Saturday, February 27, 2010

It All Comes Out in the Wash...


It all comes out in the wash... at least that is how it is supposed to be. We put it all in the machine, allow water to scald the fabrics, specially designed detergents to penetrate the dirt and stains on our fabrics, grinding and twisting of machines, and most importantly the rinse cycle to wash away all the filthy water...

I believe that our economy is stuck somewhere in the wash cycle, and has yet to rinse itself clean. Several troubling reports seem to reitterate this issue: 

For instance the New York Times ran a story (on the Eve of over 1.1 million Americans losing their unemployment benefits) and slowly ebbing from middle class to wokring class poor. In this story, anecdotal evidence was provided about those who have lost jobs, exhausted savings, and are behind in their mortgages. Compounding this dilema was the duration of this recession, and general lack of belief in relief.

As President Obama rolled out his latest version of a mortgage relief plan, it seemed to concentrate the bulk of its efforts on states that have seen a 20% or more decline in property values. Of course, Florida, Texas, California, Nevada, and Arizona headed the list for relief. However, it is safe to say that this plan, at the very least is short-sighted in that it only addresses states which seemed to have benefitted from the largest run-up in property values, while neglecting states in the heartland like Pennsylvania, Ohio, and Ilinois which are suffering from an abnormaly high rate of foreclosures. Citing that negative equity is the greatest drag on our economy, CNN reported most homeowners are not at risf of bankruptcy if they are 1.  Not planning on selling their house.  2.  Can currently afford their bills. 

Couple these stories with some of the latest revelations on a Goldman Sachs' Greek Toga Party, AIG counter-party bailouts for banks, and Tim Geithner's thinning smoke screen that is rising to show a new degree of ugliness, and it makes Robert Prechter of Elliott Wave International appear to be a prophet.

To readers, Pretcher alludes to a simple remedy... a Federal Reserve that prints so much money that inflation sets in... or a prolonged time period where the Federal Reserve will work feverishly to repair its balance sheet, and tighten monetary policy. Prechter makes the case that the U.S. dollar will strengthen in value, at the expense of credit... metal stocks, and the economy. And if Prechter's threory on a rinse cycle comes to fruition, then it is time to batten down the hatches.  Let me know what you think!  






 

2 comments:

AX said...

Prchter's "prophecy" has been off by miles in the past, so I'd be wary. He predicts oil in the $5 range next decade, I sooner think we'll see $200 oil.

Tiger Coach said...

I did like his simple advice... better to get out too early than to get out too late...