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Financial news I consider important, with my opinion, which is worth as much as you paid for it.
Please click HERE to read a synopsis of my view of the financial situation.

Saturday, December 18, 2010

View change

I have updated my new reader comment and added the bold below.

Short take
The US Stock market and the US economy will see substantial pressure from a massive deflationary collapse that will not end until the US government enforces honest accounting and loses by US banks are realized. Current target for S&P500 and DJIA for a "bottom" is 550/5000 respectively
or lower either in USD cash or living standard degradation equivalents. For example, if cost of living increases by 25-50%, in real terms a S&P 500 at 1,100 is at 550.

This is an important shift for me, I have been essentially at this opinion for the last 6 months, but figured it was about time to articulate in this blog and on my new reader.
If Americans cost of living radically increases, the likely cause will be a lower valuation of the US dollar in terms of cost of resources.

This is a differing view than most who look at USD in currency exchange rates from other nations. Therefore, I am of the opinion that it is possible that the market does not go materially lower in us dollar terms. But the expenses of Americans going up in effect is the equivalent of a market crash. So theoretically, the S&P 500 could go up to 2,000, but be making new lows in relation to living standards of Americans.

For example, if new mortgage rates are at 15%, food has doubled, gas has doubled, in terms of people's daily "wealth" related to market valuation, a S&P 2000 is worse than if it was S&P 500 and the cost of food, gas, and rates where lower, say food at 25% discount, gas at new lows, and rates at lowes.

The general point is, the US financial system still faces many challenges, and the losses stemmed from corruption and bad policies must be realized. The decisions being made may result in the market not going 50% lower, but living standards cut drastically. Someone has to pay for the losses, it will be either stock holders, bond holders, or the people.

And it is increasingly looking like politics want it to be the people.

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