Financial topics

[Higgenbotham]

what I'm wondering is if it means that the stock market will stay below trend value for an even longer period of time than the last bubble.

Seems likely, and I've even wondered out loud in this forum if the market as we know it will cease to exist. Interesting this morning that data has popped up in an article showing that at current trends there will be zero volume in the market by the end of 2012.

http://www.zerohedge.com/news/birinyis- ... o-year-end

[Trevor]

I don't see that happening, although at the moment, it's not a very wise investment. As I've stated, I'm expecting things to fall apart over maybe a 12 month period.

There are many things right now that could end up causing another downturn: Greece, China, Europe, the Middle East. Could be just about anything at this point. It looks like Fitch may end up downgrading Italy again, which is not a good sign.

[Higgenbotham]

Beyond theory, I have only 1 concrete reason to believe the market as we know it will cease to exist - that 4th Quarter 2008 earnings went substantially negative. Even so, the expectation would be a rebound in earnings to some lower positive number. However, the earnings component has always included government spending and given that the government has borrowed and spent well in excess of sustainable trends since the 4th quarter of 2008, I think it's possible earnings could go negative again and NOT be able to bounce back to some positive number soon enough to save the market as we currently know it.

[Trevor]

Well, in that case, we better prepare for this as best we can. We may not know precisely what's going to happen, but it's going to be a disaster. Right now, in economic news, I'm focusing most of my attention on Greece and China, the former because they're hanging on by their fingernails, and the latter because once they collapse, war will not be far off.

[Higgenbotham]

That pretty much sums it up. Too complex to predict but the way I'm fuzzing it out at this point is to think in terms of putting no more than 1/3 of my money in stocks no matter how cheap they get, and to think that making an investment might entail talking to a company official at length, doing extensive research on the particular company, and perhaps buying the shares directly from the company and putting them away in a safe place for the long term, which is how investing was meant to be done. No more indirect ownership, as in DTCC and electronic bookkeeping for one thing.

[Trevor]

Well, I have no money to invest, so that's not really an issue for me. Course, a lot of people are going to end up seeing their 401Ks wiped out.

One thing that concerns me is a 2012 version of Smoot-Hawley, which I feel is a real possibility. When things are bad, we want someone to blame and since we have hostile feelings towards China anyway, they'll likely be it. Course, many of them blame us for the financial collapse, so the sentiment is returned.

[Higgenbotham]

I'm more wary of 2 other scenarios - the Chinese know we're hesitant to do another Smoot-Hawley and take advantage of that fact, pushing us to the brink of frustration with illegal dumping, etc., and we either, one, do a really extreme version of Smoot-Hawley when it becomes apparent there is no other recourse or, two, we still don't do a Smoot-Hawley due to ideological misunderstandings of what trade wars are really all about when in fact some version of Smoot-Hawley is really needed.

[Trevor]

If we did that, I believe it would be a disaster. Course, it doesn't have to be us that fires the first economic shot. China could decide to harm us through that method and from the looks of things, Europe is another possibility, since they're planning to put a carbon tax on foreign airlines.

[John]

**** Pimco's Bill Gross -- Two Fat Tails (One Long Tale)

Pimco's Bill Gross a few minutes ago on Bloomberg TV giving
his forecast:

> Well, we're very worried. we think, aside from recent action in
> terms of risk markets, which has been very good, we think that the
> global economy and the global financial markets are at risk in
> 2012, and that's due to a number of reasons, but basically what
> we're suggesting is what we call a bimodal world, in which,
> instead of a normal bell-shaped curve, which I think everyone's
> familiar with, we're talking about two fat tails, and the two
> tails are one of reflation, which appears to be what the market
> apears to be anticipating at the moment, and a signifcant input of
> reserves and credit from central banks, which ultimately promote
> INflation, and on the other hand a significant left tail, a fat
> tail of DEflation, in which the policies that are being promoted
> by the ECB and the Bank of England, certainly the Fed through
> twist, ultimately don't convince the private market to take the
> bait, and to basically continue to buy risk assets and believe in
> a thriving economy.

In case you hadn't noticed, that's just one sentence that he rattled
off almost without breathing, and he managed to predict both
inflation and deflation. He should be a politician. (Or maybe
he already is.)

John

[Trevor]

I'm just holding my breath, waiting for the collapse to come. Personally, i think it will at least begin in 2012, although it may not fully run its course until 2013. It's astonishing in a dark way how closely we're following the script of the Great Depression.