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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: Zincman who wrote (90690)1/26/2008 10:20:02 PM
From: glenn_a  Read Replies (1) of 110194
 
Hi Zincman.

((Some are seeing this as the mother of all buying ops.... NOT(2) lol))

Well what do you know, from a short-term perspective, it actually DID turn out to be a buying opportunity! I didn't do much on Monday or Tuesday - bought a bit, sold a bit - mostly trimming my portfolio of stocks with weak balance sheets. Following Donald Coxe's advice, I'm focusing more on the balance sheet these days than the income statement. :)

But the Mr. Market is so frickin' manic-depressive and short-term oriented, that I personally don't think "a week" is the really important time-horizon for considering this week's global equity market plunge as a buying or selling opportunity. Being more of a long-term investor, I'm more interested if this week is a buying or selling opportunity over a 2-year time horizon.

I figure the answer to that question significantly rests on how one answers two key questions:

1 - How serious is this credit bust to the solvency of the global financial system?

2 - Will the central banks be able to "inflate" their way out of this credit crisis? Or will the "deflationary" pressure of vanishing "fictitious capital" (as Russ likes to call it) prove to powerful a deflationary force to be responsive to monetary or fiscal policy?

And obviously, folks have very widely differing opinions on this matter. My thoughts on the above two questions are:

To point 1: VERY serious.

To point 2: I honestly don't know. But I wouldn't want to get caught majorly offside making a bet either way. I personally lean toward the view that the deflationary pressures of a credit bust will prove overpowering to central bank monetary policy and government fiscal policy. I personally don't feel you can recapitalize the financial system by printing money.

Inevitably, you have to SAVE a whole lot more in real terms, and SPEND a whole lot less in real terms. Obviously, in an empire practicing Military Keynsianism (as Chalmers Johnston) calls it, this point will not be reached until a serious crisis occurs. And until then, inflation will likely be the order of the day. But I don't think this can last forever, and it's entirely possible it won't go on for much longer. And it's entirely possible that it will go on for much longer. Time will tell.

Anyway, JM2C on the matter.

Glenn
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