Royal Scot

The Bull Run Begins This Week

Ha! Pollyanna is now buying stocks. No gloom here indeeed.

Ironically, to quote Polyanna:"When you look for the bad in mankind expecting to find it, you surely will."

You don't have to look far.

Reversion to the Mean for Equities

Good point Keithcho, but wouldn't considering these new exchanges make the graph look even worse? I assume the respective market caps would be additive.

A troubling thought to me is the make-up of the GDP, which today is composed of much more intangible components (ie prominince financial of service sector) than it was in previous recessions.

Market May Get Cheaper, But Tail Can't Wag the Dog Forever

Another pitchman flogging the 'stocks are cheap - time to buy!' line.

Look to the future? I don't see anything in the future but dark clouds. The stock market has to exist in the same economic reality as the rest of us.

There are 'a combination of things' in play right now that make the market cheap, but I submit they are very sustainable since they are very real.

Preview from Europe: Is the Stock Market Rally Over?

These false rallies remind us of how and why we have gotten into this mess - Irrational exuberance.

Gold Pressure Is Near a Breaking Point

Brilliant. These are prophetic words.


On Nov 23 10:13 PM closed wrote:

> Most people sense that the financial crisis that has now been escalating
> for 15 months, and the "sudden'' collapse of the real economy, are
> only the beginning. These were just the first waves of the storm,
> but the really powerful tsunami wave is coming toward us. The catastrophe
> could still be avoided, but that would require responsible figures
> in governments and financial institutions to admit their mistakes
> and accept competent help.
>
> But here we have a problem: Those who now should be taking decisive
> measures to defend the common good are still not ready to face up
> to the origins of the crisis. The communiqué of the G-20 summit in
> Washington on Nov. 15 admitted that "risks in the financial markets
> were underestimated.'' The latest annual advisory of Germany's Council
> of Economic Advisors, the so-called Five Wise Men, speaks in nebulous
> terms of "a darkening of the entire economy'' as the main reason
> for the crisis. "The chain of failure includes many,'' declared German
> President Horst Köhler at a conference of top bankers in Frankfurt--and
> one can only agree with him.
>
> But Köhler's perhaps well-intentioned, but completely ineffective,
> appeal to the bankers who made ``a lot of money'' in recent years,
> to set up a ``Hardship Fund,'' is hardly a strategy to overcome the
> crisis, and the answer from those so addressed was just a tired smile.
> It is clear from all these statements, that the government, as well
> as the so-called experts, are still not willing or able to take the
> necessary steps to reorganize the financial system.
>
> - Derivatives: The Main Problem -
>
> In Europe, it is Italian Economy Minister Giulio Tremonti who, as
> a government representative, has had the courage to call a spade
> a spade, when he compared the financial crisis to a video game, in
> which every time you kill one monster, another pops up. And when
> you kill all of them, along comes the super-monster, which is derivatives
> outstanding.
>
> This is exactly where the body is buried! Now panic is setting in,
> as investors in November have been massively withdrawing their deposits
> from hedge funds and financial institutions, in turn, forcing these
> to sell whatever assets they can. This generates a double feedback-loop:
> Since the depression is coming to a head, asset prices are falling--most
> of them having been bought on credit in the first place--which further
> stresses the balance sheets of banks and hedge funds, which therefore
> curtail their lending even further. These various intensifying phases
> of "deleveraging'' of so-called structured paper are the main problem.
>
>
> The volume of derivative contracts outstanding was said to be, according
> to the Bank for International Settlements, $675 trillion at the end
> of 2007; the French magazine Marianne recently gave the figure as
> $1.4 quadrillion, but it could be much more. If an attempt is now
> made to honor what these bankers themselves call "toxic waste,''
> then, on the one hand, this leads to hyperinflation, since more and
> more liquidity is pumped in to try to back up the virtual values;
> but at the same time, it brings on deflation, since the collapse
> of the real economy leads to falling prices.
>
> This is the reason for the breathtaking speed of collapse of the
> real economy worldwide--the auto sector, the steel industry, petrochemicals,
> construction, shipping, etc., etc. And it is a global phenomenon:
> The U.S.A. is plunging into depression; China's American export market
> is collapsing; the Chinese economy is falling apart; China is no
> longer buying textile machinery in Germany; shipping is collapsing,
> since in the four or five weeks that it takes a ship to go from Europe
> to Asia, conditions have dramatically changed, so that the letters
> of credit are no longer accepted, etc., etc.: a downward spiral to...!
> Until an orderly bankruptcy reorganization is carried out.
>
> - The Roosevelt Solution -
>
> Fortunately, there is an historical precedent for how the problem
> can be solved: We need a new financial architecture, in the tradition
> of Franklin D. Roosevelt's Bretton Woods System: a New Bretton Woods.
> That was the idea that motivated French President Nicolas Sarkozy
> to propose the summit meeting of the G-20 countries, and this is
> the policy that is being proposed by Tremonti on a daily basis. This
> is what Lyndon LaRouche and I have proposed for a long time--since
> the beginning of the 1990s, to be precise. We must win the Berlin
> government over to supporting this policy.
>
> We need a real New Bretton Woods conference, at which a new financial
> system is decided upon, just as Roosevelt intended in 1944; that
> is, replacing colonialism with a new, just economic and financial
> order.
>
> Second, we need a worldwide New Deal, such as Roosevelt implemented
> in the U.S.A. during the 1930s, to end the Depression through state
> credit creation.
>
> Concretely, for Germany, this means that after (!) reorganization
> by means of a New Bretton Woods system, there must be an investment
> program of about EU200 billion for the creation of full, productive
> employment, as the BüSo has demanded for years. We need to build
> the Eurasian Land-Bridge as the centerpiece for reconstruction of
> the world economy.
>
> From a technical standpoint, such a reorganization is absolutely
> no problem. The problem lies elsewhere. For the last four decades,
> the economy and morality have been completely separated from one
> another, and a unrestrained dog-eat-dog society and personal profiteering
> have taken control. On the one side, you have totally unnecessary
> luxuries, such as the recent dedication of an artificially created
> luxury island in Dubai, which was apparently planned as a refuge
> for the super-rich before the outbreak of a world financial crisis;
> at the opening festivities, the fireworks alone cost $20 million
> and 1.7 tons of lobster was consumed; on the other side, billions
> of people are threatened with starvation and brutal poverty.
>
> Pope John Paul II, in his encyclical Centesimus annus (1991), called
> it an "abuse in the sight of God and humanity, if someone directs
> his capital against the people and their work,'' and this has happened,
> without a doubt, under the now-shattered system of globalization.
> We need a new paradigm, in which the economy and morality are brought
> into harmony, and man is placed at the center of politics and economics.
>
>
> Do you really want those who neither foresaw the crisis, nor are
> ready now to come to terms with its real origins, to be left to decide
> what should happen now?
>
> I propose that you help us, the BüSo, to carry out the necessary
> mobilization of the population, so that we can implement a New Bretton
> Woods System and a new New Deal!
>

The Current Economic Crisis: Hell, Meet Handbasket

A most succint and insightful precis of the unfolding financial tsunami we find our selves in.

As Paul Volcker said "It seems to me what our nation needs is more civil engineers and electrical engineers and fewer financial engineers."

The economy needs to get back to the fundamentals of creating real wealth, not paper wealth. How? Not an easy path.