“The Great Depression of Debt” is a hardcover updated edition of “The Second Great Depression, Starting 2007, Ending 2020.” “The Great Depression of Debt” can be purchased at most bookstores or at Amazon.com: http://www.amazon.com/Great-Depression-Debt-Survival-Techniques/dp/0470423714
THE WEEK’S STOCK MARKET AND THE STIMULUS
The important thing to note is that the market gain realized on Thursday when the positive GDP numbers were released was overwhelmed by the down market on Friday when the negative consumer spending numbers were reported. The S&P 500 actually lost 4% for the week. Apparently, more investors are recognizing that the 3rd quarter gain in the economy was driven by the cash-for-clunkers program and first-time-home-buyer credit, which are both now ending. There was no real economic recovery.
Congress is also aware of this and is thinking about extending both stimulus programs, with some modifications. For example, on the first-time-home-buyer credit, they are considering extending the end date beyond November and including a $6500 credit for those who want to trade-up from homes they have lived in for more than five years. Neither program will have much effect except to give money to those who were going to buy anyway. A $6500 credit to someone to buy a more expensive home in a market with falling prices (and with a difficulty of even being able to sell their existing home) is not likely to motivate anyone. And most first-time buyers already made their move since they thought that the program was ending in November. So we will just be giving away taxpayer money to those who are going to buy anyway with no resultant long-term gain in the economy.
In fact, as reported in CNN Money, Edmonds.com has calculated that taxpayers paid $24,000 for every extra car sale generated by the Cash-for-Clunkers program. Of course, the White House disputes these numbers and the way Edmonds calculated these numbers; but even if the per car costs are off 50%, it was a very expensive program versus any long-term benefit.
The first-time-home-buyer credit has a similar cost issue. The National Association of Realtors (NAR) reports that 1.8 million buyers got the first-time home buyer’s credit. But the NAR estimates that only 350,000 of these sales were due to the first-time buyer credit. The National Association of Home Builders (NAHB) estimates that only 150,000 additional home sales were due to the first-time buyer credit. On the basis of the above numbers, each additional home sale cost the taxpayer either $41,000 per home or $96,000 per home. It is worth noting that neither the NAR nor NAHB are politically motivated to make these numbers look worse than what they really are.
In fact, the whole stimulus program has had questionable and costly results. CNN money reports that after $150 billion in stimulus spending, 650,000 jobs have been created. That is a $230,769 cost per job.
OUR FRIENDS IN CHINA
Chinese-made drywall that emits sulfurous gases carbon disulfide, carbonyl sulfide, and hydrogen sulfide, was used in an estimated 100,000 U.S. homes built in 2005/2006 at the height of the home price bubble. Not only do these homes now smell like rotten eggs and perhaps cause health issues, the pipes and electrical components are corroding. To repair these homes is going to cost an estimated $80,000 to $100,000 per home. Insurance companies are not only refusing to pay for the costs of repair, but they are also refusing to renew insurance policies on these homes. Since most mortgages require home insurance, this and the cost of repair is forcing many of these homes into foreclosure. Since many of these homes will be unsalable even after repair (would you buy one?), the banks could end up eating the whole cost of the mortgage. If the home values average $250,000, that will be a total loss of $25 billion.
As this is going on, a Chinese producer of wind power turbines has just won the contract to supply the components for a $1.5 billion wind farm in Texas. Just a year ago, T. Boone Pickens attempted to build a giant wind farm in Texas but was thwarted due to lack of funds. Somehow, our stimulus to help develop clean U.S. renewable energy isn’t working. And after the Chinese’s performance on baby formula, children’s toys, dog food, dry wall, etc, I don’t think that I would want to stand under those whirling wind turbine blades!
SO NOW WHAT?
Consumers continue to cut spending, foreclosures continue to rise, and unemployment is expected to keep growing. So, the likelihood of the government being able to cut back on stimulus seems unlikely unless they want to risk the economy getting as bad as it was in The Great Depression. However, continued high deficits are also unsustainable. So what’s a government to do? Here are some examples (note, examples only!) of what our government could do to continue stimulus support for our economy while reducing our deficit. These steps would reduce the continuing drop in the dollar, reduce the likelihood of extreme inflation, and give our economy the time needed to heal from its excessive consumer and government debt.
For a start, it may be worthwhile to compare the U.S. to other countries. First, the portion of our country’s wealth that is in the top few percentage of our population far exceeds that of any other democratic country. In fact, the average annual income of the top 1% of U.S. households is $1.2 million. So, let’s put a 20% off-the-top tax on this income, which will increase U.S. tax income by $276 billion. Now, that doesn’t solve our nearly $1.5 trillion deficit; but it sure takes a big bite out of it. Some may say that this tax is unfair. But was it fair that this top income group was the only group that has prospered by the economic gains of the last 10 or 15 years? And, it isn’t like this tax would put this group into the poor house. The poor dears would just have to learn to get by on an average income of almost a million dollars per year.
Another area where we differ dramatically from most countries is how much money we put towards defense. The amount we spend on defense is almost equal to the total of all other countries combined. And we spend nine times as much as China, who, as mentioned above, is coming in to build a wind farm in Texas because we can’t afford to do it ourselves. Our 2009 Department of Defense budget is $651 billion. And that includes the $1,000,000 it costs us each year for each added soldier in Afghanistan and nearly $500,000,000 for each soldier in Iraq. Well, we can no longer afford to be the world’s policeman. So, let’s cut this in half by bringing half of our boys (and girls) home. Note! We want to keep them in the service because otherwise we would add to our unemployment issue. Our returned military personnel will be used to guard our ports and to help rebuild our infrastructure. From numbers I can find, there are roughly 300,000 U.S. troops overseas. If we bring half of them home, that would be 150,000 more people requiring housing and spending money in our own economy, both a positive boost. And, several of the countries that currently have our troops, like Japan, don’t want them there anyway.
As for us being needed in Iraq, Afghanistan, and near North Korea to protect our security, few can show how troops on our own borders won’t protect us even more. In fact, many people believe that our presence in the Middle East does more to promote terrorists against the U.S. than anything else. But, in any case, if we keep running $1.5 trillion deficits, we are likely endangering our long-term future far more than if we pull most of our military back to the U.S.
So, if we cut our military budget back 50%, we will save $325 billion a year, even more than what we gained by taxing the extremely rich. Between the two, the increased taxes and reduced military budget, we reduce the deficit by $600 billion per year. That would reduce our deficit from $1.5 trillion to $0.9 trillion. Still high, but this reduction will greatly reduce the pressure on the dollar and enable us to keep helping the economy until the consumer is whole and unemployment starts to go down. Then the stimulus can slowly be reduced along with the deficits.
THE STOCK MARKET
The Price/Dividend (P/D) ratio for the S&P 500 is now 54. This can be compared to the historical median P/D of 26 and the 17.2 target I use to get back into the market. At current dividends, the market will have to drop more than 50% to get down to its median P/D and drop 68% to get to my own entry target P/D.
Do not interpret the P/D ratio as a predictor of the direction of the economy. It is a historical unemotional measure that I believe reflects whether the market is overpriced. The P/D ratio can stay very high for many years with little rationale, as it did in the nineties.
Here is where I get my P/D ratios. http://www.indexarb.com/dividendYieldSortedsp.html. Go to the bottom of the table and read the value opposite “Average Dividend Yield (%) of All S&P 500 Stocks.” Take the inverse of this number X 100 to get the price/dividend.
As always, people should use their own judgment/data to affect their own investment strategies; and they should not blindly use the above information. Intelligent people can, and do, disagree.
Warren
October 31, 2009 at 8:10 pm |
Warren
If it is true that 650,000 jobs have been created at a high cost for each job. What is going to happen to the majority of those jobs created, when the stimulus money runs out? In Michigan, some cities that received stimulus funds just lately, to add on more police officers are already laying some of them off. I also think that the troops should be just gaurding the borders of the US like you mentioned. Those other Countries never liked us over there. We are never going to change their way of life and it is wasting huge amounts of our tax money. Some of us complain when we drive up to the gas pump and the price of gas is 3.50 to 4.00 per gallon. And there is many folks that do not know that we are paying $400.00 for each gallon of gas that is delivered to the troops in Afghanistan.
November 1, 2009 at 1:43 pm |
Warren,
You say “Edmonds.com has calculated that taxpayers paid $24,000 for every extra car sale generated by the Cash-for-Clunkers program. Of course, the White House disputes these numbers and the way Edmonds calculated these numbers; but even if the per car costs are off 50%, it was a very expensive program versus any long-term benefit.”
True, but might there not be a critical mass of consumerism at which everybody will jump on the bandwagon? Assuming they have money to finance a jump? Regardless of all else, I’m sure there is a lot of money on the sidelines. How else to explain the stock market runup?
November 1, 2009 at 2:14 pm |
Warren,
Thanks for the updates. I look forward to them every two weeks. Like most blue collar working people who are now living on a small fixed pension plus SS there is not much I can do while I am waiting for the train wreck that is sure to come. It is difficult to know what moves will preserve what little capital I have to work with. When I purchased your first book, it was difficult to know about what was going to happen (I had no doubt you were correct) with out being able to make corrections so late in my working career. Factory door had been slammed and early retirement was the only real option in a area with traditionally high unemployment (15-20%).
It seems inflation is sure to come with the only real uncertainty being it’s magnitude. Not having drunk the available Kool-Aide, my debt load is small and income is sufficient to cover current expenses. Home has small mortgage in a area that is usually used as one of the best BAD examples of collapsed home values in the country so selling and moving is not an option.
My question is: do you or anyone else out there have a suggestion as to the best way to survive the storm that is to come? Job search is unsuccessful but continuing and expenses are being minimized. Small savings are invested in TIPS but would long term food storage be a better investment? I cannot be the only one just hoping to survive with my health over the next several years.
Bob
November 1, 2009 at 2:55 pm |
D.M. Ross says: “…might there not be a critical mass of consumerism at which everybody will jump on the bandwagon? Assuming they have money to finance a jump? Regardless of all else, I’m sure there is a lot of money on the sidelines. How else to explain the stock market runup?”
I think that there are two groups of “money” out there. First, are the investors who are constantly trying to decide what to do with their money, including their 401k savings. When they think for some reason that the market is going to go up, they put their funds in the market. That is what happened in the last 8 months. When they get frightened, they pull their money out of the market and put it in Treasuries or CDs or cash.
But that group is not representative of the majority of consumers who have little to invest, are still very much in debt, and in general are just trying to get by. The most visible of this large group are those unemployed or those having their homes foreclosed. The whole basis of my book is that most consumers hit a debt wall in 2007 and now have to work down that debt and learn to live on a smaller budget. This is NOT a choice issue in that they can decide tomorrow to go back to the way they were spending before 2007. Their overdrawn home ATMs and their maxed out credit cards will not support this. The fact that this MUST PLAY OUT seems to be missing in discussions on whether the economy is now recovering. Yes, the government being the spender of last resort can cushion or slow this downturn, but the government is also near its debt limit. In fact, government stimulus that just encourages consumer spending, like the cash-for-clunkers program, just makes matters worse. The only worthwhile stimulus is investment in future technology like renewable energy that will create well paying jobs and eventually free us from the need to use OPEC oil.
November 1, 2009 at 3:29 pm |
Bob asks: “…do you or anyone else out there have a suggestion as to the best way to survive the storm that is to come? Job search is unsuccessful but continuing and expenses are being minimized. Small savings are invested in TIPS but would long term food storage be a better investment? I cannot be the only one just hoping to survive with my health over the next several years.”
First, I believe that this economy will not fully recover for many years, so the issue of survival “over the next several years” is not long enough. And, perhaps I am not the best one to address your question because, although I am retired, I am reasonable well off compared to many people. Not wealthy, but doing well.
But, one of my largest sources of income is a fixed pension from GE, and I am very aware that, over the next 10 years or so, the real value of this pension will likely drop to close to zero. This will be because of the inflation I am expecting and a possible underfunding issue as the stocks backing this pension lose value. So, my wife and I have regular discussions on how we can reduce expenses. And I guess we are constantly amazed on how much of what we spend is not really necessary. I don’t want to try to list them all here, but if you look at your expenses for energy, medicine, food, clothes, and so on, and look at what you could do to limit those IF YOU REALLY HAD TO, you will find that there may be more fat there than you think. The reason to emphasize reduction in expenses rather than increasing income is that the expense reduction is more in your control. I don’t know the specifics of your life or how much cutting you have already done, but I can tell you that there are people in poor countries that live reasonably well on very small incomes compared to what we do. I am not talking about the people close to starvation, but the people who have just learned to live on far less.
I have noticed that many commenters are concerned that we are heading towards hyper inflation, which would destroy the dollar and generally make it difficult for anyone to live in the U.S. The reason I emphasized other alternatives in this update, like taxing the very wealthy and reducing our military spending, is to show that there are other directions our government can take. Sure, the government won’t do them now because it would be politically impossible. But if we head towards the depression I believe is coming, these kinds of radical measures will not only be acceptable but will be welcome. The U.S. will survive; we just have to make sure we do as individuals.
November 1, 2009 at 4:42 pm |
Warren, as always, thanks for the insightful update!
Greg
November 1, 2009 at 4:47 pm |
Warren,
Appreciate your update!
When you say “when we head towards the depression that is coming” I’m curious as to how you would characterize that state compared to where we are today or have been in the last year. Do you expect unemployment to be at 15%, the S&P at 400, Martial law etc…?
In other words, what do you think it will look and feel like compared to today?
November 1, 2009 at 5:21 pm |
Jerry asks, regards my comment about us heading into a depression, “I’m curious as to how you would characterize that state compared to where we are today or have been in the last year. Do you expect unemployment to be at 15%, the S&P at 400, Martial law etc…?”
I do believe that the media-reported unemployment may reach 15%. It will certainly go beyond 10.8%, which will make it the highest unemployment since The Great Depression. As bad as things seem, we aren’t there yet.
And as I say in my book, I expect the S&P 500 Price/Dividend ratio to drop to 17.2, which will make the S&P 500 about 550 in 2012 (the exact amount depends on inflation and dividends).
But more than that, the total attitude in the country will change. Right now, as you just saw in the recent run-up in stock prices, there are still a large number of people who think that this is just another recession and things will turn around shortly. Sure, they know that others have been hurt, but they still feel reasonably immune to the real hurt. When we get into the depression, most everyone will become negative about this country’s future. No one will want to buy stocks, even at the low price. Houses will be largely unsalable and people will begin to live a totally different life style. Some of these changes will not be bad, like car-pooling, driving old cars, walking, and eating simpler foods. And there will be a lot of social unrest, with the have-nots putting fear into those who still have a lot. Few people will want to drive BMWs or do other things that flaunt their wealth. Few teenagers will have their own cars, and being frugal will not just be cool; it will be the norm. I go into greater detail in my book in Chapter 5, “What This Depression Will Be Like,” but you get the gist. If you know anyone who lived through The Great Depression, talk to them and you will realize that the experience changed them for life.
November 1, 2009 at 6:15 pm |
Warren
My Grandmother, who is 96, remembers the great depression like it just happened yesterday. She also told me on several occasions that we are headed for another one. She fears that the coming depression will be worst than the first one was. The reason for her belief is because; she said in today’s World folks have a lot more material things than in the past.
November 2, 2009 at 12:53 am |
Warren
You recommend holding most of one’s capital in TIPS during these turbulent times. What would be the effect on TIPS if interest rates were to rise quickly ? Would it depend on the length of time to maturity ? Thanks.
November 2, 2009 at 2:05 am |
Warren,
Thanks for the insight. My wife and I are having the same discussions as you and your wife. I am sitting outside the local library on a chilly fall evening using their free Internet. What concerns me the most are the unknowables like “Will the free Internet be cut in the face of budget woes?” or “Will Social Security index sufficiently to make up for some of the decreased purchasing power of my fixed annuity pension?”. These issues and many more like them will determine quality of life issues for a large portion of the population. I do like the idea of looking to the lower socio-economic classes (both in and out of this country) to learn “survival” techniques.
Thanks again, for keeping up with the great information source this blog has become.
Bob
November 2, 2009 at 3:01 am |
Warren. I am disheartened that your Marxist solution of hefty taxes on “1% of the wealthy” people is meant to be a serious solution to what ails spend crazy governments.
Wouldn’t a much smarter stance be to reduce the size of government, government programs, wean people off entitlement programs (before they are totally lost anyway), and find ways to actually produce stuff that people in other countries want to buy in order to have a viable economy… not one based upon credit??
I mean, you might get some a big tax money the first year, but it will barely pay the interest on the outstanding debt, and the amount of tax will reduce in size as time goes on… that is just a given. And the flip side? Less is going to charity, less gets spent in the community resulting in more job losses, etc.
November 2, 2009 at 3:30 am |
Warren,
Great update, CIT Group has filed for Ch 11 protection. As the largest small and mid size business lender, how would this affect the economy, as a percentage of GDP, small business account for around 50%.
http://finance.yahoo.com/news/CIT-files-for-Chapter-11-apf-1202955938.html?x=0&sec=topStories&pos=main&asset=&ccode=
November 2, 2009 at 11:45 am |
According to T. Boone Pickens, the US spent $475 billion in 2008 alone on foreign oil, and will spend $10 trillion over the next ten years, “the greatest wealth transfer in human history.” See http://www.PickensPlan.com
What I wanted to add to this (being a physicist myself) is that according to a well-done study by Scientific American, (although it would take $450 billion dollars in government subsidies,) but if done, by 2050, 69% of the US’s electricity and 35% of its total energy could be produced by MADE IN THE US RENEWABLES! (Here’s the link: http://www.scientificamerican.com/article.cfm?id=a-solar-grand-plan)
The point is, this is SCIENTIFICALLY FEASIBLE. It is only the political and economic will that is holding us back.
To parse this more closely, we would need about $10 billion in government subsidies a year over the next 40 years to reach there.
However, if this effort dropped the amount of foreign oil we used by 35%, we would be SAVING $120 billion a year!
That doesn’t even take into account the massive number of jobs a renewable energy industry would create.
Obama has a golden opportunity, especially given the coming financial crises, to take a massive step in this direction for the good of the country. Forget such stupid zero sum programs like Cash for Clunkers. If he stood up and said “This is what we need to do,” like FDR did when he rallied the US into World War 2, like FDR did with the development of the atomic bomb, when FDR instituted the New Deal…
Well, you get my drift.
Where is Al Gore when you need him?
November 2, 2009 at 12:18 pm |
Dillard asks: “What would be the effect on TIPS if interest rates were to rise quickly ? Would it depend on the length of time to maturity ?”
The fixed-rate portion of interest on TIPS is established at the time of purchase and stays constant for the life of the security. However, every six months the face value of the security is indexed with inflation, and the interest rate is then paid on this adjusted security value. So, the length of time to maturity does not enter into the calculation.
November 2, 2009 at 1:33 pm |
Aizlynne says: “Warren. I am disheartened that your Marxist solution of hefty taxes on “1% of the wealthy” people is meant to be a serious solution to what ails spend crazy governments.”
First, it seems to me that since I was suggesting cutting in half one of the largest areas of expenditure, the military budget, that I was indeed going after spend-crazy government. And show me an area of wasted expenditure that is more affected by political maneuvering or lobbyists. There have been countless studies showing that military spending is about the least effective way to grow an economy. Blowing up things and people, other than what is absolutely required for a country’s safety, is generally not a great way to build society.
As far as your assumption that taxing the very wealthy is somehow going to hurt the economy, I believe that this is an old-wives tale. A few updates ago, I published data showing that we are near the historical low on the taxation rate on the wealthy, which at times has been as high as 90%. Looking back all the way to the 1930s, I could find no correlation between GDP growths versus the tax rate on the wealthiest individuals, even when I put in time delays. If you have any specific data showing otherwise, I would love to see it. It seems like when people get to a certain wealth level, much of what they earn goes for buying land, diamonds, gold, paintings or other things that don’t really grow the economy. Sure, some of what they earn goes to charity; but more goes to the needy if it goes into the economy and builds jobs.
I think that labels like being a Marxist are misused in that they assume that something has to be at one extreme or the other. History has shown that some aspects of capitalism, including rewarding those who take risks, are unmatched for growing an economy. No one begrudges the Bill Gates and Jobs their wealth. But, if you read what motivated these individuals, it was the technical challenge more than potential monetary benefits.
However, in the last decade, much of the excessive wealth has come to those who have been playing games with money, like creating derivatives that had huge risks, rather than building industries that grow the general economy in a sustainable way. Then the resultant losses of those risky money games were paid by society. This was NOT the way the game was designed to be played. When I was going for my EMBA, I was taught that company decisions had to be made with long-term growth in mind, not for short term profits. Otherwise, any idiot could make their company hugely profitable by shutting down all engineering and R&D, selling off assets, taking manufacturing to countries that pay slave-labor rates, and turning their companies into investment firms. Need I mention names?
I don’t believe that the Marxist label fits me well. I have started several businesses and was a plant manager and engineering manager for one of the most conservative companies in the U.S. I believe in the work ethic; both my wife and I worked our way through college, and I have never looked for handouts from others. But I was born with health and abilities that, with hard work, enabled me to succeed. Not everyone is born with those gifts, so I do indeed have some compassion for those whose life has been more difficult than mine. And I have very little tolerance for those who HAVE been given the gifts that I have and think that this gives them a right to have an outrageous proportion of the country’s wealth.
November 2, 2009 at 1:57 pm |
Greg says: “…according to a well-done study by Scientific American, (although it would take $450 billion dollars in government subsidies,) but if done, by 2050, 69% of the US’s electricity and 35% of its total energy could be produced by MADE IN THE US RENEWABLES!…The point is, this is SCIENTIFICALLY FEASIBLE. It is only the political and economic will that is holding us back.”
I couldn’t agree more. And, if we are really aggressive in pursuing electric and generally more efficient cars, our energy needs will go down and both the number of years and costs to pull off the conversion to home-grown energy will go down dramatically. In fact, I almost added to this update the suggestion that we put an additional $1.00 tax on each gallon of gas then give ALL the money back to everyone in quarterly checks. We saw how gas usage went down as gas prices went up, so people who are tight on their budget may very well gain from such an exchange by limiting their driving. The higher gas price would reduce gas usage and reduce oil imports. And the higher gas price would encourage development of alternative energy sources.
I am disappointed that President Obama is not pushing harder on clean renewable energy. Maybe when he reads this blog he will start being more dynamic!
November 2, 2009 at 2:02 pm |
Marcello says: “CIT Group has filed for Ch 11 protection. As the largest small and mid size business lender, how would this affect the economy, as a percentage of GDP, small business account for around 50%.”
I hope that the bankruptcy will be done in such a manner as to limit the hurt on small businesses. We have seen lately, like with GM, how bankruptcies can be done with the general economy in mind. However, the money taxpayers gave CIT some months ago as a bailout will be lost.
November 3, 2009 at 1:44 am |
Waren,
The govt never loses money, we will just pay more taxes to make it up.
November 2, 2009 at 5:17 pm |
Warren,
I think I didn’t ask my previous question on TIPS in the best way to get the information I was interested in. I should have asked- If interest rates rise quickly and sharply, how would that affect TIPS ?
Thanks
November 2, 2009 at 7:42 pm |
Dillard says: “I think I didn’t ask my previous question on TIPS in the best way to get the information I was interested in. I should have asked- If interest rates rise quickly and sharply, how would that affect TIPS?”
Sorry, my fault. I read your question too quickly. Generally, interest rates and inflation track each other, sometimes with a delay with either inflation or interest rates leading. So, if interest rates go up first, normally inflation will follow shortly, and then the TIPS will get the inflation adjustment for the next six month period. The same thing applies to the ETF TIP, except in this case the value of the ETF TIP can also be influenced by the base interest rate on new TIPS and, as is true for any stock, the attitude of investors in general.
November 3, 2009 at 12:21 pm |
Dear warren, I am a guy who usually reads annual reports of companies and then invest by the mantra of value; Operating earnings and extraordinary items is something that has been widely abused, but is there a point here in the depression where one needs to close ones eyes and use the companies guidings?
November 3, 2009 at 12:58 pm |
espen says: “I am a guy who usually reads annual reports of companies and then invest by the mantra of value; Operating earnings and extraordinary items is something that has been widely abused, but is there a point here in the depression where one needs to close ones eyes and use the companies guidings?”
I don’t believe so. Annual reports contain the most massaged data legally allowable. However, there are some data in those reports that could save people a lot of money. For example, sales and dividend data are pretty hard to falsify. Until a few years ago, GE was being promoted by countless money managers as a great conservative investment because GE had been paying dividends for so long and their dividend was going up 10% per year. It took very little data analysis to see that their sales were not going up anywhere near 10% per year, so their dividend growth was bound to end. And it certainly did and the price of GE plummeted. And note that there was no “guidance” saying that this was coming.
Company guidance is filed in libraries under fiction. Or at least should be.
November 3, 2009 at 8:47 pm |
Warren –
You say that “over the next 10 years or so, the real value of this pension will likely drop to close to zero. This will be because of the inflation I am expecting…”
Don’t you expect such inflation to be accompanied by a fall in the dollar? In response to a prior question you indicated that you didn’t expect the DXY to fall to 60. However, doesn’t the level of inflation that you describe coincide with such fall?
Also, in your book, when describing what the depression will look like, you say that student loans won’t be available. Do you still believe that?
November 3, 2009 at 9:16 pm |
ca says: “You say that “over the next 10 years or so, the real value of this pension will likely drop to close to zero. This will be because of the inflation I am expecting…” “Don’t you expect such inflation to be accompanied by a fall in the dollar?”
I’m not sure I understand your question. A dropping dollar is not the only possible outcome with high inflation in the U.S. Presently ALL countries are printing currency in excess of their GDP growth. So the dollar could indeed rise versus the currencies of countries that are printing even more of their currencies then we are. This is especially true if the U.S. gets its deficit down by raising taxes on the wealthy, cutting the amount we spend on the military, and becoming more energy independent.
November 4, 2009 at 4:39 pm |
Warren. I read your book and a lot of it made sense. I have been reading some of your past blogs and a few comments you made. One in particular about you favoring the stimulus. Why would you be in favor of a stimulus if they do not work? They only artificially prop up the economy for a short period and then when it wears off, we are then in worst shape. The cash for clunkers, housing tax, etc I think they were all disasters. It only motivated individuals to spend more, when they should be saving. Also the 650,000 or so jobs created by the stimulus was mainly road workers, police, school teachers, summer help, etc.
November 4, 2009 at 5:30 pm |
Harold says: “Warren. I read your book and a lot of it made sense. I have been reading some of your past blogs and a few comments you made. One in particular about you favoring the stimulus. Why would you be in favor of a stimulus if they do not work? They only artificially prop up the economy for a short period and then when it wears off, we are then in worst shape. The cash for clunkers, housing tax, etc I think they were all disasters.”
If it is my most recent book you read, “The Great Depression of Debt,” look at the bottom of page 110 through page 114. On those pages I explain that, “To give the consumer money to spend, with no expectations of doing anything but give a temporary jolt to the economy, will do no more than delay the depression for a few months. The government must be sure that any money it hands out has the potential to magnify its effect through job creation. Otherwise, no long-term benefits results.” I then go on and explain how investing in clean renewable energy and a more efficient grid will not only create permanent long-term jobs, but will also free us from OPEC oil and reduce our deficit while cleaning our environment. And, on the chance that global warming is made worse by our burning fossil fuel, it also helps that.
Several times in my updates, I have expressed disappointment that such a small portion of the stimulus money is for clean energy creation. But I am strongly in favor of the portion of stimulus that DOES address that. But we have yet to see the benefit of those stimulus funds.
November 5, 2009 at 12:21 am |
Im hearing conflicting things about the new 6500 hundred dollar tax credit for homeowners who have lived in their current residence for 5+ years. In your update you mention that this is a “trade up” credit, the articles Im reading don’t mention anything about the price of the house or trading up. Where can I find this information?
November 5, 2009 at 12:55 am |
Rod Says: “Im hearing conflicting things about the new 6500 hundred dollar tax credit for homeowners who have lived in their current residence for 5+ years. In your update you mention that this is a “trade up” credit, the articles Im reading don’t mention anything about the price of the house or trading up.”
The LA Times Business, Nov 4, 2009 reported that the Senate passed a tax credit that, “…also would provide a new $6,500 tax break for existing homeowners who want to move up to a new home, as long as they have lived in their current residence for five consecutive years out of the last eight.”
http://www.latimes.com/business/la-fi-tax-credit5-2009nov05,0,1817786.story
Now, I was presuming that the term “move up” meant more expensive. But, maybe it doesn’t! But many articles refer to it as a “move up” tax credit.
November 5, 2009 at 2:37 am |
Warren,
After listening to the financial sense inflation/deflation debate have you changed your mind about anything?
November 5, 2009 at 1:00 pm |
Mike asks: “After listening to the financial sense inflation/deflation debate have you changed your mind about anything?”
No.
November 6, 2009 at 2:50 am |
renewable energy will create many jobs and lowerer our dependence on foreign oil????
Newsflash…… Power plants have nothing to do with foreign oil. Roughly 5% of power plants are oil fired. Most electricty is nuclear (made in the US)
The US has the WORLDS LARGEST STOCKPILE OF COAL!!! We are the Saudi Arabia of coal. Why do all of environmentalists want to destroy an exportable resource that we have.
Cars do not run on solar, wind, hydrothermic, or hydro power. THEY RUN on Gasoline (oil)!! Now that said, electric cars are comming onto the market. But they don’t get even close to the mileage of a gas car. Do you really think that if every gas powered car was turned into an electric car, that the electric grid could withstand that? Do you really think that converting every square inch of land to solar generation would have the capacity to run all those cars plus everything else? Do you really think the US has the money or borrowing capacity to do an investment like that?
According to your book in 2002 a democrat will win the Presidency and put social program after social program into play. Which according to your own words will bankrupt the US and that president will not win a seciond term. Face it, OBAMA is a one term president.
Oh wait, cap and tax will make steel more expensive to produce and increase the costs dramtically for your renewable energy plants. Which will lead to higher taxes to pay for and the net result will be 0.
Plus the decline of coal production will force coal miner workers to become unemployed and mining equipment manufactures to go bankrupt. IT is a 0 sum game!!
The only way out is to export our way out of this mess.
November 6, 2009 at 2:24 pm |
tim stein says: “Newsflash…… Roughly 5% of power plants are oil fired. Most electricty is nuclear (made in the US)”
Well Tim, the newsflash to which you are referring must have been on Fox News. Because, per the U.S. Government’s Energy Information Administration, the 2009 energy sources for generating electricity were: Coal 45%, Nat’l Gas 22%, Nuclear 21%, Hydro 7%, oil 1%, all other 4%. So, only about 20% of our electricity comes from nuclear, not “most” per your newsflash!
You also say, “We are the Saudi Arabia of coal. Why do all of environmentalists want to destroy an exportable resource that we have.” Newsflash: coal is very, very dirty to burn, causing many environmental and health problems!
You also say, “Cars do not run on solar, wind, hydrothermic, or hydro power. THEY RUN on Gasoline (oil)!! Now that said, electric cars are comming onto the market. But they don’t get even close to the mileage of a gas car.” Sometime back, in one of my updates, I showed that over the coming ten years, if we convert our passenger cars and trucks to a mixture of the proven technologies already in use in the Prius and the coming Chevy Volt, we can be free of OPEC oil. And where in the world do you get your statement on mileage of electric cars. The Chevy Volt, which is an electric car which uses a gas engine to make electricity on long trips when the battery runs out, will get even better mileage (cost wise and efficiency wise) than the Prius, which is the current leading hybrid.
But we want more than just to get out of OPEC oil. We want to bring good paying jobs back to America. Your concern of coal miners being out of work probably was being made about people who bred carriage horses when the car came into use. The transition out of the very dirty and dangerous jobs of coal mining will be gradual, with less new people being brought into the industry as it gets smaller.
You also say, “Do you really think that converting every square inch of land to solar generation would have the capacity to run all those cars plus everything else?” First, there have been countless studies showing that we already have enough electricity to run electric cars if they are charged at night when other electricity demands are low. But, we do indeed want more clean energy sources like solar. And again, countless studies have shown that a mix of nuclear, solar, and wind power can handle all our electrical needs. And the needs for the solar portion can be met by using a small portion of our desert land that currently has no other use.
November 6, 2009 at 10:26 pm |
“But they don’t get even close to the mileage of a gas car” I also have no o idea where you get that from. The Tesla Roadster which is a performance car, 100% electric and made in the U.S (California) will beat the Ferrari spider in acceleration (0 to 60 in 3.7 secs) and has a range of 244 miles per charge. I also know people that have installed solar panelss in their houses which supplies all their energy needs (including the recharging of their cars) plus the give some away to the city.
November 7, 2009 at 6:16 pm |
You say “the coming Chevy Volt” I personally think that GM is heading in the right direction with the Chevy volt but I also think that GM will go under again. The Gov already stated that they will probably never get back the 81 billion loaned to GM or Chrysler. So that is basically telling us that they expect both companys to collapse again.
November 6, 2009 at 11:29 pm |
“Well Tim, the newsflash to which you are referring must have been on Fox News.” I guess everyone has their own preference on what media outlet they watch. But I personally like Fox news. They have the highest ratings among the other news networks and they also report news like it is and NOT the way the Gov wants in reported. This is one reason why Fox has become so popular. Check out the ratings. CNN where you get some of your facts from is one of the lowest media networks and will probably need a bailout from the Gov soon.
November 7, 2009 at 12:54 pm |
parmstrong Says: “…I personally like Fox news. They have the highest ratings among the other news networks and they also report news like it is and NOT the way the Gov wants in reported.”
Just because Fox reports the news “NOT the way the Gov wants it reported” doesn’t make what they report correct. I just completed my third book on 6 Sigma, and one of the things I emphasize in my books on 6 Sigma is the difficulty of getting good data. There is nothing wrong with watching Fox as long as you know that there is a bias in their reporting. For example, I enjoy the Bill Moyer show, but you don’t have to watch this show very much to see that he has a very liberal bias.
Fox has been very strong in promoting off-shore drilling and has NOT been strong in support on stimulus that supports clean energy independence. So anything they report regards energy is likely to include that bias. That is why I made my comment on the info perhaps coming from Fox.
As for my getting some of my info from CNN, I generally like to name the source so readers can judge whether I also am using biased data. None of us is completely immune.
As for Fox having high ratings, so do reality shows.
November 7, 2009 at 8:42 pm |
parmstrong says, regards the Chevy Volt, “I personally think that GM is heading in the right direction with the Chevy volt but I also think that GM will go under again.”
I have my name on the waiting list for a Chevy Volt. It will be overpriced for what it is, but any new technology is. Once you have a production platform out there that is pure electric (even when the gas engine comes on, it runs a generator that sends current to the battery), you have a way of testing all kinds of batteries in a real world vehicle, which will enable this technology to explode.
But you could be right that GM won’t make it.
November 8, 2009 at 4:27 am |
Nuclear energy is our nation’s largest source of emission-free electricity. The 103 U.S. nuclear units supply about 20 percent of the electricity produced in the United States – second only to coal as a fuel source. Sorry misinterpreted my data.
But your point of foreign oil providing a majority of electrical power for electricity is way off, only about 5% from oil. Stop listening to green peace.
Coal 45%( made is US, US jobs), Nat’l Gas 22% (net imports only accounted for around 13 percent of U.S. consumption in 2008, Most from US, US Jobs), Nuclear 21%( Made in US, US jobs), Hydro 7%, (Made in US, US Jobs), oil 1%, all other 4% (Imported, not US Jobs).
Stop listening to AL Gore, if you cut nuclear, Nat gas, and Coal, you loose American Jobs. IT IS A 0 SUM Game, and most likely a negative sum game. You may get those jobs back via construction, for renewables, but since they don’t require mining non-renewable resources etc for power, you will loose jobs in those industries, including the supply chain.
Newsflash: coal is very, very dirty to burn, causing many environmental and health problems! I don’t care, so do other things. The radio frequencies that surround everyone everyday, the radiation that the sun gives off. Those that are unhealthy and cannot manage, pass on. It is nature’s way, survival of the fittest.
The Chevy Volt, which is an electric car, which uses a gas engine to make electricity on long trips when the battery runs out, will get even better mileage. The Chevy volt?? are you serious, the mileage is 40 miles on a charge, the prius about 100. The volt uses a small GASOLINE engine, operating at maximum efficiency to run a generator, which in turn charges a battery, which drives an electric motor. The plug in is virtually non-existent at 40 miles a charge, which is way lower than the average commute, suburbs outside of a major city, like Chicago, where I am form. I couldn’t even make it the downtown from the outskirts of the burbs on 40 miles.
My 6 Cyl sports car get better gas mileage than that, and I put the pedal to the metal.
However, people assumed that 230-fuel rating was actual 230 miles, as it should be. It doesn’t help consumers when this huge number is promoted on every Volt public relations piece, and it has only prompted confusion. Skeptics also suggest that GM is trying to create their own estimates that aren’t part of the Environmental Protection Agency (EPA) system.
Automakers typically use the mileage rating as a selling point when describing the fuel economy on a particular vehicle. The times are changing where new fuel-efficient cars are using alternative Hybrid power sources, such as electricity and gasoline that is based on an old procedure. Future cars are converting to plug-in electric fuel, but the EPA hasn’t developed a new method for testing alternative energy.
EPA Calculations
The EPA did release a new system to calculate the mileage for electric vehicles. The calculations under the new program will measure the mileage of plug-in cars based on 25 kilowatt-hours/100 miles electrical efficiency, but many people aren’t satisfied with the results. For example, Nissan achieved a 367 miles per gallon for its all-electric Leaf.
These figures only calculate the electric output and not the distance.
http://www.newsoxy.com/articles/chevy-volt-mpg-actual-mileage.html
First, there have been countless studies showing that we already have enough electricity to run electric cars if they are charged at night when other electricity demands are low. 40 miles is long enough to drive on a single charge?? You said 100% off foreign oil for electricity would provide jobs, now you are saying that we need better gasoline engines for cars (foreign oil)? At night?
There are 2 different subjects you have talked about, Electrical Power plants and fuels that run a combustion engine. I have made my point that the majority of electricity is already made in the US. Second in the suburbs of Chicago, I have at least 3 black outs in the summer and 2 in the winter. Plus I live in the more affluent burbs, The grid can not handle it, remember the blackout of New York a couple of years ago?
Thrid, a new grid, renewable plants, and tax credits can not be paid for by the US gov, there is no more money left to spend.
November 8, 2009 at 1:15 pm |
tim stein says: “…coal is very, very dirty to burn, causing many environmental and health problems! I don’t care… Those that are unhealthy and cannot manage, pass on. It is nature’s way, survival of the fittest.”
We come from different planets!
November 8, 2009 at 2:14 pm |
Frank says, Warren
Now that the dow has reached 10,000 do you think the US dollare will take even a more beating against the other currencys? Since the fact that unemployment is still risning and the foreclosure for the past three Months is now at a record high. Do you think that we are headed into inflation because of this? I am going to dump all of my stocks asap because I hate to see what lurks around the corner.
November 8, 2009 at 2:26 pm |
Frank,
When the unemployment number shot up to 10.2% Friday, I would have bet that the market was going to drop. As you know, it went up. I now officially acknowledge that I am absolutely worthless on short-term market moves. I still feel comfortable with my longer term predictions on the economy and the market with both bottoming out about 2012 or 2013; but short-term moves on the market are beyond my comprehension.
I believe that inflation is coming, but just like the coming drop in the market, I can not tell you exactly when. But I still believe that all this will happen by 2012 or 2013, because all the data on debt, housing prices, ARM resets, and foreclosures point to those years.
November 8, 2009 at 11:50 pm |
The mark of a great analyst is one who when faced with new data changes their mind. I am so happy to have followed a person like Warren Brussee who when faced with the reality that he is worthless on short term market moves – admits it. Everyone is worthless in predicting short term market moves. It takes a great analyst to admit it.
November 9, 2009 at 1:24 pm
Warren does have some good ideas but he needs to revise his book. The S&P 500
is not falling but has jumped 58% since March. Economist expect the market to really soar
after the first of the year. Eventhough the unemployment continues to rise and the banks
that helped create the dowturn are now getting 40% more in their bonus and still not lending
small businesses any money, the economy still seems like it is improving. Also the social
unrest mentioned in this blog, there is no evidence of that either
November 12, 2009 at 6:17 pm |
Warren,
Watch the volume and breadth of what is triggering the rise in the major indexes. The unemployment hit 10.2% and the averages went up but not all stocks went up. Only the big caps and they are being manipulated. Won’t last for long. that’s my take. The pros aren’t in. they got everyone where they want them. Dumbfounded. Unemployment goes to 10.2% and they run it up. It’s a pump fake i think. We shall see. Averages can be manipulated so watch volume and breadth to confirm the averages.
November 9, 2009 at 1:52 pm |
The unemployment numbers are also said to be a lagging indicator. The market was able to rally on it because investors figure I guess that the worst is behind us not ahead of us. This appears to be a trader’s market being a perma bear or perma bull is not going to make you money.
November 9, 2009 at 9:43 pm |
parmstrong says: “Warren does have some good ideas but he needs to revise his book.”
Not at all! Here are quotes from my 2005 book (page 52 through 55):
“Sometime in 2006, consumers will reach their maximum debt level and the resultant slowdown will begin to be felt in 2006 or 2007. Companies will respond to any slowdown with layoffs to lower their expenses.”
“Come 2008, the number of people giving up on making their house payments will skyrocket. You will be able to get a great deal on a used SUV. There will be several apparent recoveries as the depression marches down its path, with glimmers of hope led by those who have not yet given up on the stock market or the economy. The TV stock analysts will continue to ask “experts” if the market has now bottomed out, and the experts will assure everyone that it has.”
“By 2010, the U.S. government will be in huge trouble. They will try government make-work programs to stimulate the economy (similar to the massive programs Japan initiated), but the United States will have entered the depression with so much debt that they will have trouble getting the money to support these programs…The government will eventually resort to printing money, because that is the only economic trick that has not been tried in Japan, and because the Fed has stated publicly they will do that before they ever allow deflation. This will cause worldwide turmoil in the financial markets. Unemployment will be well over 10%.”
And remember, I wrote this in 2004 and published it in 2005!
You also say, “…the social unrest mentioned in this blog, there is no evidence of that either.” Sorry, my book doesn’t predict that to happen until 2013, when the economy (and the stock market) is at the bottom. On page 56/57 of my book: “By 2013…Communists, socialists, revolutionaries, fascists, Nazi’s, skin-heads, white-power groups, black-power groups, and other fanatics will come out of the walls; and they will all get an inordinate amount of support from the populace. This will NOT be a very happy country.”
Note that none of these predictions changed in my more recent book. I just updated all the charts with more recent data. Also of note, if someone bought TIP (which my book recommended) at the beginning of 2007 when I predicted this thing was going to start, they would currently be 43% ahead of someone buying the S&P 500 at the same time, despite the recent dead-cat bounce of the market. My problem on this blog is that I gave in when people asked me to give my opinion on where the market was going short-term. I will be careful not to do that again in the future. I can not predict the market short-term.
However, you could be right about the economy and the market and I could be wrong. Would you please lay out your investment philosophy, advice, and predictions in detail, preferably in a book, so it could be reviewed a few years from now as I just did with my book’s predictions?
November 9, 2009 at 10:00 pm |
II have seen a lot of the fascist movement actually, survival of the elite, they are really trying and they are indeed very powerful…
November 10, 2009 at 12:42 am |
Warren
I owe you an apology. I have been following your blog for a quite a while now but only responded to it a few times. I guess that I was just in denial about what is coming down the road for us. I was testing you to see if you may have changed your mind about any of your predictions. I just guess that I am scared because things are happening just like you have predicted. Again I am truly sorry.
November 10, 2009 at 4:28 am |
Hello Warren,
You state: “I believe that inflation is coming, but just like the coming drop in the market, I can not tell you exactly when. But I still believe that all this will happen by 2012 or 2013, because all the data on debt, housing prices, ARM resets, and foreclosures point to those years.”
QUESTION: How do you think real estate (ie house prices) in nominal terms will perform between now and late 2012 to 2013? If we are going to be faced with inflation and a weaker dollar, will this put a floor under falling real estate prices? So many people say to buy real estate as a “hedge” against inflation, just like so many people are now jumping on the Gold bandwagon in flight from a falling dollar. Or do you believe like a few others that real estate (especially house prices) will continue to drop (nominally) even though we may have inflation in other areas of consumables, imported goods, and commodities. In other words, will real estate become relatively cheap when compared to what everything else will cost us?
Thanks.
Joe
November 10, 2009 at 12:46 pm |
Joe asks: “How do you think real estate (ie house prices) in nominal terms will perform between now and late 2012 to 2013? If we are going to be faced with inflation and a weaker dollar, will this put a floor under falling real estate prices?”
It all depends on timing. Houses are still about 15% over their historical inflation-adjusted price level. Now, if we get 10% inflation over the next year and in that time period home prices have dropped 5%, then homes would be at their historical inflation-adjusted price level. However, I would not bet on housing because we would still have an excess of inventory versus demand with foreclosures still climbing. Now, if the 10% inflation and 5% drop in prices (or any combination that adds to 15%) happens over a period of several years, and if during that period of time home building is slow, foreclosures have slowed, and employment is starting to rise, then homes may become a good investment.
November 10, 2009 at 12:50 pm |
Mauricio says: “I have seen a lot of the fascist movement actually, survival of the elite, they are really trying and they are indeed very powerful…”
Excellent point!
November 10, 2009 at 1:18 pm |
No kidding, I can’t believe people are not furious about it. First there was privatizing the bank profits and socializing their losses, now the same banks are getting the H1N1 vaccine before some hospitals and health care workers. Meanwhile you have pregnant mothers with a 25% H1N1 mortality rate waiting in line to receive a vaccine that hospitals/clinics ran out of.
http://abcnews.go.com/Health/wireStory?id=9005141
And i’m willing to bet the majority will still receive near record bonuses to retain all that “talent”.
November 10, 2009 at 2:51 pm
Also this report states that detainees at Gitmo received the vacinne also. http://www.foxnews.com/politics/2009/11/03/pentagon-gitmo-detainees-receive-hn-vaccine-despite-white-house-claim/
November 11, 2009 at 6:11 pm
Here is something else happening in California that is making people furious and may be coming to your State soon also. http://abclocal.go.com/kabc/story?section=news/state&id=7092532
November 10, 2009 at 4:53 pm |
We are in a secular bear market.
In the US they have had 3 secular bear markets.
1905-1921-which was inflationary.
1929-1942 which was deflationary
1966-1982 which was inflationary.
and this one 2000 to the present which unfolding.
According to the expert stock market analysers this cycle should be deflationary.
There are lot’s of pundits say we are going to get inflation or hyperinflation-Schiff-Rogers-Faber.
Alas yours truly is rather puzzled of the future before us.
Prechter says debt will implode and the wizard will not be able to print money fast enough.The wizard is hiding bonds on the balance sheet.Certain congressmen with Paul leading the way want to know what is in the wizards locker.In 1976 certain congress persons tried and failed.What is going to be the outcome?
November 10, 2009 at 6:37 pm |
Warren, In regards to what you said to parmstrong “Just because Fox reports the news “NOT the way the Gov wants it reported” doesn’t make what they report correct.” I would have to agree for the most part. I am a moderate/conservative for the who enjoys watching Fox News but I also enjoy listening to NPR and other left or center leading news sources. My view is you must hear all sides because all news sources are biased to a small or larger degree. That is why I enjoy your commentary because you use common sense and back it up with facts. Doesn’t mean I always agree with your assessment but most of the time I do and I always respect it.
November 10, 2009 at 7:42 pm |
Mike Smigielski says: “My view is you must hear all sides because all news sources are biased to a small or larger degree.”
I agree. The people who set up our legal system with a prosecutor and defense attorney, each presenting opposite sides and a jury deciding which side has the most merit, had some wisdom. As I have mentioned, I enjoy the Bill Moyer show. But he has such an obvious liberal bias that I don’t think that I have ever used his show as a source reference. If he presents an idea that I find interesting, I will Google it and see if I can find other less-biased sources that back up his statements with hard data.
Also, I learn a lot from people who disagree with me but back up their opinions with logic and data. Then we can have a discussion with some possibility of a resolution, or at least reach a mutual understanding. But many people just find some raging nut that they agree with, quote him as gospel, and then look to others to do the hard work of disproving the idea.
The problem with people accepting ideas without questioning is that, as both political parties have learned, if you repeat a lie long enough, many people will begin to accept it as a truth. Our former VP certainly did that related to weapons of mass destruction in Iraq and Iraq being behind the terrorists attacks on 9/11.
November 11, 2009 at 1:58 am |
Warren,
In regard to real estate prices:
My mother-in-law, who lives in a Mesa, Arizona trailer court, told me last week that mobile homes in her park are selling for $100 apiece. She asked me if I knew of anyone who would be interested in moving down
there and I told her no. These are not run-down trailers – they are
not that old, and come with the appliances, are already hooked up in the court. Lot rent is very reasonable. But, no takers. Crazy isn’t it? Do you think this will become more common?
November 11, 2009 at 2:00 am |
Warren,
I forgot to add, the trailers normally sell for $2000.
November 11, 2009 at 7:06 am |
Warren it would be interesting if Index Linked Gilts had started in 1970.
I have a indices I have had for many years.
The information of an all share index published monthly in England.
In 1962 The FT started the continuing data .
It would be interesting what the index from 1970 inflation adjusted for CPI of the S&P 500 .:http://docs.google.com/View?id=ddp85t3b_114gnm3t7f7
http://www.ft.com/aboutus/fthistory
November 11, 2009 at 6:32 pm |
Mr. Brussee,
I have not had time to read through your books I purchased off of Amazon, but I was hoping you could help me with a couple of investment question.
1. In your opinion, how do you feel I Bonds compare to TIPS in the long term? I know you refer to TIPS in many of your writings, but I Bonds are a bit easier to wrap my head around and invest in until I learn more about investing in general.
2. How do you feel about investing in precious metals; specifically, silver.
I still have 30+ years until retirement, and am looking for some reasonable safe “set and forget” investments – if that’s even possible these days.
Thank you for your time.
November 11, 2009 at 7:02 pm |
ean asks: “1. In your opinion, how do you feel I Bonds compare to TIPS in the long term? I know you refer to TIPS in many of your writings, but I Bonds are a bit easier to wrap my head around and invest in until I learn more about investing in general.”
Since you have my book “The Great Depression of Debt,” look on pages 119 through 121 and you will get a more complete answer than I can give here.
You also ask, “2. How do you feel about investing in precious metals; specifically, silver. I still have 30+ years until retirement, and am looking for some reasonable safe “set and forget” investments.”
Since precious metals are currently a “hot” investment, and likely on their way to being a bubble (if they are not already there), it certainly is not an investment that you can “set and forget.” That doesn’t mean that you may not make a lot of money on silver, at least in the short run. But then again, you might make a lot on money playing blackjack in Vegas!
November 12, 2009 at 1:48 am |
I am continually amazed at the total lack of objective analysis by many of our citizens. The firebrand expletives of ‘Communist, Marxist, Socialist are being uttered by what I call the “No-Nots” (know nothings) as a recent example reflects. I encountered several local Attorneys in a local restaurant, boldly proclaiming that our country was losing it’s ‘freedoms’ to Marxist-Communists……I asked them how they ‘knew’ of Marxism/Communism, their reply was they ‘visited’ Moscow…I asked how long they were there, they replied “two days”.
I told them, much to their dismay, that they knew nothing of either Marxism or Communism and to say that they knew the definition in a court of law, they would be held in contempt !
They asked me what made me the ‘expert’ I replied 50 years of my Family’s suffering…
As to civil unrest….you ain’t seen nothing yet…and you wont hear about it either from fox or any other media until its too late., Since the media is self serving as well.
..
November 13, 2009 at 5:30 am |
Warren,
Do you think the FEDS engineered this stock market rally with all the printing they have done? It seems the only thing that will crash the market is some sort of black swan event. The only place inflation seems to be happening currently is in the stock market and gold. Do you think most of the money being printed and going to banks are going into the stock market since the banks aren’t willing to loan to main street?
November 13, 2009 at 11:22 am |
Well, Warren Buffet and Bill Gates say, the worst is behind us for the economy and stock market. It seems like Buffet has said this before, yeah, I believe it was about 6 months or less before the last crash. I cant imagine what these two hope to accomplish by saying this, maybe they actually believe it themselves.
November 13, 2009 at 11:35 am |
Maybe that is why Microsoft is laying off 800 now, because the worst is behind us
November 13, 2009 at 1:34 pm |
Albert asks: “Do you think most of the money being printed and going to banks are going into the stock market since the banks aren’t willing to loan to main street?”
The Investment Company Institute shows that domestic equity funds have had a negative cash flow for the last three months. And, looking at the volumes for the S&P 500, average daily volumes are down about 33% since March. That doesn’t seem like it would happen if somehow money going to banks is ending up in the market. So I don’t know what is driving the market. It doesn’t seem to be volume. It seems like the buyers that are still in there are just willing to pay whatever it takes to buy stocks, no matter what the economic news.
As I have said, I don’t know what drives the market short-term. As someone has said, in the short-term, the market is a voting machine. In the long run, it is a weighing machine. Eventually, real company profits will rule the market.
November 13, 2009 at 3:55 pm |
Warren,
I think the investment community has brain washed investors into the buy and hold mentality for so long that it will take alot of bad earning reports to reverse that mentality. Especially after this 60% bear market rally. These investment advisors are now telling clients that this last 60% rally is proof that you don’t panic and sell. In addition, some investors think the stock market is too big to fail with so many pension funds and 401K relying on it for funding…. It is almost a sense of entitlement. So that mentality is now even more entrenched. Maybe the best prediction is that we will muddle along and it will be a slow steady trend back down to reasonable valuation at Dow 3500 to 5000 instead of a huge one year crash like we had last year. In the mean time savers like me who have expiring bank CD’s paying 4% is now faced with 1.7% online money market accounts. The big question is if conservative investors like me will gamble on the stock market sending it even higher short term rather than being screwed by these bankrupt banks paying such low interest rates.