"the Fed Is Preparing For Failure" By Mike Swanson

[thirsty]

On a global macro basis there are few similarities beyond a couple of surface issue. You must look at the global macro picture and apply out of the box thinking; i.e. trying to base the future course on past criteria is likely to fail as we are in truly uncharted waters.

 

You'd have to pull out history texts on 18th century economics to find a similiarity between yesterday's experiment in fiat currency (John Law for example), and today's. The fortunate thing is, from a hard money man's point of view, that the shenanigans of the 18th century brought about the implementation of the gold standard, much of which was detailed in the bullionist/anti-bullionist debates at the start of the 19th century.

 

http://cepa.newschool.edu/~het/schools/bullion.htm

 

Cycles I say, cycles.............

[Fartpolio Manager]

Preparing for failure? My goodness, this Swanson must have been trained by the oracles of crapvision... i.e. he has KSOTO (Keen sense of the obvious). I guess after 12 rate cuts or so, he finally figured that out.

 

Personally, I still remember the bullishness of the 4th quarter of 1999... Basically, all of my friends, clients and family thought I was nuts to think that if the World as we knew it didn't end on 1/1/2000, that we would face a hopeless overcapcity of everything from PCs to bottled water to guns and ammo, and that the result would be the inevitable reversal of the psychology of buying and selling... leading to the ugly economy of the new "millenium".

 

Now, I'll give everyone a chance to declare me a complete nut case today...

 

1) the US stock market will not have another down year in 2003, although we will likely see stagnation in the markets. Not saying we'll be back to Nasdaq 5000, saying we'll be marginally higher in 2003.

 

2) The economy will begin to improve near the end of 2003, just as public sentiment reflects a "give it all up" attitude.

 

3) 2004 will be a recovery year, with the US economy slowly pulling out of the funk.

 

As far as the fed, the fed has already proven that it's economic machinations are worthless, and that Greenspan's power was a myth...

 

The psychology of buying and selling will start to reverse late in 2003, with the zero financing long gone, demand will creep up, and the overcapacity we experienced in the early 2000-03 period will be well on it's way to unwinding.

 

The "wait-to-buy" psychology of today, will slowly move toward a "buy now - ahead of inflation" psychology of a demand pull driven economy.

 

Don't know why we're still discussing Fed, Fed has proven beyond doubt that it is "irrelevant" to the WW economy.

 

Why some continue to discuss it as if it were some sort of a rock-star cult, with magical powers over the minds and psyches of the aggregate human global economy and psychology is beyond me...

 

Til then, I remain, a contrarian among contrarians...

 

Merry Christmas from New Zealand...

 

F.M.

[DrStool]

The way long term cycles are lined up, 2003 will be the worst year of the bear market, certainly at least as bad as 2001 and 2002. The second quarter will be a disaster, and the market will not recover to current levels at any time thereafter.

 

In our lifetimes.

 

The economy is irrelevant to the market, but it will surely get worse. Bad debts are growing exponentially. Until they are resolved, the economy will never embark on a path of steady growth. It will rally in fits and starts, but like Japan, over the long haul, it will just get worse.

 

Zero % financing will be around as long as short term rates are zero in real terms. Doesn't matter. The growing personal debt load will slowly strangle consumer spending, or alternatively it will just fall off a cliff and never recover.

 

Hey, anybody can prognosticate, even Doc.

[mjkst27]

Fart - just one question? Where will the marginal spending power come from for your semi-recovery scenario? Isn't the average Joe going to be needing to save instead of spend more on credit?

 

I see your scenario happening too, just in 2013, not 2003

[Bizarro-Greenspan]

"Our modern dollar world has created a fiat debt structure of biblical proportions.We got to this point because our money

was gold in the beginning.Then we allowed our confidence in

gold as wealth to grow the abilities of mankind to continue such a money system without gold. The result is a massive debt against everything except gold.Every asset that exists

in the USA is fully covered by such debt several times over.

Either directly or indirectly,through various government debts.

 

There is simply no historic example in the history of mankind

that shows where everybody surrendered their assets to

satisfy such debt.Yet this is a process that many fully well expect from a deflation.A deflation,by the way,that no gold

standard today says must happen.

 

Truly,had dollar advocates allowed it to be devalued against

gold long ago,we would all know where we stand.Free trading physical gold would have slowly risen in dollar prices

in an ongoing process that would have taken gold prices to

the heavens.But,it didn't happen and an imploding debt structure(caused by pushing on a string of consumer credit

demand),will be QUICKLY countered by debt instrument

purchases from the official level.The old 1980 Monetary

Control Act is already in place and allows the Fed to buy

everything down to your shoelaces in order to stop any

debt defaults."

 

FOA,USAGOLD

 

Seems that Bernanke feller just gave his stamp of

approval to such a scenario.

 

"In essence,America has told the world that as long as the

business of this country is functioning,your wealth,as

represented in euros,Yen,Pesos,etc.,is backed by performing

US debt.It's like saying,'as long as your neighbor,next door,

does not lose his job,you will not lose all your money!'.Most

people would be surprised at how clear this is,outside the

USA sphere of influence.Thus,the largest of the pro-gold

group is largely made up of the countries with economies

that have no need to sell most of their production to the US.

The business of these communities would not totally fail

without the American engine.Yes,they would slow down,

but not collapse,as trade with other countries would

continue.To add to what was said before:If your neighbor

loses his job,you can still tradewith the other people in

the town,as long as the currency system is not based on

your neighbor's debts."

 

Ya,prisoners' dilemma,some prisoners are more equal than

others though.

 

Who's on the other side of the gold delivery contracts?

 

That's gonna be interesting.

[Ned38]

Fartpolios post encapsulates what many are hoping will happen.

 

It is plausable.

 

However at street level nothing good is happening

 

I am a businessman in a business that is bouncing off the guardrails, and of course for the usual reasons. Overcapacity brought on by large conglomorates and their absurd need to stuff channels and achieve growth at any cost. Additionally the low interest rates are not being passed on down to the people that need them most-----smaller business operators.

 

These businesses ----who are my clients are unable to borrow any zero percent money------they are paying over 8%.

 

The finance companies like GE Cap have taken over the smaller finance companies that used to be quite successful.

 

Those smaller companies were more nimble, more discriminating, more attuned to the nuances of my industry and more savvy regarding recourse in the event of default.

 

In other words they were able to give better service at lower rates and suffer fewer reverses than any 800lb. gorrilla .

 

Now my clients are being choked unlike John Q who is being given money for nothing and chicks for free.

 

I see no end to this problem anytime in the next 4 quarters.

[Guest AssMaster]

You could both be right, and the market might not reach current levels adjusted for inflation in our lifetimes. Therefore, buy a crappy gold-minig stock today!

[EasyAl]

I'm with Doc. Assuming no sharp declines for next few days, I am looking for another down year for 2003. The sharp rally started in late September 2001 and subsequent decline in 2002 shows that the intervention of the power that be can not prevent the market from declining, but can only make it drop slower and therefore longer. The major bearish themes for the new year will be weakenning of the dollar and significant rising of the default in consumer loans. Anyone looking for an upper year in stock market and economy should read the interview with DR. KURT RICHEBACHER

[anotherone]

the bullionist/anti-bullionist debates at the start of the 19th century.

As in bullionists versus balloonists like we have now?

[EasyAl]

Here is the free December 2002 issue of RICHEBACHER Letter (in PDF format). It's really worthy reading.

[EasyAl]

For what it worth, here is a porption of Dec. 23 edition of Daily Reckoning on Doug Cliggot's view on 2003:

 

- Doug Cliggott is also betting on an unprecedented fourth

straight year of falling share prices. The bearish former

strategist of JP Morgan Chase expects the Dow to end 2003

at 7,000, or about 18% below current levels. Cliggott, who

is currently an advisor with the boutique investment

management firm, Brummer & Partners, hit 2002 right on the

button by predicting that the Dow would wind up the year at

8,500. "It's still a very, very expensive market," Cliggott

told an incredulous Crapvision newsman last week. "We just need

to have meaningfully lower valuations for the risk-return

(premium to become) rewarding."

 

- Cliggot is, of course, among the extreme minority of Wall

Street professionals to forecast a falling stock market in

2003. Bears remain a distinct minority. In fact, a recent

Business Week poll queried "66 thinkers on the front lines

of business...to divine the economic future." Not a single

one predicts falling GDP in 2003 - 1.5% growth in the most

pessimistic of the 66 forecasts. Furthermore, only two

"thinkers" out of the 66 surveyed expect sliding corporate

profits next year. In other words, bullishness remains the

leading macro-economic fashion. And when a fashion becomes

this popular, it is susceptible to becoming abruptly

d?mod?.

[DogBoy]

Fartpolio Manager, are you an optimist or something ?

 

What you described is like a plane in a straight down vertical dive having lost all controls suddenyl and miraciously recovering and finishing it's flight to Honolulu with happy vacationers departing and laying on the beach sipping their coll drinks like nuttoin happenned.

 

Oh ! What an inconvenience that darn dive was.

 

Not only that the recovery you mentioned would reward the same bullish specs that have been ripping investors off for 20 years now.

 

And as for people ass deep in debt they'd seem to get off scott free in your scenario.

 

But in the end there is a natural order of things and whether thru war or economic suffering the excesses of greed are eventually balanced and AG or anyone else can change that until it's completed it's process.

 

For the bullish scenario to play out would require the natural laws of the Universe being turn on their heads and spun around like play things.

 

Sorry but this is the MOST unlikely scenario imaginable.

 

As for some of your points I"ll just go over the ones that can be quickly refuted:

 

1) The "wait-to-buy" psychology of today, will slowly move toward a "buy now - ahead of inflation" psychology of a demand pull driven economy.

 

Buy with what ? If we actually get inflation and rising rates most people won't even be able to pay the interest they owe. Every penny will go towards paying off old debt and ever rising minimum payments on cards.

And (unlike the 70's) wages won't be riding because companies now have a world wide job market. THey won't be under any pressure to pay higher wages to keep people "up" with inflation. Every month the purchasing power of Mom and Pop Aerica will be reduced.

 

2) the US stock market will not have another down year in 2003,

 

We're sitting near a cyclical peak in a secular Bear market that for the mainstrean (Non-Tech) market is in it's infancy. The only possible long term direction is DOWN.

 

3) The economy will begin to improve near the end of 2003, just as public sentiment reflects a "give it all up" attitude.

 

We're nowhere near a give it all up attitude. I see more bullishness and compacency than ever. There's hardly any fear among consumers or investors. And IF we get there next year the markets will be so decimated at that point that any tiny ray of hope will look like a recovery.

 

It's fun to be optimistic --- I love going to the lake and sitting in the sun and thinking "nice" thoughts about my dog, my family and all.

 

But at some point optimism becomes sort of "delusional" and so detached from reality that it's something that belongs in a psycho ward.

 

To echo other Stoolies what we're facing here is a utter and complete disaster of truly Biblical proportions. ANd the optimism and complacency of folks today supports this.

 

During the great Bull market of the 80's and 90's people were always skeptical and fearful about recessions. Today they beleive that ecompny will recover and the stock market will go back up because it "always does".

 

This sort of psychology is the kind you see at major economic and market tops, not bottoms.

 

Also the 70's Bear market was in the context of a Great Secular Bull market that clearly ended in Mar 2000.

 

The was a reason for optimism in the 70's but instead people were far more fearful than they are today.

 

In the 70's personal, corporate and gubmint debt was a fraction of what it is today.

 

In the 70's there were some Islamic extremists and Arabs fighting Israel but they were of the more "tame" variety than what we have today. And they didn't have access to WMD's and there was nothing like 9/11 happenning.

 

I could go on and on but there are MANY differences between the 70's and now and all of them point to a very tough time ahead --- making the 70's look like a walk in the park.

 

The park we walked thru in the 70's was like a place where mugger might approach you and kindly ask for your wallet.

 

The park today is the kind where a "hood boy" just steps in front of you and blows you away laughing like mad and stomping on your cold dead body.

[Guest yobob1]

It will rally in fits and starts, but like Japan, over the long haul, it will just get worse.

 

Sorry Doc I disagree with a comparison with Japan because of one critical difference which also applies to most of Asia. Japan et al had the US to export to thereby allowing them to have at least one positive aspect to their otherwise bleak economy. We have no such luxury. With no other economy on the planet capable of (or stupid enough to be) generating the kinds of consumption that could possibly create an export market for the US, I can't just see us muddling downward.

 

With retailers having experienced a rather poor Christmas season, and retailers relying on said season for a large percentage of profits, be prepared for all sorts of fun stuff in the retail world popping up soon. K-Mart looking to close as many as another 500 stores is the opening shot of the post Christmas season. Unfortunately just as the trucking industry found when one of largest companies folded the tent, there was still too much capacity in the sytstem and no one in the industry had a windfall in business. Retail has grown exponentially in the last 2 decades to ludicrous levels, to the point that we have almost 10 times as many square feet of retail space as Europe on a per capita basis. This simply is not sustainable. The shrinkage in retail that must occur in the coming years is going to be huge and not pretty. The overall job losses coming in retail (service economy sector) could dwarf what has occurred in manufacturing over the last 3 years.

[Sasquatch]

Treasury Needs More DEBT Again Already ?!?!

 

WASHINGTON ALMOST ON EMPTY..

 

U.S. Treasury asks Congress to raise current $6.4 trillion debt limit before late February.

December 24, 2002: 9:59 AM EST

 

 

WASHINGTON (Reuters) - The U.S. Treasury Tuesday asked Congress to approve an increase in the government's debt limit, citing its need to raise cash for the war on terrorism and to counter the impact of an economic slowdown.

 

In a letter to Republican House Speaker Dennis Hastert, Deputy Treasury Secretary Kenneth Dam said the existing borrowing limit of $6.4 trillion, set by Congress last June, will be hit "in the latter half of February 2003."

 

"Accordingly I am writing to request that Congress act promptly next year to insure the government's ability to finance its operations," Dam said in a letter made public at Treasury.

 

"This action is necessary to ensure success in our efforts to combat terrorism, continue the economic recovery and create jobs, and maintain the soundness of federal government securities," Dam said.

 

Treasury did not specify the amount by which it wants the debt limit increased, indicating that it was prepared to negotiate the figure with Congress.

 

 

http://money.cnn.com/2002/12/24/news/econo....reut/index.htm

 

[Fartpolio Manager]

I'm going to bookmark this page for future reference... This is no different than where I was in 4Q 1999, everyone thought I was nuts then too...

 

Now, can anyone tell me when the last time was that the US equity markets declined for 4 yrs in a row?

 

I suppose if people can be blindsighted by extreme bullishness, that human natujre would provide that they could just as easily be blinded by their own bearishness...

 

Planes still fly, cars still travel the roads, boats still sail, and there is still plenty of wealth globally. I still don't see anyone starving in America, why some of our bums are making good money just standing in the street holding handout signs.

 

Show me... the lack of money.

 

I'll revisit this thread next year about this time... I just want to forewarn you all, that you can be 100% right about what SHOULD happen, but that doesn't mean at all that is what WILL happen.

 

The most single dangerous enemy of a trader is his own dogmatism, you must fight it at all costs... Just as I told my friends in 1999 that the unthinkable would happen, they basked in the singularity of opinion by most people in the "goldilocks" economy, that it could "never happen here". My trader's instinct told me that there would be a corresponding decline coming to markets soon, the overwhelming response by the bearish bigots on the thread, and ion the street, that we are now doomed, and that the end of the World is near, gives me even more confidence that the bottoming phase of the bear market is near... not a V bottom, an underwater plateau in a huge ocean.

 

As I travel here in New Zealand here over the holidays, it's quite interesting to see how much wealth there is in other countries. I see large numbers of Asian travelers here... Of course Americans are all under the impression and hold the hubris that if America goes down the World goes with it.

 

Sounds a bit like Japan in the early 90s. Japan did not die. Japan had a decade of stagnancy, but it did not die. The World they expected to perish, actually not only survived, but prospered.

 

As the New Year approaches, I encourage everyone to try to stay sober and objective... We've seen several times this year, when the bears were up against the wall, and even some of the leaders on this site, doubt themselves, their trading positions, and their views of the future wane in a haze of the old irrational exuberance.

 

The World as we know it is not going to end in 2003, however, America could just stagnate for another decade.

 

Meanwhile, Southern CA real estate prices increased 22% yoy in November per the L.A. Times...

 

Now as the horde of bullish Egyptian river swimmers dwindle in numbers, I see the tide of the bears swimming the same river in the other direction..

 

The net result is Entropy...

 

Have a Happy New Year all

 

F.M.