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Author Topic: The Boom Times are Coming Back  (Read 881 times)
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tamo42
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« on: 2011 Sep 06, 12:06:26 pm »



The past few weeks have seen great volatility in the stock market, both up and down. The general mood of the investing public is one of concern and fearfulness. So it seems an appropriately contrary time to write an article discussing how we will soon see boom times coming back.

What are boom times?

It's important to define exactly what boom times are, and what they are not. A boom time is characterized by rising asset prices and increasing private sector investment. This eventually leads to increasing employment as those capital investments need labor to produce consumer goods. In other words, people start buying stuff at an increasing pace.

Boom times are qualitative. They are about how people feel about their futures. But we live in a numerical time, so you'll see talking heads on TV go on about GDP, GDP growth rates, public deficits, and so on. Most of those numbers are just a distraction from the real issues.

What causes boom times?

There are a couple different ways boom times can be created. The key to all of them is that companies increase their investment in capital goods. This then creates more, better, and cheaper consumer goods.

The first and best way to get this money to productive companies is when people save their money. They take this savings and invest it in companies.

The second way productive firms can get access to this investment money is through deficit financing. They can borrow money from banks. The banks create this money by practicing fraction reserve banking on the deposits of checking and saving accounts from individuals. This method ends up being inflationary.

The third and worst way to get this investment money into private firms is when the Fed creates new reserves for the banks. The banks can then practice fractional reserve banking on this newly created money and lend it out to companies. This is very inflationary.

What is causing the next boom time?

Of course given the totally insane economic and political structure we currently have, the next boom time will be created in way #3 - the worst, most inflationary way. The Fed is printing gobs of base money. Over the past couple of years, this base money has not been making its way out into the wider economy. It has been sitting in banks' asset columns as excess reserves. But that is starting to change. Loans are starting to be made. Right now it is only in two sectors: New York City financials and Silicon Valley techs. These firms are the first movers. Already apartment rentals in those areas are seeing higher demand and rising prices. As prices increase, they will attract attention. This is the birth phase of the boom that we are now in. Next will come the growth phase, then the momentum phase, and finally the death phase. This is the pattern of all market cycles, up and down.

As the Fed creates more money and banks lend out more and more against their reserves, business activity will accelerate. By the time this catches the attention of most people, we will already be well into the momentum phase and possibly into the death phase. Do not be one of those people who buy at the top!

How do I profit from the next boom time?

Just being aware that the dark and dreary picture presented by the media isn't the whole picture is a big step on the way to profits. We are in the turn-around period (birth phase). I do not know how long this phase will take (my guess is within a year), but now is the time to mentally prepare yourself for the next phase. Shed your investment prejudices that you have acquired over the past few years. Think about which assets will catch momentum first, which will be last.

The key to profiting in a rising market is being an early adopter while not falling for the hype. Whatever the asset of the day is next time, it won't be any different than houses in 2005 or tech stocks in 1999. The combination of NYC financials and Silicon Valley suggests that the next boom will be in social media companies, but that is still speculation at this point. No matter what it is, you must remain aware of the economic drivers of these changes in the market. That way you will not be caught unaware thinking your investments are safe.


* Boom.jpg (39.76 KB, 285x427 - viewed 309 times.)
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« Reply #1 on: 2011 Sep 06, 12:16:00 pm »

Very good article! I agree completely. The economy should really be taking off right now, but it isn't yet. I think the measures required to make that happen are on the verge of being implemented any day now. The inflationary aspect of technique #3 means that those who are invested in hard assets like gold, silver, coins, etc will be very happy. But, as always, commodities are not a good investment if the overall economy is doing poorly. The inflation will solve that problem too.

In my recent commentaries, I've mentioned that it's important to not be too aggressive in investing right now. You mentioned another great reason for that - you need to evaluate what's going to benefit first, last, etc. You can be picky while things take some time to speed up in the economy.

Great information, and a very helpful tool to use in picking investments.
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« Reply #2 on: 2011 Sep 06, 07:22:49 pm »

What we need is more boom rumors that can get people excited. This time the boom will be different.
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« Reply #3 on: 2011 Sep 07, 12:05:53 pm »

I just moved this out of the prepublication drafts section. I didn't notice it was still stuck in there!
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If families are a problem for the system, then we must reject the system, not the families.
Founder of the Coin Compendium (forum, blogs, calendar, images, donate, contribute).
LBC makes you rich, with a free ebay gift certificate awarded every month!
The Coin Compendium and the china-mint.info forum, censure, disclosure.
Do not PM questions. Answers should be publicly available.
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Badon effect: type 1 to 8, type 9.
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Use my work. Give credit.
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