Wednesday, February 27, 2008

Are you ready...

...for at least four years of stagflation?

11 reasons Bernanke's recession lasts till 2011
Timing the next bull: Kick-start it in 2008? Or is it a long secular bear?
By Paul B. Farrell, MarketWatch Last update: 7:32 p.m. EST Feb. 25, 2008

...Last summer they assured us the subprime-credit crisis was "contained." We now know that was a big lie. They knew, had the facts, early warnings, lied and are still lying. More proof? They just told Congress: "America will avoid a recession." New data tells a different story...

...Read the new InvestmentNews, a professional journal for financial advisers. The lead headline grabs you: "Bad times for stocks could last many years." A long secular bear...

1. Stagflation: Bernanke's no-win Achilles heel

Reading Fed-watcher William Fleckenstein's new book, "Greenspan's Bubbles: The Age of Ignorance at the Federal Reserve," you get the feeling that for 18 years America's banking system was run like a "new age" hippy commune, by a Ayn Rand free spirit who believed "anything goes." Now the Fed's run by a college professor and Fleckenstein says he's "in over his head." Except this is the real world, a $13 trillion economy in a $48 trillion world, not a college seminar on economic theory. In the 1970s Nixon faced a similar problem, convinced then by Fed Chairman Arthur Burns: "No one ever lost an election on account of inflation." Wrong! Low rates generated inflation not growth. That stagflation triggered a bear/recession. Is Professor Ben trapped, repeating history?...

2. Housing-credit meltdown: We've got a long way to go!

It's far from over folks and still spreading: Years of inventory, foreclosures, building slowdown, risky bond insurers, weak rating agencies, funds holding bad debt, freezing exits and fuzzy math on values. Yet Bernanke and Paulson still live in a Washington bubble of wishful-thinking fantasies....

3. Commodities: World's new reserve 'currency,' not dollars

Forget paper money and IOUs. Commodities are the world's new "currency:" Hard stuff like oil, grains, metals, gold. And that means America is financing the growth of our enemies, surrendering our long-term economic power for short-term oil-guzzlers and plastic toys. We are responsible for making Russia and China into threatening world powers. Buffett warned us. We're selling the farm, piece by piece...

4. Toxic derivatives: World's $516 trillion ticking time bomb...

5. Massive debt: Everywhere, trade, federal, states, local...

6. America's new 'pushers:' Banks feeding consumer addicts

Trader's Daily captured it perfectly: "Never underestimate the power of the superpsycho, hyper-spending American consumer. Where there is no cash, they will sell their soul. Or just charge it. Let's just not think about what it all means for credit-card debt down the road."
Meanwhile, the credit meltdown is making banks desperate for money. A recent Chase credit-card commercial fuels consumer addictions: Wife wants bigger television. Husband smiles. They shop to the pounding drumbeat of Queen's hit 80s song: "I want it all, I want it all, I want it all ... and I want it now!" Tag line: "Chase what matters!" Yes, Chase debt, all you addicts. Forget saving, spend like there's no tomorrow...

7. More wars: Pentagon predicts bigger, costlier conflicts...

8. Greed: Wall Street and Corporate America's defining 'value'

Values start at the top. But the top won't change for 10 months. Leadership, statesmanship and character are vanishing. Five short years ago Corporate America and the mutual fund industry were consumed by greed. How quickly we forget.
It's worse today. We see greed consuming not just Wall Street's clueless CEOs, but the entire industry: Outrageous bonuses of $38 billion amid mega-billion write-offs. Fire sales of billions more American equity to sovereign nations.
From the top down, greed is driving America from bubble to bubble. Wall Street's already fueling the next bubble, trading on a volatile market...

9. Democracy failing: America now run by 35,000 lobbyists!...

10. America's already in a recession, and in denial

This year's elections will be a huge factor in lengthening the recession. Our lame-duck government will delay action on critical issues. It reminds me of my days counseling addicts and alcoholics. Change never happens until they admit they have a problem. Same here.
Paulson and Bernanke cannot admit there's a recession. They'd have to take blame for America's failed policies. And congressional Democrats are weak co-conspirators in this meltdown. Nobody has the guts to take responsibility. They're all like addicts and alcoholics, in denial, giving lip-service to "change," while they blame the other guys and support ineffectual stimulus plans.
Vote for whomever, but this lame-duck mindset plus lingering partisan rancor will push any recovery at least into 2009, probably delay the next bull till 2010 or 2011...

11. Class warfare: Superrich vs. Main Street America

No matter who wins, the presidential campaign is warning us: A major battle's coming between "the rich and the rest;" over taxes, benefits, cuts, power.
For years the media collaborated with Wall Street and Corporate America, hyping "Ownership, the New American Dream," where everyone benefits, shares the wealth, gains a piece-of-the-action, ownership in "The Dream" through the magic of housing, stocks, growth, profits, retirement plans. But the housing-credit contagion killed the dream.
Yes, the superrich did get richer. But "the rest" didn't. And they're waking up to a widening gap. A backlash is brewing and will explode ... delaying a recovery and a new bull...


Place your bets, class. Here we go.

4 comments:

Garnel Ironheart said...

Your profile says you're a wife, a mother, etc. Where do you get the time for all this?

Ahavah said...

My best friend and I used to have a saying, "Sleep is for wimps."

Garnel Ironheart said...

May I point out the following: Since the late 70's, we have seen the following pattern:

First 2 years of the decade: recession, then jobless recovery, with no reason for optimism.

Years 3-8: amazing growth and wealth generation, wow this will never end.

Final 2 years: Oops, I guess we overdid it. The business cycle still exists and now we're going to pay for it in the next short while.

Then back to the first two years of the decade.

Hey, could it be that the business cycle is bigger than any government or central bank?

Ahavah said...

The problem is that the powers that be have been trying to reroute or circumvent the normal business cycle for the past several cycles. The amount of correction that needed to take place never did - that's why you have charts with hyperbolic curves at the right side for all sorts of indicators - when the trendlines are way down below (like the house price chart below).

That imbalance has to be worked out of the system, one way or another. Instead of letting it play out, they've been trying to shift things and insure and hedge and securitize and who knows what else.

But you can't fool mother nature forever, for lack of a better metaphor. Entropy always wins - all they have really accomplished is to ensure that when things do finally get out of hand, it's going to be really, really ugly. At it looks like we're perilously close to getting out of hand.