What Now? On the Election, World Markets, Deflation into Hyperinflation
October 26, 2008
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Before you read my Bearish diatribe, I wanted to tell you Fools a few things.
Being born with an American citizenship provides you with a standard of living higher then 90% of those on the planet and a Bill of Rights that is better then 98% of the planet. Americans have been “living the dream” created by the reserve currency status of the US dollar, a relatively low population density and an eroding Constitution and Bill of Rights. Regardless of the future, your health and citizenship are still the two best assets you have. To despair about the future is the wrong attitude for an American, it is better to prepare and thank the Lord for what you do have. There will be some changes in the US, but the fact that you are reading this Blog makes me think you are well ahead of “Joe plumber” types. Also these times create opportunities of a lifetime for investors on the right side of the market.
What Now?
It's fascinating to read the commentators in mainstream journals like The Financial Times and The Wall Street Journal all strenuously pretending that "the worst is over" (maybe... we hope... fingers crossed... hail Mary full of grace... et cetera). The cluelessness would be funny if it didn't involve a world-changing catastrophe. All nations that have reached the fork-and-spoon level of civilization are now engineering a vast network of cyber-cables that lead directly from their central bank computers to the Death Star that is hovering above world financial affairs like a giant cosmic vacuum cleaner, sucking up dollars, euros, zlotys, forints, krona, what-have-you. As fast as the keystrokes create currency-pixels, the little electron-denominated units of exchange are sucked out of the terrestrial economies into the black hole of money death. That's what the $700-billion bail-out (excuse me, "rescue plan") and all its associated ventures are about.
To switch metaphors, let's say that we are witnessing the two stages of a tsunami. The current disappearance of wealth in the form of debts repudiated, bets welshed on, contracts canceled, and Lehman Brothers-style sob stories played out is like the withdrawal of the sea. The poor curious little monkey-humans stand on the beach transfixed by the strangeness of the event as the water recedes and the sea floor is exposed and all kinds of exotic creatures are seen thrashing in the mud, while the skeletons of historic wrecks are exposed to view, and a great stench of organic decay wafts toward the strand. Then comes the second stage, the tidal wave itself -- which in this case will be horrific monetary inflation -- roaring back over the mud flats toward the land mass, crashing over the beach, and ripping apart all the hotels and houses and infrastructure there while it drowns the poor curious monkey-humans who were too enthralled by the weird spectacle to make for higher ground. The killer tidal wave washes away all the things they have labored to build for decades, all their poignant little effects and chattels, and the survivors are left keening amidst the wreckage as the sea once again returns to normal in its eternal cradle.
So, that's what I think we will get: an interval of deflationary depression followed by a destructive wave of inflation that will wipe out both constructed debt and constructed savings, scraping the financial landscape clean. There's no question that stage one is underway. But we can be sure the giant wave of money recklessly loaned into existence in just a few weeks time will wash back through the global economy leaving a swath of destruction.
And then what? The societies of the world will be faced with the task of rebuilding systems of fruitful activity, i.e., real economies based on productive behavior rather than the smoke-and-mirrors of Frankenstein-finance con games. In fact, excuse me while I switch metaphors again, because the Frankenstein story -- the New Prometheus -- is yet another apt narrative to inform us what we have done. We have "played" with financial fire and brought to life a monster now bent on killing us. One question that this metaphor-narrative raises is: when will the angry peasant mob storm the castle with their flaming brands and cries for blood from the makers of this monster? Rather soon, I think. Perhaps, in some countries (maybe the USA, if we're lucky), this will take the more orderly form of systematic prosecutions, bringing to justice persons who perpetrated swindles involving the alphabet soup of investment "products" that have gone bad in so many accounts (and ruined so many individuals, institutions, and governments). I think it has already begun with the inquisitors summoning the shifty Dick Fuld of Lehman Brothers -- but there are hundreds of other characters like him out there, who scored untold millions of dollars in activities that were simply grand swindles. I wouldn't be surprised if, eventually, Treasury Secretary Hank Paulson found himself in the dock to answer how come, when he ran Goldman Sachs, there was a special unit in the company dedicated to short-selling the very mortgage-backed securities that another unit in the company was so busy pawning off to every pension fund on God's green earth.
Apart from orderly prosecutions (which can certainly turn harsh and cruel), there is the possibility of sociopolitical upheaval -- revolution, violence, civil war, war between nations, the whole menu of monkey-human mischief that afflicts mankind. We are not necessarily immune to it here in the USA, despite our cherished notion of exceptionalism, which would have us inoculated against all the common vicissitudes of history.
What Now? James Kunstler
abitarePERFECT, and Ares have made their climb up on the Fool latter based on the Deflationary Depression gamble.
aresFinancial is now #1 with 10964 points. I think that might be the record here in Caps
abitarePERFECT is #6 out of 63097
abitarecatania is · UpDown ranking: #37 of 98343 (-2) abitare.. (you)
Today: 5.3%
This Month: 82.2%
YTD: 160.6%
All Fools short the US market and in cash should be on the alert for any signs of hyper-inflation.
Financial Ninja has some Really Scary Charts here:
http://benbittrolff.blogspot.com/2008/10/really-scary-fed-charts-oct-now-crazy.html
On the Election
I will be voting for a Third Party Candidate this year. I hope other Fools in Fooldom have the moral courage to turn their back on this inept and corrupt one party duolopoly that has caused such chaos. The lesser of two evils is still choosing evil. If Americans do not reject these Fools they keep offering, then we will “reap what we have sown”. I hope Fools will not “throw their vote away” on either of these two disasters.
Obama
Obama has not released his birth certificate. It is believed he was born in Kenya. It is another blow to the Constitution that is not needed. I believe if he is elected and tries to go against the elites’ will, they will make this an issue. Not that Obama’s mysterious childhood up bringing, unknown positions and paper thin resume should instill any confidence. Watch the whole video and draw your own conclusions.
Reference:
1. Obama Citizenship (3,216,243 Views)
http://www.youtube.com/watch?v=gA6_k3NtXZs
McCain
McCain? What can you say that has not already been said? Corrupt, inept, uber-dumb, hot tempered, elitist, womanizer, a “warrior who is dumb on war” etc, etc, etc,. I cannot imagine what subject he can speak on, which will instill confidence to the masses. Please help me here.
Reference:
1. McCain's YouTube Problem Just Became a Nightmare (Views: 7,659,315)
2. Make-Believe Maverick
A closer look at the life and career of John McCain reveals a disturbing record of recklessness and dishonesty
http://www.rollingstone.com/news/coverstory/make_believe_maverick_the_real_john_mccain
Do you need more on McCain?
Palin? Totally dangerous insanity…a mockery of the Office
Matt Damon covers it here:
http://www.youtube.com/watch?v=anxkrm9uEJk
I am aligned with the US favorite Persian Noureil Roubini here:
http://www.youtube.com/watch?v=USmm6utTo1E
I am still betting on deflation unless there is a greater war. Intrade has odds at 30% for a greater war.
A U shaped or L shaped recession until then.
If you think the US market is bad or has seen the bottom look at the rest of the world:
Many world stock markets now off 50% or more from peaks Los Angeles Times 24 Oct 08
http://latimesblogs.latimes.com/money_co/2008/10/heres-a-club-no.html
Markets down more than 70%:
Vietnam (-70.5%), Peru (-73.2%), Ireland (-73.4%), Russia (-73.9%), Iceland (-88.7%).
Markets down between 60% and 70%:
Hong Kong (-60.1%), Poland (-62.6%), China (-69.8%).
Markets down between 50% and 60%:
South Korea (-54.5%), Italy (-55.2%), Egypt (-56.9%), Brazil (-57.2%), Japan (-58.1%), Singapore (-58.2%), Turkey (-58.5%), India (-58.3%).
Markets down between 40% and 50%:
Great Britain (-42.3%), Australia (-43.3%), U.S.-S&P 500 (-44.0%), Spain (-46.4%), Germany (-47.0%), Mexico (-48.3%).
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