The Great Recession & The Great Deception Part 2

About a month after I wrote “The great recession and the great depression” I was contacted by a client who thought I was a bit optimistic with my prediction as he believes that we are heading into economic depression. Those who don’t know what my prediction is, please read part one of this article series but in a nut shell, I believe we could be heading into one of the most prosperous times in American history.

First, I would like to say that I appreciate the comments from this very kind gentleman whom I had the privilege in speaking to. Though we disagree, His conversation inspired me to follow up with more reasons why I believe what I do and to address the differences between the economic problems of today and the great depression of the 1930‘s.

A reason why the markets collapse. (large caps)

Most people tend to believe that those in the white house are the ones who run the economy but I believe that ultimately, the investor runs the economy. If anything the white house tends to oppress he investor so yes, they do play a part. Before I continue with this subject I would like to once again take the time to make myself very clear. I am not endorsing a political party and I have no hidden agenda to promote my political views. I am simply presenting a point of view from the stance of someone who studies the economy. I am not interested in one sided biased opinions, I am only interested in the truth of what is. Agree with me or not, try to weed out what you can.

Here is a simple lesson in investing (True story). Recently, one of my musician friends decided to go to a garage sale to see if he could find a good deal on an instrument. Amazingly, he found a 1940’s Gibson guitar. The lady only wanted 50 dollars for it but it’s worth was over $1,000. No brainer right? You buy low and sell high which is exactly what he did. He sold it on EBay for the true value of the guitar and made over a 1000% return on his investment. It’s called supply and demand. If people are interested in a lock of Michael Jackson’s hair (Which they are) it has value to the buyer. Nobody wants a lock of grey hair from a dork like me. Do you see the picture?

Same thing when it comes our economy. The institutional traders have billions at their expense. They are in it to create a return on their investment. They buy during a recession when the value of the Dow is low and their billions invested allows companies to expand. As the value of the stock market moves up and job growth is created, the market eventually gets flooded, and the demand for the all the toys and gadgets level off. When this happens, the institutional traders take their profits and pull out. After billions and billions of dollars are removed, the markets crash, jobs are lost and the big traders go on vacation until the value of stocks are cheap again.

Institutional traders own most of the available stocks. Retail traders like you and me are like a spec on a map in comparison, which means we control nothing and we know nothing! When the markets do crash, the political parties point their fingers at each other while the institutional traders are laughing all the way to the bank! The large caps are called “smart money.” The rest are “dumb money” and while everybody is yelling at each other trying to place the blame on the president for the poor economy, we just keep looking dumber and dumber.

The difference between today and 1930.

Despite the enormous wealth that large investors have created for themselves, there is a huge difference between today and the 1930’s. When the great depression began, the banks declared a bank holiday which means the banks closed their doors and the public had no access to their money. Some banks simply went broke but the same consequences occur. The poor and the middle class got hit the worst. The rich were effected but the super rich usually are not because they control the big money. Think smart money. I like to think of them as the “in crowd.”

“If you are not on the inside you are on the outside.” Michael Douglas ("Wall Street")

Because of the banking problem, many corrupt individuals declared war on the banks, Such people as Baby Face Nelson, Bonnie and Clyde, and the notorious John Dillinger. The common folk did not view these people as criminals but as hero’s! In the publics mind, the banks got what they deserved as the banks stole from the American people to save their own skins. There is a lot that can be said about this era but hopefully that paints a picture of days gone by.

Today however, the government bailed out the banks with taxpayer money. Not just a few billion but trillions! How much is a trillion dollars? 1 trillion = 1,000,000,000,000. Let’s put this into perspective. Did you know that America has not existed for more than a trillion seconds? 1 trillion seconds = 31,688 years! With a trillion dollars, you can buy 500 space shuttles. 1 trillion square miles equals the size of 20 earths or 3.7 million Texas sized states! I sincerely doubt that we have a problem with revenue or banks declaring a bank holiday anytime soon. I do see a problem coming, but not yet. Before the serious problem comes, I believe the biggest economic boom in American history is about to explode.

Institutional traders hands are not tied. (Yet)

They say that history repeats itself in which I believe to be true. But I believe that another depression is not going to happen for awhile. Large cap traders work through the banking system and now they have trillions to play with! I get the privilege to speak with a lot of tech guys and I have shared with them my take on things and they are in completely agreement with me. As a matter of fact, I have learned that the computer revolution is about to go through another revolution. I have heard some say that what’s coming is the next wave of the dot com era but this time it’s going to be on steroids!

The technology we are facing is fresh, fast, and everybody wants a piece of it (keep an eye on Apple stock). I smell money and a lot of it! The dot com era was driven by one thing, the computer. Unfortunately, many people in the early years didn’t like computers because they were too difficult to work with. Then Microsoft introduced windows to the world making the computer easy and fun to use. Now, the world economy is driven by the computer and it made Bill Gates the richest man in the world. The rest is history! For more on my take about the effects of Microsoft, please read my article, “Just my opinion.”

The market cries bull!

The effects of all the greenbacks being pumped into the economy will mean more money to lend to advance new technology. New technology means new businesses. New businesses creates jobs, which creates tax payers. Tax payers spend money which creates more money to invest, which creates growth, which creates revenue and so on and so on. The more money that’s invested the larger the growth. In 1991, billions and billions was invested. Today it’s trillions, plural! So what’s the direction I see? No place but up for the Dow and an outrageous bull market!

Of course that’s just me, I’m only human. I have no crystal ball that predicts the future but I believe that the basic fundamentals are staring right at us. Some people have told me that we are in a depression right now. But I see no soup lines, bank holidays, or John Dillingers declaring war on AIG. Recently I went to Best Buy as I was wanting to purchase a new camcorder. The place was packed! Sale? Who care’s! Depression? I just don’t see it.

I do indeed see a problem in our future, but that is another story!

Written by Richard of 4xworks. “Part 3” coming soon! Copyright October 2009 Do not redistribute without permission.