Economy: the impending split personality of America

[link to market-ticker.denninger.net]


Monday, January 14, 2008

The Impending Split Personality Of America

It is becoming increasingly clear that we are either in a recession or entering one right now.

What is also becoming increasingly clear is that America is going to be divided into two groups of citizens in the coming days, weeks and months:

* Those who have a small, or no, amount of debt.
* Those who have "geared" their personal life to a significant (or even maximum) amount.

The latter group is going to suffer to a degree not seen since the 1930s.

The former group will end up with a lot of very inexpensive assets and make fortunes.

The latter group will try to cajole, whine, bitch and moan in an attempt to get Washington DC politicians to take from the former group and give to them.

Ultimately, however, they will fail - because the Politicians, in the main, are in the former group.

This is very different than previous recessions and times of "difficulty" for the American Consumer. It is different precisely because of the amount of leverage that has been deployed, and the foolishness with which it has been used.

The very idea that "The Fed" can run to the rescue is flawed. Not only can The Fed not do so, it wouldn't even if it could because the owners of The Fed are in Group #1, and so are the banks who they serve!

Now sure, among banks there are exceptions. Those will be referred to in the coming months and years as "gone".

We face a unique series of events in our nation. Unfortunately, we have taught our children for the last two generations that they can have whatever they want, when they want. It has not just been we as parents - it has been the messages that we have allowed them to watch on Television, the friends we have allowed them to keep, and the instruction we have allowed them to receive in school. We have steadfastly refused to insist that a true set of "life skills" classes be taught in Junior High and High School, including an understanding of how compound interest works - both for you, and against you.

Not one youth under the age of 18 understands that the pizza they order in college, instead of putting that same $10 in a retirement account that earns the "average" 10% in equities, results in a change in their net worth 50 years later of $900, and that assumes you pay cash - if you charge the pizza its far worse!

This is the sort of thing that we simply do not teach our youth, because its far too important to us to be "good consumers" - never mind that this sort of mindset is exactly how we got in this mess in the first place.

Think about it - have your kids (if you have some) ever wanted you to "advance" their allowance for them? Did you do it? If so, you are teaching them exactly what got us into this mess!

I am looking forward to the incredible deals that I should be able to pick up in the next few years. But I am not looking forward to seeing people in soup lines, and I suspect we will be.

Do not believe this countertrend rally. That is all it is. We are in a Bear Market and the tankings, when they come, will be severe and crushing to those who listen to the fools like Cramer and Kudlow. If you value your money and either cannot or simply don't want to trade actively, get out into cash on this latest little spike.

It is a gift - and perhaps, the last one you will receive.