Economic Hardship in a Deflation and OA

[tth2]

The mechanism by which the dollar is strengthening is pretty clear:

 

"Dollar liquidity continues to tighten. Aside from technical corrections, the dollar looks to be in a bull market for some time to come as the current account deficit, which flooded the world with excess dollar liquidity, is now shrinking rapidly and creating a liquidity shortage. Meanwhile, we have seen a meltdown in dollar financed asset values but no shrinkage on the liability side of the balance sheet, the repayment of which will provide a structural demand for dollars for years to come in the absence of a renewed expansion of trade deficits."

 

The Fed has greatly expanded its balance sheet, but it's not like dollars are flooding the system now, quite the contrary. There is an insatiable demand for dollars as carry trades unwind, capital is repatriated from plummeting foreign markets, etc. If the sheer amount of debt caused the currency to tank, then Japan would be a banana republic by now. Clearly, other factors are at work.

Don't forget that the US dollar remains the main currency for international trade, and we live in an extremely global economy. So when raw materials are purchased for a factory in China, the currency of payment is probably USD. In turn, the buyer of the manufactured products likely pays the factory in USD. The ship that transports the goods to the buyer's country is likely paid in USD. Everyone needs USD, either physical dollars or letters of credit or other instruments that are needed for these millions of daily transactions. Meanwhile, the pool of USD has evaporated, and foreign banks that used to provide the necessary USD instruments to their local companies so they could go and make these payments in USD, can't get hold of enough USD.

 

There was an article in last week's WSJ about how the Korean government is urging patriotic Koreans to take all their physical US dollars floating around in their drawers, wallets, etc., and deposit them in USD bank accounts, so that Korean banks will have enough USD assets to loan out to small and mid-size businesses for their required USD payments. I think 3-month USD CDs at Korean banks were paying something like 6%, such was the demand.

 

[Mister Trent]

have never owned a credit card

Wow, is that even possible anymore? How do you book flights, hotel reservations, car rentals, make online purchases, etc.?

 

Do you go everywhere with huge wads of cash in your pockets? Most places won't take checks anymore, at least not without a credit card.

 

Going on holiday, I use travellers cheques . . .

 

And as the Uk is a small island, I don't need to book any (internal) flights or arrange car rental (I use my own car).

 

Going about my usual day-to-day routine, I pay by cash (which doesn't involve walking around with huge wads of cash in my pocket).

 

If I send off for purchases, I pay by cheque or cashier's cheques/wire tansfer (for foreign purchases).

 

Every week I draw money out my account to service my immediate needs.

 

Monthly bills (gas, electricity, etc.) are deducted from my bank account via standing order)

 

That might sound amazing (or just plain dumb) to you, but I can take comfort in the fact that (unlike many people I know) I'm not using money (e.g. credit) I haven't got.

 

Years ago, I once had a girlfriend who'd run up considerable debt on credit cards. That was enough to put me off the idea.

 

More recently, I was out drinking with a works colleague who spent the evening complaining about the considerable debt his own wife had run up on 'bits of plastic'.

 

Not to mention the various 'credit card scams' I keep hearing about.

 

Call me a dinosaur, if you want . . . but I'm in no financial mess, so it works for me.

[Aman619]

The mechanism by which the dollar is strengthening is pretty clear:

 

"Dollar liquidity continues to tighten. Aside from technical corrections, the dollar looks to be in a bull market for some time to come as the current account deficit, which flooded the world with excess dollar liquidity, is now shrinking rapidly and creating a liquidity shortage. Meanwhile, we have seen a meltdown in dollar financed asset values but no shrinkage on the liability side of the balance sheet, the repayment of which will provide a structural demand for dollars for years to come in the absence of a renewed expansion of trade deficits."

 

The Fed has greatly expanded its balance sheet, but it's not like dollars are flooding the system now, quite the contrary. There is an insatiable demand for dollars as carry trades unwind, capital is repatriated from plummeting foreign markets, etc. If the sheer amount of debt caused the currency to tank, then Japan would be a banana republic by now. Clearly, other factors are at work.

 

I would also disagree that the dollar is strengthening against currencies of countries with "significantly stronger economies". Maybe Canada is in better shape (but, for how much longer - nobody cares about the oil sands when crude oil is at $66/bbl.), but the U.K. and Europe clearly are not; most of Europe printed negative GDP in the third quarter whereas the U.S. didn't (though it probably will this quarter).

 

Technical corrections aside, I would look for continued dollar strengthening over the next year.

 

how low do you think the Dow will go? and will it be a quick turnaround (within a year make back half the loss) or a long slow climb back (3-6 years) or never get back to 13-14K til 2020??

 

My personal take is we lurch back and forth until the low 7000s. I dont know when that will be reached, but think that might be "low enough" for the selling (and yelling and crying) to finally stop.

 

but there's no way I can back this up with financial savvy or verbiage!

[jkrk]

The mechanism by which the dollar is strengthening is pretty clear:

 

"Dollar liquidity continues to tighten. Aside from technical corrections, the dollar looks to be in a bull market for some time to come as the current account deficit, which flooded the world with excess dollar liquidity, is now shrinking rapidly and creating a liquidity shortage. Meanwhile, we have seen a meltdown in dollar financed asset values but no shrinkage on the liability side of the balance sheet, the repayment of which will provide a structural demand for dollars for years to come in the absence of a renewed expansion of trade deficits."

 

The Fed has greatly expanded its balance sheet, but it's not like dollars are flooding the system now, quite the contrary. There is an insatiable demand for dollars as carry trades unwind, capital is repatriated from plummeting foreign markets, etc. If the sheer amount of debt caused the currency to tank, then Japan would be a banana republic by now. Clearly, other factors are at work.

 

I would also disagree that the dollar is strengthening against currencies of countries with "significantly stronger economies". Maybe Canada is in better shape (but, for how much longer - nobody cares about the oil sands when crude oil is at $66/bbl.), but the U.K. and Europe clearly are not; most of Europe printed negative GDP in the third quarter whereas the U.S. didn't (though it probably will this quarter).

 

Technical corrections aside, I would look for continued dollar strengthening over the next year.

 

how low do you think the Dow will go? and will it be a quick turnaround (within a year make back half the loss) or a long slow climb back (3-6 years) or never get back to 13-14K til 2020??

 

My personal take is we lurch back and forth until the low 7000s. I dont know when that will be reached, but think that might be "low enough" for the selling (and yelling and crying) to finally stop.

 

but there's no way I can back this up with financial savvy or verbiage!

 

No one asked me but.........

 

A quick turnaround? Unlikely. Since 1987 the solution has been to lower interest rates and ease credit policies. As a nation we have overconsumed, houses, cars, TV's etc with the buying being accomplished with increasing debt. Today we are looking a credit deleveraging by the financial institutions which will impact the consumer who will need to deleverage (most likely involuntarily) as well. The economic background doesn't seem to work well foir an economy led by consumer spending.

 

How long? How far down? The stock market should continue to unwind to the downside over the next couple of years. Sharp rallies will occur on a regular basis which will lead to investors confidence that the bear market lows have been seen.

Price target??? Too difficult to forecast. Expect relatively high dividend near the ultimate low. Also expect the masses to give up on investing in stocks with any capital but risk capital. In addition, the retirement money moving into equities for the past couple of decades will now act as a bit of a headwind. Retirees will probably cash out to supplement living expenses.

 

 

 

[OABUG-migration]

Great article. Notice the chart at the bottom as to assetts that benefit in a stagflationary environment.

 

http://www.financialsense.com/editorials/petrov/2008/1024.html

[Aman619]

so is he saying that we are reentering a period like the 70s? where the market overall went up and down for over a decade but ended up where it began?

 

He stated that stamps did well in the 70s. He certainly isnt expecting that to repeat now is he, with all those stamp collectors in their 80s?... which might mean that a comparably younger mainstream demograhic collectible like comics could take its spot. But even if that were so, history would have to repeat itself.

 

Somehow, I dont think we live in the 70s no more. THIS crazy smaller world with far more competing global economic powers bears little resemblance to those simpler times. And our current mess is not analagous to the oil crisis 70s. Though it sure looked like it a few months ago!

[Aman619]

....oh, I forgot to add: that article is Krazy!

[delekkerste]

so is he saying that we are reentering a period like the 70s? where the market overall went up and down for over a decade but ended up where it began?

 

He stated that stamps did well in the 70s. He certainly isnt expecting that to repeat now is he, with all those stamp collectors in their 80s?... which might mean that a comparably younger mainstream demograhic collectible like comics could take its spot. But even if that were so, history would have to repeat itself.

 

Somehow, I dont think we live in the 70s no more. THIS crazy smaller world with far more competing global economic powers bears little resemblance to those simpler times. And our current mess is not analagous to the oil crisis 70s. Though it sure looked like it a few months ago!

 

I used to work at Salomon; that was a famous study done in the 1980s. Prices and circumstances have totally changed since then. Anyway, the 1970s comparison is krazy anyway, and the fact that most of the assets on that list are getting obliterated now is proof of that. All these goldbug wack-jobs are talking about all this inflation nonsense when asset values are collapsing. If the Fed is dropping money out of helicopters, figuratively speaking, why is the dollar going ballistic as the demand is overwhelming supply? The comparison is just wrong; the stagflation scare is just so 2007 - deflation is the "in" buzzword these days, and no asset class thrives in that environment, especially not hard assets.

[OABUG-migration]

Are you 100% sure the rate of inflation is negative? I am not convinced.

[Aman619]

so do you wanna take a stab on what the bottom will be?

[batman_fan]

I myself believe there is a general softening in the collectibles market based on the current trends I have been seeing lately. I look at the stuff people are selling in the Marketplace threads as well as ComicArtFan and have observed a general increase in the amount of stuff being sold. Couple this with the amount of low ball offers and I would say there is a downward trend. Also, look at the volumn of listings on Ebay under Golden-Age and Original Artwork and it is up more then 30% from six months ago. I think the Heritage auction will be the true test.

[Aman619]

you know, if comics/collectibles DONT show a softening now given everything going on, Id be shocked!

 

But we gotta ask ourselves where we will be in 5 years and whether you personally HAVE 5 years to wait. If our comics will retain their status, just sit tight. But if you think this economic crisis will somehow "break the spell" that the things we covet have lasting values, and we will wake up and say "what were we thinking???" then sell now before everyone else does.

 

them's the choices.

 

I do think there will items coming to market to raise cash from those less flush and too heavily "invested"

[jjonahjameson1]

you know, if comics/collectibles DONT show a softening now given everything going on, Id be shocked!

 

There's no need to be shocked because it's already happening as evidenced by realized ebay sales over the past 3 months, lowball CAF offers, etc. OK, 99% of CAF offers were lowball prior to this economic downtown, but most of the offers are significantly lower.

 

And there's no need to wait for Heritage or Comiclink auction results to validate what we all know...original art prices are facing downward pressure. The cream of the crop will most likely retain its value, but so much of it is done through private means that I think it will be a bit challenging to confirm value retention unless some of the BSD's are willing to disclose this information to us.

 

My art auctions: http://Support-the-Collectors-Society.com/merchant/jjonahjameson1

 

[tth2]

And there's no need to wait for Heritage or Comiclink auction results to validate what we all know...original art prices are facing downward pressure.

I don`t buy this qualification from the naysayers. Who cares about the performance of the run-of-the-mill stuff? By definition, it is ordinary stuff that people can leave or take, so in a down market they`ll leave it because they`ll probably get a shot at it again or something similar.

 

Markets are always judged by how the headline pieces are doing. By the same token, the poor performance of top fine art pieces in recent auctions has been trumpeted by the naysayers as indications of the collapse of the fine art market. Fair enough. But the naysayers can`t have it both ways and say on the one hand that DNRs of top fine art pieces means the art market has collapsed, but on the other hand continued strong pieces of top comic OA doesn`t mean that the comic OA market has NOT collapsed.

[jjonahjameson1]

 

Markets are always judged by how the headline pieces are doing.

 

Sez who? You? The vast majority of collectors are those that have moderate incomes and collect moderate pieces that mean something to them. On occassion, they may get lucky and pick up a really, really nice piece at a relatively affordable price (to their income), but for most, a Kirby FF cover or even a Ditko Spidey page is out of reach. These folks comprise the majority of the purchasers in the market, and to discount their activity in the market is a mistake.

 

And as a collector, I couldn't care less how the headline pieces are doing because that stuff is unattainable to me and the majority of the original comicart collecting world, so I disagree wholeheartedly with your statement that markets are always judged by how the headline pieces are doing. It makes for good attention grabbing, but its simply not true.

 

My art auctions: http://Support-the-Collectors-Society.com/merchant/jjonahjameson1

[Khazano]

 

Markets are always judged by how the headline pieces are doing.

 

Sez who? You? The vast majority of collectors are those that have moderate incomes and collect moderate pieces that mean something to them. On occassion, they may get lucky and pick up a really, really nice piece at a relatively affordable price (to their income), but for most, a Kirby FF cover or even a Ditko Spidey page is out of reach. These folks comprise the majority of the purchasers in the market, and to discount their activity in the market is a mistake.

 

And as a collector, I couldn't care less how the headline pieces are doing because that stuff is unattainable to me and the majority of the original comicart collecting world, so I disagree wholeheartedly with your statement that markets are always judged by how the headline pieces are doing. It makes for good attention grabbing, but its simply not true.

 

My art auctions: http://Support-the-Collectors-Society.com/merchant/jjonahjameson1

 

Well, it also depends on what his definition of a headline piece is...

 

The one thing that's for sure though, the days of modern age art selling at silver age prices is almost over...

[OABUG-migration]

yup,........the wheat will be seperated from the chaffe. The cream will be seperated from the crud. The days of hot girl art commanding prices even comparable to Silver Age Covers will soon be coming to an end.

[Aman619]

youre splitting hairs, no?

 

 

of course YOU are mostly concerned with YOUR collecting niche. But overall, a "market" is judged by the headline pieces as to the health of that genre or market. And you do care because what happens at the top affects all prices. A weakness at the top will filter down to your end too.

[thehumantorch]

 

Markets are always judged by how the headline pieces are doing.

 

Sez who? You? The vast majority of collectors are those that have moderate incomes and collect moderate pieces that mean something to them. On occassion, they may get lucky and pick up a really, really nice piece at a relatively affordable price (to their income), but for most, a Kirby FF cover or even a Ditko Spidey page is out of reach. These folks comprise the majority of the purchasers in the market, and to discount their activity in the market is a mistake.

 

And as a collector, I couldn't care less how the headline pieces are doing because that stuff is unattainable to me and the majority of the original comicart collecting world, so I disagree wholeheartedly with your statement that markets are always judged by how the headline pieces are doing. It makes for good attention grabbing, but its simply not true.

 

My art auctions: http://Support-the-Collectors-Society.com/merchant/jjonahjameson1

 

People outside the hobby probably judge the market based on how the 'headline pieces' are doing. As a little guy who will likely never have $20,000 or more to throw at my dream cover of splash I judge the hobby by how much stuff is coming to market that I want and can afford. I think we will continue to watch the best of the best comics and OA skyrocket in price and the common stuff drift down in price.

[tth2]

youre splitting hairs, no?

 

 

of course YOU are mostly concerned with YOUR collecting niche. But overall, a "market" is judged by the headline pieces as to the health of that genre or market. And you do care because what happens at the top affects all prices. A weakness at the top will filter down to your end too.

Thanks aman. You understood the point I was trying to make.