Will there be a functioning stock market?

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rl's picture
rl
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Posts: 44
Will there be a functioning stock market?

Hello Everyone,

I've been reading many disturbing things about the economy lately.
Some subjects are; the huge US debt, the price of gold and silver, the expanding money supply, huge amounts of credit default swaps.

I've also seen Michael Ruppert's, Collapse
And read Robert Kiyosaki's Conspiracy Of The Rich.
Recommend both.

In the past, we have seen big surprises such as:

Bank holidays.
Swift and major changes to the monetary system, such as taking the US dollar off the gold standard in 1971.
Long Term Capital Management (LTCM) collapse.
9/11
The collapse of Bear Stearns and Lehman Brothers in 2008.
Crisis in Iceland and Greece.
Bankruptcies of many banks, being taken over by the FDIC, are happening frequently these days.
Fukushima
Downgrading of US debt from AAA to AA.

Intuitively, I can't help thinking that some big crisis in the stock markets will be like runs on the banks, similar to what happened in the 1930s.
Then, banks only had 10% or less of the total amount of deposits, on hand.

Possibilities to trigger a big crisis could be:

Major interest or principal payments suddenly becoming due.
Reset clauses in credit default swaps become due.
Gold or silver ETFs looking for delivery of actual gold or silver.
Another war somewhere.
Another natural disaster.

Paper on top of paper.
More paper liabilities outstanding, than there are underlying assets.

Cash flow suddenly stops, and you can't get your money out of the bank.
Or buy or sell your financial instruments, such as stocks, bonds, ETFs.

I just can't help wondering, if there is another big crisis, will there even be a functioning stock or bond market?

Thoughts please.

Any examples from history that we could draw on?

Thanks a lot!

 

Nate's picture
Nate
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Posts: 590
rl, Several months ago I

rl,

Several months ago I asked "Would the stock matket survive"?

Chris answered as follows:

 

The answer to this question rests elsewhere.  As long as the dollar survives, the stock market will survive in some fashion or another.

Whether the money supply will deflate causing stocks to crash to historic lows, or inflate leading to skyrocketing Dow values (see also: Zimbabwe's stock market) is the $64 trillion question.

If the dollar collapses, what we are really talking about is a Zimbabwe-style hyperinflationary outcome.  Under such circumstances, only the very best speculators will be able to outrun the destructive aspects of the monetary collapse, the rest will find their purchasing power steadily eroding towards zero even as the stock market streaks to new highs.

As I mentioned in the Crash Course (in the section on debt), when there are too many debt-based claims on the future, it is a certainty that those future claims will be wiped out.  Whether this is by a process of deflation or inflation is utterly immaterial from a big-picture perspective.  Either way, claims are wiped out and there's a lower standard of living for everyone, in aggregate.

However, we don't live "in aggregate' and you can bet your last dollar that your local mileage will vary.

Towards this end, the most important conclusion we can derive from this mess is that traditional investment vehicles (stocks and bonds), on average, are very probably going to perform horribly in the future.  Whether by a process of inflation or deflation is not yet known.  But there are far too many claims on the future under the best of circumstances but under a regime of resource depletion the situation is even worse.

What all this means to me is that we in the midst of a period of adjustment away from a belief in paper as a store of wealth and back towards real things being sources of wealth.  Rich soils, productive enterprises that make real things from locally abundant materials, food, water, energy...these are all examples of real wealth and I believe these represent the direction towards which the pendulum will swing.

ewilkerson's picture
ewilkerson
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Posts: 390
Red Worms et all.

rl,

It is frustrating to try to understand and prepare for one of the biggest changes in human history.  I keep asking that questtion about the stock market.  I've taken a lot out for PMs and to really make my house energy efficient, etc.  I even ordered some Red Worms the other day for my organic garden. I do still have some money in the market, but it is largely in domestic oil and gas companies.  I figure I'll have at least some time to take a profit when oil prices shoot up, but I may not. 

Happy Labor Day,

Ernest

frobn's picture
frobn
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Posts: 184
ewilkerson wrote:rl,It is
ewilkerson wrote:

rl,

It is frustrating to try to understand and prepare for one of the biggest changes in human history.  I keep asking that questtion about the stock market.  I've taken a lot out for PMs and to really make my house energy efficient, etc.  I even ordered some Red Worms the other day for my organic garden. I do still have some money in the market, but it is largely in domestic oil and gas companies.  I figure I'll have at least some time to take a profit when oil prices shoot up, but I may not. 

Happy Labor Day,

Ernest

In the future profit will need to be redefined and based on family, friends and how much we share as opposed to the monetary value of goods and assets. In other words, reverse our present economic god of "goods over people" to "people over goods."

 

ewilkerson's picture
ewilkerson
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Posts: 390
frobn, I couldn't agree with

frobn,

I couldn't agree with you more.  Mankind is going to have to evolve to a new level.  In my preparations of obtaining food I have purchased far more than I need during the transition, so I may help neighbors, etc.  It could be a rocky road.  I even donated  money to a group in Asheville, NC which is setting up a co-op between the bakeries and the farmers.  The bakeries will help with financing seed.  Then they will have bought a mill and the bakeries will use the grain.  I hope to see more ventures like this soon.  But during the transition I am going to maximize what weath I can preserve to help with projects like the one in Asheville.

Cheers,

Ernest

dshields's picture
dshields
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Posts: 599
Good Question

 

It is a good question.  As a poor engineer I tend to see things like a poor engineer.  As long as there is demand there will be a way or someone(s) will create a way to raise capital to finance enterprises that will work to satisfy demand.  Since people became organized it has been that way and I see no reason why a financial crisis would change it.  The size and scope of the enterprises may be smaller in the future due to reduced available capital, transportation, and energy.  But the mechanism will still exist.  If one wanted to buy into to help capitalize and manage a local or regional grain processing facility as mentioned in another post on this thread, it would just be Wall Street on a smaller level.

I suppose the question might be rephrased to if people will still want to purchase stuff like iphones, laptops, cars, houses, food, generators, pumps, etc. after a financial disaster.  The answer is probably yes.  The part that I have trouble with is if there is a collapse large enough to permanently close the NYSE due to lack of bids then there will also be a fundamental collapse of the logistical system of America.  Trains will stop.  Trucking companies will stop.  All kinds of stuff will stop.  If that happens cities will rapidly become uninhabitable.  It takes an incredible logical system to keep people living in cities.  If that system is impaired by say 50%, cities will become war zones and untold thousands of people will flee them in an effort to save their lives.  Many of these people will be totally unprepared to live in the world that awaits them.  A lot of people will die and a lot more will suffer.  It is hard for my mind to grasp this kind of future.  Without complex logistical systems funded with huge amounts of capital and powered by large amounts of energy our entire social system would disintegrate.  Not sure what happens after that.  I have been picking up stuff that I think I will need if such a problem develops.  I have been building a stash.  I feel good about it.  I look at it like car insurance.  I hope I do not need it but if I do I will be very glad I have it.

 

rl's picture
rl
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Joined: Feb 9 2009
Posts: 44
Enron and more thoughts

Thanks for your thoughts.

That premise is a little scary: "As long as the dollar survives ..." Will it?

Here's more on what I'm thinking of.

I heard a story of what brought Enron down. One bond contract stated that if Enron's stock price dipped below a certain level, then the loan became fully due. The stock price fell too low, and the loan suddenly became due. But Enron did not have the cash to pay the loan. Result was instant bankruptcy.

If the economy is going to go down, a good play might be to buy an ETF that shorts the market. Or, if the US dollar devalues, buy a currency that appreciates in value, relative to the US dollar. The result being, that the ETF or FX would rise in value as the market/dollar went down.

Ok, you've got ETFs and FX. On paper.

What if that paper suddenly has no value? Or, you can't sell or redeem it? Because the parties that manage it, can't get the cash from their counter parties. Or, 100 units all become due, when there are only 10 units on hand.

Similar to the bank runs in the 30s. You had money in the bank. But the bank went bankrupt and shut its doors. You can't get your money. Neither could the businesses and parties that you were going to send money to.

What I'm concerned about is, if there is a big crash of some type, will there even be a functioning stock market? Not a few years after some crash and things reorganize. I mean in the coming months or year.

If not, a good play might be to get out of the stock market and all financial instruments altogether.
As Robert Kiyosaki says, having all your assets in the stock market is not diversified.

Ideas?

 

rl's picture
rl
Status: Bronze Member (Offline)
Joined: Feb 9 2009
Posts: 44
After everything I've been

After everything I've been reading recently, I thought I'd revive this thread.

Any new ideas, now that we are older and wiser?

Thanks a lot, 

R.

 

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