Act II, Take II: The Worst is Yet to Come
September 02, 2009
– Comments (20)
Please begin by following this link to an article from TimesOnline, featuring fascinating quotes from the once-ridiculed, and later vindicated economist Ann Pettifor. I urge all Fools to take time out to consider her words, and approach them with the open-minded neutrality that her perspective deserves after so clearly predicting the global credit crisis years in advance of its full manifestation.
In her comments, she refers specifically to England's predicament, but every word of it is 100% applicable to our own situation on this side of the pond.
Ms. Pettifor's predictive pedigree is peerless: her 2006 book The Coming First World Debt Crisis was received with ridicule at the time of its publishing, but no one's laughing now. Ms. Pettifor is trying to deliver a cautionary message once again, sharing her conviction that we've yet to see the worst of this crisis, but sadly she finds that despite having been 100% correct in her prior warnings her words are again falling on the deaf ears of eager market participants.
Logic demands that she be given a wide audience and that her words are considered very carefully. After all, we know what Einstein called it when people repeated the same approach while expecting different results. Investors ignored the likes of Ms. Pettifor and Peter Schiff in 2008 at their own expense, and yet now dismiss their warnings of a second phase of the crisis just as readily. I call it folly ... Einstein would have called it insanity.
In this respect I share her sentiments precisely: "I hate this role of being a gloomer and doomer, as I’m an optimist by nature. But I am very pessimistic now."
"She likens Alistair Darling, the Chancellor of the Exchequer, to a high-wire artist. “He thinks that if he can just keep his eyes closed he will get to the other side. Yet underneath him is this vast debt that has not been cleared off the banks’ balance sheets. Many of the banks are still insolvent and this has not been addressed.”"
"She is baffled that the Government has used billions of pounds of public money to rescue the banks without insisting on any change in behaviour."
These comments describe precisely what I've been trying to convey here, that all policy responses here on our side of the pond have likewise been nothing more than a band-aid on a wound that actually requires surgery. To continue the medical analogies, it's as if we've placed a tournaquet around the thigh of our economy's severed leg, and completely overlooked the fact that tournaquet's are temporary fixes designed to buy us some time. Meanwhile, the wound has gone gangrenous, but no one has bothered to look becase they're busy buying stocks. :) Well, some of us, even though our stomachs turn at the sight of the wound, are willing to look because the patient's health is priority one.
"She was baffled by a recent letter to the Queen — from other leading UK economists — after she reputedly asked why nobody had seen the crisis coming. With a voice bordering on incredulity, she reads out a passage where the letter-writers say “inflation remained low and created no warning sign of an economy that was overheating”." [Blasting the notion that inflation remained low, she then points to the explosion in asset values that far outweighed any moderation in the prices used to calculate official inflation figures.]
Peter Schiff, Jim Rogers, Niall Fergusson, Ann Pettifor ... these are the voices that I believe investors need to hear. Turn off the tv and look deep into the events of last year and consider for yourselves whether anything more than a hail-mary reflationary maelstrom has been heaped upon the fire that started it all. For those who see Krugman's nonsense or Kudlow's cheerleading as anything other than the useless distractions that I believe they are, I will remain concerned for your financial well-being, as you may very well remain concerned for mine. :)
I recognize the width of the philosophical rift that has grown between bulls and bears as this rally has worn on, and that each camp seems to view the other as suffering from some kind of tragic disconnect from reality. My hope is that we can bridge that gap with open-minded discussion and systematic weighing of the available evidence rather than through ridicule or stereotyping of our fellow CAPS members. We are all talented and capable investors ... we just happen to disagree on the gameboard we're playing on. Let's respect each others' perspectives and listen thoughtfully to what everyone has to say, and maybe we can come to some mutual understanding even if agreement is not in the cards. I'm okay with a philosophical rift; I just don't want to see a physical rift driven like a wedge down the middle of this community. After all, we're all on the same team. :)
If you still haven't clicked over to the TimesOnline article, please do so now, and then return to share your comments and perspectives.
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