spread w/o any "regulatory" capital reguirement.  And maybe your source of funding comes from the very gov't types that are regulating you and you know (or they are telling) to buy T-Bonds if you want to keep the money chain chugging unitl you can foreclose on all your customers and clean up your balance sheet.

Beside this reason, I have no idea

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#26) On September 13, 2009 at 2:36 PM, alstry (35.13) wrote:

av,

Rapidly rising prices with a stagnant economy is a hyperinflationary depression....I am very aware of the consequences.....so were post WW1 Germans.

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#27) On September 13, 2009 at 2:40 PM, awallejr (85.50) wrote:

Alstry, the Government can never go broke since it ultimately controls the printing presses, hence the legitimate fear of inflation down the road.  Yes revenues are declining as a result of this recession.  That's what happens during recessions. 

Eventually the cycle gets broken and the economy expands again.  You just don't think the cycle will ever be broken, even though historically it always has (a question of when not if).  Personally I think it will take longer than past post WWII recessions, but this still creates many profitable investment choices.  And silly me for wanting to figure those out.

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#28) On September 13, 2009 at 2:49 PM, NOTvuffett (< 20) wrote:

If anyone hasn't seen this yet, check out the hyper-inflation in Zimbabwe:

http://www.youtube.com/watch?v=mM3_z2RB3YU

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#29) On September 13, 2009 at 3:05 PM, topsecret09 (36.21) wrote:

   Not... try submitting link again.....

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#30) On September 13, 2009 at 3:07 PM, fredmahnke (< 20) wrote:

AW,

The gov't can go broke when their currency is deemed to be worthless. It's happened before (post WWI) Germany.

However, history doesn;t always repeat itself.  Structual changes in our ecomony/soicety  could make "recovery" something that looks very diffrent than our ecomony today,  People are living do much longer, relying on safety nets that may not be there.

I'm not predicting Aramageon,  I do beleive we face unprecented challenges that our gov't needs to recognize and deal with this issue as their top priority before its too late, 

 That why I appreciate Alstry,  I don;t have time to read evething he writes (and have no idea of how he has time to write it all) So I say keep him around to remind us all of how fagile our ecomony is in 09 09 and for the forrrseeable future unless (until) something changes. Of course, you are entitled to your opinion

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#31) On September 13, 2009 at 3:20 PM, awallejr (85.50) wrote:

Post-WWI Germany is not a good example.  Afterall Germany lost a world war, was held accountable for reparations, had to concede land territories, and it's economic system was completely different than ours.

I didn't say boot Alstry.  I said "reign him in." You don't need 5 daily blogs saying the same thing.  What's wrong with this thread to continue a discussion?  Simple, it moves off the "front page."

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