you forget me...i can't be outgrimmed. :)
and i would say that the combination of mainstream consensus (expecting a lasting recovery in markets and economy 'soon', as evidenced by fresh highs in various measures of bullish consensus) and the ineffectiveness of policy maker intervention to date (don't count on the monetary "lag" which bullish economists hang their hat on - today's extremely effective refinancing intermediation by the GSEs has reduced the monetary "lag time" to about 3 days imo) point to 2002 surprising to the downside, perhaps brutally so.
based on my own post bubble inventory cycle theory we should actually see an upswing begin sometime late next year (by which time WS analysts will hopefully, FINALLY turn bearish, and mainstream economists won't talk about 'imminent recovery' anymore), but i expect the upswing to be uncharacteristically anemic, as the deflationary era that began in the summer of '98 (according to yours truly, since that was the time when stocks and bonds decoupled) is likely to last longer than a decade.
the K autumn's disinflation boom has produced such massive economic imbalances that it will take a long time to work them out, and i expect a Japan-like succession of multiple recessions interspersed with weak recoveries, and the requisite cyclical bull and bear markets anticipating them.
and frankly, the idea that the SEC, FDIC, etc. can save us from "everything being swept away" is something i can't take seriously. what percentage of bank deposits does the FDIC hold in its coffers? 1 or 2%? well, LOL!
if push comes to shove and the US credit bubble actually collapses (and recent delinquency trends suggest it is a definitive possibility) Merrill Lynch and other investment banks that have moved their clients deposits into FDIC insured accounts may well find that it wasn't enough of a precaution.
"mortgage insurance" ...deserves another LOL! actually the whole idea of "insurance" of financial risk deserves it. the handful of credit insurers that is holding the bulk of the risk and the concentrated derivatives bubble in the hands of only a few banking institutions represent a systemic risk by themselves that exceeds anything the planet has ever seen.
they rely on models that are devoid of an essential factor in assessing financial market risk: namely human nature. many derivatives, in order to be profitable for the risk underwriters, rely on "dynamic hedging" strategies, similar to the often discussed "delta hedging" in the equity options market and the underlying shares.
these strategies assume, similar to LTCM with its credit spread convergence trades, that there will ALWAYS be a counterparty providing liquidity in the event of a crisis, willing to take the other side of the trade. in reality however, it is precisely when these counterparties are needed most that they are least willing to take on what is a certain losing bet.
for a recent example of the volatility introduced by dynamic hedging strategies look at the bond market. extreme volatility in both directions, in close succession, a strong sign of a crisis-like market dislocation. however, i believe it's merely a small preview of what is yet to come.
that said, i don't see the "soup kitchens" either, at least not yet - i reserve judgment on that pending further developments.
but i DO believe that the system is lurching ever closer to a real stress test - as we have seen, the larger the credit bubble has grown, the bigger the stress tests have become (look at the refi index, the gauge for GSE "reliquefication" activity - the spikes get larger with every crisis, LTCM/Russia, Nasdaq, 9/11, the spikes get bigger and bigger, and so does the pumping by the Fed, ever larger amounts are needed for ever smaller effect).
one day, possibly soon, we'll get the ultimate stress test, the MCHVIE, a.k.a. LLCF. -bg-
the long boom of the 90's, and the many so far 'successful' Fed bail-outs have made everyone complacent and have induced a strong belief that the system is unassailable. the panicky Fed with 11 rate cuts year-to-date under its belt tells me otherwise.
has anyone taken note that Japan's industrial production has plunged by 11.9% in October, almost fully 12 years after the bubble's peak? Japan is now in its 27th consecutive month of price deflation as measured by producer and consumer price indices, and they don't even use hedonic indexing (which i've long suspected would come back to bite its inventors btw.).
its banking system isn't one iota closer to the solution of its bad debt problem than it was one, two, three, or five years ago.
does anyone doubt that the US government will resort to the same deficit spending muddling through policies now that the deflationary bust has reached US shores?
well, i don't doubt it. when Bush was elected, he said he expected the "ceiling" for the total national debt would have to be raised by 2009. ooops! he missed the correct date by 8 years.
expect misguided monetary and fiscal interventionism to become the rule over the next decade, ensuring a long and painful period of economic adjustment.
do i doubt that the Austrians have it right?
you have one guess. ;)
good night, it's 4.30 am here! |
