JB:
Lets start with a totally debted-out N. American consumer, who usually carries two-thirds of the economic consumption can. Then lets add in record personal bankruptcies, which this year will exceed last year's record 1.1 million by an additional half million. I don't suppose anyone worries about the doubling of credit card defaults, but sooner or later, that little tickler is going to bury some fairly senior banks. That's if they are among those that didn't lend amounts equal to 125% of the value of the security taken. While some dismiss it, I personally think that the "Asian flu" will rank right up there with the bubonic plague before it passes into economic history, but again, as its already a few weeks old news, the flacks on CNBC and the loyal flock of lambs have already dismissed its importance. Not that anyone should worry when the world's twelfth largest economy teeters on the brink and will likely DEFAULT on its international comitments within the next two weeks. Nor I suppose is it cause for concern that massive excess capacity overhangs darned near every industrial enterprise known to man. And for sure lets not concern ourselves with the fact that most Asian nations depend on exports....and now their currencies are further depreciated........not a worry with respect to the insane profit expectations for next year?
Should one not also worry for a second or two about A G's massive recent printing press exercise? Nor the similar activities conducted by the Bank of Japan? Only fools believe that inflation and deflation are mutually exclusive. The fact of the matter is that the Fed will go to any length to avoid deflation (as well they should given the pain it tows in its wake), but money supply expansion such as the current effort can hardly be seen as a positive in a world awash in greenbacks and ILLIQUID U.S. treasuries. (illiquid in the sense that A.G. doesn't want anyone to sell them on the open market.....for obvious reasons). Should one dismiss the fact that much of Asia will not be purchasing much from American companies for the next year or two unless that company grows rice? One doesn't worry about a PC when the meals are in jeopardy. Ever hear of the "wealth effect"? It works both ways. Those who now borrow thinking their stock appreciation has added to their net asset value can be counted upon to buy next to nothing once their stocks depreciate and/or disappear in a cloud of margin calls (have a look at margin levels if you want to worry a bit). One could obviously go on and on.
I don't agree with your 25-75% number. The tech related indexes have been whacked, but not to this extent......at least not yet. Don't worry though as they will.
Lets agree to disagree on a definition of a long-in-the-tooth correction. From my perspective, this correction is barely underway, and will not be known as a "correction" in history in any event. It will likely be known as a depression.
Every 60-90 years, the build-up of excessive debt needs to be cleaned out. This is sometimes brutally accomplished through a depression. How do we avoid it under the current circumstances? You can run, but.......
Best, Earlie |
