Trying to Fight Deflation With Inflation

g20 meeting rallyMarkets soared on Monday as investor's confidence got a boost from the weekend G20 meeting, which portrayed a strengthening of the global economy. A 200 point rally on 200M of trading leads me to believe that a small group of people are doing a lot of the buying.

With reading the headlines and sites nowadays, I almost feel like I am getting pitched on a multi-level marketing scam, when referring to the stock market. Analysts are proudly declaring the success of the market with firm recommendations saying "you can still get in, we've got a ways to go." Whether or not that is case, is still yet to be determined, but what makes me very cautious to partake of any such rally, is the fact that almost all of our recent successes are due to massive government stimulus and spending.

Last week, we saw our unemployment reached double digits (which in reality is much worse than 10.2%, when considering all consumers). Mom and pop businesses (which is usually considered the "salt of the earth", in regards to businesses) continue to rack up massive losses. In fact, it is very easy to see just how good businesses are doing by going into your local diner or cafe. Consumer spending remains considerably down. However, at this point, the government has manipulated the natural regression of GDP (which is historically 70% influenced by the consumer) by moving up numbers with massive amounts of government spending, stimulus, and rebates. The problem is that as markets continue to rise, investors will more and more begin to believe that a "natural recovery" is what is bringing back markets, which is absolutely not the case.

Last week, the FDIC approved banks not having to mark down depreciated assets to its current market value, as long as the loan "remains current." Now current will be defined in a variety of methods I am sure, but such a move is another huge cover up for banks. This goes to show investors that indeed opening up bank's books to the public to show the "true value" of their current assets would cause for most banks to be bankrupt. In my opinion, this is the cause of a continued 0% Fed interest rate, as well as government purchasing of mortgage debt. The government clearly knows that banks cannot absorb the true values of these losses. Inflating the stock market is also helping this process, however, at the expense of those investors buying into it.

Because we are still rather new into this downturn, effects of government intervention are quite delayed. As months continue to go on, our economy will more and more see effects of a mindless spending government. In my opinion, I compare this recent market bolstering to the construction of a building with a weak foundation. We are so concerned about the upward performance of the stock market, we have failed to evaluate the foundation of our economy and if we can sustain growth for the long term. Just as a building with a weak foundation would, I believe the stock market is waiting to come crashing down once more. However, with 200+ rally days like today, I continue to be watchful for the right time. On a good note, my 10.5% return with Lending Club remains in tact.


  1. Anonymous Says:

    the timing of the next market crash has been identified by a new technology:

    This crash will likely occur as soon as march 2010!!!


    Deflation is the lesser of the two evils the two evils being deflation and hyperinflation.

  3. Chanel girl bag Says:

    I’m going to stop by the store today to see what they can do, but I’m going out of town for a month and might just take it with me to Miami and see if they can do it down there.