Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: Hawkmoon who wrote (44974)	11/14/1999 12:21:00 PM
From: Michael Collings	Read Replies (2) \| Respond to of 116756

Ron: I don't disagree with much of your analysis. Yes gold bugs have been quoting the credit bubble for a long time and yet it has continued to grow and gold has gone nowhere. I used to agree with you until this year. It is precisely the numbers that have caused me to change tunes that a collapse of the credit bubble is imminent. "Imminent" by my definition is sometime in the next three years. Swap spreads are behaving erratically, a sign that the credit markets are having trouble. The Fed is having to provide huge liquidity to stabilize the situation, in other words, throwing more money at the problem. This can smooth the problem for awhile, certainly anyone who is having debt problems can coast awhile longer if someone hands them a wad of cash, but the problem will resurface again later. The broad money supply (m3) has been increasing at a faster clip, around 11% (annualized)in the last two months. Consumer debt equates to 98% of income. Margin debt is around 179 billion or 1.2% of GDP. Personal savings remains negative. We continue to see record trade deficits, the cumulative number is upwards of 2 trillion. Our equity markets have increased in capitalization from around 5 trillion to over 15 trillion in just six years. That has created a huge wealth effect and credit binge as home equity has declined in that same period to a record low. 125% home equity loans are being advertised and there will be a day that we look back on that and shake our heads at the stupidity of it all. We have reached the point where all this credit will start to unwind. You need only to watch the erratic behavior of the credit markets and the spreads. That is telling the story. And by the way, the number to look at is total Private debt, not just personal debt. As a percentage of GDP, it has increased drastically. (my apologies that I can't give the number today as I have those numbers at my office and I am home) Tax revenues have little to do with the debt problems. Obviously while everyone is partying on borrowed money and capital gains, tax revenues can cover national debt interest payments. But if you think all this debt will continue to keep the dollar up because we, here in the US, are somehow isolated from the supply/demand economics that the rest of the world is subject to, I'd suggest you review history. You need only to look at Japan. It wasn't too many years ago that everyone was touting their superior technology and managerial skills also. It was nothing more than a massive credit bubble. Of course, I'm sure that the believers of the "new era" argument, will say "oh but that was different. We are much stronger and not as dependent on the rest of the world." Well we are very much dependent on the rest of the world to continue to financing our debt. We have fueled this bubble to an extreme, and there can be no soft landing the next time. Take a look at a 75 year chart of the Dow and you will see something extraordinary. Soft landings don't happen from those levels. However, I am convinced that it will be the credit bubble that pops before the market pops. The fed will try to infuse huge amounts into the system to stem the fall but the dollar will suffer the consequences. Its not a matter of "if" it is a matter of "when".