Cat has 9 lives, and stocks may have its last
Posted by Frugal on February 2nd, 2010
In my projection, stock markets may make a lower high in about March timeframe. My advice is to sell and get out.
Despite my general bearishness, I want to emphasize that this is NOT 1929 great depression, when deflation ruled the days. In fact, at the next intermediate long of stock market probably 8 to 18 months from now, that low (which should be 20%+ lower than the current prices) should be bought. The longer term picture for financial markets is still
1. (long/intermediate term) Bonds go down.
2. Inflation goes up.
3. Stock goes up nominally, but possibly goes down if adjusted by inflation.
4. Cash will be “trash”.
5. Housing markets most likely stay flat AFTER it reaches another new low, EVEN with general inflation going up.
6. US dollar will go down, but not YET.
7. Commodity will be very volatile with upward bias.
The next big time bomb should be around mid-April to late June. Prepare to see the fireworks (and make sure your portfolio is not used as part of the fire powder). In the meantime before next big inflation comes, deflation & deleveraging will continue to put a lid on asset prices. Have patience.
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February 5th, 2010 at 1:26 pm
I have a question- Why “cash will be trash”??
In the event of market meltdowns, declining real estate, gold declines, etc.
wouldn’t it be good to have cash to pick up all sorts of bargains??
February 5th, 2010 at 5:19 pm
slide has already begun before April timeframe. Good to invest if you’re LT.
February 11th, 2010 at 8:24 am
I agree that a downturn is coming or is already here. But, I wouldn’t be too quick to rule out the deflation thesis. Japan did everything it could for the past twenty years to create inflation, and they still haven’t been successful. If we see another downturn in the markets, we will see more retrenchment from consumers, which will be deflationary. Consumer debt is on a one way slide down already, and that could get worse. This is exactly what happened in Japan. The consumer delevered and saved, and the government’s efforts to lever up wasn’t enough to offset the deflationary effects of the consumer. Throw in the banks reluctance to lend, and we could have deflation for some time.
We probably won’t see the drop that we did in the 30s, but this isn’t because deflation isn’t a factor. It has to do with the tariffs and trade wars that developed. Of course, we could see more protectionist action if things don’t improve, especially the US putting pressure on China to float the remnimbi.
February 16th, 2010 at 8:26 am
Do you think the housing market will be lower in mid-June as well? I was thinking of buying, but am now thinking I should wait until it hits an all time low. What’s your thoughts?