Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks Bull Market End Game Bear Start Strategy - 20th Mar 25
Gold and System Collapse: Charting the Bank Run of the Mighty US Dollar - 20th Mar 25
Tesla's Troubles — Is it Musk or is it More? - 20th Mar 25
The Stock Market Bear / Crash indicator Window - 9th Mar 25
Big US Tech Stocks Fundamentals - 9th Mar 25
No Winners When The Inflation Balloon Pops - 9th Mar 25
Stocks, Crypto and Housing Market Waiting for Trump to Shut His Mouth! - 27th Feb 25
PepeCoin (PEPE): Anticipating Crypto Reversals using Elliott Waves - 27th Feb 25
Audit the Fed, Audit Fort Knox, Audit Everything - 27th Feb 25
There Are Some Bullish Indicators in the Silver Market - 27th Feb 25
These Metrics Identify Only 10 AI Related Stocks That Are Undervalued - 27th Feb 25
Stocks, Bitcoin, Gold and Silver Markets Brief - 18th Feb 25
Harnessing Market Insights to Drive Financial Success - 18th Feb 25
Stock Market Bubble 2025 - 11th Feb 25
Fed Interest Rate Cut Probability - 11th Feb 25
Global Liquidity Prepares to Fire Bull Market Booster Rockets - 11th Feb 25
Stock Market Sentiment Speaks: A Long-Term Bear Market Is Simply Impossible Today - 11th Feb 25
A Stock Market Chart That’s Out of This World - 11th Feb 25
These Are The Banks The Fed Believes Will Fail - 11th Feb 25
S&P 500: Dangerous Fragility Near Record High - 11th Feb 25
Stocks, Bitcoin and Crypto Markets Get High on Donald Trump Pump - 10th Feb 25
Bitcoin Break Out, MSTR Rocket to the Moon! AI Tech Stocks Earnings Season - 10th Feb 25
Liquidity and Inflation - 10th Feb 25
Gold Stocks Valuation Anomaly - 10th Feb 25

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Deflationary Stock Market Collapse In Action

Stock-Markets / Stock Markets 2011 Jun 23, 2011 - 06:17 AM GMT

By: Adam_Brochert

Stock-Markets

Best Financial Markets Analysis ArticleIn the modern fiat world, a deflationary-style stock market collapse isn't supposed to happen. And yet that is exactly what Greece has already experienced and I don't think it's over yet. Here's a modified chart any real bear has seen before: the first half of the 1929-1932 Dow Jones Industrial Average stock market bear, which saw a total loss from top to bottom of 89% (chart stolen from chartsrus.com, a great site, and modified):




This isn't the whole bear market - the eventual bottom in the Dow was 40 in 1932, and the above chart only goes thru part of 1930. Now, here's the rhyme: a chart of the Greek stock market using the ATG share index over the past 5 years (monthly candlestick plot using a linear scale):



The Greek stock market is going to be ground further into the dirt. They are also likely headed for an 89% loss from the peak in late 2007. Why? Simple. The Euro currency is acting as a deflationary straight jacket, strangling the over-indebted Greek nation. As weak and flawed as the Euro currency is, it is too strong for Greece. If Greece doesn't leave the Euro, their deflationary spiral will continue.

It is with great interest that I read a recent report of Greek people raiding their banks for cash and many subsequently using that cash to buy Gold. One of the hallmarks of a deflationary collapse is bank runs. Cash under the mattress and physical Gold are the items of choice in such a scenario, as you never know when a bank holiday will strike. And because you can guarantee that apparatchiks will do the exact wrong thing in this scenario and find a way to devalue and/or confiscate money held in the banking system come hook or crook, I'll take Gold over paper in such a scenario.

This is the real secret behind the U.S. deflationary collapse in the 1930s that revisionist history conveniently fails to mention. People wanted the U.S. Dollar because it was almost the only major currency that remained backed by Gold once Britain started the wave of European countries leaving their respective Gold standards. Because the U.S. remained on a "hard" money system (until 1933-34) that allowed free convertibility of paper currency into Gold, the deflationary forces in the U.S. were overwhelming. People wanted Gold, not a piece of paper with a pending broken promise written on it.

Greek Gold demand is at historical extremes precisely because the country is in the midst of a deflationary collapse. It is not the end of the world and things will eventually turn around, but holding Gold in the mean time is the right thing to do for Greek savers. Eventually, the Euro will massively devalue to accommodate the so-called "PIIGS" economies and/or the PIIGS economies will leave the Euro system. In the meantime, the Euro will act as an unbearable deflationary weight upon the weaker Euro economies. Any can kicking at this time won't buy more than a few months reprieve in the Greek stock market until the next wave down begins.

Gold is money. It has been money for thousands of years. I'll take that track record over any of the existing fiat currencies currently in use. In fact, I'll take physical Gold over any asset class until the Dow to Gold ratio hits 2, and we may well go below 1 this cycle. Shiny metal or the filthy paper promises of those whom history has shown cannot be trusted when the storm clouds finally start to release their cleansing rain.


NOTE: I recommend physical Gold held outside the banking system as a significant part of any serious investor's portfolio. At this stage of the secular bear market in traditional asset classes, I don't see even a 100% allocation to physical precious metals as unreasonable for those seeking to preserve wealth. For those who also seek speculative returns, I run a low-cost subscription service with specific trading recommendations and more in-depth analysis on markets with a focus on the precious metals sector.

Visit Adam Brochert’s blog: http://goldversuspaper.blogspot.com/

Adam Brochert
abrochert@yahoo.com
http://goldversuspaper.blogspot.com

BIO: Markets and cycles are my new hobby. I've seen the writing on the wall for the U.S. and the global economy and I am seeking financial salvation for myself (and anyone else who cares to listen) while Rome burns around us.

© 2011 Copyright Adam Brochert - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in