Picking up on my post from yesterday, we have more incredible stats today via The Big Picture and Bianco Research on the relative cost of US government bail-outs to date in this crisis versus other historic interventions. It is hard to even get one's mind around the numbers involved here. Every American could have government paid room, board, designer clothes, state of the art medical care and Harvard's PHD's for the money that has been spent on these bail-outs. Great waste has been a stubborn cancer on humanity. Is there hope we can learn from this mother-of-all episodes?
“If we add in the Citi bailout, the total cost now exceeds $4.6165 trillion dollars. People have a hard time conceptualizing very large numbers, so let’s give this some context. The current Credit Crisis bailout is now the largest outlay In American history.
Jim Bianco of Bianco Research crunched the inflation adjusted numbers. The bailout has cost more than all of these big budget government expenditures – combined:
• Marshall Plan: Cost: $12.7 billion, Inflation Adjusted Cost: $115.3 billion
• Louisiana Purchase: Cost: $15 million, Inflation Adjusted Cost: $217 billion
• Race to the Moon: Cost: $36.4 billion, Inflation Adjusted Cost: $237 billion
• S&L Crisis: Cost: $153 billion, Inflation Adjusted Cost: $256 billion
• Korean War: Cost: $54 billion, Inflation Adjusted Cost: $454 billion
• The New Deal: Cost: $32 billion (Est), Inflation Adjusted Cost: $500 billion (Est)
• Invasion of Iraq: Cost: $551b, Inflation Adjusted Cost: $597 billion
• Vietnam War: Cost: $111 billion, Inflation Adjusted Cost: $698 billion
• NASA: Cost: $416.7 billion, Inflation Adjusted Cost: $851.2 billion
TOTAL: $3.92 trillion”
See Big Bailouts, Bigger Bucks
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So given the numbers wouldn't it make sense that the US would want to sell all the US securities it could now, and then watch them discount as the dollar dropped back 20%.?
Clearly this would result in Gold and oil rising just to equalize the devaluation of the US dollar.
Following this thought, it would appear US markets rise when US dollar falls and vs versa – could you comment on the above?
this is an argument one can make. It might happen. The question is whether it is happening now, and the answer is so far not. We will watch carefully as this unfolds. We always track the actual money flow rather than investing capital in keeping with a thesis about what might happen.
Hi Danielle. I have downloaded the formula for the Money Fow Index or Smart Money Flow Index, and the meaning of the results. Just wondering if it is available at a particuliar website, or if I must compute it myself daily? Thanks. Henk
My technician partner suggested that you subscribe to John Murphy's stockcharts.com. They have an on-line chart school there that can get you up and running. D
Hi Danielle, just out of curiosity, did you invest in the TSX during its short upswing from March to June of 2008? If not, could you explain why you stayed out during what looked like a fairly definite trend upward? Thanks.
The problem with stepping aside and holding cash, is what to do now. The “buy and hold” crowd say you cannot time the market because a- you do not know when the market hits the bottom and, b- investors always get back in late after all the gains have been made.
I am assuming that a- a serious bottom has been made and confirmed by the recent rally and, b- now is the time to start buying.
This is my plan.
Use the ETF, HXU, since as we have learned in this bear market, all equities around the world move in the same direction.I have started to buy a set amount every time the TSX is up 200 and have a stop for that same amount if it drops by 200. I will double the amount if we reach over 10000 on the tsx.So far it is working out and the cost of $10 per trade is minimal.
My fear now is crystallizing my losses by not seizing the moment.I know that the markets now are very erratic and that we could go down but somehow I am trying to make some gain while not taking on too much risk.I would be interested if you or anyone else had any thoughts (good or bad) about my plan.R.D.
I don’t know about this recent rally. Economic fundamentals have not changed, real estate market is still falling and last time I looked credit card debt load is still largest in history. What’s more, it is being confirmed, – as if there was ever any doubt – that there are no sacred cows and that Canada is subject to the laws of international economics. Interesting situation in the markets posting gains as gold is also moving up. Could be the “cash is trash” syndrome. Good times for traders, not so sure about investors. (On the bright side, with all this money printing demand for paper might restore the pulp and paper sector. Sorry, couldn’t resist)
I read in the Globe and Mail that the cost of the bailout is more like seven trillion! IMO I think the markets rallying in the last week is just a tiny bear market rally. All the fundamentals (employment, gdp, oil prices etc) indicate that this rally shouldn't be justified; that's why I think we have not hit the bottom yet. As Danielle pointed out before the markets rallied in 1973 and hit a bottom in the fall of 74. I guess time will tell, the one things for sure is we are living in interesting times, it will be in the history books.
Hi Danielle! I am a recent fan of yours! I was curious as to your thoughts on the recent 6 day rally on the TSX. Do you think this just another sucker bear rally?
I think we may well see a rally for some period during the next couple of months, but I do think it will be a bear market rally, as I do not think we are yet ready to start the next cyclical bull. Perhaps the shockingly bad Q4 earnings due out end of Jan will prompt the next and hopefully last down leg this cycle.