Perhaps we'll ride out this correction/crash/bear/recession/depression?

[Sean K]

Lots of doom and gloom in the threads the past week with every man and his dog jumping on the crash bandwagon.

Does any one have some potentially good economic news that might be cause for optimism, or is just all carnage and destruction?

Perhaps this is a correction and the long term bull is still in tact?

Perhaps loans in the US will be re-engineered, a short term reduction in rates will ease fears and get people out of the poop, while new lending policies will be put in place to stop bad practices continuing? Perhaps the lesson will be learnt and rates will gradually increase again and US will stop printing money?

Perhaps the 'credit crunch' will create better lending practices around the world, perhaps the US consumer will start just buying two plasmas instead of three, while the Australian economy continues to canter along nicely fuelled by Chindia 10% growth over the next 20 years?

Perhaps I'm dreaming?

Perhaps I'm a muppet? :

Economy will ride out global jitters: PM

By Jeff Turnbull | August 18, 2007

THE Prime Minister and the Treasurer were out talking up the economy today, reassuring Australians that the impact of the turmoil in global share markets will be mitigated by the strong domestic economy.

Prime Minister John Howard pointed the finger for the market meltdown at the "Ninjna" loans prevalent in the US, where banks lent money to people with no income, no jobs and no assets and who had little prospect of paying it back.

He said the US had allowed "thousands upon thousands" of people to be given these so-called sub-prime loans despite not having any capacity or likelihood to repay.

Mr Howard said the practice was rare in Australia, with less than one per cent of loans qualified for that title, but Australians would be impacted slightly by the worldwide financial ramifications.

"The unavoidable consequences of world financial turbulence will be minimised in their impact on the Australian economy and therefore on the Australian people," Mr Howard said.

"I don't want to pretend there'd be no impact, but I want to assure you because of the strength of the economy that impact will be minimised."

 

[Flying Fish]

Re: Perhaps we'll ride it out?

Yes well Mr Howard, and all pollies are muppets. It all boils down to supply and demand. China can pump out as much cheap goods as it likes, not much use if no one is buying.

 

[Purple XS2]

Re: Perhaps we'll ride it out?

Yes well Mr Howard, and all pollies are muppets. It all boils down to supply and demand. China can pump out as much cheap goods as it likes, not much use if no one is buying.

I agree that China is the key as to whether we come out of this squish any time soon, not so much because there's a threat to the demand for Chinese manufactured product (which I assume will remain strong), rather my concern is: what is the capacity of the Chinese financial system to avoid catching the meltdown? WHEN there's a run on Chinese stocks is when the poo hits the fan. Prior to the current mess I held the assumption that this will occur by the middle of 2008; now I wonder why it isn't happening yet.

China is grossly over-heated, and its economic health is utterly opaque. There are quite literally millions of small investors whose modest life-savings are due to evaporate further and faster than anything the world has seen since 1929. When it goes awry there will be massive social and political upheaval in China; the consequent meltdown in world stock markets will dwarf what we're seeing now.

Right now I'm inclined to believe that whatever damage China is suffering will be absorbed (and in fact hidden). Current events will give their government the opportunity to treat this as a dress rehearsal, but it also gives warning to the corrupt and cynical elements to get ready to run far, and run fast.

Unhappily, I suspect that the most corrupt and cynical elements in their investment bubble are in fact also in their government.

So I'm holding, not buying. Some cautious buying in a few weeks perhaps.

As for 2008, I'm selling everything in April, assuming we're still functioning.

PS: my favourite stocks have been harder than many recently, which may give fair indication of the quality of my powers of prediction: AVX, UXC, OEC

Regards, P

 

[dhukka]

Re: Perhaps we'll ride it out?

Lots of doom and gloom in the threads the past week with every man and his dog jumping on the crash bandwagon.

Does any one have some potentially good economic news that might be cause for optimism, or is just all carnage and destruction?

Geez, you're getting desperate now aren't you kennas citing politicians to support your arguments?

Good economic news? I guess US inflation is looking fairly tame right now. Retail sales may get a reprieve in August as back to school sales kick in - however that's a big maybe and anyway will be short- lived. US house prices are rising in an increasing number of areas.

Perhaps loans in the US will be re-engineered, a short term reduction in rates will ease fears and get people out of the poop, while new lending policies will be put in place to stop bad practices continuing?

We are going to find out how irrelevant the Fed really is in times like these over the next few months. What do you mean by re-engineering loans? You mean renegotiate all those ARM's so these fools that signed up for mortgages they can't afford can keep their homes? Doesn't sound like a bad idea in theory but can't see it happening.

Perhaps the lesson will be learnt and rates will gradually increase again and US will stop printing money?

You've got to be kidding right? You would think if the idiots who run things were going to learn the lesson of creating credit bubbles they would have learnt it by now. The South Sea Bubble was over 300 years ago yet we still repeat the same mistakes.

It might be worth remembering the words of Ludwig von Mises in times like these:

"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."

Perhaps the 'credit crunch' will create better lending practices around the world, perhaps the US consumer will start just buying two plasmas instead of three, while the Australian economy continues to canter along nicely fuelled by Chindia 10% growth over the next 20 years?

Tightening of lending practices has already begun, no doubt new regulation will be put through congress to stop predatory lending practices. Then in a few years when everybody has forgotten about the credit crisis the opportunistic thrifts will begin again.

Again with the Chindia argument. Old news, the best case scenario which is China continuing onwards and upwards is already priced in. Are the risks to the upside or the downside? Considering the shoddy financial framework the Chinese economy is built on and it's dangerously overheated stock-market it's a bubble in itself waiting to burst.

 

[dhukka]

Re: Perhaps we'll ride it out?

Long but very interesting article from Roubini explaining why whatever the Fed does will not prevent huge amounts of insolvencies. Too long for one post so I'll put it in two.

Nouriel Roubini's Blog
Worse than LTCM: Not Just a Liquidity Crisis; Rather a Credit Crisis and Crunch
Nouriel Roubini | Aug 09, 2007

The global market turmoil got ugly today forcing the ECB and the Fed to inject liquidity in the financial system as the concerns about subprime, credit and debt turned into a full blown liquidity run and crisis. As in 1998 at the time of the LTCM crisis, the Fed and global central banks decided to ease monetary policy in between meetings and injected a large amount of liquidity into the system. Coming two days after the Fed tried to prevent perceptions of a "Bernanke put" by signaling in its FOMC statement no Fed easing and no bail out of the financial system, the Fed actions today are certainly ironic if necessary given the massive liquidity seizure in the financial markets.


But the current market turmoil is much worse than the liquidity crisis experienced by the US and the global economy in the 1998 LTCM episode. Let me explain why. Economists distinguish between liquidity crises and insolvency/debt crises. An agent (household, firm, financial corporation, country) can experience distress either because it is illiquid or because it is insolvent; of course insolvent agents are – in most cases - also illiquid, i.e. they cannot roll over their debts. Illiquidity occurs when the agent is solvent – i.e. it could pay its debts over time as long as such debts can be refinanced or rolled over - but he/she experiences a sudden liquidity crisis, i.e. its creditors are unwilling to roll over or refinance its claims. An insolvent debtor does not only face a liquidity problem (large amounts of debts coming to maturity, little stock of liquid reserves and no ability to refinance). It is also insolvent as it could not pay its claim over time even if there was no liquidity problem; thus, debt crises are more severe than illiquidity crises as they imply that the debtor is insolvent, i.e. bankrupt, and its debt claims will be defaulted and reduced. In emerging market crises of the last decade, we had liquidity crises (i.e. a solvent but illiquid sovereign) in Mexico, Korea, Brazil, Turkey; we had debt/insolvency crises (a sovereign that was both illiquid and insolvent) in Russia, Ecuador, Argentina.


The 1998 LTCM crisis was mostly a liquidity crisis: the US was growing then at 4% plus, the internet bubble had not burst yet, we were in the middle of the "New Economy" productivity boom, households were not financially stretched and corporations were not financially stretched with debt either. In spite of those sound and solvent fundamentals the collapse of Russia – a country then with the GDP of a country such as the Netherlands – caused a global liquidity seizure and crisis of the type experienced by credit markets in the last few weeks: sudden demand for cash liquidity, sharp increase in the 10 year swap spread, sharp increase in the VIX gauge of investors’ risk aversion, liquidity drought in the interbank and euro-dollar market, deleveraging of highly leveraged positions, reversal of the yen carry trades. With the exception of the credit event in Russia, this was not a credit/insolvency crisis. And since it was a liquidity crisis the Fed easing – 75bps – was successful in restoring in a matter of weeks calm and liquidity in financial markets. Even that liquidity episode had painful credit fallout: it is not remembered by most but the entire subprime mortgage industry went bankrupt in 1998-99 following the LTCM liquidity crisis. So a liquidity shock event triggered massive credit events then.


Today we do not have only a liquidity crisis like in 1998; we also have a insolvency/debt crisis among a variety of borrowers that overborrowed excessively during the boom phase of the latest Minsky credit bubble.



First, you have hundreds of thousands of US households who are insolvent on their mortgages. And this is not just a subprime problem: the same reckless lending practices used in subprime – no downpayment, no verification of income and assets, interest rate only loans, negative amortization, teaser rates – were used for near prime, Alt-A loans, hybrid prime ARMs, home equity loans, piggyback loans. More than 50% of all mortgage originations in 2005 and 2006 had this toxic waste characteristics. That is why you will have hundreds of thousands – perhaps over a million - of subprime, near prime and prime borrowers who will end up in delinquency, default and foreclosure. Lots of insolvent borrowers.


You also have lots of insolvent mortgage lenders – not just the 60 plus subprime ones who have already gone out of business – but also plenty of near prime and prime ones. AHM – that went bankrupt last week – was not exposed mostly to subprime; it was exposed to near prime and prime. Countrywide has reported sharp losses not only on subprime lending but also on prime ones. So on top of insolvent households/mortgage borrowers you have plenty of insolvent mortgage lenders, subprime and - soon enough - near prime and prime.


You will also have – soon enough – plenty of insolvent home builders. Many small ones have gone out of business; now it is likely that some of the larger ones will follow in the next few months. Beazer Homes – a major home builder - last week had to refute rumors of its impending insolvency; but so did AHM a few weeks before its insolvency. With orders for home builders falling 30-40% and cancellation rates above 30% more than a few home builders will become insolvent over the next year or so.


We also have insolvent hedge funds and other funds exposed to subprime and other mortgages. A few – at Bear Stearns, in Australia, in Germany, in France – have already gone bankrupt or are near bankrupt. You can be sure that with at least of $100 billion of subprime alone losses – and most losses are still hidden given the reckless practice of mark-to-model rather than mark-to-market - many more will go belly up. In the meanwhile the CDO, CLO and LBO market have completed closed down - a “constipated owl” where “absolutely nothing moves” the way Bill Gross of Pimco put it. This is for now a liquidity crisis in these credit markets; but credit events will occur given that the underlying problem was not of of liquidity but rather one of insolvency: if you take a bunch of to-be-defaulted subprime and near prime mortgages and you repackage them into RMBS and then these RMBS are repackaged into various tranches of CDOs, the rating agencies may be using magic voodoo to turn those junk BBB- mortgages into AAA tranches of CDOs; but this is only voodoo as the underlying assets are going to be defaulted on.


Moreover, the recent sharp widening in corporate credit spreads is not just a sign of a liquidity crunch; it is a sign that investors are realizing that there are serious credit/solvency problems in some parts of the corporate system. Ed Altman, a colleague of mine at Stern, is recognized as the leading world academic expert on corporate defaults and distress. He has argued that we have observed in the last few years record low default rates for corporations in the U.S. and other advanced economies (1.4% for the G7 countries this year). The historical average default rate for US corporations is 3% per year; and given current economic and corporate fundamentals the default rate should be – in his view - 2.5%. But last year such corporate default rates were only 0.6%, i.e. only one fifth of what they should be given firms' and economic fundamentals. He also noted that recovery rates - given default - have been high relative to historical standards.

 

[dhukka]

Re: Perhaps we'll ride it out?

Nouriel Roubini's Blog
Worse than LTCM: Not Just a Liquidity Crisis; Rather a Credit Crisis and Crunch
Nouriel Roubini | Aug 09, 2007 con't

These low default rates are driven in part by solid corporate profitability and improved balance sheets. In Altman’s view, however, they have also been crucially driven - among other factors - by the unprecedented growth in liquidity from non traditional lenders, such as hedge fund and private equity. Until recently, their demand for corporate bonds kept risk spreads low, reduced the cost of debt financing for corporations and reduced the rate of defaults. Earlier this year Altman argued that this year "hot money" from non traditional lenders could move to other uses for a number of reasons, including a repricing of risk. If that were to occur, he argued that the historical patterns of default rates - based on firms’ fundamentals - would reassert itself. I.e. we are not in a new brave world of permanently low default rates. He said: "If we observe disappointing returns to highly leveraged and rescue financing packages, some of the hedge funds may find it difficult to cover their own loan requirements as well as the likely fund withdrawals. And broker-dealers who are not only providing the leverage to the hedge funds but whom are also investing in similar strategy deals will recede from these activities." The same could be said of the consequences of the unraveling of some leveraged buyouts. Altman suggested that triggers of the repricing of credit risk could also be "disappointing returns to highly leveraged and rescue financing packages". So he argued that the unraveling of the low spreads in the corporate bond market could occur even in the absence of changes in US and/or global liquidity conditions.



Thus, until recently the insolvent firms in the corporate sectors included corporations that could service their debt only by refinancing such debt payments at very low interest rates and financially favorable conditions. Many firms, under normal liquidity conditions, would have been forced into distress and debt default (either of the Chapter 7 liquidation form or Chapter 11 debt restructuring form) but were instead able to obtain out-of-court rescue and refinancing packages because of the most easy credit and liquidity conditions in bubbly markets. Now that we are observing a liquidity and credit crunch and a vast widening of credit spread you will observe a sharp increase in corporate defaults and a further risk in corporate risk spreads.


Insolvent and bankrupt households, mortgage lenders, home builders, leveraged hedge funds and asset managers, and non-financial corporations. This is not just a liquidity crisis like in the 1998 LTCM episode. This is rather a liquidity crisis that signals a more fundamental debt, credit and insolvency crisis among many economic agents in the US and global economy. Liquidity runs can be resolved by the liquidity injections by a lender of last resort: in the cases of the liquidity crises of Mexico, Korea, Turkey, Brazil that international lender of last resort was the IMF; but in the insolvency crises of Russia, Argentina, and Ecudaor the provision of the liquidity by the lender of last resort – the IMF – only postponed the inevitable default and made the eventual crisis deeper and uglier. And provision of liquidity during an insolvency crisis causes moral hazard as it creates expectations of investors’ bailout. Thus, while the Fed and the ECB had no option today but to provide massive liquidity in the presence of a most severe liquidity crunch and run, they should not delude themselves that this liquidity injections can resolve the deep insolvency problems of many overstretched borrowers: households, financial institutions, corporates. Insolvency/credit crises lead to financial and economic distress – hard landing of economies – and cannot be resolved with liquidity injections by a lender of last resort. And now the vicious circle of a weakening US economy – with a housing recession getting worse and a fatigued consumer being at the tipping point - and a generalized credit crunch sharply has increased the probability that the US economy will experience a hard landing. We are indeed at a "Minsky Moment" and this recent financial turmoil is the beginning of a much more serious and protracted US and global credit crunch. The risks of a systemic crisis are rising: liquidity injections and lender of last resort bail out of insolvent borrowers - however necessary and unavoidable during a liquidity panic- will not work; they will only pospone and exacerbate the eventual and unavoidable insolvencies.

 

[Sean K]

Re: Perhaps we'll ride it out?

Hi FF,

It all boils down to supply and demand. China can pump out as much cheap goods as it likes, not much use if no one is buying.

Well, that's part of the equation for the Australian economy. Perhaps people will keep buying their trinkets?


Thanks for the replies dhukka.

Geez, you're getting desperate now aren't you kennas citing politicians to support your arguments?

Well, it was the only positive article I could find!

Howard and Costello are politicians, but they have also been known to know a thing or two about economic issues. I give them more credit than simply trying to save their political @rses. Part of saving their @rse is to actually get some things right. Perhaps, since they're practically lame duck administrators, they don't care any more. Unlikely.

Good economic news? I guess US inflation is looking fairly tame right now.......

The world economy seems great. It was Goldilocks just a few days ago.

What do you mean by re-engineering loans? You mean renegotiate all those ARM's so these fools that signed up for mortgages they can't afford can keep their homes?

I think they will do everything they can to sort it out. Why just lay down and except defeat? It's certainly not the American way. Perhaps.

You've got to be kidding right?

No. I don't have any direct examples, but I have the feeling that there may have been numerous economic reforms and advancements over the years to systems to ensure national and world economies advance onward and upward. I suppose the danger at the moment is that through globalisation we are far more interrelated than ever before, so I'm not sure if system developments over the previous decades are precisely suited for todays environment. I'm no economist though, and are taking stabs here.

Again with the Chindia argument. Old news, the best case scenario which is China continuing onwards and upwards is already priced in.

I don't think it's completely priced in yet.




I'm hoping to fill this thread with some more counter arguments to the great crash bear catastrophe, if only to keep some balance.

Personally, I am in the bear den, but I like to provide an alternative opinion now and then, as some may have noticed!

 

[dj_420]

Re: Perhaps we'll ride it out?

Nouriel Roubini's Blog
Worse than LTCM: Not Just a Liquidity Crisis; Rather a Credit Crisis and Crunch
Nouriel Roubini | Aug 09, 2007 con't

everyone is predicting a global meltdown on an astronomical scale. yet many economists think that the global economy is very healthy.

people have been arguing the same old argument for the last couple of years, the bull run is over yada yada yada. then the market continues up after a healthy consolidation period.

the world is not going to grind to a halt, we are still going to need material goods and services. does everyone think that global demand will completely disappear? this is what happens, demand increases supply increases, supply meets demand demand decreases, the healthy companies running on good margins survive the slight downturn and the process starts over. companies that cannot operate on small margins get squeezed out. the STRONG survive.

so what will be the result of the subprime real estate fallout???

so do we get tighter credit access, surplus of real estate as many mortgages are foreclosed. lending is tighter? then the US housing market falls through? people are still going to need houses! US housing starts have been off for a long time, everyone has known how sick US housing market has been for last 2 years its nothing new. so when this subprime stuff comes to surface complete mayhem and the sky is falling.

what about in our own markets when we have had all these companies fall through who guaranteed certain % returns. our markets didnt have the a$$ fall out.

i think we are going through a correction, maybe more prolonged and painful than others but a correction nevertheless. someone tell me why our market should collapse? our companies have great earnings, economy going strong, low unemployment rates etc etc etc.

i have seen people compare this to dotcom bubble, there was no earnings then BUT there is now. i just think there should be balance to the argument.

IF the world did completely meltdown i can guarantee there would still be demand for oil and natural resources.

 

[IFocus]

Re: Perhaps we'll ride it out?

Hi Kennas

Does any one have some potentially good economic news that might be cause for optimism, or is just all carnage and destruction?

I thought the current issue affecting markets is the uncertainty surrounding how far and what areas the lending fiasco is going to extend. While this remains the pricing / measurement of risk will have deep reaching consequents.

Realistically there is a high probability that there are plenty of cockroaches to still appear.

Focus

 

[Sean K]

Re: Perhaps we'll ride it out?

Hi Kennas

Realistically there is a high probability that there are plenty of cockroaches to still appear.

Focus

Focus, I agree, there is a chance of this. If just a couple of little creapy crawlers come out of the walls of a big name, then . Potential major knee jerking going on I think....

But will they?

It's not in the bag.

And, even if/when the roaches do surface, how long before the market moves on to good news, and is back to its inevitable climb again. Inevitable....I must stress. Even when there are potentially diabolical holes in the US financial system....I know I'm young enough to see all time highs again. Unless there's a worse earthquake tonight!

 

[dhukka]

Re: Perhaps we'll ride it out?

Howard and Costello are politicians, but they have also been known to know a thing or two about economic issues. I give them more credit than simply trying to save their political

Maybe I should give them more credit but I don't.

The world economy seems great. It was Goldilocks just a few days ago.

Wouldn't totally agree with that. The two largest economies in the world which add up to around 45% of world GDP have been fair to below average. Yes there are pockets of exceptional growth such as BRIC.

The Australian economy has been looking pretty good for a while, low unemployment, contained wages growth, high corporate profitability and business investment. Housing has been a drag as was the rural sector last year but otherwise fairly robust.

Things can also change quickly, look at RAMS and the few hedge funds that we've heard about. Nothing fundamentally has changed with the economy but fear and a lack of confidence is not good for business.

I think they will do everything they can to sort it out. Why just lay down and except defeat? It's certainly not the American way. Perhaps.

No it's not the American way if Vietnam and Iraq are any indication they will continue blundering onwards.

No. I don't have any direct examples, but I have the feeling that there may have been numerous economic reforms and advancements over the years to systems to ensure national and world economies advance onward and upward. I suppose the danger at the moment is that through globalisation we are far more interrelated than ever before, so I'm not sure if system developments over the previous decades are precisely suited for todays environment. I'm no economist though, and are taking stabs here.

I wouldn't trust your intuition on this one. Since Nixon in 1972 we have seen a gradual cutting away of regulation and safeguards that were put in place over the previous 50 years. Reagan and Thatcher in Europe accelerated the process in the 1980's. Don't get me wrong some of this deregulation was badly needed.

But come on seriously, how about the worthless 'self regulation' legislation put in place after Enron and a host of other corporate scandals. How has that worked out? We have ratings agencies that have been complicit in spreading toxic debt that should never have been allowed to all corners of the world. It is little more than organized corruption.

I don't think it's completely priced in yet.

Guess we'll have to wait and see on that one.

I'm hoping to fill this thread with some more counter arguments to the great crash bear catastrophe, if only to keep some balance.

I hope you can, makes for lively discussion, although you'll have to do better than the liberal party muppets.

 

[dhukka]

Re: Perhaps we'll ride it out?

the world is not going to grind to a halt, we are still going to need material goods and services. does everyone think that global demand will completely disappear?

I don't think anyone is forecasting the world to come to a halt. The title of the thread says 'perhaps we'll ride it out?' There is no doubt we will - as we always do. The question is at what cost to the economy and what price level in the markets?

Why is it that those in the bull camp latch onto anything negative and exaggerate it to the point of armageddon?

i have seen people compare this to dotcom bubble, there was no earnings then BUT there is now.

There were plenty of earnings back in the dotcom bubble just not in the tech stocks. Just as now there is good corporate earnings growth amongst good companies but nothing amongst speculative resource stocks which until recently had a dotcom like run. Look at the likes of GDN and URA.

 

[nioka]

Re: Perhaps we'll ride it out?

Why is it that those in the bull camp latch onto anything negative and exaggerate it to the point of armageddon?

And I thought that was the job of a bear. A bull goes charging ahead regardless. I'm sitting here looking for a china shop to attack in the morning. Glad I did some buying Friday. Remember "buy Fridays sell monday or tuesday."

 

[wayneL]

Re: Perhaps we'll ride it out?

Why is it that those in the bull camp latch onto anything negative and exaggerate it to the point of armageddon?

The old straw man tactic.

 

[numbercruncher]

Re: Perhaps we'll ride it out?

What ive noticed with many of the perma bulls is that they latch onto what they personally want to happen rather than analyse the evidence at hand.

ie/ If it walks like a duck and talks like a duck then perhaps its a Swan.

Where as most of the Bearish sentiment comes from people whom seem to have profited throughout the Bull run as well, but make sense of the available evidence and position themselves accordingly.

ie/ If it walks like a duck and talks like a duck then chances are its a duck.

 

[black_bird2]

Re: Perhaps we'll ride it out?

Fascinating reading folks! I am too inexperienced in this side of my investing life and can't add any value but I am learning a heap. Keep it up - PLS!!

 

[Bushman]

Re: Perhaps we'll ride it out?

ie/ If it walks like a duck and talks like a duck then chances are its a duck.

From what I have read, both sides latch on to what makes bolsters the agenda they wish to propagate.

Bull - walks, talks like a duck, must be the goose that lays the golden egg.

Bear - walks, talks like a duck but what dangers lies beneath in the water of the pond?

For all those bagging the Yanks, they have had a 60 year run pulling first Japan/Europe and now China/India up with them. Why will this stop now? This does not give the American market credit for its innovation and resilience, no matter what has been used to fund the booms and trigger the busts. American regulators will learn a lesson from the sub prime mess. The stakes are too high not too. Yankee bashing is all good and well but the deep cynicism directed towards America from Australian commentators cloud the fact that the historical performance of the US has been excellent.

 

[wayneL]

Re: Perhaps we'll ride it out?

From what I have read, both sides latch on to what makes bolsters the agenda they wish to propagate.

Bull - walks, talks like a duck, must be the goose that lays the golden egg.

Bear - walks, talks like a duck but what dangers lies beneath in the water of the pond?

For all those bagging the Yanks, they have had a 60 year run pulling first Japan/Europe and now China/India up with them. Why will this stop now? This does not give the American market credit for its innovation and resilience, no matter what has been used to fund the booms and trigger the busts. American regulators will learn a lesson from the sub prime mess. The stakes are too high not too. Yankee bashing is all good and well but the deep cynicism directed towards America from Australian commentators cloud the fact that the historical performance of the US has been excellent.

... and Brittania used to rule the waves, before them the Ottomans, before them the Romans and so on.

The USA will continue to be an important economy in the foreseeable future, but that does not preclude recession/depression intervening. The USA is absolutely ripe for recession at least. It the cycle, it's how free enterprise works... when it's free.

The trouble is that Big Al started created a MASSIVE intervention with ultra-accommodative monetary policy which has thrown the cycle out of whack. This has been very unhealthy and in some way, the cycle will be restored. The only way forward is pain.

 

[IFocus]

Re: Perhaps we'll ride it out?

Potential major knee jerking going on I think....

Yep if I understand you correctly, a fear driven market bouncing around I think traders have three options to ride out this period.

1. Sell every thing, don’t trade go on holidays ie hang out at Miraflores (I remember the girls there on weekends from 87 hope nothing has changed)
2. Day trade the bigger ranges on down days if you can pick the money on the floor in the corner trades.
3. Hold on to existing portfolio and look through to next year but you had better have the right stocks which is a problem what will be affected by a credit crunch?

Number one I think is the better option… Kennas you are half way there LOL

 

[Bushman]

Re: Perhaps we'll ride it out?

... and Brittania used to rule the waves, before them the Ottomans, before them the Romans and so on.

I am well versed in the rise and fall of empires over the ages. What of a global empire though? The global economy is unprecedented in history. What will cause this to fail? It wont be sub prime mortgages, that's for sure. Since when does ripping off the poor cause capital markets to fail. Capital markets are determined on those holding capital making money at the expense of keeping the wolves from the door.

My thoughts only, but we will not have a catastrophic depression unless;
1. Hyper inflation takes hold in the US and fatally erodes the value of the USD i.e. a complete collapse of monetary policy in the US;
2. China once more embraces isolationism and returns to its socialist ideals;
3. The oil economy goes bankrupt before a viable energy and industry alternative can be found; or
4. Climate change leads to a catastrophic and continued loss of physical assets and asset values across the world.

These are the shocks that I worry about. I cannot see another world war happening in my life time. Mutually assured nuclear annihilation changed warfare forever.

Feel free to criticise or disagree.