DOW 6800, S&P 720, NASDAQ 1310 - Page 2

mjoke,

I'd agree that cost of living will go through roof. Its been in an exponential ascent since the 1930's. This is why I think the market will rise in price but will not necessarily increase in net value. Its one thing for prices to go up and actually create net outflows of capital(much like now) and for prices to increase and generate net inflows of capital to go along with it(much like the past).

The next bubble to burst is the cost of living and the debt market. Things will become cheaper later on when most people become financially ruined. The entire process of re-building wealth will start again. It is a viscous cycle.

MoneyShaker,

I don't think oil or any other soft commodity will gain much leverage against inflation in the coming years.

Reason: Oil's price is arbitrary. Of course it depends on supply and demand but you saw just this summer how oil was artificially pumped to $150/bbl and how it quickly floundered to $35/bbl. It is a commodity whose price doesn't directly depend nor show the actual volume and willingness of market participant to direct its true price. Gold and other relatively hard commodities do have these problems. No matter how the market interests it value, it will always be backed up by its intrinsic/real value. It is a much better hedge to inflation.

The point we're trying to make here is not about the inconsistency between growth and inflation but rather on the reality of how people's wealth has actually diminished over time if speaking in real terms. Whatever people had from previous years was taken away from them with recent market collapse and this has made some peopel realize of how all this artifical money creation over the years never really existed.

The reason why we've seen an increase in the standard of living is not necessarily because of higher incomes and as a result higher growth and consistent inflation but rather it has been driven by higher expectations set by both firms and consumers. If an individual expects to earn more, the firm has to re-adjust its costs to the consumer, gioven that it knows that it will aslo earn higher profitas down the road. This bubble burst 2 years ago and now both firms and the indiviudal are re-setting their expectatiosn much lower to where they should be. Given this point, you have to know talk in real terms and not what it ought to be or what it was.

Way to many people are diverging their attention to structured finance security debt in relevance to: Mortage backed securities(MBS), Commerical backed securities(CMBS), home equity asset backed securities, REIT debt, etc. What many fail to acknolowedge or even consider is what really have the financial markets on their knees. A market that has nearly $3 trillion in worthless paper sitting on the books of both hedge funds and BANKS.

The synthetic CDO market.

A lot of people believe commerical real estate debt will create the next market downturn. Unfortunately, that $240B market pales in comparison to the $3 trillion synthetic CDO market. A market that is not backed by tangible collateral.

Given that we are already living in a deep recession(next quarter GDP will prove this) all of these prime tranches of synthetic CDO's will have to be be downgraded soon. This means, that the investment corporate world is indeed illiquid.

5 defaults on high-rated tracnhes and your looking at a Ba3 rating.

Another key component of this maze is obviosuly going to be all of the market to market losses that we bee recorded when this collateral is written down. Some hedge funds have written these off but most still remain in their books. Banks on the other hand havn't written any of these down. Their definetely insolvent on current dollars.

Now here is where things get wild. Because the synthetic CDO's are "unfunded", these papers can get called in at any time with margin calls. Imagine what will happen when suddenly $3 trillion is automatically taken away from the the capital markets?.

All of this then implies that the entire $700 trillion CDO market is insolvent, and as a result, the entire system is unfunctionable and will eventually be called in.

The systems needs to be re-structurized.

Edit: I corrected some of my horrendous grammatical mistakes in the quote below. I typed way to fast.

Last note: Look at unfunded liabilites and you'll see where all of this came from.