General Thoughs

My thoughts today came out of Russ Winter's blog comments section. Here they are:

The question is, whether write-offs are greater than defaults. I believe that write-offs are a trailing indicator of defaults. That’s why they keep getting bigger and bigger.

If you look at money supply without credit supply, you only have half the picture. What we have been seeing for the past year is the collapse of value in goods paid for in credit (housing) and a gain in value of goods paid for with cash (oil, gasoline). Why? Because credit purchasing power is being destroyed at a faster rate than cash purchasing power. That’s why there’s been a rush to turn credit into cash at any cost (Citi’s paying 11% for cash). M3 may be skyrocketing, but it’s not even close to keeping up with derivatives (debt).
This is called deflation.

This post was in response to the guy who thinks we will very soon see new stock market/commodity records highs:

frank,
You do have one thing going for you. Stocks are paid for with a much higher proportion of cash then many other assets (I’m thinking of
bond market in particular). However, equity is what is left over after debt.
Over the coming year, I expect that earnings will not keep up with debt service expenses for companies in certain sectors. The other sectors will become more vulnerable to bad news as everyone crowds into the same play. We’ve begun to see this with market breadth narrowing recently.