Do old rules of economic analysis apply

Below is a reply to an inquiry concerning an analyst's projection that we are at an investment buying opportunity.

Richard,

Regarding the note and graphs you sent:

I have trouble when someone says there is a definite trend (70%). He is 20% from being wrong, or does some other scale apply?

All this analysis is nice and probably useful in the past, but we are not in a normal market. In a normal market, we would be in a unique buying opportunity and timing is de minimus. Just start buying. If anyone hesitates, that is an action louder than words. Why talk about timing if it is the best period to buy? The writer of the email is looking for emotional support that things will be just like last year, not trying to maximize a timing strike If a candy bar is 6 cents, you don't waste time wondering if you can get it for 5.

However, things are unique because we are so low and biasing down that the market, which, of course, does not really exist, defies prior logic. If prior logic does not work, then why apply it?

You have to be in the normal paradigm or out, not applying "normal" technical analysis when it says what you want. One has to step back and think about such reflections as the discovery of a 50 billion dollar Ponzi scheme did not crash the market, so things look good. Capitulization is good at washing out Joe Six Dollar to find a bottom, the theory goes. A theory is not a law. Failing to collapse by digging a hole through the floor is not exactly the same. At some point, people have no where to go and just sit and hope things get better.

We are at a primal decision point. If things are not so bad, that everything is being overblown, then one should not hesitate to buy. It is the best buying opportunity you will ever see. Me, I put Beth in some GE in case things sort out, but that is about as normal as I would go.

If things are really unique and we have gained a disregard for the value of money by, essentially, Marxist politicians is pushing us over the edge, then one should probably be thinking more carefully. We have just created more money than can be imagined to save our foundational companies. We have made ourselves insolvent, but for what we can still borrow as others are worse off.

Maxine Waters' slip made it clear the Feds are designing to take over the banking system. Will there be a move to nationalize retirement funds? We just bailed out the auto unions by continuing the pain of car companies that can't quite compete, Obama says he is against nuclear power and will cripple coal (after saying he was for it), and, finally, people are becoming stupid beyond redemption. Some sort of medical insurance nighmare is months away. There is talk of saving the newspapers, another arm of the "progressives" that can't compete in an open market. These are not the part of the backdrop of normal times.

So, are we in normal times? Is this the 87 crash? Nice to think so, but as the writer said, almost dismissively, the hit to Main Street is coming and will last two years. This is two years to highly-leveraged economic dodos who have not heard of bad times. We haven't even started to feel the pain. Of course, Congress is delighted with the melt down they helped create, as they will find years of support for socialization and expensive green bills designed to centralize power. Congress can now promise people money if they just keep voting for socialism.

The dollar is becoming meaningless, other than what a seller would take for a sale. It is becoming Weimar money. It has not crashed as other countries were dependent on us. This dependency is what makes us a safe harbor, but for how long? Why attach yourself to a falling star? The USD has been dropping fast as the currency of world trade. There is just no replacement, as yet, as the EU relied on our buying their stuff. Gold may come back.

Stocks could go up to reflect the decreasing value of the USD. Would you rather have the equivalent of a 1950 $1 or 2008 $3? Imagine the market becomes stagnant or mild while the dollar decreases in value.

This devaluing will to come, as it is how Congress and the President will pay for all the money we borrowed. An old trick that won't last too much longer. One has to decide whether we can get away with this trick one more time.

I should think after a deflationary period, coming soon to a home near yours, there will be inflation. If an investor thinks it is good to buy into inflation than we approaching that time. If you think the inflation will defeat the USD, it is a good time to get out of the USD and into real estate, gold, and peanut butter. Not sure, do both.

I guess, my thoughts are that it would be great if old school analysis applied, but I think (60% to adopt a motif) that we are no longer the US of old and old rules are dangerous. The brilliant analysis of old certainly did not help the smart people of Wall Street.

Once Main Street starts to get crushed and people see their money (savings and retirement) is watered down, no one can say what will happen. It may be Bush stopped the complete melt-down, but the cost and precedents set may just make the suffering worse, later on. The decision point is whether one wants to stay in this board game even though they keep changing the rules inside the box cover.

Three years ago, I noticed an article that mentioned, in passing, how both Gates and Buffet had been buying large positions in gold. That stuck with me. What were they seeing?

Gene