COMMENTARY
In an effort to get the "complete picture" about what exactly is going on with the global economic scene, I subscribe to a newsletter based in Europe, which normally sends periodic e-mail updates giving their assessment of current events. Whenever something significant happens that requires in-depth coverage, they send a printed "hard-copy" newsletter - and today, I received just such a newsletter.
This newsletter comprises ten (10) very detailed pages which I cannot duplicate here on the Web - but instead I will give you the gist of their message and then fill you in later in greater detail at our October meeting. So here in brief is what they have to say:
BEYOND THE PANIC - WHAT TO EXPECT...
Don't be fooled! What is currently and widely being considered as a "brief storm," a "healthy and long-overdue correction," a "short-term technical pause in the bull market," is but the ugly messenger of more to come. August, 2007 should have served the prudent and savvy investor as a welcome warning.
In late September of 2006, statistics were published that clearly painted an imminent problem in the US housing sector. The Housing Market Index had fallen from above 70 to 30 within only a few months. Toll Brothers, the US homebuilder, considered the slump in residential construction "the worst in the past 40 years."
In our Newsletter of October, 2006, we alerted our readers to the possibility that decades of accelerating credit expansion and debt had finally reached the boiling point. We emphasized the growing threat of a severe credit crunch. In our view, a "soft landing" was the best possible, but least likely, scenario to hope for. Here's an excerpt from that 2006 Newsletter.
"ALL credit transactions are INCOMPLETE exchanges. They are never completed until full due payment is made. In this respect, we may be facing a massive crisis. The US owes the world more than its own internal economy can even get close to producing. Furthermore, tens of millions of Americans owe their banks more than they can ever hope to earn and repay.
Thus, a double bankruptcy is in the making. The US economy cannot repay the world what it owes. Americans cannot repay what they themselves owe to their lenders. Credit is to be repaid in the future. When the future arrives, all credit is DEBT. The US Treasury is bankrupt. If it tried to cover its present spending and future liabilities with matching taxes, it would drive American businesses and households into bankruptcy under the load of taxes. The government can't help Americans and Americans can't help the government!"
This was written a year ago. Obviously, things have evolved since then. In particular, August, '07 SURPRISED everyone with the "Subprime Crisis." In the past, we encountered the Tequila Crisis, the Russia Crisis, or the China Crisis. Financial market crises tend to be named according to their "birthplaces." Therefore, this latest financial market crisis should be termed the "US Crisis." That is precisely where the epicentre lies. And, although the crisis is currently more conveniently termed the "Subprime Crisis," one should easily recognize that Mr. Subprime is but a scapegoat for a much larger and very American culprit.
We quite simply call the true culprit "EASY MONEY." This fellow is a smooth operator: manicured fingers, perfect nose job and all the rest. Many are fooled by his looks, not recognizing the cesspool beyond the deceitful smile. In our books, "Subprime" is but a pimple on Easy Money's rear end. It is a symptom of a larger problem, one that unfortunately has become a very particular and entrenched element of the American lifestyle. And one, which has spilled over into international financial markets and global economies.
So, was that it? Did the August "correction" re-boot and purify global financial markets? Has the legacy of Easy Money been purged by a few weeks of market revolt? Has Mr. Bernanke avoided the consequences one would expect from decades of loose monetary policies merely by the whip of his magic discount wand?
Possibly, just possibly, if that trust can be kept alive for just a bit longer, and then a few days more, you might experience the much hoped for "soft landing."
But we don't think so. We ask you this: Has anything really changed? Was the subprime imbalance the fundamental problem, or was it a mere symptom of a more serious large-scale issue?
Dear reader, we expect more to come. The subprime imbalance is not corrected yet. Nor has the system been cleansed of other Easy Money "pimples." So we urgently recommend your prioritizing risk management and wealth preservation over profits TODAY.
* * * * *
This newsletter comprises ten (10) very detailed pages which I cannot duplicate here on the Web - but instead I will give you the gist of their message and then fill you in later in greater detail at our October meeting. So here in brief is what they have to say:
BEYOND THE PANIC - WHAT TO EXPECT...
Don't be fooled! What is currently and widely being considered as a "brief storm," a "healthy and long-overdue correction," a "short-term technical pause in the bull market," is but the ugly messenger of more to come. August, 2007 should have served the prudent and savvy investor as a welcome warning.
In late September of 2006, statistics were published that clearly painted an imminent problem in the US housing sector. The Housing Market Index had fallen from above 70 to 30 within only a few months. Toll Brothers, the US homebuilder, considered the slump in residential construction "the worst in the past 40 years."
In our Newsletter of October, 2006, we alerted our readers to the possibility that decades of accelerating credit expansion and debt had finally reached the boiling point. We emphasized the growing threat of a severe credit crunch. In our view, a "soft landing" was the best possible, but least likely, scenario to hope for. Here's an excerpt from that 2006 Newsletter.
"ALL credit transactions are INCOMPLETE exchanges. They are never completed until full due payment is made. In this respect, we may be facing a massive crisis. The US owes the world more than its own internal economy can even get close to producing. Furthermore, tens of millions of Americans owe their banks more than they can ever hope to earn and repay.
Thus, a double bankruptcy is in the making. The US economy cannot repay the world what it owes. Americans cannot repay what they themselves owe to their lenders. Credit is to be repaid in the future. When the future arrives, all credit is DEBT. The US Treasury is bankrupt. If it tried to cover its present spending and future liabilities with matching taxes, it would drive American businesses and households into bankruptcy under the load of taxes. The government can't help Americans and Americans can't help the government!"
This was written a year ago. Obviously, things have evolved since then. In particular, August, '07 SURPRISED everyone with the "Subprime Crisis." In the past, we encountered the Tequila Crisis, the Russia Crisis, or the China Crisis. Financial market crises tend to be named according to their "birthplaces." Therefore, this latest financial market crisis should be termed the "US Crisis." That is precisely where the epicentre lies. And, although the crisis is currently more conveniently termed the "Subprime Crisis," one should easily recognize that Mr. Subprime is but a scapegoat for a much larger and very American culprit.
We quite simply call the true culprit "EASY MONEY." This fellow is a smooth operator: manicured fingers, perfect nose job and all the rest. Many are fooled by his looks, not recognizing the cesspool beyond the deceitful smile. In our books, "Subprime" is but a pimple on Easy Money's rear end. It is a symptom of a larger problem, one that unfortunately has become a very particular and entrenched element of the American lifestyle. And one, which has spilled over into international financial markets and global economies.
So, was that it? Did the August "correction" re-boot and purify global financial markets? Has the legacy of Easy Money been purged by a few weeks of market revolt? Has Mr. Bernanke avoided the consequences one would expect from decades of loose monetary policies merely by the whip of his magic discount wand?
Possibly, just possibly, if that trust can be kept alive for just a bit longer, and then a few days more, you might experience the much hoped for "soft landing."
But we don't think so. We ask you this: Has anything really changed? Was the subprime imbalance the fundamental problem, or was it a mere symptom of a more serious large-scale issue?
Dear reader, we expect more to come. The subprime imbalance is not corrected yet. Nor has the system been cleansed of other Easy Money "pimples." So we urgently recommend your prioritizing risk management and wealth preservation over profits TODAY.
* * * * *
posted by Bob Moser at
7:19 PM
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