The View From Inside a Depression

[jefftheshark]

I've been reading about the Great Depression recently, and found the following article to be very interesting. The article, which was written last October when the DOW went back over 10,000 - much to the cheers of many who felt that we were finally out of the woods, discusses the diary of a "Benjamin Roth, 38 years old, solidly Republican, a solo practitioner in Youngstown, Ohio", who chronicles his experiences as the country moved through a very long financial crisis.

LINK

The author points out a couple of thoughts that I think are important to all of us today. The first point is that it is only with hindsight that we see where we were with any kind of clarity. Actually living through history is like walking in a moderate fog; we only see what is happening around us in patches and predicting what lies ahead is, at best, only an educated guess.

The second point is that, like Mr. Roth, we should all learn to use a skeptical ear when listening to the voices of the so-called "expert". Our leaders in Washington are no more knowledgeable in resolving the complex issues of the day than they are at seeing through the fog mentioned above.

We need to learn to listen to our gut, and make the decisions that best assist us in insuring our families security and financial well-being, even if it seems in conflict with the views being spouted by the main stream media and financial pundits.

JTS

 

[conraddobler]

Mr. Roth is skeptical of President Franklin D. Roosevelt’s New Deal programs, and worries that the president’s fondness for deficit spending will ultimately be disastrous.

Notice anything familiar?

Great read.

What amazes me I guess is the extent to which people don't realize how much has really changed.

I guess I shouldn't be amazed, but I still am, and it's probably unfair as I myself didn't have a clue prior to a couple of years ago.

The monsterous changes that have occured to me are simply awe inspiring but most people just notice how day to day life while harder is pretty much the same as it was before.

What they don't notice enough IMO is how much the government is running our economy.

Almost the entire banking industry is on ponzi life support, the entire mortgage market is on life support, everything financial is looped back into our government.

The sheer magnitude of it is awe inspiring if you really look at it.

The size of this one is I'd argue much larger than the last one, it's just that there are no bread lines, instead we have food stamps and unemployment extensions.

There are few bank failures, instead there are trillions in government backstops.

Instead of bankers leaping to their deaths they're getting bonuses.

It's very bizzare.

However the one theme I think everyone should take from what this guy wrote is the headfake of inflation IMO, at least for good while.

Until credit is flowing again I don't see inflation, I see deflation, and massive amounts of it which will be met with more or less enough printing for the government and major institutions to stay afloat but not enough to actually generate inflation on a widespread basis.

I expect food might inflate to consume a very huge by comparison portion of peoples budgets, it's already happening.

Yet most things will either stay in place or fall in prices I think.

Anyway this goes though what it really is IMO is a standard of living adjustment in a huge way for most people.

 

[jefftheshark]

Here's another interesting look at life in the 1930's, with a nod to current trends:

Life In (and After) Our Great Recession


As Americans confront what has been dubbed the worst economic catastrophe since the Great Depression, they may be forgiven for failing to linger over soon-to-be-old current events, because they recognize that for the first time in their lives they’re in the grip of history. They’re anxious, even terrified, about what that may mean for their daily lives and dreams and—really the same question—for their children’s lives and dreams.

Because this pervasive trepidation is unprecedented in their lifetime, most Americans have reflexively invoked the Depression in their efforts to comprehend their experience.

LINK

JTS

 

[conraddobler]

I work in credit, it's tightening every day, and every day right now we're still tons loser than it has historically been at the low point of credit granting.

The implications are there are miles to go on this and I truly believe it's a marathon not a sprint and that you can't tell much yet.

Wait a couple years when everyone has exhausted their reserves and even prudent people start going under then I think you'll actually be in a depression or they'll start calling it that.

 

[jefftheshark]

I work in credit, it's tightening every day, and every day right now we're still tons loser than it has historically been at the low point of credit granting.

The implications are there are miles to go on this and I truly believe it's a marathon not a sprint and that you can't tell much yet.

Wait a couple years when everyone has exhausted their reserves and even prudent people start going under then I think you'll actually be in a depression or they'll start calling it that.

The spread between 30 year Treasuries and mortgage rates are abnormally tight, when historically they are closer to the 30 + 1.5% or so. This tells me that when the Fed MBS purchases stop later this month that there could be a fairly quick jump in rates.

When you add this to the Chinese basically abandoning all purchases at the long end of the curve, you could see a quick 1 to 1.5% jump here which would translate into 7 to 7.5% mortgages. This would be hugely deflationary and will stop what your seeing in credit in its tracks.

I guess I'm saying that this could change quicker than you might think.

JTS

 

[conraddobler]

The spread between 30 year Treasuries and mortgage rates are abnormally tight, when historically they are closer to the 30 + 1.5% or so. This tells me that when the Fed MBS purchases stop later this month that there could be a fairly quick jump in rates.

When you add this to the Chinese basically abandoning all purchases at the long end of the curve, you could see a quick 1 to 1.5% jump here which would translate into 7 to 7.5% mortgages. This would be hugely deflationary and will stop what your seeing in credit in its tracks.

I guess I'm saying that this could change quicker than you might think.

JTS

Stop the tightening of guidelines?

I would think housing prices plummeting would only turn the screws down harder on that.

 

[jefftheshark]

Stop the tightening of guidelines?

I would think housing prices plummeting would only turn the screws down harder on that.

No (but I can see why you'd say that from what I wrote), but what I was trying to say was that the timeframe for this to be recognized as a full-blown depression could be shorter away than "years".

JTS

 

[82CardsGrad]

Couple all of that with the fact that within the next few months, a boat-load of additional homes will enter the foreclosure market as mortgage companies become more capable of dealing with this inventory...

Also, not sure if there is any correlation to your theme here Jeff, but the dollar sure had a strong day today versus most other currencies, particularly the Pound & Euro... Hmmmmm.....

 

[conraddobler]

We run a thing called desktop underwriter that is an automated underwriting engine, used to be if you got an approval form it you were golden.

Now they are denying those files for all kinds of reasons.

My work life so so sucks right now, it's like running across a bridge that's on fire, if you stop and look back it's over.

I'm a human punching bag for customers, underwriters, realtors and regulators.

I expect my dog to ask for prints and fico scores to decide if it wants me to pet it any day now.

 

[conraddobler]

No (but I can see why you'd say that from what I wrote), but what I was trying to say was that the timeframe for this to be recognized as a full-blown depression could be shorter away than "years".

JTS

Ah yeah, I have some 3x bear funds I've been accumulating because I'm betting you're right.

Just started Friday.

MWN

Down 5% today, figures but I'm not trying to time it perfectly, options require too much timing the bear funds I just will buy and wait and if I'm wrong I'll know by about the end of the year or sooner.

No big hurry I figure this market madness can last a while yet.

Never add to a losing position and all so I have a whole set of 3x funds I'll use while I bet the whole thing comes to an ugly place shortly.

 

[jefftheshark]

Also, not sure if there is any correlation to your theme here Jeff, but the dollar sure had a strong day today versus most other currencies, particularly the Pound & Euro... Hmmmmm.....

Weak currency = increased exports, right? So in response we see Central Bankers racing around debasing and weakening their currency (Japan at least has the integrity to say that this is what they're doing, everyone else is just "nudge, nudge, wink, wink). What we see now is that the Europeans are doing a better job at driving down the Euro's value, and this makes the dollar appear to be stronger.

The fly in the ointment is that the Central Banks can do nothing to create "demand". It is all well and good for exporting countries to have cheaper goods to sell, but it all breaks down when nobody wants to buy their stuff at any price whatsoever.

So if this is true, then this is very deflationary, good for the dollar, and bad for people who want to be employed.

JTS

 

[conraddobler]

Weak currency = increased exports, right? So in response we see Central Bankers racing around debasing and weakening their currency (Japan at least has the integrity to say that this is what they're doing, everyone else is just "nudge, nudge, wink, wink). What we see now is that the Europeans are doing a better job at driving down the Euro's value, and this makes the dollar appear to be stronger.

The fly in the ointment is that the Central Banks can do nothing to create "demand". It is all well and good for exporting countries to have cheaper goods to sell, but it all breaks down when nobody wants to buy their stuff at any price whatsoever.

So if this is true, then this is very deflationary, good for the dollar, and bad for people who want to be employed.

JTS

It's very easy to get caught in a deflationary spiral when you have conditions we have right now.

In fact I'd argue it's almost a certainty but what really sets it off is for consumers to get one whiff of things going down in price, if they start waiting to buy with the expectation things will be cheaper tomorrow than today then you're in the vortex.

Cutting the value of your own currency only helps so much, everyone else will do the same thing and so you can't get traction on it.

The FED holding a metric ton of debt would then be able to unload these things as the market started scooping them up because the yield is actually better than it would be on newer instruments.

IMO that might be the exit strategy they have, hard to say but everyone worrying about inflation seems to mean to me that the opposite is about to occur for a while at least.

 

[jefftheshark]

Ah yeah, I have some 3x bear funds I've been accumulating because I'm betting you're right.

, me too. (SDS, FAZ)

But I would like to buy SRS (Ultrashort Real Estate) but everytime I do, it kicks my butt. See 1 yr Chart:

You must be registered for see images

I mean, what a loser, right? And yet when you read articles like this, you have to wonder if this the steal of a lifetime.


http://www.zerohedge.com/article/ja...on-58-total-103-increase-sequantially-and-325-

JTS