History repeating – the classical disconnect between middle class common people and the rich shows a big bear market in stocks is here
Paula Ranske
Oct. 23, 2007

This happens again and again. The last one was in 1921-1929. It has happened again in 2001-2007. Simply put, when the economy divides into two halves – the rich and the rest, the stock market and the economy goes into a downward cycle driven by the deflation.

History is repeating. But there is one difference. Because the concentration wealth is more distributed (in other words many rich people and families) today than 1921-29, the meltdown is going to happen very slowly. It is a slow but steady decaying process.

While many middle class hardworking common people are filing for bankruptcy to stay in their homes, the rich are debating where to play golf next week. The consumers in the economy are really the middle class honest hard working people. When the agents of the rich bash the middle class, the inevitable happens. The middle class turns poor creating a massive deflation in the economy. The deflation takes down the whole financial structure. It is equivalent to blow up the foundation of a building.

Take the example of the oil price. The amount of futures contracts held by private equity and hedge funds far exceeds the commercials. That never happened before any time in the history of oil market. The last time we saw something like this was when Hunt Brothers from Texas tried to corner the Silver Market.

Any time a small number of people controls the financial markets, the market eventually makes them lose their shirt but also in the process a massive near market is created after the bubble bursts. The excess takes years to get settle in. Silver after the Hunt Brothers episode took more than twenty years to become real bullish.

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