We could easily be Japan now. We weren't before, but many things have changed, and we have events that have never happened in history and have no basis of reference for the future. The reason Japan has stayed in a depression comes down to one end cause. No one there is spending, everyone is saving. Historically here we are a nation of spenders, not savers. We can't wait to have that new gadget or SUV, so we spend even with money we don't have. Never before has there been a credit bubble like the kind we have seen on both the corporate and consumer level. For the first time in history teenagers have credit cards. People refinancing their homes for more than they're worth for extra spending cash. The most aggressive rate cutting in history, and the market and economy is worse than when the cuts began. The Fed has never been so aggressive with nothing to show for it a year later.
Then there is the global picture. Historically when the U.S. economy was weak, another major part of the world was strong and helped pull us out and vice versa. Now everywhere in the world is weak. Brazil and Argentina are on the brink of economic catastophe, we know about Japan, Germany is in a near recession, on and on. Everyone is weak at the same time, and there is no beacon in the world to prop us up or kick start everyone.
Then there's September 11. Up until then we were one of the only nations that had never had a major foreign attack on home soil (Pearl Harbor was a military target, not civilian). That's over, and Americans are now scared for their own safety and everyday way of life. As the final bubble here (the real estate bubble) bursts, those people who refinanced extra money will be trapped in mortgages for more than their homes are worth. Add it all up, and we have the very real possibility of seeing Americans become very historically un-American--namely a nation of savers. And if that happens, then yes, we can be like Japan.
So as a trader, what to do? Well I personally have switched my long term account from stocks to 30 year T-bonds, which have appreciated nicely over the past 8 months. If all these factors come to bear and continue as I believe it will, bonds will rise sharply over the next year to two years. Historically the Dow is very overextended. If you look at a 10 year chart for the Dow, you'll see that it has run up considerably, from under 3000 to almost 12,000 in a 10 year period. Crazy when you consider that it took the Dow almost 100 years to go from 0 to 3000 and only 10 years to go from 3000 to 12000. Much of it was due to the massive overextension of credit and the massive spending that ensued in the 90's. Now that it's unraveling, and just looking at the Dow 10 year chart, it is easy to see it retracing back to the 6000 level or lower. Put LEAPs on the Dow and S&P would be quite profitable in this scenario. A break below the Sept. lows would trigger my entry.
If all this does come to pass, the good news is that for those who still have money after it's all over will be presented with the buying opportunity of everyone's lifetime, in both equities and real estate. As someone who doesn't want to see other people suffer, I would rather all this doesn't come to pass, but I fear that it is a distinct possibility.
Then there is the global picture. Historically when the U.S. economy was weak, another major part of the world was strong and helped pull us out and vice versa. Now everywhere in the world is weak. Brazil and Argentina are on the brink of economic catastophe, we know about Japan, Germany is in a near recession, on and on. Everyone is weak at the same time, and there is no beacon in the world to prop us up or kick start everyone.
Then there's September 11. Up until then we were one of the only nations that had never had a major foreign attack on home soil (Pearl Harbor was a military target, not civilian). That's over, and Americans are now scared for their own safety and everyday way of life. As the final bubble here (the real estate bubble) bursts, those people who refinanced extra money will be trapped in mortgages for more than their homes are worth. Add it all up, and we have the very real possibility of seeing Americans become very historically un-American--namely a nation of savers. And if that happens, then yes, we can be like Japan.
So as a trader, what to do? Well I personally have switched my long term account from stocks to 30 year T-bonds, which have appreciated nicely over the past 8 months. If all these factors come to bear and continue as I believe it will, bonds will rise sharply over the next year to two years. Historically the Dow is very overextended. If you look at a 10 year chart for the Dow, you'll see that it has run up considerably, from under 3000 to almost 12,000 in a 10 year period. Crazy when you consider that it took the Dow almost 100 years to go from 0 to 3000 and only 10 years to go from 3000 to 12000. Much of it was due to the massive overextension of credit and the massive spending that ensued in the 90's. Now that it's unraveling, and just looking at the Dow 10 year chart, it is easy to see it retracing back to the 6000 level or lower. Put LEAPs on the Dow and S&P would be quite profitable in this scenario. A break below the Sept. lows would trigger my entry.
If all this does come to pass, the good news is that for those who still have money after it's all over will be presented with the buying opportunity of everyone's lifetime, in both equities and real estate. As someone who doesn't want to see other people suffer, I would rather all this doesn't come to pass, but I fear that it is a distinct possibility.