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2008 crash deja vu: We’ll relive it, and soon Commentary: New bubble is hotter, bigger than the last one
By Paul B. Farrell, MarketWatch
SAN LUIS OBISPO, Calif. (MarketWatch) — Warning, the stars are aligning, again. Much faster. We’re repeating the run-up to the 2008 meltdown, leading up to the next election.
Yes, another crash is coming, unavoidable, just like 2008. Not because our totally dysfunctional government is collapsing into anarchy, thanks to the 261,000 Super-Rich Lobbyists. Not just because our monetary system is run by the Bernanke Printing Press Company. And not just because a soulless conspiracy of Wall Street CEOs cares nothing for democracy and the public interest, only for their stockholders and their year-end bonuses.
Another crash is coming soon because we’re back playing the same speculative games as we did for years prior to the 2008 crash. When we collapse, it will be because America’s leaders never learn the lessons of history. Never. In a BusinessWeek editorial, Peter Coy and Rouben Farzad described the bubbles:
“It’s as if 2008 never happened. Once again the worlds investors are pumping up bubbles that will probably explode in their faces. After the popping of a real estate bubble led to the first global recession since the 1930s, world markets are frothing like shaken Champagne. Pundits claim to have spotted price increases that are unsupported by economic fundamentals in assets ranging from U.S. farmland to Israeli biotech to Australian housing to Chinese cemetery sites. Commodities have soared. Global junk-bond issuance hit a record in the first three months of the year … this is the granddaddy of them all, an almost-encompassing bubble right at the heart of monetary systems.”
Yes, the “granddaddy of all bubbles” will explode right in Fed Chairman Ben Bernanke’s face, a bubble that will then sink like a stiletto deep into the “heart of the monetary systems” across the world, proving something Nassim Taleb said about Bernanke when Obama reappointed him in 2009, “he doesn’t even know he doesn’t understand how things work,” and that his methods make “homeopath and alternative healers look empirical and scientific.” Market Crash: Will it happen by Christmas?
Warning, same prediction also made 18 months before the 2008 crash
Now here’s the fascinating part of that prediction. Today’s new bubble-blowing resembles the four-year run-up to the 2008 crash, even replicates the pre-election timing. Why? First, because Jeremy Grantham, GMO chief, money managers of $100 billion, made virtually the same warning as the Coy-Farzad team 18 months before the 2008 meltdown.
Listen very closely and compare how what Grantham said in July 2007, 18 months before a clueless Henry Paulson and Ben Bernanke stood by and did nothing before the crash in the fall of 2008. Listen, the similarity is so eerie you’d think the two predictions were written by the same guys four years apart, though they weren’t.
Coincidence? Perhaps, but the real problem is that during the 18-month run-up from July 2007 to the 2008 crash, our leaders, Paulson and Bernanke, were misleading everyone: Paulson, “best economy seen in my professional life.” Bernanke, “the subprime loan crisis is contained.” And earlier Greenspan, a myopic Reaganomics-Ayn Rand clone who later recanted, said the problems were just some “regional froth.”
Now listen and compare Jeremy Grantham’s July 2007 prediction with BusinessWeek’s warning: “The First Truly Global Bubble: From Indian antiquities to modern Chinese art; from land in Panama to Mayfair; from forestry, infrastructure, and the junkiest bonds to mundane blue chips; it’s bubble time. … Everyone, everywhere is reinforcing one another. … The bursting of the bubble will be across all countries and all assets … no similar global event has occurred before.” It came true 18 months later. Meanwhile Paulson and Bernanke kept publicly dismissing warnings they didn’t like.
Warning, America’s leaders will deny the next crash, won’t be prepared
Later in 2009 Grantham also began warning that we had “learned nothing” and were “condemning ourselves to another serious financial crisis in the not too-distant future.” Get it? America’s leaders in Washington, Wall Street and Corporate America are so predictably irrational, so doomed to repeat history, they cannot hear, see or comprehend the warnings of men like Grantham, who manages $100 billion, a guy who can’t afford to ignore the lessons of history. He’s also understands why humans deny warnings, why we inevitably make stupid mistakes over and over.
Yes, Grantham was already pointing out how we “learned nothing” from 2008, how we were destined to repeat the same, even bigger, mistakes. Pointing to a key chart, Grantham’s “favorite example of a last hurrah after the first leg of the 1929 crash,” he saw obvious similarities between 1929-30 and today, warning that we’re in for a long, long period of recovery, like the 1930s Great Depression: “After the sharp decline in the fall of 1929, the S&P 500 rallied 46% from its low in November to the rally high of April 12, 1930, then, of course, fell by over 80%.”
Then last year Grantham updated his warnings, drawing an analogy to the biblical warnings of Joseph: “The idea behind seven lean years is that it is unrealistic to expect to overcome the several problems facing most developed countries, including the U.S., in fewer than several years.” So here we are, closing in the elections of 2012, with 18 months to go. The countdown clock’s ticking louder, while Newt, Paul Ryan and The Donald are sucking the air out of the media cycle, making certain that once again we’ll miss the coming perfect storm in the financial markets … just as Paulson, Bernanke and so many others did in 2008.
For eight centuries, political leaders in denial, never learn till it’s too late
This has been going on for 800 years: Why do national leaders fail over and over to learn the lessons of history? Grantham said it best in a Barron’s interview a couple years ago: “Why is it that several dozen people saw this crisis coming for years? I described it as being like watching a train wreck in very slow motion. It seemed so inevitable and so merciless, and yet the bosses of Merrill Lynch and Citi and even Treasury Secretary Paulson and Fed Chairman Bernanke, none of them seemed to see it coming.”
Our nation’s leaders are in denial, want happy talk, bull markets, can’t even see the crash coming, even though the warnings were everywhere for years. Why the denial? Grantham hit the nail on the head: Our leaders are “management types who focus on what they are doing this quarter or this annual budget and are somewhat impatient.”
But what we need is “more people with a historical perspective who are more thoughtful and more right-brained.” Instead America ends “up with an army of left-brained immediate doers. So it’s more or less guaranteed that every time we get an outlying, obscure event that has never happened before in history, they are always going to miss it. And the three or four dozen odd characters screaming about it are always going to be ignored.”
7 reasons leaders always fail to see catastrophes, till too late
Please listen closely: For emphasis, let’s repeat Grantham’s warnings so you can see why a guy who is making $100 billion bets on the future of America’s economy, the dollar, our securities and commodity markets should be listened to. His psychological insights into the minds of America’s leaders deserve everyone’s attention.
So whatever you do, commit these seven key points to memory as a guide to your thinking and financial decision-making in the next 18 months:
Many, many experts did predict and warn of the 2008 meltdown years in advance.
Wall Street banks, corporate executives and Washington politicians are short-term decision-makers.
Most business, banking and financial leaders are short-term thinkers, focused on today’s trades, quarterly earnings and annual bonuses. Long-term historical thinking is a low priority.
As a result, it is virtually certain that America’s leaders will focus on upbeat, good news and always miss the next meltdown because warnings of a coming catastrophe are ignored.
Warnings from the few with a long-term perspective will always be dismissed during every investment cycle and every future recession/recovery cycle. Always. It’s in their DNA, trapped in their brain cells and demanded by their followers.
If you are a typical left-brain Wall Street or corporate executive, it’s virtually certain that you will miscalculate the timing/impact of the next meltdown, the next big collapse that’s off your radar. As a result, your company’s assets are at risk of suffering massive losses that are “predictable, not random.” But because you’re in denial, you will not deem it necessary to take steps to protect your assets.
If you’re a right-brain thinker, your longer-term historical perspective will give you a clear advantage in preparing for the next crash and the depression that follows.
Folks, there’s really nothing you can do to stop the inevitable crash that is coming possibly just before the presidential election in 2012.
Historical cycles have led to the inevitable collapse of all economic systems for 800 years, say economists Carmen Reinhart and Ken Rogoff in their classic, “This Time It’s Different: Eight Centuries of Financial Folly.”
The facts of history are irrefutable, inevitable and brutal. And nothing can change the trajectory of the cycle. In fact, the end can accelerate fast, in decades, says Niall Ferguson, author of “Ascent of Money: A Financial History of the World” and “Colossus: The Rise and Fall of The American Empire:”
“For centuries, historians, political theorists, anthropologists and the public have tended to think about the political process in seasonal, cyclical terms,” their ending long, drawn out. “But what if history is not cyclical and slow-moving but arrhythmic.” What if history is “at times almost stationary but also capable of accelerating suddenly, like a sports car? What if collapse does not arrive over a number of centuries but comes suddenly, like a thief in the night?”
We are in such a period. Will you be caught off guard, unprepared? Like in 2008?