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American Century Real Estate Inv Message Board

  • bugs1106 bugs1106 Nov 14, 2009 7:45 PM Flag


    <We all are well aware that this is not the typical bear market. The bear markets we are accustomed to are inventory demand related, the result of inflationary pressures or currency crises. This bear market was created by a credit contraction of historical proportions. While credit has been contracting in the private sector. The US government (public sector) has committed $23.7 tln in cash infusions, loan guarantees, debt swaps and debt monetization. Considering that the entire US GDP is only about $15 tln, this is a massive monetary intervention. In addition, the US government is running unheard of budget deficits, the FED is debasing the USD through it's monetization program, while Congress is trying to push through huge programs like Health Care Reform and a Climate Change bill. While all this is occurring the unfunded future liabilities of Medicare and Social Security go unaddressed. Naturally, most of you have heard all of this before. Yet, the question remains, what's driving this stock market higher? Simply put, the decline in the USD and record low interest rates.
    Everyday we report the results in trading for stocks, bonds, crude oil, gold and the USD. We will attempt to make sense of what's transpiring using these five asset classes plus another factor, inflation. A credit contraction leads to deflation. We see this specifically in real estate, resulting in bank failures, rising unemployment and a contraction in demand from highly elevated levels. In response the government, treasury and the central bank have tried to re-inflate the economy with the previously noted actions. The result of committing funds equal to 1.5 times the GDP has had a stabilizing effect in the near term. Long term, however, there is still a problem for this economy, namely the potential for inflation.
    Typically when a currency declines, and/or debt is monetized, imports become more expensive and the end result is inflationary. With the overriding trend in the US deflationary, and China's currency the Yuan pegged to the USD, its largest trading trading partner, the potential for inflation has been stable. This allows the US to maintain record low interest rates in an attempt to allow time for the economy to heal itself. The result of low inflation, low interest rates, a declining USD and an expansive monetary policy, is a rising stock market, and rising prices for Crude and Gold. Excess dollars, created by the FED, are flowing into the stock and bond markets. While Gold and Crude are rising inversely to the decline in the value of the USD. .> page

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