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Portfolio.com: Six Bloggers of the Apocalypse

by Helaine Olen Mar 18 2009

You wouldn't listen to them when they said the economy was headed off
a cliff. Should you listen now that they're predicting the end of
civilization?

If you spend enough time surfing the Web, you might think Nouriel
Roubini, the pessimistic economist profiled in the April issue of
Condé Nast Portfolio, is taking a walk on the sunny side of the
street. There are bloggers who have been forecasting much worse for
several years.

While bankers were still ordering $1,000 bottles of wine in trendy
Manhattan restaurants, these internet Sybils of the impending economic
apocalypse were already prophesizing food shortages and endless gas
lines.

Some are on the right side of the political spectrum, others on the
far left, but they all share one thing—traffic on their sites has
increased exponentially since Wall Street began to implode last fall.

We caught up with a few of the more provocative doommongers to see
what they think is coming next. Hint: Before reading further, you may
want to uncork your most expensive bottle of wine. You’ll need it.

Clusterfuck Nation -- James Howard Kunstler

(text omitted)

The Trends Research Institute -- Gerald Celente

(text omitted)

Speaking Truth to Power -- Carolyn Baker

(text omitted)

Generational Dynamics -- John Xenakis

Xenakis, a computer consultant, analyzes previous and current
generations in American history to predict catastrophe to come. He
believes the exit of the Greatest Generation from the workforce in the
1990s set the stage for disaster as Baby Boomers, who are
uncomfortable with authority, fell prey to the amoral Gen Xer’s right
behind them. The two groups combined to bring us the current financial
crisis as the Baby Boomers want money badly enough not to ask many
questions about its provenance, while the equally greedy Gen Xer’s are
nihilistic enough to do what it takes to get it.

Prediction: The misbegotten combination of the Boomers and the Gen
Xers will continue to cause trouble for several more decades, leading
to complete financial collapse and war before Xers are able to turn
things around in their old age. Says Xenakis, “I don’t expect to live
through it.”

Itulip -- Eric Janszen

(text omitted)

Irvine Housing Blog -- Larry Roberts

(text omitted)

http://www.portfolio.com/business-news/ ... Apocalypse

All in all, this is a pretty astute summary of Generational Dynamics.
The author must have taken the time to actually read a number of
articles before drawing her conclusions.

Sincerely,

John

P.S.: I just checked my phone log, and I was interviewed over the
phone by the author, Helaine Olen, on November 17, 2008. According to
my notes, the phone interview was an hour long.

Interesting group of discussion the past few days. The GM stuff is interesting. Labor is asking for too much and maybe should get anything. Maybe the bond holders should just foreclose and take the factories and sell them for whatever they will bring. That would be a disaster, but the union needs to realize that Walmart pays $10 an hour and might be laying off once GM closes. The different groups are spinning a disaster along with Wall Street, the central bankers and the delusional. Bernanke is trying to force interest rates down on capital. This is fooling with a part of the system that bankers aren't concerned with and I don't believe it is going to do much other than weave the disaster that is going to be the next leg of this mess. It isn't that houses aren't affordable, it is that everyone that is credit worthy that wants one has one. They are trying to create the consumer spending spiral again when it is defunct.

The stock market is looking more and more like Wall street is taking every opportunity to ram it upward. The news today wasn't a buying push, but instead a market makers markup under the smoke cover of the Fed. Wall street loaded up at the bottom and is forcing buys up the chain by bears and people afraid they are going to miss something. The appetite for ill gotten gain in NYC is limitless. Everytime you wonder who has their hands in the till, Goldman Sachs shows up. I wonder who decided to use AIG as a money pit? This is a huge company that was bankrupted by literal closet of an operation in London and it appears that the entire securities industry used them as a dump. There may be a lot more to this than meets the eye? Goldman Sachs and others in the business spent much of 2007 cramming as many synthetic CDOs together as they could make, I would assume, for the burgeoning hedge fund industry that needed leveraged product to make their killings. They needed this stuff covered while they were mixing the explosives and some of it blew up. I read where Merrill got really careless with what they were doing and got caught. Goldman, on the other hand, laid the stuff off.

As far as what Matt said about hyperinflation being impossible? I don't know, watching what is going on at this time. I am thinking the Federal Reserve could find itself insolvent and being the dollar is nothing more than a Fed liability, it would create insolvency in itself with their purchase of long dated government paper and other paper. Just because they are buying this stuff doesn't mean the interest rate on it could go down. The Fed would have to sell this stuff if inflation got going, which is quite likely and the market wouldn't be able to swallow it nor would the Fed be able to mark to market. I don't believe there would be much housing demand with 15% interest rates. The Fed is clearly in a panic.

I don't agree that the Fed is in a "panic" - Bernanke "believes" he knows what he is doing. The problem of course is that much of what he is now doing has not been done in recent history or at the scale he is planning. Having said that, I'm not sure it's possible for the Federal Reserve to become bankrupt - this bank can print as much money as it wants in an unlimited fashion and without any real control by the US government since the bank is a stand alone entity. I do agree that if the Federal Reserve keeps buying trillions of dollars of treasuries and at some point in the future tries to sell them quickly, that it will not stop inflationary pressures and is more likely to cause the bond market to collapse. When and if the time comes, these positions will have to be unwound slowly to avoid a collapse in the bond markets. The bigger concern is what happens if the Fed ends up owning the majority of US Treasuries and investors continue to flee from them? At that point, we will be in far worse shape than we are today. The Chinese already started communicating to the US Gov't not to play games with the bond market. I suppose what the Chinese do next will be a good indication of what is to come.

Andrew

The Fed is in a panic. Bernanke read Irving Fishers reason for the depression, which was an explanation why someone made him wrong about his pronouncement of the state of the economy in 1929. The reason we have a problem is quite simple, there is too much non self liquidating debt out there. Just the housing debt is $11 trillion. This isn't self liquidating debt as evidenced by its steady increase. Bernanke is trying to buy long term interest rates down and it can't be done because they aren't a function of supply and demand. There is so much talk about how this was done in Japan, but you might note that Japanese stocks are lower today than they were when they did this back in 2002 or 2003. The Japanese government spending money kept Japan from escaping their deflation, not some other factor like their interest rates being too high. Bernanke is doing a PR job on people, but he is clueless how to get out of this. Who is going to make loans at zero percent?

In other news, John posted about the 1929-1933 stock market. For your information John, the US stock market bottomed in June of 1932 and the real decline lasted from about May 1930 to June 1932, the meltdown leg that followed the crash. If I am reading this bear correctly, we have another 15 months to go, maybe 18. Prechter covered his shorts for what he said was a wave 2 rally. Some one out ther wrote he was bullish. Not Prechter. It appears wave 1 got 55% of the market and wave 3 will get 89% if that be the case. Wave 3 will look like last October for a year straight. Prechter thinks these are long trend events like John does and in fact, I do, which is why I keep coming back here. Getting back to Bernanke, I think the cycle is the same reason we see him at the head of the Fed because we aren't the only bright bulbs in the closet. Maybe not publicly, but privately it has been known we had a bad bubble since the late 1990's. I doubt they could have stopped the housing bubble by 1998 or we could have already been in depression for several years. They all want to attempt to pass it on to the next guy or administration. If Bernanke pulls this off, which I give him the same chance as a 6 inch snowball being thrown into a blast furnace, he will be a hero in my eyes for the ages.

I love the whole inflation vs. deflation debate. The "hard-core" bears all say a deflationary depression is unavoidable. People like Bernanke (and probably me) think that inflation is always possible with a fiat currency given the political will for it. This week we saw another upside "surprise" in the official inflation figures (CPI at .4). And Bernanke announced another $1 Trillion in money printing (to me, the definition is expanding the money supply in excess of natural demand).

The inflation bets have been on fire since the Fed announcement. 17% increase in two days for gold miners, gold itself soaring, oil soaring, materials, commodities all soaring… Bernanke can certainly beat deflation with this current strategy – unfortunately the consequences will probably be quite disastrous. Then again, I think a reasonable argument can be made the inflationary disaster is better than deflationary disaster. Time will tell. But I’m really starting to believe that if you aren’t investing to benefit from inflation, you are going to get hosed. Cash is not where its at.

I am now up big for the year and have hit a new all time high net worth. I have sold 1/3 of my muni bonds for 10% profit and remain mostly fully invested in "inflation bets". I have no intention of closing out positions until VIX/VXO fall to the low 20's.

To quote Kaplan again:

U.S. Treasuries rose slightly, although they did not nearly approach
yesterday's intraday peaks and gave up almost all of their early gains. I
expect U.S. Treasuries to soon stage a major downside breakout.

The U.S. dollar continued its recent dramatic plunge, and has given up more
than two months' worth of gains in just one week.

UNG, a fund of natural gas futures which I have been recommending for
purchase, retested its lows in the morning by dipping to 15.18, and then
soared to a late afternoon high of 17.29 (not 18.48, as some sources
incorrectly reported) before closing up 2.03 (13.33%) at 17.26. Most other
commodities also rallied, while equities closed narrowly mixed.

As the global recession becomes an accepted way of life rather than a shock,
people are beginning to realize that it is a two-edged sword rather than all
gloom and doom:

http://www.nytimes.com/2009/03/19/fashi ... ef=fashion

Today's first main topic is why the Fed is talking about buying U.S.
Treasuries and mortgage-related agency securities, and what impact this will
have on U.S. Treasury prices.

There was a lot of media hype yesterday when the Fed announced at 2:15 p.m.
that they were going to buy a trillion dollars or so of U.S. Treasuries and
mortgage-related securities.

It was well known that the Fed was not going to change their interest-rate
policy. So why would they make such an announcement?

In recent days, there has been a lot of concern expressed publicly by China
and other countries about the Fed's recent spending spree and the Fed's
decision to back up enormous potential loan losses which could run into the
trillions of dollars. China and other central banks have been known to
complain privately for years, but to take their concerns public is unusual
and shows the extent to which they have become alarmed by the Fed's
free-spending, socialist programs of the past year.

The Fed could have reassured China and other countries privately that they
were going to take various actions to ameliorate their concerns. Instead,
the Fed decided to take the very public step of announcing that they would
make a large purchase of Treasury and agency securities.

When you look at this decision from a rational point of view, rather than an
emotional one, you can see that it was a serious mistake by the U.S. Federal
Reserve.

A trillion dollars may sound like a lot of money. However, as the U.S.
Treasury market is considerably larger than all of the U.S. equity markets
combined, it's really no more than a few handfuls of peanuts for an
elephant.

Just as importantly, the financial markets always instantaneously adjust to
any such announcement, even if the planned actions will not occur for
several months or years. TLT, a fund of U.S. Treasuries averaging 25 years
to maturity, surged immediately to its intraday peak of 108.07, which is
still enormously below its December 30, 2008 zenith of 123.15. TLT is not
likely to surpass that mark for at least two more years, if then. Notice
that today's high for TLT was far lower, at just 105.66.

If you have a gun with six bullets and you are facing an adversary who
doesn't know how many bullets you have remaining, then you have some power
over your opponent. However, if you fire all of your bullets so that your
enemy knows you have none left, then you are completely powerless.

As of yesterday's foolish announcement, the Fed has now shot all of its
anti-inflation bullets. It has no ammunition left, and everyone knows it.
The market has already priced in its anticipated purchase of a trillion
dollars worth of securities. Unless it plans to come up with a few more
trillion, there will be no further positive impact.

What is even more important is that the Fed has created a false and
dangerous sense of security among investors both large and small in this
country and abroad. Those who are planning to refinance their mortgages now
have the illusion that the Fed will keep mortgage rates low. Those who own
U.S. Treasuries similarly believe that the Fed will prevent any serious
decline in these prices.

Once prices plunge, as they would have done with or without any Fed
announcement because of 1) massive global government spending; 2) the normal
behavior of inflation during any extended period of economic stagnation; and
3) pro-inflation policies such as the Swiss government's adoption of
"quantitative easing" (which is just another name for saying "let inflation
reach double digits ASAP"), U.S. Treasuries were set for a historic collapse
no matter what the Fed did.

If the Fed had not intervened, then at least people would have thought,
"Well, the financial markets have been quite volatile, so it's no big
surprise that U.S. Treasures are volatile also." But when the Fed has made
such a public show of allegedly supporting the U.S. Treasury market, and
then prices plummet just as rapidly, you can be sure that the Fed's
reliability will be in serious jeopardy. People will think, "The Fed said
they would keep mortgage rates low, and yet here they are above 8%. The
government lied, just as my sister said they were doing. I'm never going to
trust the government again."

Once people lose confidence in the Fed, this will likely cause an even
bigger plunge in the U.S. Treasury market than would have been the case
otherwise. When confidence is lost in the world's biggest asset class, then
there's nothing left. U.S. Treasuries are not backed by anything, nor are
they guaranteed by anything other than people's confidence in the government
and its ability to follow through on its promises.

I therefore believe that the likelihood that TLT will plunge below 70 later
in 2009 has increased by a significant percentage as a result of the Fed's
announcement yesterday.

I normally don't like to buy leveraged funds, nor do I like buying something
which has already increased substantially in price since my last purchase.

However, since TBT is such a compelling buy, I may consider adding to my
position even though my last and only purchase was at 35.98, as readers know
from my intraday update of December 30, 2008.

The recent sharp rise in GDX and other commodity-share funds confirms that
the Fed's announcement was highly inflationary.

In summary, the Fed's announcement about buying government securities is
strongly bearish for those securities because it creates a false sense of
confidence that, when shattered, will lead to an even worse collapse for
U.S. Treasuries and mortgage-related agency securities.

Today's second main topic is what to do now that there are no fabulous
bargains remaining.

The short answer is simple: nothing. Most of the time, you should be
neither buying nor selling. Now that the crocus bottom has come and
gone-although most crocuses are still blooming as brightly as ever-you can
relax, take a vacation (holiday), finally catch up with those chores you've
been postponing (like doing your income tax), and console your friends and
family who emotionally sold their stocks a few weeks ago.

Remember that bull markets have the sharpest one-day pullbacks. Since we
have not had such a rapid decline for some time, its chance of happening has
been increasing. There will likely be an average of two big down days per
month over the next half year, as we enjoy perhaps the biggest stock-market
rally in your lifetime (unless you were trading in 1933).

After each such down day, review a list of those securities that you were
interested in buying. If any of them have retreated to attractive levels,
then you can add modestly to your holdings in those securities.

If VXO and VIX spike sharply higher during any of the sharp pullbacks over
the next half year, then you can be more aggressive in adding to your equity
and/or commodity holdings, since it means that a longer period of time will
likely have to pass before we reach the ultimate peaks in 2009 (and in early
2010 for some lagging commodities such as crude oil).

To keep your trading sharp, it is ideal to take periodic lengthy breaks to
allow you to review the markets from a distance and to give you a clearer
overall perspective. This will enable you to become more alert and focused
once we begin to form important tops and it becomes necessary to take action
on the selling side.

Above all, do not sell just because something you bought has doubled (or
tripled) in price, or because of other artificially conceived targets.
Unless insiders become heavy sellers, and there are increasing negative
divergences, and VXO/VIX have fallen below 20, and there has been a recent
nearly vertical ascent for several weeks, and there are other reliable
signals which tell you it is too dangerous to remain heavily on the long
side, it is pure folly to sell.

In my opinion, it is worse to sell something and then watch it continue to
surge higher, than it is to not own something in the first place.

Be patient. Do not sell your holdings until there is a truly compelling set
of reasons to do so.

I have become very active on SeekingAlpha.com and most everyday I post a link to http://www2.standardandpoors.com/spf/xl ... EPSEST.XLS which shows Standard & Poors own data for earnings. I usually like to summarize by stating the current P/E ratio for the S&P 500. Today I was looking through some of my recent posts and I noticed that in just the past week or two the P/E has gone from 40 to 52. That's a 25%+ move!

Put that together with the fact that many of the media outlets are still using Q3 earnings until Q4 is complete and suddenly we will see the P/E ratios that the media uses jump up to 50 from 10 just two weeks ago. I know that people BELIEVE that P/E's are around 10 because I hear and see them repeat it all the time. I believe it was John who stated that the media is using operating earnings but that's not the case, they are using Q3 earnings and that means they will HAVE to switch to Q4 earnings all of a sudden as they are now 99% complete.

Combine that with the recent bear market rally and I think we could be in for a very large move down in the next few weeks. I just don't see how we can avoid it given the chaos in the government and corporate worlds and the terrible earnings data that will suddenly become crystal clear to everyone.

I follow some very brilliant people who think that the majority of the decline is over because the market has already lost over 50%. I understand their views from an investing perspective but I see way too much that suggests we not only have farther to go but that the time to go there is NOW. I simply can't imagine people ignoring a P/E of over 50 for the S&P 500; a P/E of 24 for the DJIA; and a P/E of 36 for the Russel 2000. And declining earnings to boot.

On top of all that it seems that trust is unraveling at an increasing pace. We have come to realize that all but the best of our "leaders" lie to us on a regular basis and while we may accept that in good times, in hard times it leads to anger and resentment.

--Fred

The International Monetary Fund is poised to embark on what analysts have described as "global quantitative easing" by printing billions of dollars worth of a global "super-currency" in an unprecedented new effort to address the economic crisis. However, economists warned that the scheme could cause a major swell of inflation around the world as the newly-created money filters through the system. The idea has been suggested by a number of key figures, including billionaire investor George Soros and US Treasury adviser Ted Truman. Simon Johnson, former chief economist at the IMF, said: "The principle behind it is that everyone would get bonus dollars and instead of the Federal Reserve having to print them, everyone gets them. "The objective is to create a windfall of cash. However if everybody goes out and spends the money it could be very inflationary."
The real agenda of the G20 should be helping save Europe from itself, for example by encouraging the creation of a €2-trillion European emergency economic stabilisation fund, funded primarily by richer Eurozone countries, and a major relaxation of Eurozone monetary policy. Without such measures, we are likely on the path to a bigger slowdown in global growth and a more difficult recovery. Simon Johnson, former chief economist of the International Monetary Fund
The financial sector globally is shrinking, and this will lead to significant job losses in countries like the UK and Switzerland. It gets worse. The US has banks that can plausibly claim they are Too Big To Fail, and this is bad enough – because it lets them get big bailouts. But Europe has banks that may be Too Big To Rescue – ask Iceland or, more recently, Ireland.
Far from being able to afford government expansion, European economies with big banks see the prospect of budget cutbacks – to persuade the financial markets that their governments are still good credit risks. European countries face two types of future. On the one hand, countries that still control their own currencies can engage in creative monetary measures, pushing down the exchange rate and raising inflation; the Bank of England leads the way in this regard. Inflation will reduce debt burdens but of course comes with other costs. Think of it as the worst of all possible policy choices, apart from the alternatives. And those most unpleasant alternatives are faced by Eurozone countries. Their economies are slowing dramatically, their banks are impaired, their budgets are constrained, and their monetary policy is in the hands of the European Central Bank (ECB).
These countries face the prospect of falling wages and prices. Most central bankers would recoil in horror as this deflation threatens further defaults and a deeper recession, but Jean-Claude Trichet, head of the ECB, is actually welcoming this development in Ireland and elsewhere. Back in the 1990s, much of east central Europe put itself on a high risk debt-fuelled growth path, egged on by Brussels. European Union accession countries were told that they could afford to import far more than they export – and that this difference would be financed by capital coming in from Western Europe. This was true, for a while, but now the crash in Eastern Europe threatens to bring down banks in Austria, Greece, Italy and other places that bet big on Hungary and its neighbours getting rich quick. As Eastern Europe has plummeted into crisis, the West European response has been further bad advice. Countries with fixed exchange rates, such as Latvia, are told to cut wages and prices by 20-30pc, rather than devalue their currency. Never mind that this is political suicide and bad economics. Brussels considers it better for the West European banks with capital at risk. Almost all of Eastern Europe is in trouble and will need to borrow from the IMF; the massive over-representation of Western Europe on the IMF's board suggests that this will end badly.

Mises observed:
When pushed hard by economists, welfare propagandists and socialists admit that impairment of the average standard of living can only be avoided by the maintenance of capital already accumulated and that economic improvement depends on accumulation of additional capital. History does not provide any example of capital accumulation brought about by a government. The consumers are merciless. They never buy in order to benefit a less efficient producer and to protect him against the consequences of his failure to manage better. They want to be served as well as possible. And the working of the capitalist system forces the entrepreneur to obey the orders issued by the consumers. The corruption of the regulatory bodies does not shake his blind confidence in the infallibility and perfection of the state; it merely fills him with moral aversion to entrepreneurs and capitalists. No one should expect that any logical argument or any experience could ever shake the almost religious fervor of those who believe in salvation through spending and credit expansion. The final outcome of the credit expansion is general impoverishment.

Are you not still under an Ancient Roman edict to consumers then and now of Caveat emptor: Let the buyer beware? And let stockholders beware of wayward leadership?

Sum is that lingering element to date to preserve capital and serve the customer which to date is being exterminated by observation to it's ideological burden .
The presevation of our net cash flow to date consist only to serve the remaining customer base. We are in the mode to this hidebound reality since theories explain, but cannot slow the decline of a great civilization as they plan. I set out to be a reformer, but only became the historian of a decline. Aristotle in his Rhetoric (c. 322 B.C.) hit democracy as "when put to the strain, grows weak, and is supplanted by oligarchy. Since I am a consumer to vote every day in purchases will you listen or pass me by as I focus on things you consider important to me?

My friend behind the Great Fire Wall conveyed enjoy Democracy while it last some years ago. As we talked he conveyed how I kept my house over the years.
We shared many thought's of men who understood what is important. Some are here in this forum of reason. As conveyed earlier if you do not know a stock better than your wife please refrain.

Monetae cudendae ratio
03/22/09
Any effective global recovery strategy must therefore accord a central role to this group of nations. In addition to rapidly shrinking markets for their exports, they have experienced a huge cutback in private capital inflows. They need offsetting support from public investment, which only the International Monetary Fund can provide in sizable amounts on short notice. Countries are seeking to export their way out of the current crisis through competitive currency depreciation as well as by erecting new trade distortions. Testimony before the Subcommittee on Terrorism, Nonproliferation and Trade, Committee on Foreign Affairs, US House of Representatives
March 12, 2009

Hyperflation Is Impossible: Addendum

Responded to JLak and others.

Respectfully,
Matt

StilesBC

Please respond to this ....http://www.europac.net/externalframeset ... ype=schiff

Thanks
Gtate

-- Request for volunteer

I'm on the mailing list for a top-notch expert who sends out
extremely valuable and interesting mailings on financial,
geopolitical and generational issues.

I've been trying to coax him for several months to post his mailings
on this forum. He's said that he'd like to, but he keeps putting it
off, I believe because doing so would be so time consuming. It's
much easier to send out an e-mail message to a list than to both send
it out via e-mail and also post it on a forum.

So I'd like to propose to him that someone else will do the posting
for him.

Is there anyone here willing to volunteer to take on this task? He
sends out about 10 messages a week, so I'd estimate that it would
take someone 1-3 hours per week to do it. It would be a big
contribution to this forum.

If anyone is willing to volunteer, please write to me privately at
john@generationaldynamics.com , and then I'll make the proposal to
him. Thanks.

Sincerely,

John