US Economic Collapse????

[TjamesX]

Now that I have you attention WayneL I have some questions for you....

This topic has been discussed here;

https://www.aussiestockforums.com/forums/showthread.php?t=625

Financial markets have been debating the dire situation of the US economy for a while now (despite what Greenspan says), specifically the twin defecits (fiscal and current account) and how they continue to grow. Month by month the argument 'yes, its all going to sh*t' appears to be gaining traction. For a detailed view from a harvard trained economist for the affirmative read;

http://www.rgemonitor.com/blog/roubini/91200

I haven't read the whole article yet, its pretty big. Some of you may get a headache reading it - I now truly understand why economics was classed as a language rich subject in school......

My simplistic view on the US situation...... Debt is bad. More specifically debt for consumption is bad, debt for investment can be good. The US appear to have embarked and continue to embark on debt for consumption. Some examples of this are;

(1) It appears the main motivation of the significant lender (China), is to ensure yanks keep buying their stuff.

(2) One of the main crises America seems to be facing is obesity. Borrow money to get fat, then borrow money to buy gym equipment from infomercials to take it off (I'm being harsh here!)

(3) Tax cuts to everyone

(4) War on Iraq (Note: its debatable whether the war in Iraq would be classed as investment or consumption - depending on how cynical you are on oil and politics )

Debt for consumption does not add any value and can only go on for so long. Its like living beyond your means, until one day you have to 'face up batsman'. I have also held the personal unsubstantiated view that Globalisation 'should' act as an equilibrium to living standards across the globe. If capital has no boundaries or allegiances then it will flow where it can get the best return. Will it flow to the lazy/expensive/comfortable or desperate/cheap/commited? Yes globalisation could result in higher living standards for all, but I think it also put immense pressure to close the gap on living standards around the globe - but i'm getting off track here....

WayneL if you were wondering where the questions were - here they are... I'm interested in you view because you seem to have a lot of experience, particularly in the American markets, and you are known as one of the Beariest of Bears around here.

Why do you have such a Beary view of the US situation?
Did you form it just from reading stuff around the net, or more indepth?
How many of the people in your trading circles have the same view?
Can you point me to your most convincing articles?

Given the 'turns to sh*t' scenario eventuates, you have mentioned before that you have a plan incase....

How do you think the situation will unravel if it does eventuate?
Would you care to discuss/disclose you plan to the members of ASF?

I'll be expecting a response by tomorrow morning

This will take a while to discuss, i'm obviously not expecting a response all in one post

Cheers
TJ

 

[TjamesX]

I forgot to mention that although I adressed the above to WayneL, I'm sure there are many people with views out there on this topic - so lets hear it then......

 

[wayneL]

OH NO!!!!

You mean I have to justify my views? This will not be easy whilst maintaining my credibility!! LOL. Oh well here goes....

Why do you have such a Beary view of the US situation?

Well it's not just the US. I think the entire Anglosphere is in trouble, so my views apply equally to US, OZ, UK etc

1/Even though I don't use cycles for my trading, I'm a follower of cycles on the great macro level. i.e. Kontratieff, Elliott etc. These point to a decent recession at least, possibly a depression, being due.

2/There are many writers whom I respect who are very bearish.There are others who are bullish, but the bears seem to have more logical weight than the bulls. These just add to my views that I have had since 2002. (looks like I was way to early)

3/The recent growth in economies have been consumer(imported toys) and real estate led, funded by easy credit, rather than production led. My perception is that consumerism is approaching saturation point...how much more stuff can we buy? And at some point we have to pay for it all.

4/Way back when I was a lad, a wise man asked me how long I could finance my lifestyle if I lost my prime source of income. At the time it was not very long. Since then, I have made a habit of asking people the same question. The average answer has never been a long time. But recently the time has reduced to effectively this..."If I lose my job I'm F%$#d"

I believe we are entering a cycle of increasing unemployment, and I'm hearing a lot of anecdotal evidence of this.

5/I'm highly suspicious and sceptical of the "war on terror". But if this terrorism is fair dinkum then there is the possibility of a left field event which will really put the cat amongst the pigeons. This would surely precipitate a recession /depression.

There are more points but have one eye on trading screen etc. so can't fully concentrate.

Did you form it just from reading stuff around the net, or more indepth?

Well I've seen it all before of course, having been through a few of these cycles. As mentioned above, I was going bearish in 2002, and all the articles really just confirm my own thoughts.

How many of the people in your trading circles have the same view?

Well plenty on forums, but of those I personally know, only one is bearish. All the others are inveterate bulls!!

Can you point me to your most convincing articles?

I am a hopless filer. Unfortunately I don't keep them. But the articles are in all the usual places on efinds bearish articles. Interestingly, a lot of really good articles are finding their way into the mainstream media

Given the 'turns to sh*t' scenario eventuates, you have mentioned before that you have a plan incase....

How do you think the situation will unravel if it does eventuate?

Well, here I am merely guessing. These things seem to need a trigger (or at least something we can blaim after the fact ) My current thinking is that rising unemployment will do it. My bullish mates smirk at this, particularly given the situation here in WA. But I'm standing by this for the moment.

What happens from there is pure speculation. The system is so complex, and the players so unpredictable, with so many vested interests, anything could happen. One needs only to watch the panicky actions of one Mr Gordon Brown, as the UK property market starts to implode, to get a sneak preview of "left field" decision making.

Would you care to discuss/disclose you plan to the members of ASF?

If the poo really hits the propeller..I mean really badly and we have hyper inflation...or god forbid, infrastructure such as the internet goes down, then I am totally unprepared. But I think that scenario is a low probability.

My primary strategy is to have complete liquidity at all times and to be prepared to take any action in any market...options, futures, stocks, currencies...anything thats possible to trade, long or short, I want to be able to hedge myself with...and, possibly,hopefully, exploit.

This sounds easy but extreme volatility is a pig to trade. My main game will be to preserve the "value" of my capital...enhance if possible.

Apart from this I have no debt, apart from margined positions in the markets. I have plenty of cash reserves for emergencies...and a veggie garden hahaha

Gold.....Hmmm, I am a bit distrustful of physical gold. Our governments have been known to confiscate gold in the past, but I have a token holding just to impress my young nephews with when they come around LOL

Socially, I think it will be a blessing in disguise, but I can write a book on that one...for another time.

I could rant on for ages, but that should get the ball rolling anyway. Should be an intersting thread TJ

Cheers

 

[TjamesX]

Good stuff WayneL,

It seems we have similar views in the areas of excess consumption habits of the US (and OZ). Similarly I tend to take in my analysis from a whole lot of areas - some of it my own conclusions, some of it anecdotal and some a weighting of all the relevant media and looking at what seems most logical. I still get the feeling that my views are based on more a 'sense' things aren't right rather than a 'reality'

Hopefully in this thread some sort of analysis of the whole situation can lead to something useful - we'll see....

In the meantime, its good to see the debt mountain in the US is leading to useful allocation of resources , read below for a window into where Chinas clothing industries hard work goes.......

http://money.cnn.com/2005/07/20/pf/shopper_0508/index.htm

 

[It's Snake Pliskin]

Good reading!

I am really worried about the excess borrowing by young families who cannot afford rate increases (lack of prudent financial management). The number of people with bad debt is very large. Can this continue without some bad effect on society? There is nothing wrong with good debt, though (an investment that provides cashflow exceeding the cost of the borrowing costs).

Fortunately I am not in debt and have sufficient cash reserves to trade fulltime, though I don't. Why, because I'm not ready for that yet. If I were ready, well.........I'll get back to you later on that one.

There is a lot of material to be found on the net regarding the problem of financial collapse. Read the Ludwig von Mises Institute site:
http://www.mises.org/

Regarding depressions though, I feel they will not be as severe due to the effects of free trade. One of the notable problems of the great depression was the trade barriers installed once the depression hit. There will always be barriers, but multinational companies have to much influence on governments and economies. Though, it is a paradox the whole free trade, globalisation issue. It provides tremendous benefits for the world, but problems such as what is happening in America now are a cause for concern.

That's a nice ramble. :bigun2:

 

[wayneL]

Just thought I'd add, as an afterthought, that I'm actually bullish on the stockmarket (US) for the next 12 months, but mildly bearish for Oz & US real estate. Very bearish for UK real estate(where we have some investments )

I stated here a few weeks ago that I'm most profitable on shorts in my swing trades. Well the situation has reversed. I'm doing better on longs ATM...much better.

Just my view, so probably will be profitable to take the opposite position. LOL

 

[excalibur]

Are we talking about an economy that is colliding or a currency that is pulling out of the stage, making way for another?

Hi Tina,
You know it disturbs me as well that many families make depths without sufficient management, but we have goverments that aren`t good examples either. Rememeber what is written behind the US dollar bill? "IN GOD WE TRUST"...
Well I think that the real God that stands behind the US currencies, as well as anyother...is the Bank!
As long as money flows and everybody becomes a piece of the cake: nobody will complain...and nothing will collapse.
My darkest nightmare would be that the stockmarket would one day stand still, where nothing would be traded anymore. That`s when the banks would suddenly request back the money that they lended.

 

[DTM]

As long as money flows and everybody becomes a piece of the cake: nobody will complain...and nothing will collapse.

Thats the problem, too much money has been flowing from everyones homes/debt to finance spending and the economy. One day the music has to stop and there won't be enough seats for everyone to sit on.

My darkest nightmare would be that the stockmarket would one day stand still, where nothing would be traded anymore. That`s when the banks would suddenly request back the money that they lended.

It would be hard to give back what you don't have. This bubble has been created by bad fiscal management in my view and avoiding necessary recessions has meant the bubble gets bigger and pain gets worse when its time for a correction. The prosperity has been driven by our own debt and I can't see whats so good about low interest rates (for the general population that is) except for the few who made good money out of real estate. The banks will go down the gurgler like in the '87 when it blows up.

Just my views.

 

[It's Snake Pliskin]

Did you know that economic collapse is more possible in China? Smells like Japan. Bubble, Bubble!

 

[DTM]

Did you know that economic collapse is more possible in China? Smells like Japan. Bubble, Bubble!

Either way, we would cop it in my opinion. China is more likely to collapse than the US but if they manage to grow internal demand for their growing middle class (like India) than it will shelter them (and us) from a US fallout. The US twin deficits from consumer spending and housing debt's going to collapse very soon now because American spending habits are going to hit the wall with rising interest rates. Studies have showed that any monetary policy to raise interest rates (even once) most times result in recessions.

The American economy is very strong at the moment due US companies setting up businesses in China/Asia and exporting back to the US. An expample would be to manufacture products for $1 in China and sell in the US for $10 which is very efficient use of resources. In two years time, the Yuan could be 10 - 20% larger, which would make me think that most Western countries manufacturing still won't be able to compete. It will raise inflation which could result in more interest rate rises. I think the trigger will be in 1 - 3 years time when the Baby boomer's are set to retire. Where are the Americans going to find money from????

These are just my ramblings and sorry if I don't make sense. Just my thoughts.

Oops, don't forget that a lot of companies have been downsizing and continueing to do so by relocating their manufacturing and services to Asia. I think we have started doing the same.

 

[wayneL]

An interesting viewpoint from this chap:
http://www.guardian.co.uk/globalisation/story/0,7369,1542027,00.html

Globalisation is an anomaly and its time is running out

Cheap energy and relative peace helped create a false doctrine

James Howard Kunstler
Thursday August 4, 2005
The Guardian

The big yammer these days in the United States is to the effect that globalisation is here to stay: it's wonderful, get used to it. The chief cheerleader for this point of view is Thomas Friedman, columnist for the New York Times and author of The World Is Flat. The seemingly unanimous embrace of this idea in the power circles of America is a marvellous illustration of the madness of crowds, for nothing could be further from the truth than the idea that globalisation is now a permanent fixture of the human condition.

 

[Wysiwyg]

This passage suggests something that the economy is not at the stage of crises (as some are constantly over the years wanting).Fundamental analysis of processes that take place.

The focus is on global debt crises that affect many Southern countries at the same time,as opposed to localized crises that affect a single country or few countries. The unit of analysis is subsystemic, where countries are classified as belonging to the South (less developed) or the North (developed). Within this context, Southern debt problems are part of a structural process associated with long waves of global economic growth and technological innovation. Radical innovation in the North discontinuously stimulates growth in the North. Northern prosperity increases the demand for Southern exports. To meet the increased demand, the South borrows from the North but is then unable to meet interest payments when Northern economic growth and Northern demand for Southern commodities decay.

When demand decays then the process is in motion.Not there yet i.m.o.

As Bob Dylan would say "you don`t need a weatherman to know which way the wind blows."

 

[nizar]

Fortunately I am not in debt and have sufficient cash reserves to trade fulltime, though I don't. Why, because I'm not ready for that yet. If I were ready, well.........I'll get back to you later on that one.

Two years on, are you ready now Snake?

 

[It's Snake Pliskin]

Two years on, are you ready now Snake?

Nizar,

No. Lets just say I have too much on and this may be detrimental to me, living overseas does this though. Travelling is a competitor to work. I need some time to clear some things. I have shifted my paradigm a few times and have just had a realisation what I believe seems right in approach, but basically I need to use more leverage and pump up the trades to make fulltime trading worth it.

I am looking forward to the future though.

 

[doctorj]

One company is already well prepared for any world financial crisis and the credit crunch...

 

[numbercruncher]

Wal-Mart Stores (WMT) , the nation's largest retailer, cut its earnings outlook for the year, saying second-quarter performance was less than expected and many of its customers are under economic pressure.

http://http://www.nasdaq.com//aspxcontent/newsstory.aspx?textpath=20070814\ACQDJON200708140912DOWJONESDJONLINE000230.htm&cdtime=08%2f14%2f2007%20+9%3a12AM


Ouch

 

[websman]

I live in the U.S. and my finances look pretty good. Of course, I can't speak for the rest of the Yanks.

One problem I see among a lot of Americans is that they are lazy and have poor attitudes. A lot of younger folks think the world owes them a living. I credit a lot of this to the rap culture.

So, what about Australia? Are there similar probelms, or is Australia in good shape. Let me know...I may want to move there, if you guys don't mind. LOL

 

[jonojpsg]

Go the veggie garden WayneL Can't stress enough how important they will be, especially given the fact that peak oil is going to have a major impact on how easy it is to truck veggies from one side of our beautiful country to the other. Expensive oil is one thing that is just going to add to the pain of people who can't afford to pay their debts off!

 

[numbercruncher]

Fidel Has a few words to say

Fidel Castro Says World Economic Crisis is at the Door

Havana, Sept 21 (acn) Cuban President Fidel Castro appeared Friday in a video broadcast by Cuban television, where he warned of a serious world economic crisis and addressed different issues. He also dealt with his most recent reflections published by Cuban and international media outlets.


The video was shown during the prime time TV show "The Round Table Discussion", moderated by journalist and host Randy Alonso.

Fidel Castro made a deep analysis of his reflections published under the title "Deliberate Lies, Strange Deaths and Aggression against World Economy." In his written piece the leader of the Cuban Revolution quoted writings by former US President Ronald Reagan, former British Prime Minister Margaret Thatcher and former US National Security official Gus Weis, and other sources, which expose certain actions by the United States that contributed to the fall of the former Soviet Union.

President Castro warned that at present the US administration is making use of unimaginable economic resources to violate the sovereignty of other countries by continuing to buy with paper bills raw materials, the energy and advanced technology, and the most productive lands on our planet.

In the video, Fidel Castro warned that the skyrocketing oil prices could continue to increase and in reference to US presidential candidate Hillary Clinton, he said she is promoting a program to protect some 50 million US citizens who have no social security. But he asked, "How will they fund that program?" and he answered: "only with bills that have no support, with which they want to buy the world."

The Cuban Revolution leader accused Washington of having unleashed a war of religions and of brain drain.

During the TV show, Doctor Osvaldo Martinez, director of the Institute for Research on the World Economy described as accurate the phrase used by Fidel Castro when he said that the world is "threatened by a deep economic crisis."

The Cuban expert illustrated the world situation by referring to the financial speculative bubble, which was replaced by another similar one in the real estate sector. He said that the US dollar is currently changing at 60 cents of an Euro, which represents a lack of confidence in the US economy, and he also recalled the high oil prices (over 84 dollars to the barrel), while he also predicted that the world is living the first chapter of a huge depression.

"We are in the presence of a very particular situation, in which the huge speculative machine, fueled by neo-liberal policy, no longer provides real economy, with a production of goods and services that can no longer make it sustainable and it is falling apart," said Martinez.

He said that the first thing to fall down is the artificial US economy, whose dollar has no real support, with a massive deficit, a huge accumulated debt both personal, governmental and private.

Other journalists who participated in the show agreed that the analysis made by the Cuban leader was very profound and far-reaching and they said that the world must find solutions to get out of the crisis provoked by neo-liberalism and the ambitions of the US administration.

http://www.cubanews.ain.cu/2007/0921fidelmesaredonda.htm