The Feds Liquidity Trap Part II, Inflation or Deflation?
The market is walking a fine line between higher inflation and a depression. The liquidly trap that the Federal Reserve has created with the housing market will resolve by the end of this year. On the other side of the line is a 1930’s depression era recession which could last beyond the retirement years of the “baby boomers. The depression era threat is real and the new Fed Chairman, Ben Bernanke, has studied the depression era as a hobby. His recommendations for curing the depression earned him the nickname, “helicopter Ben”, since his recommendations are to drop money from helicopters to spur economic growth in face of a depression. But first, he will have to tighten monetary supply before inflation sparks a Jimmy Carter economy. The wild fires of inflation in the housing market has spread a temporary wealth effect among unsuspecting long term stock holders. The next few months will determine if there is inflation or deflation within the economy. The severity of the housing bubble collapse will determined the next phase of inflation or deflation. Even Greenspan issued a warning last year,
Alan Greenspan just said in his speech to National Association for Business Economics on September 27, 2005, ‘..history cautions that extended periods of low concern about credit risk have invariably been followed by reversal, with an attendant fall in the prices of risky assets. Such developments apparently reflect not only market dynamics but also the all-too-evident alternating and infectious bouts of human euphoria and distress and the instability they engender.’
Remembering 2001, businesses were spending furiously on R&D and building factories. Businesses always have an incentive to overbuild because any losses can be offset in later years if they are wrong about economic conditions with one time charge write offs. The Chip manufactures had $2 Billion dollars invested all over the world with building new facilities and they were completely blindsided by the falling prices of chips in the coming years. The same thing has happened before in the home builders, who have a notorious reputation of overbuilding their markets. Similarly homebuilders are continuing building houses at a furious pace despite the length of time for the average home being on the market, now over 5 months. Meanwhile, corporate insiders are selling their company’s stock at accelerated levels. Others insiders are moving nearly 1 billion dollars a day to off shore bank accounts according to trim tabs.com.The inverted yield curve is an ominous sign and should be the signal flare for everyone to lock in profits and move money into a cash position. You can buy a short term (2-3 months) treasury bill/bond that will pay a higher interest rate than 30 year bond! This is a clear sign that something is about to change, very drastically. I explained the global financial pecking order of the financial market as Forex, commodities, bonds, and lastly stock market where the effects of inflation or deflation can be measured.
The first stages of inflation have happened with the devaluation of the U.S. Dollar. The second stage is occurring now with inflating commodity prices. The third stage will begin over the next 3 months by inflating long term bond yields. Lastly, the stock market will begin to feel the effects of inflation by October of this year. I hope you are prepared for the next coming bear market.
If you remember 2001, just before the bubble popped, there were several wild swings in market valuations before the final collapse. I warned members of the yahoo group about the coming collapse July and August of 2001. So the inevitable market cycle returns to The Fed has a Six Shooter Only posted on August 21, 2001. How many interest rate hikes have we had over the last year?
6 year market performance summary
The Dow Jones Index from Jan 2000 is down -4.5%
The S&P 500 Index is down – 11%
The NASDAQ Index is down -42%
The U.S. Dollar Index is down -18%
The SOX Index measuring computer chip manufactures – 30%
The Oil Service Index is up 128%
The Gold Index is up 98$
The Commodity Research Bureau Index is up 56%
The Russell 2000 small cap Index is up 46%
The special price will only last 4 more days until the end of the month. I will personally annotate 3 of your charts when you purchase the Harmonic Stock Clock book. Time is critical if you are a long term investor. The month of March has not been kind to the “buy and hold” investors. This is the longest cyclical bull market in history without a 10% correction, since rebounding off the lows in October lows in 2002. Yet, the market has failed to make new all time high over the last 6 years. I believe that programmed computerized trading has been the culprit of this sustained trading range. If I am correct, then the correction could have far reaching effects, back to the lows of 2002.
The market will have valuation gyrations and you can capitalize on these swings if you have a game plan. The Harmonic Stock Clock will give you clear signals when to take profits.
The last 4 days only, over $600 worth of information at this low price.
God Bless
Doc
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Doc’s Harmonic stock Clock is intended for stocks, options, futures, commodities, and currencies trading.
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No advice is given. No recommendations given.
You are considered to be over 18 years old.
Doctraders Harmonic Stock Clock is based on technical market indicators which may predict short term and long term market trend reversals. Doctrader is not an investment adviser but has been involved in the markets since 1985. No system of trading or investing can prevent losses, you should do your own “due diligence” when determining the suitability of the information contained within this or other websites mentioned in this blog.
Use all Information on this site at your own risk.
God Bless
Doctrader
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McAlvany ICA presents financial, political and geo-political information to aid investors in developing sound alternatives for their portfolios in uncertain times. 
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