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Where is demand going to come from?

June 29th, 2010 · 2 Comments

The $64.000 question…

Consider this:

  • Most US states are  embarking on big spending cuts even on matters crucial for long-term economic growth like education
  • There are more than a million US unemployed who will receive no further benefits shortly
  • The housing sector is tanking again
  • The private sector is de-leveraging, but this has a long way to go
  • Unemployment fails to go down
  • There are now worries even about growth in China
  • The Bush tax cuts are expiring at the end of the year
  • Most of the stimulus will peter out by the end of the year
  • The dollar has risen, biting into exports
  • The Gulf coast is toast
  • In Europe, all the talk (albeit not too much action) is on austerity
  • Banks in Europe, Spain especially, are very, very wobbly

But hey, according to a host of commentators all will be alright when we reign in budget deficits. Really?

As we’ve said before, deflation is by far the single biggest risk out there. People who doubt this should read the work of Irving Fisher and Richard Koo. All the plugs should be pulled to avoid that, because once entrenched, it becomes a self-sustaining vicious cycle where the real value of outstanding debt will lead to further spending cuts and forced asset sales, taking most of us down.

Tags: The Markets

2 responses so far ↓

  • 1 ioc4ever // Jun 29, 2010 at 4:56 pm

    Why is IOC down: the writting is on the WALL

    Resource size confirmed, Risky Stock, No JV, stranded gas, with no buyers, No capital to finance LNG, Waiting on 3rd party FULL confirmation not some prelim crap, to create the next stepping stone for IOC, in a down economy this stock is the first to go from a risk standpoint….IOC will trade like CRAP until we enter into angreement of some kind, Antelope #3 won’t mean crap until we have a buyer or JV FULL agreement folks……until then go play golf or something to take the stress out. This will all happen in due time..

    *message board, keep this post, the truth hurts but someone has to post it, unlike world cup topic, down 50% in 3-4 months, now thats the truth of US longs* again i am not short, I am a long without selling any shares, we will have our day, its just been empty here with no explaination to everyone lately**

  • 2 persistentone // Jun 29, 2010 at 10:53 pm

    Not only are we trapped by lack of growth, or a potential vehicle for future growth, but we are trapped because our policy makers have spent their weapons. If we double dip, we can no longer rely on government stimulus to get us out.

    I just cannot believe that we wasted all of the government’s ammunition by bailing out Wall Street at 100% of par. We are loaded with debt, oversized entitlements we can no longer afford, and slow growth looking out for the next decade.

    This is a bad environment for equities.