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
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

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