Stocks and Deflation

By Delwyn Lounsbury - THE DEFLATION GURU

The stocks and deflation downtrend started year 2000 with the dot com stock mania climax and bubble top.  You could lose money big time as stocks lose 90 percent of their value by 2016.  There has been a 13 year head and shoulders top formation since which proves stocks and deflation don't mix.  In addition, if you draw a neckline, the straight line connecting the bottoms of stock indicies movements, you get a downward sloping line. This is a major bearish technical indicator. A secular bear market is in progress with a bear market (fools) rally currently in progress in 2011. 

We are already 11 years into the GREATER DEPRESSION.  If you don't believe me just look at a 11 year graph of the NASDQ Stock Exchange.  Symbol QQQ.  It has not gained back more than 60% of the drop from the top back in 2000.  It is the NASDQ where the true growth companies of the world trade.  They are the real job creators like Apple, Microsoft, Intel, Research In Motion etc.  The Dow Jones Industrial average and the S & P 500 (Standard and Poors 500 stock index) averages are fudged by throwing out the weak companies and replacing them with stronger momentum companies.  It's not a level playing field.

Stocks and deflation do not go together.  Do not invest in the stock market or mutual funds in a deflationary crash.  Go short!
If your pension plan or 401-K lets you self direct - then sell those stocks and mutual funds and put the money in 90 day U.S. Treasury (T-Bills) money market funds.  They don't pay much interest now.  But, safety is what is important today.  When they do pay interest it is compounded daily.  Robert Prechter says interest rates on short term money may ramp back up to 15 to 20 percent or more like in the early 1980's.  He says people and businesses will scurry around borrowing at high rates to stay afloat in the bad times to come.  The only cure for inflation is deflation and cash is king in a deflation.  Be Prepared!

Bonds or bond mutual funds or TIPS (treasury inflation protected securities-ha ha!) could loose value if interest rates rise or if the states, counties, cities and municipalities issuing them get into financial trouble.  What inflation?  These are disinflation and deflationary times.  Yet, at a recent sale of these inflation protected securities investors actually accepted a negative return to purchase them thinking inflation will come roaring back.

Interest rates could spike as investors and our creditors grow apprehensive about the soundness of America and the American government in the midst of the Greater Depression.  You could get big capital gains losses with bonds.  When interest rates go up bond values go the other way.  Inverse!  They are not for widows and orphans as touted.  Beware!  Again!  When interest rates go up the value of the underlying bond or derivate has a capital loss.  The only way then to avoid a loss is to hold the security to maturity and collect the coupon or interest all those years and then receive the face amount of the bond on the maturity date.  Otherwise, it is discounted per a formula based on original interest rate, current rates & years to maturity.

The 1,000 families that are the financial power elite of the world (that we all owe money) want a strong dollar since most of their assets are in America.  They are the creditors.  They are the one-world-government & new-world-order protagonists.  The Anglo financial power elite.  They want to be Big Brother.  We are the their serfs, pawns and marionettes.  Their fools and jokers!  They won't stand for much more inflation.  Just like in the 1930's depression they are already cutting back on lending.  These banksters will get richer.  They have already sold much of their real estate and now will be selling and shorting stocks, bonds and commodities.  Even gold may drop in half according to Robert Prechter, author of CONQUER THE CRASH.

Creditors are already clamping down on their lending.  Interest rates are at major lows but rising slowly.  That means few want to borrow any more.  Money is on sale!  Only the most creditworthy borrowers with a big down payment get loans.  Not a good sign.

The same thing happened in the 1930's depression.  Inflation in the roaring 20's of 10% per year in some years meant the money the bankers had lent out would be worthless in 10 years.  They put on the brakes and called in their loans.  They foreclosed on properties. They got richer. This time it will be a worldwide Greater Depression three times larger and three times longer lasting than the last one - per Robert Prechter. 

The only good thing about deflation and stocks is governments at all levels will get defunded and have to tighten their belts.  This means they may slow down ripping off our liberty and freedom.  All credit inflations end with a nasty and brutal credit deflation.

"As government expands - liberty contracts"  by Ronald Reagan

Copyright 2011 by Delwyn Lounsbury - THE DEFLATION GURU
Use of this article allowed with attribution back to:
http://www.deflationeconomy.com