Economic crash worse than in 2008?

I feel you there. I love land.

My Grandpa used to say... I don’t want to own ALL the land, just what butts up against what I already own.

 

Yep, I’ve been eyeing the north part of Maine.

 

Just want to say something, recessions and depressions are two different animals, with what's going on it fits into the depression category, not recession.

 

Yes Sir. I for one have.

 

The biggest factor that no one ever talks about is that the federal govt has been buying an unfathomable amount of treasury bills, which inflates the stock market and keeps it there. The individual players that we all work for, who make up the economy, look at the market to decide when and what theyre gonna do. Its a traffic light. Up means go. Down means stop. Notice the ticker is red and green? Just a little suggestive.

Problem is todays stock prices have NOTHING AT ALL to do with the amount of economic activity and everything to do with "quantitive easing." That started with the TARP bailouts of 08 then became qe1, qe2, qe3.. they tapered back for a hair around 2013 i think.. The 'taper tantrum' period.. and then ramped right up in fall of 2019. 60 billion a MONTH. That raised the market 11% in the first few months.

There is a major problem here that most poeple dont understand about a free market and its the long term PE ratio cycle. I will start with trucking as analagous. You long time owner ops understand that peaks will bring in unsound operators followed by crashes that drive them out. The crash doesnt wipe out the veteran but it ejects the debt laden spot market rate cutters. Once theyre gone the market goes back to normal profitable levels again for everyone left standing.

Financial markets are the same. High returns draw in speculators who brag about the easy money and draw in their friends. Rising tide lifts all boats. When a crash comes theyre driven out at a loss. You need the speculators out to have a sound and stable market. Too many speculators makes for a boom bust battlefield. The bust cycle is what evicts the problem, speculators. Bust is a good thing, thats why its called a correction. Because the market is an investment and speculating [gambling] is not correct in investing.

Here comes the issue. The PE ratio is the cost in share price that one must pay to purchase a dollar of company earnings. A share is a scrap of a company. At bankruptcy liquidation, whatever is left of the company is supposed to be divied out among the shareholders so the true intrinsic value of a share is basically what portion of the company do you own? How much does your scrap bring in? You divide the earnings by the shares to see what your piece is.

If youve got to pay $7 in shares for $1 of company earnings, youve got a bargain. Above 18ish is really getting to be a premium. The dotcom days saw around $40 per dollar P/E ratios and thats why it imploded so fast, because it was obscenely overvalued. Dotcom was higher than 1929 crash for perspective. Speculators were in a tulip bulb frenzy.. They were buying paper businesses for huge money, wild for IPOs and online startups. Bitcoin was similar.

So when the markets PE avg gets high, it must get low. When it goes below say 10, the next major trend will be to aim for a high. Its very much like football where the ball must go through an endzone to reset, except you dont get downs to change the ball. The bulls or bears have it for as long as it takes to hit the endzone. There have only been 4 full cycles since 1900. But it is an absolute of a sound, free trade market. This is such a long term thing that there are bull trends in a bear market and vice versa. But the underlying trend still remains intact until an endzone reset.

Well the extremely, extremely overbought dotcom and housing boom era was well on its way to the bottom endzone in 2007, and it NEEDED to in order to eject the speculation. But bush pulled out the 2B2F program in 08 with TARP1 beginning then. This FORCED the bear trend to turn positive... Extremely positive in 2009 and that is STILL going on now but its an artifial trend that has just been a blip in a bear trend. All this fed meddling is a pushup bra on bette middler. Looks nice and bulgy up top in a gothic witch outfit. But you take it off and those nipples are gonna point to the floor.

10yrs is a normal short term economic cycle. Thats a boom and bust in 10yrs, so about 5 each. In the short term we are at 11 years of boom. It is artificial! treasury meddling has highjacked the free market by overprinting money, handing out constant stimulus in the form of welfare to the bottom class and welfare to the top class through market interventions.
The entire stock market is built ontop of, and operating on, a huge ladder built by the federal reserve, not by the free markets business transactions.

A further yet massive complication is the invention of buybacks, spurned on by corporate pay structure changes. The trend in taxation is to go after the rich. Well the rich are CEOs who control corporations. If the tax rate is 40% on wages but 20% on capital gains they will absolutely pay themselves mostly in stock. And then they will control the company any way they can to raise the share price as high as possible. So the executive class has been authorizing enormous share buybacks using cheap debt [more on that in a minute] in the companies name to repurchase the companies own shares on the free market and inflate the executives personal holdings. This shrinks the supply of available shares and raises the stock price. But the company has now taken on debt with no productive use of it. They get a temporary stock price increase and the exec moves on leaving the company to make the payment. Not wanting their next quarterly report to be down and thus punished by the market, the company is now highly tempted to continue buying and inflating themselves. Crack for corporations if you will. 2018 was a record buyback year. Note that this is all happening during tremendously high share prices. So theyre buying themselves back not at a discount, but a massive premium. Theyre paying a lot for nothing. Well who is holding the shares when it drops? The company. This sets them up for even more liquidity issues. They should be SELLING their own shares when the price is high to raise operating capital!

Interest is the necessary charge to bear risk in a free market. The feds intraday and overnight interest rates dictate what the free market charges for interest, i will leave out the how to keep this from getting longer. Artificially low interest rates manipulate the rates that other lenders can get. Low fed rates on debt in the last 2 decades are essentially forcing financial institutions to undercharge for overly risky borrowers who will go belly up at the first bump. So banks are also sitting on a time bomb that they think is a golden egg.


The whole financial world is built on an artificially created structure the last few decades. You can put a bucket on a stage. You can put a ladder. A rollercoaster. Maybe even a sky scraper. And people will look up at whats going on uptop of it. But if the whole stage collapses its all going over. Whether the stage collapses on its own or is dynamited by someone on purpose [lets not forget 9/11.. SOMEONE wants america to collapse financially] it wont matter. Whatever is built on the stage comes crashing down.

I dont know when it happens, but someday the govt goes insolvent, (cloward and piven strategy) the money is flying off the printing press turning to wallpaper when you need food. the fed bond buying stops and the interest rates goes back to 19% pretty much all at once. It wont be the same america again. We are in the late stages of the original nation you celebrate on 4th of july. Rome fell. So will we someday. By the sword or by debt said the founders.

Here is the p/e chart for the last 120 yrs with my editing.




Note that a megaphone pattern began in 2000 dotcom era.

Also note here that the housing bubble and current bailout era are mere blips in a long term bear cycle that WILL resume as soon as the federal support is removed. This has already begun even WITH fed intervention. Anyone telling you theres a pent up market is an enemy. Theres a pent up crisis.




The bailout boom did not come close to hitting the top bar of the megaphone pattern so now it heads for the bottom bar. And when it happens we will go back to that $7 p/e ratio which is when we will all know the word depression.

Stay calm, kill your debts and avoid new risk.

 

Most every house out there INCREASES in value. That would be an asset. I paid $50,000 more for this house than it sold for in 2012. Unless there is a big crash, in 5 years mine will be worth more than that. Now my rental property is generating income, but not that much. Then you have the wear and tear on a house you are not living in. Hopefully it too will go up in value, but I kept it because it's a slow growth area.

 

Depression? Hell we've been in a recession for the last 6 years in Western Canada lol.

 

Call it whatever makes you happy. It can go up in value all it wants. That puts nothing in your pocket unless you sell. You have not sold so you have not realized a gain. when you do youll be taxed on any gain. Meanwhile you pay the mortgage taxes and maintenance every month. So monthly that house is on your debit side. You have paid every month and not been repaid by the vehicle.

If you bought it CASH then sold it for more it was an asset. If you bought it on a mortgage and the renters paid the note then you sold it for more it was an asset. If you pay for the place out of pocket with monthly interedt its a liability. Factor in 30yrs amortized interest and youll probably pay back approximately whats its future value is, realizing little true gain while incurring the expenses out of pocket monthly.

You gotta live somewhere but a home isnt always an asset in the true investing sense of the word.

And furthermore.. Houses arent really increasing in value. Its that theyre stsying the same while paper money is decreasing in value because it is continually printed. So it just takes more dollars to buy the same house. They keep printing. Houses keep rising. Just like F350s, whoppers and walmart ether. Same stuff, more dollars.

 

If you pay 1200 a month to rent a house. In 10 years you've gained nothing. If you pay that much in mortgage and sell the house. You've made a profit. Thus still an asset. How much depends on equity and the housing market.

 

Yes, a 30 year mortgage is terrible. But I pay on the principal every month. And as you say, you have to live somewhere. I love where I live and the location. So what is wrong in paying for it? You pay for cars you drive and they don't appreciate. You go out to eat and spend lots more than cooking at home. We could go back and forth for a long time, but as Thomas Jefferson said, the best thing in life is to lay your head on a pillow and know your money is working for you.