Generational Dynamics Forum - New Site

John wrote:What happens next?

Let me return to an analogy that I've used before.

Imagine the world economy as a huge mansion, blown up into a huge bubble. For several months now, pieces of that huge mansion have been breaking off and falling into the ravine. Examples of "implosions" are: Bear Stearns' hedge funds, Countrywide Bank, Sentinel Management, and Northern Rock bank in the UK. According to the mortgage lender Implode-o-Meter, the count of major U.S. lending operations that have "imploded" since December is now up to 159.

Maybe the stock market crash would have occurred by now, as it had at this point in the 1929 cycle, but there's something very different today that wasn't true in 1929.

The Fed and other central banks are running around the mansion with hammer and nails, patching things up as fast as they can, trying to keep ahead of things -- and they're being pretty successful at that. Last week's interest rate reduction by the Fed was a particularly big wad of glue and nails.

But it can't work for much longer. The price/earnings graphic near the beginning of this article tells you so. The stock market is overpriced by a factor of 250% or so. Wads of glue can't fix that.

This is the Principle of Maximum Ruin that I've discussed many times in the past. The longer the crash is delayed, the worse it will be. In time, the world's financial officials will see to it that the maximum number of people are ruined to the maximum extent possible.

All the advances in economics and macroeconomics that we've learned since 1929 really haven't done anything useful except provide for new and clever ways of applying glue and nails. But sooner or later, the entire mansion has to collapse and fall into the ravine.

So, to Bob and others, I say to you, take another look at that price/earnings graphic at the beginning of this article, and think about what it's telling you. Is it telling you that "nothing can kill this market," as you claim? Is it telling you that "it's different this time"? If so, then just keep pouring your money into the bubble.

But if it's telling you, as it's telling me, that the P/E index is soon going to start plummeting down below 10, as it has several times in the last century, most recently in 1982, then you'd better take your money and run for the hills.

From the point of view of Generational Dynamics, there's no doubt whatsoever: We're headed for a generational stock market panic and crash. Really, we have different names for things today, but the underlying basics today are no different than they were in 1929. (23-Sep-07)

Higgenbotham wrote:They infused dead and bankrupt companies with fiat and called it earnings but nothing changed except that, "In time, the world's financial officials will see to it that the maximum number of people are ruined to the maximum extent possible." And they have.

Higgenbotham wrote:They infused dead and bankrupt companies with fiat and called it earnings but nothing changed except that, "In time, the world's financial officials will see to it that the maximum number of people are ruined to the maximum extent possible." And they have.

aedens wrote:
http://www.vnews.com/opinion/10901481-9 ... irrelevant