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Albert Edwards Goes All Out: Sees New Recession By End Of Year, Market Collapsing "Like Pack Of Cards"

Tyler Durden's picture




 

Albert Edwards, one of the most prominent uber-bears just got even more bearish: "Our view that this economic and market recovery will collapse like a pack of cards as soon as the steroid-like stimulus is reduced is gaining ground. Most forward-looking leading indicators now signal some sort of second-half slowdown. The only area of debate now seems to be in its magnitude. By the end of this year, I believe we will be back in recession." Albert's vision of a deflationary collapse, following by a reactionary episode in which the Fed (in typical reactive fashion) ends up printing tens trillions in one last attempt to restimulate the economy, resulting in hyperinflation, is well-known, and conforms with our view. As for the turning point, it is still anyone's guess: as today's Freddie record low mortgage rates demonstrates, deflation has now firmly gotten the upper hand. The Fed has can not afford to wait and see how this plays out. Obviously, with ZIRP here at least through 2013, if not much longer, the only true recourse is another failed monetary stimulus. However, with the president's rating in shambles, and any form if stimulus, monetary or fiscal, likely guaranteed to bite another 10% at least from his plunging popularity rating (see latest Gallup numbers here), Bernanke likely has his hands tied at least until 2011. Which is why deflationists are likely safe for at least 6 months, assuming of course the forward looking credit market (not stocks, stocks no longer reflect anything except for the latest latency arbitrage available to those rich enough to afford the latest and greatest Routers) does not begin to price in the hyperinflationary episode sooner. With 30 Day Bills near zero, there is little to worry about... for now.

Edwards agrees with this:

Although our deflationary arguments are gaining some traction in the bond market, investors have yet to fully acknowledge we are now walking on the deflationary quicksand that will inevitably suck us towards total fiscal and financial ruin - you ain?t seen nothing yet. With core inflation rates now sub-1% in the eurozone and the US, we are only one recession away from Japanese-style deflation. Recent fiscal tightening will hasten the speed of our descent into this quagmire. The market reaction to the acknowledgement of that fact is likely to be unprecedented in its savagery. The response to the coming deflationary maelstrom will be additional money printing that will make the recent QE seem insignificant. The super-inflationary end result will become obvious to all.

As the SocGen strategist further observes, is that while financials have rished to deleverage (not surprising, considering if they were to mark their assets to market even after the last year of debt to equity conversion, all banks would still be undercapitalized by trillions), a glimpse at the economy which excludes financials indicates that there has been no economic deleveraging yet.

Edwards goes on to demonstrate the painfully obvious double dip in housing, whose collapse was only prevented by ongoing stimulus. Sure enough, he completely agrees with Meredith Whitney that housing is in a double dip, and is yet another argument for the Fed's imminent reinvolvement.

And another critical note regarding the "massive" build up in cash by the corporate sector- it turns out the bulk of the cash retention was purely a function of inventory liquidation as presented by the most recent Z.1. Further, as we pointed out previously, the only differential from the cash and cash equivalents trendline is due to an identical and opposite contraction in corporate taxes. Now that the administration will have no choice but to extract as much cash as possible, especially through repatriation of money held by offshore subs of corporations, and much increased corporate tax rates, we anticipate this last bastion of the "money on the sidelines" brigade to promptly be gone with the double dip wind.

Edwards notes:

Many see USA Inc generating huge surplus cash which they conjecture can be spent either to boost capital investment directly, or alternatively to buy other companies? productive capacity via mergers and acquisitions. We looked at this back in January and offered a word of caution. The newly released Federal Reserve Flow of Funds data suggest that on their version of this important measure, no such surplus now exists and to the extent there was one recently, it was due to the inventory liquidation that has now ended (see chart below). We acknowledge that we are indeed far better placed than when we saw 3%+ deficits, but on the Fed?s measure there is no compelling evidence that an investment/M&A boom is imminent.

Little by little every arrow in the bullish quiver is taken away. The only thing remaining, is the last recourse of the Keynesian radioactive fall out: more money borrowed from the future. Alas, as John Taylor pointed out earlier, there is no growth. The global death spiral is complete. We disagree with Edwards - the next recession is not coming by the end of 2010 - we never left it in the first place. We would agree with Rosenberg, however, that the second coming of the Second Great Depression is now upon us, after the brief Fed-moderated extension, which merely allowed Wall Street to extract yet another record round of bonuses on the backs of the middle class.

 

 

 

 

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Thu, 06/24/2010 - 11:25 | 431467 doomandbloom
doomandbloom's picture

is this why the rats are leaving Obama's sinking ship?

Thu, 06/24/2010 - 13:25 | 431725 Oso
Oso's picture

wow, u got flagged twice!  are there really people out there that actually believe Obama has even the slightest clue...?? wow.... all of you deserve a round of applause!

Thu, 06/24/2010 - 15:51 | 432110 masterinchancery
masterinchancery's picture

The smarter rats anyway.

Thu, 06/24/2010 - 17:50 | 432465 Dr. Sandi
Dr. Sandi's picture

Obama knows exactly what he's doing. And he's so good at it that you don't have to bend over.

One does NOT get to be the first black president by making waves for the people who own and operate America.

And by the same token, one does not keep being president unless one understands the rules of engagement. This is where JFK and Lincoln screwed up.

I'm pretty sure BO is smart enough to keep the back of his head exactly where it is.

Thu, 06/24/2010 - 11:25 | 431470 bugs_
bugs_'s picture

52 card pickup.

Thu, 06/24/2010 - 11:28 | 431476 schoolsout
schoolsout's picture

I'm pretty sure there are a few jokers in the mix, too

Thu, 06/24/2010 - 11:33 | 431488 superman07
superman07's picture

We elected a fool, then elected another, and another. We allow ourselves to be "managed" and ruled by idiots. I guess we deserve it.

Where did i put that pitchfork? Oh there it is under my 1911.

 

Thu, 06/24/2010 - 11:50 | 431506 BlackBeard
BlackBeard's picture

Where's your rifle son?

Thu, 06/24/2010 - 12:09 | 431546 DosZap
DosZap's picture

BB,

Right on,a handgun is only used to fight your way to a rifle,and do you know how to use one?.

Past 100-200yds?.

If not, best get a move on..........let another 30-40 million lose jobs, and homes, and we're in a world of shit.(not that we're not now).

To paraphrase Celente,

"When people lose it all, they LOSE it".

 

 

Thu, 06/24/2010 - 13:38 | 431750 Cathartes Aura
Cathartes Aura's picture

Genuine question:

When all you boys get out your guns, rifles, whatever, who do you plan on shooting?  Because you never really spell that out. 

When you "lose it" who are you going to kill??

Thu, 06/24/2010 - 14:09 | 431829 potatomafia
potatomafia's picture

Anyone who tries to steal what I have already earned, or tries to bring harm to myself or my family.. 

Thu, 06/24/2010 - 14:42 | 431919 Muir
Muir's picture

Well, baby, me so horny. Me so HORNY. Me love you long time. You party?
---

Son, all I've ever asked of my marines is that they obey my orders as they would the word of God. We are here to help the Vietnamese, because inside every gook there is an American trying to get out. It's a hardball world, son. We've gotta keep our heads until this peace craze blows over.

Thu, 06/24/2010 - 14:03 | 431814 Cathartes Aura
Cathartes Aura's picture

double-post ala page refresh.

delete.

Thu, 06/24/2010 - 11:56 | 431520 Walt Whitman
Walt Whitman's picture

I would tend to agree that "we deserve it," BUT...

 

As the media is owned by only 6 corporations, the info that gets disseminated to common-folk usually is full of obfuscation, shallowness and set narratives that do not tell the full story that people need to hear to make fully informed decisions.

 

http://www.freepress.net/ownership/chart/main

Thu, 06/24/2010 - 13:01 | 431649 IrishSamurai
IrishSamurai's picture

Although freepress correctly identifies our national information problem in that link, they do not advocate the appropriate solution ...

If they truly were for "free" press, I'd support their efforts, but as it is they only support their "version" of the truth.

That said, we DEFINITELY deserve it ... the last 30 years has been a self-interest orgy the likes of which the world has not seen since the Roman empire.  Anyone who hasn't caught onto the "truth" yet is either blind, stupid (not ignorant mind you), mentally impaired, or in most cases, "agenda-challenged" ...  they don't want the truth because it does not meld with their agenda.

Thu, 06/24/2010 - 17:07 | 432346 Forbes
Forbes's picture

>Owned by only 6 corporations...

 

NYTimes/BostonGlobe, WaPo, USAToday/Gannett, WSJ/FOX/News Corp., CBS, NBC/GE/Comcast, ABC/Disney, CNN/Time-Warner--well there's 8.

 

Don't make me take my shoes and socks off...

 

Did you have anything more than a bogus talking point?

Thu, 06/24/2010 - 13:14 | 431679 Red Neck Repugnicant
Red Neck Repugnicant's picture

superman07

YOU may have elected a fool, but I didn't.  I voted for Bush, which is a vote for Jesus. Bush governed the right way - with the full guidance of a "higher father."

Then I voted for Palin, who also is in close communication with Jesus.

I have done significant research on the matter, and it is obvious that everything began to unravel in this country on January 20, 2009.  The credit markets where really bad that day, and that was Jesus telling us that he won't give us money since we put a Kenyan Muslim in the "white" house.  

Glenn Beck (my hero!..that guy is super-brilliant!) had some arrows on this chalk board the other day, and they all pointed to this recession being entirely Obama's fault.  It's true.  The closer that Obama became president, the worse the recession got.  Then when he got elected - KABAM! - big-time recession.  Glenn Becks charts prove it.  If it's on a chalk board, it's probably true.  

We need to immediately impeach Obama, and immediately bring back George Bush to clean up this mess. A vote for George Bush and/or Sarah Palin is a vote for Jesus, and there is no better economist than Jesus Christ.  

The end. 

 

 

Thu, 06/24/2010 - 13:24 | 431712 Cathartes Aura
Cathartes Aura's picture

hilarious troll is hilarious.

 

+ a dozen vuvuzelas.

Thu, 06/24/2010 - 13:27 | 431734 Oso
Oso's picture

wait, is this a serious post...?

Thu, 06/24/2010 - 13:34 | 431749 IBelieveInMagic
IBelieveInMagic's picture

Stephen Colbert?

Thu, 06/24/2010 - 13:45 | 431765 akak
akak's picture

Red Neck,

Yes, I agree with you, George Bush Jr. was the second coming of Christ, who sacrificed himself (oh, and a few thousand lives, and a few trillion dollars) to redeem us from our sins of peace and frugality.  As for Obama, I have no doubt that the only reason he hides behind those teleprompters is because their polarized filters hide the "666" on his forehead.  As for Sarah and her marching mental midget minions, God bless her, you betcha!

Thu, 06/24/2010 - 14:23 | 431868 Village Idiot
Village Idiot's picture

Amen.

Thu, 06/24/2010 - 14:15 | 431849 SteveNYC
SteveNYC's picture

That is actually fuckin hilarious. Whoever junked that is a clown, based on humor value alone. Something tells me Red Neck doesn't necessarily like Obama and the Dems as much as the "junkers" may think he does.....

....it does bring to bear, however, the hilarity in humans bringing "Jesus" and "God" into debates about war etc. Fuckin brilliant.

Thu, 06/24/2010 - 15:25 | 432032 Double down
Double down's picture

That is too funny, more please 

Thu, 06/24/2010 - 11:34 | 431489 Sudden Debt
Sudden Debt's picture

and no one can pass the game and has to play each hand to the end.

Also the common consumer is also hearing the rumors about the second dip and that's going to create a lock on their wallets yet again.

Obama will soon lose all the colour in his hair so it seems :)

Thu, 06/24/2010 - 11:36 | 431492 LoneStarHog
LoneStarHog's picture

John Williams at ShadowStats has put his reputation on the line and stated that 2010 will end in a hyperinflationary depression.  No mincing of words, just flat stated it.

 

Thu, 06/24/2010 - 13:03 | 431662 Cindy_Dies_In_T...
Cindy_Dies_In_The_End's picture

Lone--Do you have a link? Last interview I heard (which was early in the Spring) He said it could fall apart tomorrow or 2 years, it depended on other factors.

 

Do you know if he changed his mind and where we could hear that interview?

Thanks

Thu, 06/24/2010 - 11:38 | 431496 fearsomepirate
fearsomepirate's picture

Good analysis.  To throw more gasoline on this fire, don't forget that capital gains taxes are scheduled to skyrocket at the end of the year, so even the algos will get lower returns.  Everyone's trading is going to slow down, even the vampire squid's.  And *everyone's* income taxes are going up.  Consumers will have even less money to spend.  Small business owners will make less profit.  Real dividends are going to go down (and we all know what marvels low dividends do for stock prices).

This is where I pimp my blog, where I've written a bit more extensively about it:

http://jerkonomics.blogspot.com/2010/06/next-year-stocks-commit-frisbee-...

Thu, 06/24/2010 - 12:41 | 431601 Muir
Muir's picture

__

 

That's great, this is really fuckin' great, man. Now, what the fuck are we supposed to do? We're in some pretty shit now, man. 
That's it, man. Game over, man. Game over, what the fuck are we supposed to now, huh, what are we gonna do?

 

___

Thu, 06/24/2010 - 12:55 | 431633 IE
IE's picture

A classic.

Thu, 06/24/2010 - 13:43 | 431656 Village Idiot
Village Idiot's picture

Paxton in his finest hour.

Thu, 06/24/2010 - 15:26 | 432038 Double down
Double down's picture

Typecast forever.  A fine death 

Thu, 06/24/2010 - 11:51 | 431505 FranSix
FranSix's picture

Don't like ZIRP?  Get ready for NIRP.  Negative Interest Rate Policy.

Unless of course, printing money nirps it in the bud.  *snork*

Thu, 06/24/2010 - 11:52 | 431511 Wynn
Wynn's picture

Never underestimate the tenacity of governments to do whatever it takes to preserve their power. I imagine Bernanke, Geithner and Summers have a few arrows in their quivers that none of us would suspect. They will eventually fail, of course, but this isn't over, not by a long shot. 

 

Thu, 06/24/2010 - 12:08 | 431541 IBelieveInMagic
IBelieveInMagic's picture

It is depressing to see ZHers appear to be rejoicing that the system is failing just because of investment in PMs/guns. It is going to be a pyrrhic victory.

Yes, the current government has no choice but to take desperate measures -- it is not like it has caused every single disaster, it is just happening on their clock while the bigger player responsible is clearing brush at his ranch in TX -- I am not an apologist, just a concerned citizen.

Thu, 06/24/2010 - 12:20 | 431563 Anton LaVey
Anton LaVey's picture

I agree with you the biggest culprit is clearing brush in Texas, but the elected replacement promised "Change we can believe in"... And the least that can be said about that is that he has been a HUGE disappointment.

Agreed on the "Pyrrhic Victory": it is going to be very, very ugly in the near future, and I, for one, does not rejoice in that, despite a certain amount of, shall we say, "Schadenfreude". Especially when it comes to bankers.

Thu, 06/24/2010 - 12:50 | 431621 Village Idiot
Village Idiot's picture

"It is depressing to see ZHers appear to be rejoicing that the system is failing just because of investment in PMs/guns"

 

And don't forget sovereign cds and currency trades, among others.  I'm using this site as a support group while the hedge fund I'm in works it's magic, hopefully.  I was a buy and hold sucker, and paid a price.  My turn for revenge. As far as destroying the country - the more I learn, the more I see how this country and it's people have been in a virtual screw job for god knows how long.  Count me in as a patriot that is looking to replenish wealth, and, get rid of the scourge.  And save the bullshit about me being part of the problem because I am betting against or using the same financial tools that are part of the root cause.  Just know that I will be around when/if the shooting starts and in the meantime, I'll just enjoy the show.  btw, ZH is like watching it in 3D.  Awesome.

Thu, 06/24/2010 - 12:50 | 431622 trav7777
trav7777's picture

the system is doomed to fail.  What kind of a system was it, anyhow?  One that enshrined the rentier class and a bunch of plutocrats into aristocracy?

who WOULDN'T rejoice at the destruction of that?  This is not the system we had before CEO pay multiples blew vertical

Thu, 06/24/2010 - 12:52 | 431625 desgust
desgust's picture

Pretty much the whole world is waiting for the "system to fail and not only for schadenfreude but cos we are fed up with the American hegemony, American Wars against the World, American Robbery, American Lies !!! The sooner the bettter! Sorry for all decent people out there but...so is life!

Thu, 06/24/2010 - 12:55 | 431640 RRA_223
RRA_223's picture

"Bush's Fault?"   Good thing we've moved on.   Unfortunately this is the dumbest response I've read on ZH all day.

Bush holds his share of the blame, but we're shamelessly ignoring decades of contributions from both parties: Clinton, Bush, Obama - Pelosi, Reid and every sesson of Congress since Carter.  

Some planted the seeds, some fertilized them, some talked them into blooming, some helped those seeds grow - but ALL of them played important parts in growing the wild brush that's burning in front of us now.

"Blame Bush" is as myopic and simple an excuse as modern politics has known. 

Thu, 06/24/2010 - 14:15 | 431846 fearsomepirate
fearsomepirate's picture

Don't forget Woodrow Wilson, FDR, and Hubert Humphrey, while you're at it.  It's taken nearly a century for them to take down America; shows just how tough it was built to begin with.

Thu, 06/24/2010 - 12:57 | 431645 -Michelle-
-Michelle-'s picture

This goes back way further than 2000...

Thu, 06/24/2010 - 17:54 | 432478 ToddGak
ToddGak's picture

Indeed....the seeds were sown with the closing of the gold window in 1971...this allowed us to start settling our debts with dollars instead of gold, and of course we can always issue more dollars...thus leading to our massive trade imbalance, destruction of the manufacturing sector as we could use credit to purchase more foreign goods than we export, etc. etc.

Thu, 06/24/2010 - 13:05 | 431668 Cindy_Dies_In_T...
Cindy_Dies_In_The_End's picture

Obviously you are a newbie. You'll figure it out um, concerned citizen.

Thu, 06/24/2010 - 14:14 | 431841 fearsomepirate
fearsomepirate's picture

When our masters in Washington and New York have conspired* to destroy us all for their own gain, there's little we can do except rejoice in being able to say, "I told you so."

*Not a real conspiracy of course, merely an emergent conspiracy caused by each Nice Government Man acting in his personal interests, like plans and orders emerge in economies when we each act in our own interests.

Thu, 06/24/2010 - 15:39 | 432081 Freebird
Freebird's picture

And when he has finished in Texas there is always Paraguay...

Thu, 06/24/2010 - 11:53 | 431513 buzzsaw99
buzzsaw99's picture

Does this mean Ann Margaret is not coming?

 

Seriously, Bennie B. can fix this, he has a hella-printer.

Thu, 06/24/2010 - 11:53 | 431515 MGA_1
MGA_1's picture

Deflation for sure with all the bad debt out there.  The question is: "Will the Fed Print?".  If we look at past actions, then the answer is yes.

 

I think a deflationary depression would be slightly better than inflationary in that at least the dollars you hold would be worth something.  Right now, purchasing precious metals seems to be a pretty darn good idea.

Thu, 06/24/2010 - 12:04 | 431528 fearsomepirate
fearsomepirate's picture

Well, yeah.  Destroying the dollar doesn't help anyone except the vampire squid and its minions.  It doesn't prevent the real economic phenomena associated with deflation, like contracting credit.  And it makes people feel like they're profiting when they're actually taking on huge losses, so we consume ourselves that much faster.  It's like economic leprosy.

Thu, 06/24/2010 - 12:43 | 431612 mdwagner
mdwagner's picture

I think a deflationary depression would be slightly better than inflationary in that at least the dollars you hold would be worth something.  Right now, purchasing precious metals seems to be a pretty darn good idea.

 

I think deflation would kill the economy a lot more because debt will be that much harder to pay off.

Thu, 06/24/2010 - 14:17 | 431858 fearsomepirate
fearsomepirate's picture

That only kills off the debtors.  Those of us with positive net worth would do quite well.  See the Great Depression of 1921 (you know, the one that never happened) for details.

Thu, 06/24/2010 - 11:57 | 431522 Running on Empty
Running on Empty's picture

I'm a little Dislexic so I read Eddie Albert at which point the article didn't make sense to me. But now OK ya were fucked, thanks for confirming the obvious.

Thu, 06/24/2010 - 12:07 | 431540 killben
killben's picture

Wynn

I am likely to agree with you. Except that of the three the danger man is Ben Bernanke!!

Given the way Ben Bernanke came up with a bagful of tricks in 2008 I do not put anything past to save his bankster buddies, I would not put anything past him!!

 

 

 

 

Thu, 06/24/2010 - 12:09 | 431544 killben
killben's picture

Wynn

I am likely to agree with you. Except that of the three the danger man is Ben Bernanke!!

Given the way Ben Bernanke came up with a bagful of tricks in 2008 to save his bankster buddies, I would not put anything past him!!

Thu, 06/24/2010 - 12:17 | 431557 serendipitous_one
serendipitous_one's picture

Many see USA Inc generating huge surplus cash which they conjecture can be spent either to boost capital investment directly, or alternatively to buy other companies? productive capacity via mergers and acquisitions. We looked at this back in January and offered a word of caution. The newly released Federal Reserve Flow of Funds data suggest that on their version of this important measure, no such surplus now exists and to the extent there was one recently, it was due to the inventory liquidation that has now ended (see chart below). We acknowledge that we are indeed far better placed than when we saw 3%+ deficits, but on the Fed?s measure there is no compelling evidence that an investment/M&A boom is imminent

Where's Leo now?  This "mountain of cash" being held by corporate America is something the he has been spouting off about for the past 6 months as a guaranteed sign of an imminent recovery.  As part of corporate America, I could see that neither our company, our customers nor our vendors were embarking on any new & significant Capex ventures, so it's nice to see some facts and figures addressing this as well.  Maybe we should all be buying Chinese solars like Leo..... 

 

 

Thu, 06/24/2010 - 12:43 | 431613 trav7777
trav7777's picture

WTF would Leo think that there is to invest in?

Oil?  LOL.  At what, 28 or 38000 feet??  Look at the downside for BP.  Oil companies are not that profitable to begin with, averaging well below the SP500 average.  XOM's vaunted $40B profit was on half a trillion in sales.  8% ROI is pretty pathetic.

Manufacturing?  HAHAHHAHA.  there's a glut in China.  Losing money.  You can get manufacturing now at negative profitability from China.

So what exactly is out there?  Invest in *replacing* oil?  That's a losing proposition because all it does is burn capital to substitute for something that is still cheaper.  I don't see much out there worthy of a huge investment, not after 40 years of ponzi bubble

Thu, 06/24/2010 - 17:57 | 432485 ToddGak
ToddGak's picture

WTF would Leo invest in?  Chinese solars, obviously.

Thu, 06/24/2010 - 12:29 | 431580 trav7777
trav7777's picture

The economists don't get it...it's an EROI-led recession.

There is NOTHING to invest in at this point.  Japan is proof; once their economy saturated, even 0% loans were INSUFFICIENT to get people to borrow and invest for a superior return IN Japan.

All the loans went to fund development elsewhere where growth WAS possible.  You CANNOT borrow at 1% if your RoR is <1%.

The entire world is achieving collective Point of Recognition that the future is of contraction and that life has entered backwardation.

Thu, 06/24/2010 - 12:30 | 431581 Cursive
Cursive's picture

I prefer "House of Cards" but I guess "Pack of Cards" will have to do.  Sorry, couldn't resist the gallows humor.

Thu, 06/24/2010 - 12:32 | 431586 Paul Bogdanich
Paul Bogdanich's picture

Not to sound like a broken record here but everything points toward the initiation of a regional war on the theory that if you start the conflagration you are better able to control the consequences.  The first consequence you would control is the debt problem.  The narrative to the public would be, "just when it looked like he was about to recover (the economy was rebounding) he felt the icy grip of death upon him (this war sent oil prices through the roof and ruined the recovery).  This makes it their fault not our failed policy.  Very important.  It would also provide the pretext for the 10 or so trillion dollar monetization and a structure to distribute the dough outside the normal financial channels (diredt defense employment).  This would cause the inflation that would minimize the debt while providing enough direct employment at the higher prices to the citizenry to avoid a generalized revolt.  We are in a very dangerous place right now. 

Thu, 06/24/2010 - 12:41 | 431603 RobD
RobD's picture

The problem I see is that the recent regional wars(Gulf 1 and 2) were over within weeks(the real shooting and blowing up of stuff) with minimal losses in people and hardware(on the US side) so unless Iran(I'm assuming that is the region you are talking about) pulls some kind of 'Pearl Harbor' on us or we sandbag it and don't shock and aw the crap out of them then I don't see a regional war as being all that "helpful" in getting us out of this mess.

Thu, 06/24/2010 - 16:09 | 432163 Snake
Snake's picture

+1000

Thu, 06/24/2010 - 12:32 | 431589 Grand Supercycle
Thu, 06/24/2010 - 12:57 | 431642 AntiMort
AntiMort's picture

Europe seems to be taking the austerity path.  If the US takes the QE2 approach how does this play out on the global stage?  Deflation in Europe, Inflation in the US?  I'm sure China's action will be a determining factor. 

Interesting times indeed. 

 

Thu, 06/24/2010 - 13:39 | 431753 Implicit simplicit
Implicit simplicit's picture

I tend to disagree with the seemingly majority here that there will be more big time QE and stimulus injected into the system again. This time there will be massive resistence against the move. They will try and finagle the bagel another way once the stock market crash accelerates by pushing "safe" treasuries as the thew debt instrument of choice-because they can get away with it.

Thu, 06/24/2010 - 15:32 | 432055 Double down
Double down's picture

It is borderline mystical how QE actually accelerates deflation.  An irrational tickle in me says; "raise rates and suffer deflation to a lesser extent"

Crazy, but... 

Thu, 06/24/2010 - 13:23 | 431677 MarketFox
MarketFox's picture

Well now.....now that you've mentioned it....

Let's review the logic...

......................................

The economy was at 100/100....

Today the economy is at 60/100....

The numbers on the banks' books are still fake...

meaning the econ moves to 45/100....

...........................

Ok...so the FED gets happy and prints to the tune of...

70/100.....however this lasts a matter of months....

and is dilutive......whereas 70/100 was intended....

The exact opposite occurred....

So ...it goes to 30/100.....

.......................................

So the question is ....how to get back to 100/100 or better ?

Well ....an increase in taxes ....money dilution...and more legal largesse will only take the 30/100 to 20/100....

What will move it up ?

A reduction in taxes and legal largesse costs would help....

 

Taxes come from an increase in sales of goods and services....

Taxes decline when sales of goods and services decreases.....

.......................................

Solution ? 15% consumption tax replaces the current progressive system....

The tax take from a 15% consumption tax will allow for a dramatic increase in the domestic production of goods and services....

In addition the reduction of government intrusion in everyday businesses would allow for even further acceleration....

...................................

Yeah....It's time...

 

The least understood point ?

The tax take from a much larger economy ....enabled by a removal of the individual and corporate income taxes....replaced by the 15% consumption tax .....will dwarf the future tax take from the current tax structure....

TIME TO HIT THE RESET BUTTON....

Thu, 06/24/2010 - 13:23 | 431711 SheepDog-One
SheepDog-One's picture

Clearly the charade will continue, until it doesnt...anyone want to place bets on the date and time? Not me, no thanks.

Thu, 06/24/2010 - 14:53 | 431948 cwild
cwild's picture

Think back to the Quant Meltdown of Aug 2007. It wasn't just a quants-all-in-the-same-trade moment, it was when the economy really started to tank. But then the market ramped higher for the next 4 months and we all lost our shorts. But why ramp that long? Christmas was the lull by which we were fed the false sense of security. Then onto NYE and by the time I got back to work in mid January I'd missed the 10% move I'd been waiting for. This is how I view the current market. No matter the technical causes, Flash Crash 1 showed the line of least resistance and the lack of real buyers below the market. Now onto FIFA World Cup so we can all feel good again, before BOOM, right when we're not paying attention a quick 10% move to the downside. So SheepDog-One, my guess is right after the World Cup Finals.. 2.5 weeks and counting..

Thu, 06/24/2010 - 15:18 | 432011 hooligan2009
hooligan2009's picture

There is no shame in admitting that the reason we are in this mess is because we spend what we don't have. This is a political mess not a personal one. Spending needs to be cut so that not only is the current 10% of GDP fiscal deficit returned to balance, but that we go further and produce surpluses of 5% of GDP until debt is eradicated.

Taxes take 30% of GDP, spending is 40% of GDP. Debt is (say) 100% of GDP. If we reduce spending by one third, the budget will be in balance but the impact on the economy will mean we have to do spending cuts of around 40% to catch up with the decline in government sponsored economic activity.

Then we can leave spending at only 24% of GDP with a surplus of 6% of GDP per annum for say sixteen years and repay the national debt. Debt/GDP of zero.

We can then leave this in place for another 16 years and build up capital stock that would pay for our health and retirement spending.

Do it again for another 16 years and we will be a wealthy nation.

OK OK OK i know we are screwed. We are broke, all of us and we just have to admit that we need to lie, cheat and steal our way out of this and stop paying the favored sectors of lawyers, lobbyists and bankers who are the current best liars cheaters and stealers of our futures.

There is another way. Hit the RESET button, like this.

Set the proper amount of prudent debt and equity ratios per company, state and individual. we can then take the EBITDA or free cash flow divided by a notional "fair" risk adjusted reasonable rate of return for each of debt and equity (i am thinking 5% for debt and 10% for equity).

We can then create a new GDP based on the weighted average sum of these parts. New Government debt can be set at a level that we can afford to pay out of taxes, again probably 10% of taxes.

A new currency can then be introduced at a conversion rate that is consistent with our comfortable ability to service a level of debt we can afford. 

We know the old currency is worthless and only has value because the other global currencies are just as fucked or more fucked than we are. SO let's not pretend that fiat currency has any future or that someone else won't come out with an equivalent before we do.

So there you have it. The honest way which we, as liars cheaters and stealers wont adopt because it means we own up, or the RESET way.

It will be just like starting over...wop wop wop wop!

Thu, 06/24/2010 - 15:55 | 432131 tony bonn
tony bonn's picture

i'm not sure why everyone is afraid of deflation...it is a signal that the economy is repairing itself from the excess sociopathic quackonomics of the powers that be assholes....

without deflation there is no cure for the pathologies infesting this and other economies.....the SINGLE dip depression is caused by foolish and errant meddling in the economy justified by imbecile egg headed politicians and academics....

Thu, 06/24/2010 - 16:06 | 432150 hooligan2009
hooligan2009's picture

yesssssss! :) well said!

Thu, 06/24/2010 - 17:05 | 432339 Lux Fiat
Lux Fiat's picture

An observation from Paul Bluestein's book on the Argentinian debt crisis:

Deflation's victims - those who took on excess debt and leverage

Inflation's victims - everyone

However, gov'ts will chose inflation just about every time since many folks can't distinguish between real and nominal values.

 

Thu, 06/24/2010 - 16:07 | 432155 steadysteve
steadysteve's picture

What will we do with our rifles? Smoke all politicians starting at the local level. Both parties! All existing ones will quit long before we get around to DC. Don't think the military will help the current pols in power. I know a lot of ex-mil types. They want to move back to a truly constitutional system. That is why Napolitano's USKGB is watching the guys and gals coming back from our empires wars. The threat from them to the Ocommies is that they swore an oath they take seriously.

Thu, 06/24/2010 - 18:07 | 432496 Dr. Sandi
Dr. Sandi's picture

Be a sport. Buy a round for each of your local congressional candidates!

Fri, 06/25/2010 - 16:42 | 434294 ChoirBoy
ChoirBoy's picture

Hooligan, you are correct but do you really believe that even if the politicials had enough gray matter to understand this they would even act on it?  A deflation would bring them all down and they ain't going to let that happen.  Print baby, Print!

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