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Scary Future

Discussion in 'The Economy' started by Chris C, 12th Dec, 2008.

  1. Chris C

    Chris C Well-Known Member

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    Is anyone else on these forums really starting to get worried about where things are headed? Like I mean really worried - like this aint' just another recession, this is going to be great depression like, if not bigger, sort of thing?

    I bite my tounge a lot when I talk to friends and family, and even on these forums, but the more I read, learn and understand, it just scares me more. From my perspective there is just so much more bad news to come...

    I just thought I'd start a thread to see if anyone else is feeling me? or if I'm alone on the whole doom and gloom front?

    PS. Just for the record I sold all the remaining shares I had in the stock market today and I will be moving them into gold, along with some of my cash reserves. The whole gold backwardation thing has me spooked.
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I suggest that rather than sitting around feeling like the world is about to end, that instead you start reading up about who made money from the great depression and during the big recessions we've had in the past.

    There are always opportunities around for those in a position to take advantage of them, and extremes of economic conditions (both good and bad) tend to present extreme opportunities. Hard times are not something to be celebrated, but if you keep your wits about you and keep your eyes open, you can come through it in much better shape than just crawling into a hole and hiding.
     
  3. Chris C

    Chris C Well-Known Member

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    Do you have any highly recommended reads?


    That's why I'm moving into gold. I think in this climate, gold has a lot of upside potential that the stock market just doesn't have right now.

    Are you not as negative about the future Sim?
     
  4. seaview

    seaview Well-Known Member

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    Maybe read the comments under the GoldBackwardation article, some of which blew holes in the authors logic and knowledge of topic.
    That is not to say that times are not scary, but Oz is the best country in the world, especially during a GFC

    I personally would like someone to think up an alternative meaning for GFC .... such as Greasy Fried Chicken or Gestapo Fascist Conundrum....any better ideas out there?

    Oops, just heard on news that $40B bailout of US car industry has failed. Not sure if that is good news or bad....another issue to debate.:confused:
     
  5. Chris C

    Chris C Well-Known Member

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    I have been bullish on gold for a few weeks so I tend to agree with the article, not in the sense that Gold will skyrocket against the AUD but I think the Gold price in USD is set to explode in the not too distant future. I think Backwardation just reemphasises my original beliefs.

    Why does everyone keep saying this... sure to date we have faired well, but in my mind we are still sitting on fairly inflated asset prices which have been protected by both fiscal and monetary intervention to date, but I can't help but feel this Aussie arrogance about our immunity to crisis is about to be smacked out of us like a slap to the face on a cold night, and it will hurt considering we have forgotten what tough times really feel like.

    Part of me thinks the principles of bailouts is VERY flawed and good old Darwinism should be allowed to play out, but another part of me thinks that the auto industry may well be one of the industries to gain significantly once this whole GFC is over and the USD has seriously deflated. A cheaper USD will make their labour costs comparatively cheaper and their exports more attractive - the US Auto industry, along with most US manufacturing, may once again become the backbone of the US economy like it once was.
     
  6. C3PO

    C3PO Well-Known Member

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    Something really freaky that I found was recently reading "When Genius Failed: The Rise and Fall of Long Term Capital Management" a lot of history described in this book is being very much repeated.
     
  7. Billv

    Billv Getting there

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    Probably.
    For a long time now we've been told that the sky is about to fall but it hasn't happened (yet)

    I don't believe that things are as bad as some people think.

    Also, D&G articles are no longer newsworthy.
    Most of us would be tired of reading them and will skip them
    when we browse news sites

    cheers
     
  8. Chris C

    Chris C Well-Known Member

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    I feel quite the opposite, I don't see enough doom and gloom articles in circulation in major media that are suggesting that things are really going to get a lot worse before they get better. That worries me more...

    I see a deeper and longer than expected recession for the US and the rest of the developed world (the worst since the great depression). I see the reserve currnecy of the world, USD, potentially collapsing and if not collapsing devaluing at a rediculous rate (it has already started to happen), I see gold skyrocketing, I see property values around the world continuing to decline through 2009, and potentially 2010, and someone will need to cop those losses on the chin, and if there is significnat elverage against those asset there will no doubt but bigger reprocausions. I see the eventual collapses of the majority of the companies the FED is trying to save, AIG, GC, Meryll, GM, Chrysler. I see potential for riots and revloution in western societies as western citizens around world are fleeced of their money through inflation or deflation coupled with the poverty that comes with high unemployment. There may be need for martial law in many cotunries. I see China's social problems becoming more difficult to handle as their economy slows down.

    There are so many things that can and probably will go wrong in the next few months/years that I just don't understand why everyone is upbeat about the future.
     
  9. Billv

    Billv Getting there

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    Chris
    I suggest you start digging for that underground shelter because the world will end.......
    Where do you get these crazy ideas from?
     
  10. dmesh87

    dmesh87 Member

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    hey guys how are you?

    It seems pretty scary i think as well, but being relatively young i've never experienced a very serious recession in my lifetime so seeing the stock market and economic news get worse every day is pretty new to me, only a couple of years ago it seemed like the good times would never end.

    But this seems like how the cycles in the stock market go and the human condition in general. People at certain times will get greedy and make risky decisions trying to make more money in short periods and eventually a bubble is created in some shape or form that eventually bursts creating situations like now. In 20 years people will probably have forgotten this episode and some new scheme or trend to make money quickly will lead to another bubble and probably another recession, it just seems like human nature.

    No matter how bad things get it seems people always pull through though and economies recover and prosper again. Warren Buffett had a good quote saying "be fearful when people are greedy and greedy when people are fearful". It seems like in these situations its easier to make money in the long run by fighting your natural instincts and not getting scared along with the crowd and know that one day this will end like everything else does and to make money you might have to be the one that bought on the way down instead of buying near the top and selling when the bubble bursts.

    It does seem worse in this situation that the financial institutions western countries run on are being the worst affected which adds a new spin on this debacle.
     
  11. Chris C

    Chris C Well-Known Member

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    I read a lot, and I read a lot of articles that aren't written my the regular churn and burn mass media. In my mind, none of the things I have mentioned above are far fetched. Not all of them may happen, especially not in Austrlia, but I think people (especially in Australia) are dismissing the idea that these things could very well happen.

    In the last week alone I have spoken with a US expat and a UK expat who both flew home in the last couple of months to catch up with family and both said to me when they came back to Australia that it was utterly amazing the different mood their entire country was in. We in Australia to date haven't seen anything like Europe and the US have seen, and we have been very lucky to have had such a strong economy over the last decade and a half.
     
  12. Billv

    Billv Getting there

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    True, but in Europe things are not as bad as in the US.
    I am actually surprised that companies here are laying off people
    when things overall are not too bad.
    I guess they are battening down the hatches just in case difficult times come along.
    At work we always have vacancies, it's only recently due to xmas that we slowed down and only had 2 jobs advertised for Newcastle.

    I went to our Xmas dinner yesterday and listened to the big boss talking about work and projects in the pipeline.
    He was optimistic and I later got a call from my manager and he mentioned that we got another big contract so things in the Engineering/infrastructure sector are not looking too bad.

    So from what I read apart from the automotive sector
    other sectors are not going too bad either.
    I am also suspicious of our banking sector cutting jobs when they still have billions in profits and are milking us from all directions......
     
  13. Chris C

    Chris C Well-Known Member

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    Things are still very bad in the Europe, most of Europe is well and truly into recession and it looks like their recession will probably as drawn out as the US's. I think on the fundamental side of things they are much better placed, with the exception of the UK, and they will bounce back to prosperous times quicker, but that they still are hurting a lot at the moment.

    We had 0.1% GDP growth in the 3rd Quarter! Bad times are already upon us and most economists are expecting a recession now along with unemployment reaching 6.0 - 6.5% so the bad times have only just begun for us here in Australia.

    Things will always differ from firm to firm, as the biggest job of a recession is to weed out dead weight in the economy, so you may be lucky enough to be working at firm that is doing quite well. My sister's boyfriend who is also an engineer just had 25% of his company laid off two weeks ago.

    There is a pot of potential downside still weighing on banks, they are far from out of the woods yet. I still think there is going to be more financial turmoil for banks, insurance companies, credit companies in the US which will no doubt have repercussions for the Australian financial industry.

    The bad times are only just beginning for us here in Australia.
     
  14. dmesh87

    dmesh87 Member

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    I've heard during the great depression unemployment for adult males in the US reached 25%, if unemployment in Australia reaches only 6 to 6.5 we should be thankful thats the worst that should happen.

    Also looking at situations such as the great depression you can see how those extremes are a bit less likely to happen today. Back then there was no monetary policy and no stock market rules so the chances of that happening again are a bit lower. Also i think government intervention in the financial system was extremely limited until 1933, when unemployment hit those highs.

    When Roosevelt introduced banking reforms and new public building projects to jumpstart employment through his new deals these unemployment levels went down. This is similar to the public projects that Obama is suggesting, most likely to create employment and try to prevent levels anywhere near those reached during the early 1930's.

    The Bush administration has already committed more then 700 billion dollars to intervene in bad mortgages and important financial institutions and coupled with the new public projects Obama is suggesting should help stave off extremely high unemployment levels. Also an auto industry bailout would again save thousands of jobs helping to prevent those extremely high unemployment levels. The only thing i would query is where is this money the government needs going to come from?

    Because of the significant amount of government intervention combined with the reserve banks using interest rates to jumpstart economies and businesses i just cant see a situation like the great depression happening again. But i dont know what your idea of the sky falling down is? is 6 to 6.5% unemployment the end of the world, 25% unemployment didnt destroy the world and if it happened again things would be extremely tough for everyone but its not like the sun wouldnt set or the earth would stop turning. Besides I cant control events half way around the world so they arent worth worrying about, except to learn how I can make the best of it.
     
  15. Norak Bastiat

    Norak Bastiat Well-Known Member

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    Do you buy gold certificates from the Perth Mint or do you use ETFs or just physical gold buried under your house? I'm curious because I'm thinking of converting some of my money into gold.
     
  16. rjc79

    rjc79 Member

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    People might hate to talk about the doom and gloom, But I am for one very concerned about lawlessness, If a catastrophic event, occurs, things could get quite hairy. Theres no point having money then.
     
  17. Chris C

    Chris C Well-Known Member

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    That's in Australia, the US is quite a bit worse. I'm not suggesting the Australian economy will see a recession on the scale of the Great Depression, but if the US does it will not doubt have quite adverse flow on effects for Australia.

    I think it is also important to note that comparing unemployment stats between today and back in the 1930's isn't realistic given the number of changes in the labour system, employment structure, participation rates in the workforce and even the way unemployment numbers are calculated.

    I would hope the government management of recessions has greatly improved since the 1930s and that this fact alone should help lessen the impact and length on the coming recession.

    However, Roosevelt dealt with the Great Depression in a unique way. He took the USD of the Gold Standard, and essentially depreciated the currency significantly overnight then pumped the economy full of liquidity. The USD today is a 100% fiat currency, and with interest rates already at 0% this leaves the US the between a rock and a hard place with the FED likely to try and print (inflate) their way out of the problem though quantitative easing, which will no doubt depreciate the value of their currency.

    Also the difference between the Great Depression and today, is that back then the US has scope to grow and didn't have a crippling aging population on its hands, which it hadn't adequately prepared for. It's budget problems of today, will pail in comparison to its budget problems 5 years from now. There only solution is to print/borrow their way out of debt which ultimately erodes their nation's wealth.

    The problem is much bigger than $700 billion, the reality of the problem is that there are trillions upon trillions of bad debt floating around and someone needs to cope the losses eventually.

    Well as always their two sources are they borrow the money (aka sell their debt) or print the money. Whilst US treasuries are all the rage right now, I'm not expecting that trend to continue as stability returns. There have been many speculating that US treasures are the final asset bubble remaining that needs to pop, I expect that it will happen some time in 2009.

    I think the fact that I can't visual the fallout of all these problems is what is really troubling me, it's that element of uncertainty as to how fall this rabbit hole goes and what is at the other side that has me spooked.

    I think Australia is better positioned than most countries, but unfortunately what happens on the other side of the world definitely influences us to the point where I rarely follow what is happening in the Australian market as much as I follow what is happening in the markets like US, EU, Japan & China.


    I'm in the GOLD EFT for the time being, though if things do start playing out like I think they might I will definitely be getting on the phone to the Perth Mint to look at buying some of the real stuff.

    That said I see gold as an investment you make if your see your country take a turn for the worse and you expect the treasury to try and inflate their way out of trouble. So in a way it is an insurance policy against governmental disaster (so gold is currently a great buy if you live in the US).

    Though in that sense I think the gold price in AUD will probably appreciate only modestly over the coming weeks, months and years given that Australia still is in pretty good shape and because the AUD tends to move with the gold price given that Australia is one of the world's biggest producers of gold.

    Me too. Though once again I'm not as worried about Australia as I am other countries, particularly the US and China.
     
  18. Martyvee

    Martyvee Member

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    ChrisC, I'm with you mate! The US is "printing" money like crazy from my readings, whilst at the same time manipulating the Gold and Silver markets (which should be skyrocketing at the moment) through cahoots with JP Morgan and other large institutions naked shorting the Comex.

    I'm glad I don't live there, but concerned at the effects all of this will have on us here in Aus. US seems likely to be in for very significant inflation due to the huge expansion of their money supply.

    I'm into physical silver because of the shortage (read Theodore Butler's articles), and into Gold shares, as well as oil.

    My main concern at the moment is will all this future inflation in the US also occur here? What effect will this have on interest rates here? I'm currently considering fixing my loan for a decent period of 10 years or so, but am waiting for more bad news to lower rates before taking the plunge.

    Very interesting thread guys, please keep the contributions coming!

    Cheers, Martin
     
  19. Chris C

    Chris C Well-Known Member

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    Yeah I have been reading a lot of the "conspiracy theories" about manipulation in the gold, silver and oil markets of late. Personally I don't know what to think, though I would not be in any way surprised if there were some significant players manipulating the market, I'm almost certain there would some of that going on to a degree. Should make February rather interesting for major commodities.

    I really like your position. I'm in the GOLD ETF at the moment, and am looking into getting into a few gold mining stocks as well. I'm also been eyeing off some energy stocks recently, particularly oil related energy stocks.

    I'm far from an expert on commodities, but from what I have been seeing and reading, my gut is telling me that most major commodities might drop a little through January, but I think Gold and Oil are both set to continue aggressive upward trends in the coming months and will definitely spike when inflation starts hitting the USD.

    Once again, I'm not an expert on the issue, but my understanding is that with the US being the biggest source of imports for Australians, and with Australia importing significantly more than they export to the US a drop in the USD against the AUD would probably be beneficially for Australians in terms of getting a lot of goods and services significantly cheaper, although it would worsen our trade deficit with the US.

    In regards to its effect on Australian interest rates, I'm not quite sure again, there are so many variables. If inflation does get out of control in the US the FED really will be in a dire situation of where they will need to aggressively increase interest rates (although at the same time they will also be wanting to keep an expansionary cash rate to fight off recession). If the FED did increase the cash rate aggressively it might have a significant impact on the LIBOR forcing Australian bank's reliant on non-domestic sources of money to increase their rates significantly, much the same way as what happened in the height of the credit crunch. Though, if this were to happen, and it's a big if, it probably wouldn't happen until later this year if not next as inflation normally takes awhile to filter through an economy.

    Though with that said, at this stage I'm not too sure if the FED is really that concerned about high inflation (it is much easier to rob the ignorant). They are MUCH more concerned about deflation which could collapse the system. I'm fully expecting to see inflation to get well over 5% in the US, I wouldn't be surprised if they didn't raise their cash rate if their inflation was even going north of 7.5%.

    I personally think Australian interest rates still have a lot further to fall, so I wouldn't be fixing anything yet. Though in a year or so it might not be a bad option, but then again I'm not exactly bullish on the long term growth rates of most western countries, including Australia, so I wouldn't expect interest rates to increase as quickly as they have in the last decade.

    Awesome questions Marty, they really make for great discussion and it's great to think about these topics, but you rarely do unless someone has raised the issue.
     
  20. Norak Bastiat

    Norak Bastiat Well-Known Member

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    I live in Melbourne, so investing in the Perth Mint might not be a good idea if I want to get some physical gold.

    Has anyone tried Buy Gold & Silver Bullion - GoldSilverBullion.com.au which stores its gold in Guardian Vault in Melbourne's CBD? They seem to be listed on ASIC but their website looks dodgy.
     
    Last edited by a moderator: 13th Jan, 2009