# Enough doom and gloom



## sammy84 (26 October 2008)

What i expect from this monday; 

The world will still turn
My job will still be there.
The value of my place will not have dropped considerably- whilst the clearance rate was only 50% yesterday, there were still a lot of buyers out there attending the auctions, they are only holding back to see how things will play out. Furthermore the average price of houses sold yesterday was only 15% down from the inflated highs last year)
Business will continue to make considerable profits ( e.g NAB's only reported a .9% drop in net profit)
Luxury cars will still be bought, except of course the BMW M6, they are sold out of those. 
There will not be an abundance of people having their mortgages foreclosed and losing their jobs. Therefore I wont be dodging past homeless people on the street and having Oliver Twist begging for money. 
People will still be traveling overseas, even with the Australian dollar at its current rate. Try to prove me wrong and find me a cheap flight to Bangkok in January and I will certainly be thankful.
I still wont be able to get a dinner reservation for two of my favorite restaurants for Nov 14. Once again I would like to be proved wrong...flower drum or vue de monde at 7pm would be great 
1.3 Billion Chinese will continue to consume.
The list could go on. In other words, all though we have seen drops in the market which mirror those which occurred in the Great Depression we are not going to enter a depression, may not even a proper recession (a technical recession maybe). Our desire for sensationalism has made us turn this credit crisis into something bigger then it is capable of. I am getting sick of people making this matter out to be much larger then it should be. If we look around us it should be clear that things are not that bad, yeah our portfolios might have taken it a hit, but they will recover. Sorry for the ramble, but I had to get this off my chest.


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## sinner (26 October 2008)

I wrote a long post explaining why the doom and gloom isn't sensationalistic and how most of the commentary I've been reading has pointed squarely at a long slow crunch rather than waking up to market open with a news report of mass suicides amongst stock brokers 

But why bother? I've never been one of those "the sky is falling" types, all my commentary is from a lot of reading and researching and fact validating over the course of several years.

So all I can say is, I hope you're right, things will continue as they are. This would be preferable to the alternative.


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## numbercruncher (26 October 2008)

Irrational exhuberance


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## sammy84 (26 October 2008)

sinner said:


> I wrote a long post explaining why the doom and gloom isn't sensationalistic and how most of the commentary I've been reading has pointed squarely at a long slow crunch rather than waking up to market open with a news report of mass suicides amongst stock brokers




The credit crisis has been going on for nearly a year now. Whilst I may be slightly poorer as a result, there have been no majors changes in my day to day living. How long would you suggest this slow crunch would continue for and how long till we would feel the substantive effects from it? I'm not putting down your suggestion, I just find it hard to believe as we as a society, so often have a tenancy to over react and ramp up any thing which is a threat to our way of life.


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## sinner (26 October 2008)

No offense sammy, but your narrow mindedness is showing...

No major changes to your day to day living so the entire world must be fine right?

You know there are tent cities springing up all over the US right now, don't you? 

Where would you like to start? Cali?
http://www.ipsnews.net/news.asp?idnews=44322
Ontario?
http://www.dailybulletin.com/ci_10811643
Nevada?
http://www.thestar.com/Columnist/article/519057

You say your standard of living has not changed but in the past month you have been saddled with your share of tens of billions of dollars of debt created to stop an economic explosion which would have otherwise left you on the street for sure. The market always corrects. You can't just print money, that bail out debt is gonna get called on sooner or later and if the '84 in your name suggests the age I think it does, then you can be assured it will be within your lifetime.

You say profits remain high but not many have released their Quarterly reports yet. Growth predictions are being cut left right and center. It's easy to only slice .9% off your profit when you can go to the government to get some extra cash printed up to cover your ass!

If you at least agree that the last 5-10 years of international prosperity was by and large fuelled by the creation of credit/debt/funny-money/fractional reserve lending/yen carry trade/etc (all the things that stem from essentially free credit) then the fact that last year US credit creation sat at 2.7 trillion and this year it's already down to 1.5 trillion and next year ...who even knows?! Then you can see where all that prosperity is going without all that credit. Down the drain. 

If you put any weight into Martin Armstrongs Pi Cycle chart, and why wouldn't you, he's no joke







(you'll need to read this link for it to really make any sense)
http://www.contrahour.com/contrahour/2006/06/martin_armstron.html

which although written in 1997 managed to predict the date of the Bear Sterns implosion to the day, then this isn't the crunch at all, we are just coasting on consequences right now, the real crunch doesn't begin till April next year...which is actually in line with my own musing and thoughts on how long the real effects of this bailout will take to flow onto the real economy.

Doesn't look pretty does it? 

Oops am I ramping/sensationalising again?


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## chops_a_must (26 October 2008)

sammy84 said:


> [*]Business will continue to make considerable profits ( e.g NAB's only reported a .9% drop in net profit)



Tell that to the businesses that have just had 6-12 months worth of all their contracts completely cancelled within the last week.


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## robots (26 October 2008)

hello,

you could be the first one to go and help people out chops, buy them a load of groceries

life is great, you spot on sammy 

thankyou
robots


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## mayk (26 October 2008)

Well put Sinner, strange nickname you have got there.


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## gfresh (26 October 2008)

no  

Things are fine now, but everybody is looking forward to what will be happening to the real economy in 12 months, not what is happening now. 

I think you're going to find more realists rather than optimists here, if that bothers you tune out until it's impossible to ignore all the good news coming out.


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## Nick Radge (26 October 2008)

That would be the same Marty Armstrong who was jailed for fraud?


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## sinner (26 October 2008)

Yeah that's the one!

What he was jailed for is up for debate.

From wiki



> Armstrong called the high of the Nikkei in 1989 months ahead of time—the Nikkei peaked the last week of December as he said it would, then crashed, casting off 40 percent of its value in a matter of weeks. More recently, and again months ahead of time, Armstrong predicted the July 20, 1998, high in the U.S. equities market—to the day. After that morsel of prognostication according to James Smith, a former Princeton Economics employee, the CIA called Princeton, wanting to know how the Institute’s proprietary models worked. Needless to say, Armstrong rebuffed them.[2] The court has since then been demanding that Armstrong hand over his proprietary computer code to them. According to Armstrong's daughter Victoria Armstrong, "It took nearly 30 years for my dad to develop this model and his refusing to turn over its source code to the government is a big reason why he has been held in jail for over 7 years without a trial." [3]
> 
> Indeed, he predicted the February 27, 2007 fall off of Global market ahead of time in a 1999 article.[4]




So regardless of "fraud" he is ON PAPER as predicting several market turns several years before they were to occur. As a collector of predictions, let me tell you, to get one right is rare enough, to predict several in a row ...well I feel it's a bit more than coincidence. 

You're worried about the integrity and rep of Martin Armstrong and not the elected officials which lie to your face every day about a whole range of issues? 

But this is all very off topic, I only raised the point because I was queried as to my PERSONAL views on the crunch, so I raised the 2009 timeframe as it seems accurate to me.

EDIT: Would just like to point out that Martin Armstrongs trial was delayed several times until he finally had his day in court in March (or May I can't remember) 2007. That's an awful long time to leave someone to rot in a cell without a trial for committing fraud don't you think? Most financial fraudsters are swiftly prosecuted once they are caught because people want their repatriations.


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## sammy84 (26 October 2008)

sinner said:


> No offense sammy, but your narrow mindedness is showing...




It is not narrow mindness to identify that we are nearly one year into this credit crisis and little or it has actually affected Australia except companies market cap. 



> No major changes to your day to day living so the entire world must be fine right?




No that is not the suggestion. Yes the many of the world economies are going to enter a period of contracting growth, but what annoys me is the suggestion that we are going to be entering a period which may be similar to that of the great depression. During that time 1 in 4 people were unemployed and there was a deflation of around 30% (which encouraged people the postponement of non-essential purchases and investment). My point is if were really heading towards a period similar to this the effects in the Australia economy would be more noticeable at present. And yes my day to day life is a very good example because we as consumers are what ultimately drives the economy, and little has happened in the past year to make me materially change my spending habits or my appetite for debt, which in turn will keep the economy ticking over. 




> You say your standard of living has not changed but in the past month you have been saddled with your share of tens of billions of dollars of debt created to stop an economic explosion which would have otherwise left you on the street for sure. The market always corrects. You can't just print money, that bail out debt is gonna get called on sooner or later and if the '84 in your name suggests the age I think it does, then you can be assured it will be within your lifetime.




The markets will correct, but also as the markets become more sophisticated they will find ways to ensure your inevitable 'economic explosion' wont occur some where down the track. I know you might classify as willful blindness, however I do have faith that the majority of those are in people charge of the operation of the various world markets have learnt enough from past mistakes in order to know what to do now. 



> If you at least agree that the last 5-10 years of international prosperity was by and large fuelled by the creation of credit/debt/funny-money/fractional reserve lending/yen carry trade/etc




Yes most of America's(Note I only make mention to America, our average debt per person is quite conservative to that of America, and our lenders never embraced the concept of NINJA loans) appetite for debt was too high. It was a fault of the regulators to believe that lenders would act in the best interests for themselves and therefore not lend to risky customers. This will require an evaluation change on how we believe the free markets should operate and invariably more regulation. However this does not spell the end of the world. 


Re; Martin Armstrongs Pi Cycle chart- I haven't had time to read it at present and want to read it properly, otherwise I risk sounding narrow minded.


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## chops_a_must (26 October 2008)

sammy84 said:


> No that is not the suggestion. Yes the many of the world economies are going to enter a period of contracting growth, but what annoys me is the suggestion that we are going to be entering a period which may be similar to that of the great depression. During that time 1 in 4 people were unemployed and there was a deflation of around 30% (which encouraged people the postponement of non-essential purchases and investment). *My point is if were really heading towards a period similar to this the effects in the Australia economy would be more noticeable at present.* And yes my day to day life is a very good example because we as consumers are what ultimately drives the economy, and little has happened in the past year to make me materially change my spending habits or my appetite for debt, which in turn will keep the economy ticking over.



Pretty naive here sammy.

The events of 29 didn't translate to depression for years afterwards.

Some interesting quotes from wiki here:



> However, even shortly after the Wall Street Crash of 1929, optimism persisted; John D. Rockefeller said that "These are days when many are discouraged. In the 93 years of my life, depressions have come and gone. Prosperity has always returned and will again."[5]



Pretty familiar.

And to your outlook:



> In early 1930, credit was ample and available at low rates, but people were reluctant to add new debt by borrowing.[citation needed] By May 1930, auto sales had declined to below the levels of 1928. Prices in general began to decline, but wages held steady in 1930, then began to drop in 1931. Conditions were worst in farming areas, where commodity prices plunged, and in mining and logging areas, where unemployment was high and there were few other jobs.




All evidence suggests your actions and experiences aren't the norm at the moment. In fact, quite the opposite - people are attempting to pay down debt and are cutting back on spending drastically.

I'm not saying we are heading for another great depression, but not even acknowledging the possibility is foolish in the extreme...


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## robots (26 October 2008)

hello,

look at this:

http://www.theaustralian.news.com.au/story/0,25197,24554249-601,00.html

see everything is fine, the government has everything under control

what a breath of fresh air Rudd and crew, doing the best for the public

thankyou
robots


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## fimmwolf (26 October 2008)

At least the British are serious


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## MS+Tradesim (26 October 2008)

sammy84 said:


> My point is if were really heading towards a period similar to this the effects in the Australia economy would be more noticeable at present.




Not necessarily. There will always be a period prior to the downturn when it still seems cosy (to some). There has to be, otherwise there would not be people saying, "It won't happen. She'll be right."



> And yes my day to day life is a very good example because we as consumers are what ultimately drives the economy, and little has happened in the past year to make me materially change my spending habits or my appetite for debt, which in turn will keep the economy ticking over.




And this implies that the same trend will continue forward?



> The markets will correct, but also as the markets become more sophisticated they will find ways to ensure your inevitable 'economic explosion' wont occur some where down the track.




Can't agree. Market fundamentalism, which is what you're advocating, is the reason the world is in this mess right now. It's estimated there will be another 120 million or so extra people suffering hunger next year because of protectionist responses as countries turn inward to shore up their own systemic issues resulting in less aid elsewhere. But I suppose "she'll be right" as long as we can still afford a plasma TV?



> I know you might classify as willful blindness, however I do have faith that the majority of those are in people charge of the operation of the various world markets have learnt enough from past mistakes in order to know what to do now.




Well, that's why this present mess is unfolding now. The basic human herding responses combined with greed and panic played out on the background of market fundamentalism and lagging regulatory structure means I have very little faith in the big guys to do the right thing.



> Note I only make mention to America, our average debt per person is quite conservative to that of America,




Have a look through all the charts and commentary here:

http://www.debtdeflation.com/blogs/


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## Muschu (26 October 2008)

In my view there are a number of strong positives in Sammy's original post which have been extrapolated and then misinterpreted.  
The topic is complex but, unless you happen to feed on gloom, a number of his points are reasonable.  
Mind you, some do feed on gloom.....


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## cutz (26 October 2008)

Hi sammy,

The thing is most people including myself have no idea how this mess is going to pan out, there are posters predicting the end of the capitalism and depression like nothing we have seen before and some people reckon that this is the bottom of the cycle and things can only get better. The truth is few really have a clue and for most part economics is not really the expertise of most people around here, even the pros can’t get it right. 

Remember back one year there was talk that we were in the middle of a commodities super cycle and oil was going to smash through 200 bucks a barrel, well that turned out to be a load of baloney. Now we have the other extreme and it seems like everybody is ducking for cover and liquidating to the benefit of whoever is brave enough to take the other side. My piece of 2 bit advice, keep your head and pick up a book on market history, this is a market overrun by irrational mob behavior, its happened before it happening now and this sort of thing will happen again.


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## Smurf1976 (26 October 2008)

sammy84 said:


> [*]The value of my place will not have dropped considerably



That's a shame. We need house price falls (amongst other things) to get out of this mess.


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## shaunQ (26 October 2008)

So using the Marty Armstrong theory, from his graph he says that the high would be 27 Feb 2007, but it actually Oct 9 2007, which is 224 days out.

The next low is said to be 2008.25 or around Mar 23 2008, so assuming it is out by 224 days, leaves a (short-term) bottom at Nov 2 2008.

Then it climbs higher for a period, he says to April 23 2009, +224 = Dec 3 2009. 

So, we bottom out early November, climb potentially for a year, and then it crashes completely.

So only 1 more week to go!


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## theasxgorilla (26 October 2008)

Smurf1976 said:


> That's a shame. We need house price falls (amongst other things) to get out of this mess.




Hmmm...after looking at Japan for almost 2 decades I think the worlds central bankers fear deflation more than anything else and would rather inflate away the debt.  I'd bet on this lesser of two evils being their objective, which I don't think will result in house price falls in the vicinity that many are  thinking is necessary.


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## chops_a_must (26 October 2008)

theasxgorilla said:


> Hmmm...after looking at Japan for almost 2 decades I think the worlds central bankers fear deflation more than anything else and would rather inflate away the debt.  I'd bet on this lesser of two evils being their objective, which I don't think will result in house price falls in the vicinity that many are  thinking is necessary.




The end results will be the same though as wages, costs of living and support payments have to rise.


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## sinner (27 October 2008)

shaunQ said:


> So using the Marty Armstrong theory, from his graph he says that the high would be 27 Feb 2007, but it actually Oct 9 2007, which is 224 days out.




Hmm...how did you justify this again? I misunderstand.

Feb 27
http://money.cnn.com/2007/02/27/markets/markets_0630/index.htm
"Dow tumbles 416, biggest one-day point loss since 2001, as investors eye China, drop in durable orders."

(since 2001 means since 9/11) 

I am pretty sure the numbers "work" (please note I suggest you run the numbers yourself and not take my word for it) if you only count business trading days.

The above chart, I am sure, is not meant to be taken so visually as much as an indicator for highs and lows on particular dates.


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## cuttlefish (27 October 2008)

chops_a_must said:


> The end results will be the same though as wages, costs of living and support payments have to rise.





But different strategies are needed depending on the form it takes - deflationary or inflationary.

And everybody is a participant in the property market (because whether an owner, a mortgagee or a tennant, everybody has to live somewhere).


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## Smurf1976 (27 October 2008)

theasxgorilla said:


> Hmmm...after looking at Japan for almost 2 decades I think the worlds central bankers fear deflation more than anything else and would rather inflate away the debt.  I'd bet on this lesser of two evils being their objective, which I don't think will result in house price falls in the vicinity that many are  thinking is necessary.



I tend to agree somewhat. But to work that needs to be wage inflation we're talking about and not something else being inflated.


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## theasxgorilla (27 October 2008)

chops_a_must said:


> The end results will be the same though as wages, costs of living and support payments have to rise.




Fine, but factor those things in as part of an alternate scenario.  I think too many bears are looking for the inevitable what goes up must come down.  That is a scenario, yes.  But not exploring other possible scenarios, however illogical or unlikely based on todays "facts", means you might miss something vital when your map stops matching the terrain.

Take the bear camp for the last several years.  The consensus was that it's all got to end now...no I mean, now...ummm, I mean, ready, now.  It's been like kids sitting in the back seat trying guess when the lights will change to green.  Whilst it's highly unlikely that we were ever going to buck the business cycle indefinitely, side lining yourself too early (or worse still, _shorting_) means you missed a real goldilocks of a bull market.

I know, because I went cash heavy with my super a little earlier than I could have and missed a really nice trend.  That my low-risk income investments have compounded since then to ensure that I'm still well ahead of practically anybody in the "balanced" buy-and-hold camp is of course some salvation. 

What are some of the alternative scenarios, and what might they look like?

The Peter Schiff scenario is for real doom and gloom.  It's possible that we might get doom *without* gloom.  If central banks manage to lower rates to reduce the worlds home owners monthly commitments, and their house prices remain steady yet inflation takes off, we could well have the doom...but people might be a lot less gloomy about it than a savagely deflating house price scenario.

What about boom and gloom?  Is there a scenario where we have some booming sectors/economies yet the masses are still gloomy?  Of course.  Observe the distribution of Russian _prosperity_ over the last decade or so.

Scenarios are fun.  Far more valuable than pegging your hopes to just one outcome and defending it to the hilt.


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## Ageo (27 October 2008)

lol sammy if you think this market will continue to go on forever like this you have got to be kidding? if nothing changes to our monetary system then what happens when property prices are $1million on average? whats the medium wage going to be?>do we all go from our parents having 1 job of the husband to working 2 jobs each (for the average person)? If you look at statistics our growth isnt sustainable, the only way that our growth is possible is from credit (this has proven itself). I suggest you learn about credit creation/destruction a little more before trying to think our leaders have an idea. 

Sit through this simple crash course and then tell me what you think (remember this is based purely on facts as i have cross checked these).

http://www.chrismartenson.com/crash-course/chapter-1-three-beliefs


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## moXJO (27 October 2008)

Things do not suddenly come crashing down its death by a thousand cuts. I would love for the OP to be right. But things have slowed down a lot in my town. And a lot of business has started to go bust. We were flat out just a few months ago and now everyone is quiet. I think a lot of it is influenced by people’s fears as well. The lag time on property coming down has taken a lot longer then I thought it would. While I am prepared for a downturn I hope that we might pull up ok and things wont be so bad. But rest assured there are a lot of people doing it very tough out there right now.


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## shaunQ (27 October 2008)

sinner said:


> Hmm...how did you justify this again? I misunderstand.
> 
> Feb 27
> http://money.cnn.com/2007/02/27/markets/markets_0630/index.htm
> ...




Hi - I am not arguing it at all, simply saying the graph points to all time high at 27/2/2007, and it was very high, however, the market continued to climb for another 224 days (incl. weekends).

However, obviously I am taking it visually, in reality I think he just says there will be a change of sentiment on that day, not necessarily a complete redirection.


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