Via Kunstler, we learn that the Royal Bank of Scotland is warning investors of a stock market crash by fall. And a key central banking institution warns of a crash of a magnitude not seen since the Great Depression. For what that's worth.
Meanwhile, the US airline industry seems to be on track for its own crash under the weight of fuel prices.
Leaving aside the problems with the credit markets -- and one investor I spoke with recently told me that he thinks we haven't even hit the halfway point in working through the mortgage crisis -- it's impossible for me to see how skyrocketing energy prices don't cause a sharp economic slowdown. Robert Samuelson quotes an economist who believes we're headed for $225/barrel oil by 2012.
Then again, it's possible that people's perceptions are much worse than reality.
Hey, just trying to get all this good news out before I take a week or so off tomorrow, and hand this here blog over to the capable hands of Erin Manning!
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Seeing this headline reminds me of a cartoon I saw back in the 90s. The caption was "Alan Greenspan starts a stock market panic", and it was a picture of Greenspan in his pajamas, yawning and saying, "I'm really tired, I think I'm gonna crash!"
I guess you had to be there. It was pretty funny.
Steve:
I've been a bear for years, but didn't believe there would be a deflation back in 2003. (Actually, I believed it would be narrowly averted and it was.) But we're now at the end of the line when it comes to overstimulating our economy with cheap and easy credit. The difference between now and 2003 is individuals, corporations and municipalities no longer have the ability to take on more debt even if it were offered to them. (And it is NOT being offered to them! Banks are cancelling lines of credit, raising lending standards, and charging much higher risk premiums. They won't even lend to each other!) Also, an easy money policy from the Fed would result in severe inflation now. (Look what's happening.) Back in 2003, we also had labor arbitrage in China to keep a lid on inflation. No more. Wages and costs are rising in China.
There has never been a time in the past when such a runup in unproductive debt (spent on current consumption instead of future income-generating investments) and margin borrowing hasn't resulted in a depression. Whether it is mild and chronic rather than severe remains to be seen. This is basic economics, folks.
We're probably near the start of the second downward leg in the current bear market, which is usually the steepest. (Look at charts of what happened between 1929-1932 ... if you know how.)
But feel free to continue engaging in magical thinking if you so desire.
I haven't read World Made By Hand, because I have better ways of spending my time than reading crackpot theories masked in purple prose (that's also why I'm not familiar with the fine literature of Ayn Rand), but based on the reviews, it seems like there's one huge plot hole I can spot. Kunstler's dystopia is a world in which there is little travel or government beyond small areas. Even if the total industrial collapse that he posits (wishes for?) occurred, wouldn't the existence of roads allow for a fair amount of horse and buggy traffic?
After all, the Romans (and to a lesser degree the Hellenistic civilizations) were able to operate vast continental empires with boats, sandals and horses, with nothing more than good roads, rivers and coasts to navigate. So did, for that matter, all pre-industrial era civilizations. Why couldn't a post-apocalyptic American nation, or at the very least, a collection of such nations roughly based on the regions we currently have, just by using the road system we have and simple sailboat knowledge? I know that part of the idea is that average people don't have a lot of simple survival knowledge that our ancestors had, but how hard is it to send a few legions down an interstate with swords and shields to maintain order?
Even if the total industrial collapse that he posits (wishes for?) occurred, wouldn't the existence of roads allow for a fair amount of horse and buggy traffic?
Ever watch Mad Max? Or Jericho? I don't know if JHK is thinking along those lines, but maybe traveling alone by roads wouldn't be safe. Mass migration on the other hand may be a different story. Besides, the town at the center of the story is doing somewhat ok--why would people need to leave? JHK isn't writing The Road.
Housing market in moderate correction in California. Number of homes sold at the same pace as during boom but at lower prices. My expectation is that will work through the rest of the US economy more slowly.
Slow growth but no recession. I thought we might dip barely into recession but now I don't think so. Could be neg growth this quarter but I don't expect it in the 3rd. Core inflation well under control because demand is stifled by high energy costs and a much more flexible economy than during the 70s. Interest rates reasonable and money supply not loose but slack.
S&P operating earnings decent and I'm guessing will improve as the stimulus enters the economy. Reasonable P/E ratios. Excellent if economy recovers even moderate strength well below normal trend-line growth of 3.5 to 4 percent. I expect 1 to 2 percent for current year, maybe doubling in 2009. Still below trendline.
Continued disinflationary pressure from 2nd and 3rd generation internet disintermediation. Should provide more than enough efficiency gains to make up for Chinese labor cost increases.
Growth in the whole energy patch basket of goods and services. Shoulda bought more HAL and SLB but I think most of the growth there is finished. I'm trimming now with a path out within 3 to 6 months. Throw in solar, conservation and other energy plays and some good stimulus there.
Add the weak sentiment, and it's off to the races.
No magical thinking here.
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