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Why the Market sold off and will continue. Sinking Currency, Sinking Country

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November 11, 2007 – Comments (9)

Many people are confused at why the market sold off last week.

A summary:

The experts who run our largest banks and brokerage firms were sucked into a series of really stupid investments.This is not good for public confidence. It raises a realistic question:

"How reliable are the experts who direct investors' money?" The answer: "Not very."
This answer is bad for stocks.
The dollar is falling.
Congress is impotent / corrupt / distrusted.
Bush is a lame duck (luckily?)
War with Iran looks likely.
Jim Roger said he is selling all US assets including real estate due to the intentionial currency debasement by FED and Treasury. JR also said the US is in a recession.
Greenspan said 50% chance of recession. David Tice was on bloomberg.com said the US market was built on easy credit, low rates and the stock market would drop 50-60%.

Buffet was traveling to China and said the China market was to "hot" to find any stocks there.

FED maybe trying to tighten.

Gold is rising. Oil is rising. 

Level III accounting is being introduced / explained and it looks very scarey for GS, C, BSC, JPM, MS,

Jim Cramer talked about recession (finally).

Fast Money has recommended DOG two days in a row.  

Plus Pat Buchanan wrote: Sinking Currency, Sinking Country 

http://news.yahoo.com/s/uc/20071102/cm_uc_crpbux/op_334275;_ylt=AvZgJ1Rdc9CrCFBX44p18HOs0NUE 

Good news is: Dr Ron Paul raised $4.2 million

Why would anyone buy stocks, except defense industry stocks and energy stocks? 

9 Comments – Post Your Own

#1) On November 11, 2007 at 11:52 PM, TMFSpiffyPop (99.44) wrote:

World-changing technology, constantly in development.

Unprecedented levels of U.S. and global productivity (up almost 5% just last quarter) -- and these rates will continue to increase.

Near-record low levels of violent crime in the U.S. (i.e. a safer and more peaceful world).

Globalization is bringing more trade, and more stability and peace, to worldwide markets. Note what's happening in Korea.

The Internet is an incredibly powerful business and cultural force that is ultimately what is behind the strong long-term stock market we have been in and continue in. 

There are other reasons too.

I think there are many reasons for caution, as well. But so long as you're asking why would anyone buy stocks, and quoting people like David Tice, I figured I might as well give you some answers. :)

Fool on,

David G. 

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#2) On November 12, 2007 at 8:25 AM, wingedcreat0r (47.39) wrote:

While there is a credit issue going on. I don't see how this will be fixed any time soon. The root cause is this society's wants regardless of the cash flow. These problems will not be fixed until people go back to spending habits that depend on constant cash flow.

The evidence is so obvious that what happens in the average american home (huge debt with credit cards and other stupid investment ideas like my parents wanting to take out a home equity loan to buy some stocks and mutal funds, car leases, personal and student loans, etc)

...happens in washington (huge debt to pay for the military operations overseas and not just in the middle east, depleted programs such as medicare and social security... which will never fully recover, and pandering to wall street with rate cuts that have no effect on home loan rates.)

There use to be a time when you could tell if someone was rich depending on what car they drove. Now you ask yourself, "How much money do they owe?"

Besides a spending problem, I see most people here have a problem when it comes to personal responsibility. Which is why there has been a huge demand for more socialist programs. Because yea, I don't know how to spend my own money so I need the government to tell me.

 

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#3) On November 12, 2007 at 9:16 AM, abitare (35.12) wrote:

Thank you both for the replies. For the record I am 50% short and 50% cash, I will likely get shorter on Tuesday.

Most people are optimist and slow to recognize there has been a change. They believe that the way things were yesterday is how they are going to be tomorrow. When there is a change in the paradigm many are caught off guard. 

 "World-changing technology, constantly in development."

Yes, good and bad. Weapons technology has evolved that some of the poorest and most isolated countries have nuclear weapons. The AK-47, VIED, IED, suicide bomber, rockets, GPS guidance, internet propaganda, cell phones etc…. have made non-nation state player capable of threaten and bankrupting first world armies / countries.   

One of the US primary exports is debt and military defense. What is the outcome when people no longer want or will pay for these? Will the World Bank and IMF help save the US dollar?

"Unprecedented levels of U.S. and global productivity (up almost 5% just last quarter) -- and these rates will continue to increase."

Maybe, but if there is a slowdown, there may follow a severe recession / depression ref WW1 and the depression.

"Near-record low levels of violent crime in the U.S. (i.e. a safer and more peaceful world). "

When there is work / opportunity there typically peace. But can the credit expansion go on forever? Some would credit Roe V Wade (Freakonomics) and some credit the record prison population. 

"Note what's happening in Korea."

NK has nuclear weapons; SK is hoping the US will leave. Everything the US could produce can now be produced overseas. The US no longer produces the worlds cars, TVs, cell phones, oil production (is down) etc… our primary export dollars and defense is in trouble (severe). 

The advantages the US has had are disappearing at a rapid rate. Are today’s children prepared to work as hard as Asian children to compete globally? Place your bets accordingly. Maybe Asians will tire of loaning the US money to support the US lifestyle which is 100x better then most Asians.

David Tice is "covering his book" - he is a permanent Bear.  Having him on Bloomberg saying he expects a 50-60% decline in US stocks has an impact. But does not mean he is wrong, he maybe early on his call. 

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#4) On November 12, 2007 at 11:31 AM, AbqLawyer (< 20) wrote:

You obviously have not spent much time around American youth lately.  They are highly educated, highly motivated people.  Just look at Google and your whole argument falls apart.  Two American youts create something out of nothing.  The X, Y and Z generations put the Boomers to shame in productivity, ingenuity, and resourcefulness.  Yeah this country sucks so bad that people are pouring over the borders trying to get in.  Cash?  How is cash safe in your scenario?  economic collapse = ever declining dollar.

I appreciate the viewpoint and I recognize the significant problems presented, but betting against the productivity of Americans is a bet that nobody has won long term.

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#5) On November 12, 2007 at 4:00 PM, abitare (35.12) wrote:

Thank you for the reply. I appreciate people, who challenge ideas, which they do not agree with.

Concur, that American youth is one of the smartest generations in American history.

I have been around today’s youth it is amazing the amount they know these days at their age. They have enjoyed a lifestyle, less the 1-2% of the world enjoys. A/C, plumping, plenty of  drinking water, cars at 16, clothing, plenty of cheap food, internet, games, etc…. The Grapes of Wrath (by Steinbeck) Americans tough, trgic, farm life style is unknown and foreign to today’s youth.

However, we are talking about the stock market, debt, bubbles and the dollar. My post / CAPS are primarily about the market.

We have seen these bubbles play out before: 

Japanese are smart, very industrious, educated, homogeneous, the crime rate is near 0, highly literate, they produce as many engineers, patents as anyone, they have a "live to work" attitude and they follow rules. They have not wasted huge sums on defense and have become the world leader in cars, TVs, cell phones, computers, robotics etc... 

But guess what? 

Japan had a very severe recession when the bubble "popped". Their stock market, real estate and yen, have not recovered in 17 years? Their interest rate is .5%, to try and stimulate the economy. Hence, the existence of the "carry trade", which hedge funds have enjoyed with extreme leverage.

Google is one company that employs how many of the 296,410,400 Americans?  Will google pay off the $9 trillion debt?

http://www.brillig.com/debt_clock/ 

People are pouring over the borders to get jobs, to take advantage of “FREE” social services and “FREE” medical care. (20 million migrants to the US, mostly undocumented?).  It bankrupt CA and it could help to bankrupt the US.

Read: Yellow Mans Burden for reference:

http://www.forumwhore.com/proxy/cgi-bin/nph-proxy.cgi/000000A/http/www.sandersresearch.com/index.php?option=com_content&task=view&id=1311&Itemid=100

Japan at the peak was awesome if you could get a job there also. I was there in 03, after the collapse. It was tough to get a job, even tougher to make enough money and / or get ahead. 12 to 18 hour days, 6-7 days a week, living in a very small apartment shared by extended family typically.  

Credit expansion creates growth and jobs, but there are limits to the stimulation.  We are approaching credit contraction in order to save the US dollar. Last time FED tried this consequence was severe.

www.wikipedia.com reference depression, credit contraction.

Famous quote: 

"betting against _________ is a bet that nobody has won long term."  

Fill in any: Romans, Athens, Sparta, Mongols, Japan, Germany, Austrian Hungry, Prussia, Soviet Union, Ottomans, British Empire, etc....

Many believe the US is an Empire of debt. That is showing cracks. The dollar is the worst performing currency of 16 traded.  The world has never been more dangerous or competitive. Ref: The World is Flat

LTCM caused a severe problem with the US markets. Now there are hundreds playing the same leveraged game. When, where will it end? 

Place your bets accordingly; I am short and “cash”. Cash being in www.everbank.com

I will move into real estate in a couple of years, as the foreclosures hit in even higher levels.

May you live in interesting times

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#6) On November 16, 2007 at 1:28 AM, dwot (40.33) wrote:

We are like minded...

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#7) On November 17, 2007 at 2:28 PM, GS751 (27.46) wrote:

"The root cause is this society's wants regardless of the cash flow. These problems will not be fixed until people go back to spending habits that depend on constant cash flow."
"LTCM caused a severe problem with the US markets. Now there are hundreds playing the same leveraged game. When, where will it end? "
Some of the best things I have heard on CAPS.  

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#8) On November 21, 2007 at 1:29 AM, mickeyc21 (29.60) wrote:

AbqLawyer's response is the same as all my friends employed in the legal field when I mention the storm that is breaking.

I can assure you that the young - while well educated - are anything but highly motivated. I own a business in six US cities and the quality of staff in the US is poor (and yes I have owned business' in other countries). People with masters degree in business fields genuinely do not understand concepts taught in High School to 14 year olds. Out of a huge social network I know two people who work in what could reasonably be described as a productive job. The rest are jobs which do little or nothing to benefit society: real estate related, finance and yes: plenty of lawyers!

The Google example is typical of American centric delusion: 50% of the "American Youths" who created it is/are from another country. 

And as for the "ever declining dollar"!! Dear God - are you stupid or just lazy? The dollar is in a long term collapse which has other countries (friendly) presidents threatening "economic war".

Uneducated peasants attempting to cross into a country doesn't establish it as heaven. Every first world country has this problem. Go and talk to a Mexican at Home Depot and ask them how much work they are getting right now. I've done it: they are not living the dream right now. Most said they are down to one day of work per week.

I know how a six figure salary straight out of college can numb your brain to the reality of the world but you will feel the pain that is being spread through the community at some point.

 

 

 

 

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#9) On November 29, 2007 at 4:23 PM, abitare (35.12) wrote:

Great replies, dwot, GS751 and mickeyc21.

I have done about every job "Americans won't do" growing up. I have always worked. Much of todays youth is focused on high paying jobs, that will not be vacated by baby boomers. Many Baby Boomers are not going to retire once this Recession becomes apparent and the US dollar goes into free fall with their pensions.   

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