It has occurred to me, on more than one occasion, as the economy has fallen off a cliff, as the housing boom has turned into a housing bust, as consumer credit now appears ready to fall apart and as the Dow has cratered that I've foretold all of this within this blog and I've also been annoyingly telling my friends to sell their houses while the getting was good, sell their stocks, etc. Did they listen? No. One of my friends now has three houses, one of which is the one she lives in and has a very expensive mortgage. The other two houses sit empty alongside other houses on their block which are also empty and for sale. Her husband is also out of work and probably won't find a job that will come close to his former salary. She had also invested in REIT's, real estate investment trusts, which at the time, 2002-ish, we're probably a good speculative investment. I told her to get out of them, she didn't listen and I'm sure those REITs, if not worthless are probably not returning any money. I have other friends that bought houses and saw incredible returns. I told them to get out at the peak. They didn't listen. They waited too long and now they're hanging by their fingernails hoping the economy turns around. I work with people who say that their 401k's are in the tank but that "it's only a paper loss." Well if it is just a paper loss then the previous gain was only a paper gain and any euphoria you felt back then concerning the increase was ill-founded. Problem is that there was euphoria and people felt free to spend and run up the price of assets. Now there is no euphoria and the price of everything is falling. Government can try to prop up prices but they can't change sentiment. They can't convince people to be euphoric again. They can't convince banks that it's ok to lend again. And if banks are not lending then the supply of money goes down (because our fiat money is really an instrument of debt, as debt is created through loans then money is created, basically out of thin air) then if the supply of money goes down then we have the opposite of inflation which is deflation. We are definitely experiencing deflation right now across all asset classes: stock market, oil, gold, everything. Deflation is a nightmare scenario, it is the cause of a Depression.
There's a chance the stock market will rebound. If it does then it's a sucker's rally because the trend is down from here on out. This economy has systemic flaws. Cancer has permeated throughout the body of the US and world economy. If there is a rally upward in the stock market, it won't last. If it does happen, thank your lucky stars and get out of any investments you have, except cash, gold (for exchange not as an investment)and guns and build a bunker. Payback will truly be a bitch.
