Debunking the Deflationary Spiral
Another great day for the stock market. It’s not an easy job being right all the time, but someone’s gotta do it. Yesterday, Brian McMorris wrote an article on Seeking Alpha where he purports that we’re in a so called ‘deflationary spiral’. He writes
Deflationary spirals are self-feeding and there is little to stop them. People will spend less and less first through fear, and later because they are unemployed and have nothing left to spend. Unfortunately for this country, we just elected a president who does not get this (not that the previous one did either). Raising taxes into a depression is a very bad idea.
This is wrong.
Surging commodity and gas prices is further evidence the deflationary spiral is bunk. The graphs below show how gas prices, wheat, soy beans, oil, and core prices and corn have all risen in lockstep-just like they did in the 2002-2007 bull market. This is not only bullish for stocks like MOT POT and IPI, but the entire economy and stock market as a whole because inflation is a byproduct of economic growth.
Core prices have remained stable for the past few years, and have recently ticked higher.
Grain and Oil prices also rising in lockstep. No signs of a deflationary spiral because prices have stabalized.
On the other side of the spectrum you have casandras predicting hyperinflation due to quantitative easing, which I will debunk at a later time. Making unsubstanciated, rash claims such as ‘deflationary spiral’ doesn’t lend to ones credibility, and should be avoided by seeking alpha authors.
No One Cares About Bank of America
Last night the US stock futures were lower on reports that Bank of America needed more money than anticipated following the so called ’stress test’. The total came to $35 billion. Instinctively I knew this would not be a big deal because when the fed is printing trillions, an additional $35 billion is peanuts. $35 billion is just four percent of the $700+ billion Emergency Economic Stabilization Act of 2008. It’s not like the fed has their hands tied. If Bank of America needs another $35 billion they WILL get it. And presto-problem fixed!
Last night doom and gloomers were quivering with excitement that this story would be the catalyst for a major selloff, but instead it was merely a bump in the road. Poor losers actually thought this would be the next shoe to drop.
I took this screenshot at around 8:00 PM last night, which shows the futures being lower. I knew the selling would only be temporary, and lo and behold it was. When you’re the third wisest human in the world you eventually get used to being right all of the time. I know how the stock market works.
Since I’m feeling felicitous cue the chill-out music
The Short Trade is Over
The short trade is over. Those who made their profits between 2007-2008 are covering at a profit, while dumb money is still holding out for another ’shoe to drop’. They still believe that Goldman Sachs is orchestrating some scheme to prop the up the market, despite huge earnings from unrelated companies like RIMM, GOOG, Amazon.com, and AAPL.
Poor fools are gonna lose all their money because they refuse to accept the fake financial crisis was ‘fixed’ by printing a trillion dollars (which won’t cost tax payers a penny, contrary to myth). The doom and gloom is over. Phones ringing off the hook from clients scrambling to reenter the market. Buy orders flooding the system; terminal displays peppered with green flickering arrows and boxes.
Here is how the S&P 500 will retest 1,500 within 2-3 years (screenshots were taken 2 weeks ago when the S&P was 35 points lower)
So called ‘lessons’ have been relinquished. Weren’t we supposed to learn something from the media generated crisis? The only ‘lesson’ to be learned is that humans cannot and will not learn lessons. Greed is retuning with a vengeance.
Thanking my Readers
After checking my stats I see that I have about 40-60 daily repeat visitors to iamned.com. I would like to thank you guys for designating a tiny sliver of your day to making iamned.com a part of your life. I try to present a alternative, unorthodox, albeit unpopular view of economics and the stock market because the vast majority of economics and stock market blogs are overwhelmingly bearish, or redundant. Another blog I recommend that provides an alternative, bullish viewpoint is the Good News Economist
Another great day for stocks…the flu pandemic was a dud. Stress tests weren’t stressful. No one cares about Chrysler bankruptcy. Why am I right? Because I am the third wisest human in the world. I know how stocks, economics, and finance works.
Babak from seeking alpha wrote a great article about how there is tons of cash in conservative, money market funds 
He writes
A build up of cash is normal in a bear market but before we can transition to a bull market it needs to be put to work. As people become convinced that the worst is behind us, they start to take more risk and begin to put their cash into the market. So unfortunately, just noticing a massive pile of cash doesn?t really help us unless we can somehow pinpoint when and with what intensity this billowing mass of liquidity will start to be invested in the stock market.
I concur. As risk returns retail investors & funds will seek riskier assets, hence driving up stocks. Conversely, the dollar will fall.
What is next? Nothing. The economy will take care of itself thanks to the efforts of Obama, Geithner, and Bernanke. Just keep buying the dips or ride this rally. The path of least resistance is the past to prosperity. I implore these pessimists who are shorting or sitting on the sidelines to just try going long and see how you like it.
And have fun, most of all.