Slowdown or Deflation?
Research for Online Investors

by John Dalt

8/12/10

The market responded to the Fed’s slowing economic forecast yesterday by falling out of bed.  We couldn’t think of why the market would go higher.  When kids are balanced on a teeter totter, eventually one side will hit the ground.  We didn’t know where the bad news would come from to drive a stake in the shoulder of the bulls, but knew it had to be out there somewhere.

We didn’t expect it to come from the Fed, but why not? Who better to throw a wet rag over the market enthusiasm?  We have had a virtual curtain drawn on news out of the Eurozone. Miraculously, all the problems of current year deficits and debt from past spending were shuffled off the radar of investors.

News crossed the lines yesterday that Greece and Portugal’s debt is paying higher interest rates than Germany’s as bond buyers are flying to quality.  Greece it seems is in the midst of a recession worse than revealed or expected.  The countries economy shrank 1.5% in the second quarter.  Economist had expected a fall of 1%.  The first quarter GDP had contracted 0.8%.

Greek GDP has contracted 3.5% in the last 12 months.  The International Monetary Fund (IMF) predicts Greece GDP will decline 4% in 2010.  The current year budget has a 13.6% deficit.  Is this the future for the U.S. economy?

The internet news distribution channel allows comments on articles.  Many of these comments are not about the facts of the article but political.  One of the comments surprised me for complete lack of understanding of the realistic situation Greece finds itself in.  SomeGuy wrote, “Bring on the end of economic slavery within Europe! The flames of anarchy will reign supreme for years, cleansing the corruption and burning the evil to ashes. And from the ashes of the old world, a new, powerful and just society will rise like a phoenix.”

That is exactly what Europe needs, a “just society.” Isn’t Europe’s problem too many social programs and generous retirement benefits? Isn’t the U.S. problem too many entitlements? The writer seems to think a new more powerful society will morph out of the complete destruction of capitalism. Who will do the work to create this society? Surely the lazy that are collecting monies from social safety nets will not produce wealth to be taxed.  Only the politicians are willing to consolidate power and authority on this smuck's shoulders, and rule over him.  We all should be careful what we wish for.

The embarrassing point about SomeGuy’s comment is it seems to be shared by many in congress.  The House of Representatives passed a $26 billion dollar mini-stimulus bill yesterday they didn’t even have a name for.  They just knew they needed to spend some more money.  It was so important to spend more money; Speaker Pelosi had to fly everyone back to Washington to vote on the bill with no name.

“Economic slavery…anarchy…corruption….evil”, maybe I can identify with SomeGuy’s descriptions of what is, or will happen.

The market is not buying Bernanke’s fear of deflation, gold is up.  That happens when you drop money from helicopters!

To the mailbag:
ROMAN PERIOD.....NOT AS YOU ONE-SIDEDLY SUGGEST.  HOMOSEXUALITY IS PROHIBITED IN ISLAM, OR HAVEN'T YOU HEARD.---subscriber M.B.

John’s reply: Yes I heard, but it is prohibited in Christendom also…We all need to be tolerant...as I am of you!

When a non-denominational church is built in Mecca for non-Muslim worshipers, they can have their mosque built near ground zero.  To achieve the Cordoba mosque's stated ambition that it will serve as an instrument of reconciliation, the openings of each house of worship should be timed so they occur together.  When this simultaneous event takes place, the real news that day will be it started snowing in hell.---subscriber J.R.

John’s reply:  Are you saying what is good for the goose is good for the gander?  Sixty Minutes had a nice piece on Muslim “tolerance.”   You can view it here.

Your articles on Cash Flows are one hell of an education and something beyond a Bus Ad major's radar screen.— paid up subscriber J.P.

John’s reply:  Thanks I will take that as a compliment.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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