This will be my last post of the year. I hope everyone has fun celebrating tonight. Be safe and have a Happy New Year! I am sure many of you are glad 2008 is over from an investment standpoint! Lets hope 2009 isn't as painful.
The markets are up mildly this morning. Jobless claims for the shortened holiday week were still close to 500,000. A startlingly bad number but what else is new right?
I want to highlight an excellent interview around deflation that I caught on the Market Oracle last night. This is one of those interviews that sends chills down your spine and keeps you up at night. The interview is between the famed economist Martin Weiss and his currency expert Jack Crooks.
I will put up the charts from the interview followed by a few comments and highlights from the interview. In my opinion, these two have it 100% totally right. This has been my thesis for about 2 years. The deflation we are seeing is breathtaking and getting worse, and the Fed is powerless to stop it.
Here are the charts followed by a few comments below:
First of all we have seen a massive destruction in wealth that totals $7.7 trillion:
Mortgage debt is completely collapsing as the the number of new mortgages in total dollars is being dwarfed by the number of mortgage dollars that are defaulting:
The Fed and the TARP are powerless to overcome this massive loss of wealth:
Martin: In reality, America's First Great Depression wasn't caused by what the government failed to do to stop it. Rather, it was largely caused by all the wild things the government did do to create the superboom in the Roaring '20s that preceded it. They dished out money to banks like candy. They let banks loan money to brokers without restraint. And they encouraged brokers to hand it off to stock market speculators with 10% margin.
But if you want to see what happens when a government intervenes aggressively after a bust, just look at Japan since 1990. Japan lowered interest rates to zero, just like the Fed is doing today. Japan bailed out banks, brokerage firms and insurance companies, much like the Fed is doing here. Japan embarked on massive public works projects, much like President-elect Obama is proposing now.
Martin: Because those bigger numbers are almost entirely guarantees and swaps — not net new money added to the economy. Plus, please bear in mind one more thing: The wealth destruction we've been discussing today does not include the losses by financial institutions, corporations and governments."