Crisis Progress Report (9): Landfall, by Robert Gore
As the tsunami makes landfall, most US commentators and experts are advising investors to play on the beach. The headlines and hype about the few overpriced stock market darlings making new highs are endless, while an ever-increasing number of stocks quietly falter. Natural resource stocks and debt have cratered and some companies have announced drastic restructuring or declared bankruptcy. The overwhelming force and destructive power of the crashing debt deflation tsunami will render the inane preoccupations of much of the US populace—and the preening, posturing idiocy of their elites—irrelevant, dangerous distractions.
This is an excerpt, please click the link above for the rest of the article.
This is an excerpt, please click the link above for the rest of the article.
Txs again for an excellent summation.
It all looks like people of the world willing to invest in risky ideas that may or may not change the world, e.g. Amazon.com or Webvan, and on balance earning a decent return over the long-run in exchange for ignoring the histrionics.
Your articles point out a unique element to this latest boom-bust cycle that I've never seen before: the 90s-Japan situation of the Fed pushing all the way on the gas with hardly any response. (I'm not counting as a response those who say the loose policy has resulted in everyone being able to raise their prices, except for the one doing the complaining.)
I simply cannot understand the failure of prices and rates to rise. You've pointed out how in this environment some large companies make their investors more money simply by issuing debt to buy back equity than they do serving customers. It's bizarre.
I do not understand why any of this makes a crisis though. Eventually the pendulum will shift, I say, and all those bond holders will lose big when inflation and nominal rates rise. Maybe the next stock market crash will come when the Fed hits the brakes to control wages and prices. You OTOH say prices we will not return to historical levels of inflation and interest rates. The questions of how can this be and how investors should respond is probably the subject for the work-in-progress paid area of your website.
As for not understanding why prices and rates are not rising: debt, like everything else, undergoes diminishing marginal returns. In a world saturated with debt, additional debt, in the form of central bank balance sheet expansion and debt monetization, actually has a negative effect. It not only does not produce growth or price pressures, it retards them because of the additional debt service and repayment obligations on economies already groaning under debt. I despise Keynes but I'll use his expression: central banks are pushing on a string. What is required is for total debt to shrink--a lot--which will act as a margin call on the world's financial and economic system and will be, given the $200 trillion in world, highly deflationary and economically contractive. Lo and behold, events are matching my predictions (check out what commodities have done the last 12 months), not the endless, tiresome, and wrong predictions of endless hyperinflation that's always just around the corner. We may have hyperinflation some day, but not until most of the massive debt overhang is eliminated via repudiation, bankruptcy, and in a few cases, actual repayment. Again, for more, see SLL and Stockman's book.
"Lo and behold, events are matching my predictions (check out what commodities have done the last 12 months), not the endless, tiresome, and wrong predictions of endless hyperinflation that's always just around the corner. "
Indeed!
I'm watching the no-rate-hike-until December prediction.