Has Bubble Ben Shown His Hand?

Leo Kolivakis's picture

Submitted by Leo Kolivakis, publisher of Pension Pulse.

Martin Roberge, Portfolio Strategist & Quantitative Analyst at Dundee Capital Markets, sent me his latest comment, Fed's Bernanke Has Shown His Hand: No Rate Hikes! Should Equity Investors Celebrate?:

Monday, Chairman Ben Bernanke provided an economic update at the
Economic Club of Washington. In our view, the key takeaway from his
speech is the non-conventional tightening mechanisms the Fed intends to
use when economic conditions warrant a tighter monetary stance. While
such mechanisms imply a prolonged period of low interest rates, history
shows that a trading-range environment for the stock market remains the
most likely scenario next year.

It may be just our imagination, but after reading Ben Bernanke’s speech
a few times, it seems that the next US monetary tightening cycle will
be initiated through Japanese-like monetary mechanisms as opposed to
conventional rate hikes. Indeed, the Fed spent a great deal of time
explaining how it can apply upward pressure on short-term interest
rates by: 1) raising rates on banks’ balances sitting at the Fed, 2)
using reverse repurchase agreements, and/or 3) reducing the size of the
Fed’s balance sheet.

The net
result is a prolonged period of low interest rates. Also, as in the 70s
and 80s, US monetary aggregates could become the mean to gauge the
Fed’s monetary bias. But what does it mean for equity investors?

has been 12 months since US Fed funds were cut to 25bps. A similar
status quo on short-term rates was seen in 2003-2004 (12 months),
1993-1994 (16 months) and 1983-84 (17 months). Interestingly, these
episodes are all post-recession periods and the chart at right shows
that the stock market has tended to behave erratically 12 months after
the last Fed cut. Obviously the apprehension of higher interest rates
is what causes market choppiness, with the possibility of double-digit

But the key here
is that history suggests a trading-range strategy for equity investors
in 2010, where stock market weakness is bought and strength sold. This
is a view we have expressed and supported in recent strategy wires to
justify a neutral equity stance in our tactical asset allocation.

Bottom line: Consistent
with the Fed’s views, investors have priced out Fed rate hikes for the
next year. However, this does not necessarily represent a green flag
for equities. History suggests that prolonged periods of low interest
rates have translated into much market choppiness. Accordingly, a
trading strategy of selling strength and buying weakness may be optimal
in 2010.

While choppy markets look very likely, some managers still advise to just be long for 2010:

doubts about the economic recovery and a sense the stock market has
come “too far, too fast,” many are questioning whether the rally can


But such negativity is precisely why investors should
view dips like Tuesdays as opportunities, according to Jeff Saut of
Raymond James and Jon Markman, author, money manager and newsletter


“I never thought you could be a contrarian by being long
in a bull market but that’s where we find ourselves,” says Markman, who
pens the Strategic Advantage and Trader's Advantage newsletters.
I‘ve never seen a bull market were there’s so little joy. [investors]
are so morose. As if it’s going to fall apart right away.”


ahead to 2010, Markman said the best advice for investors is “just be
long,” recommending “risk assets” like emerging markets and the Russell 3000 ETF because it provides exposure to both small- and large-cap stocks.


Saut, who has been writing extensively about the “performance anxiety” facing underperforming fund managers, largely agreed with Markman’s assessment, although he thinks big-cap stocks are likely to outperform in the near term.


Both pundits also agreed gold’s long-term prospects remain bright even as it’s now suffering an overdue correction.


Saut was less ebullient than Markman, citing a number of “headwinds”
likely to hit the market in the middle of 2010, including higher
inflation and interest rates, more government regulation, the demise of
the “sugar high” from the 2008 stimulus, and the political risks of a
mid-term election.

“I feel pretty good into the first quarter of
next year…there’s still way too much cash in institutional coffers,”
the strategist says. “It’s important to be long but once you get into
the second and third quarters you’re going to start to see some
headwinds. That doesn’t necessarily mean stocks will go down.”

If you listen to the interview,
the parallel to 1991-92 is worth noting because everyone expected a
double-dip recession back then that never materialized. What I see in
2010 is speculative pockets going into specific sectors or stocks.

Bubble Ben has shown his hand but don't be so convinced that the Fed
will not raise rates in 2010. If the recovery comes in stronger than
anticipated, you might see some significant rate hikes in the second
half of 2010. That's when the markets will really get interesting.

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Ned Zeppelin's picture

"...but it's more likely the strength of the recovery will surprise all of us..."

Leo, I salute you for your brave hopes, but you need to spell out what the source of this recovery will be, and also, the yardstick you are using to measure it.  I have no doubt even in a complete depression there are no doubt a set of indices that one can point to and gleefully annouce, "hey, we're doing great." I do not see any signs anywhere of this.  Orders are non-existent. We have no hiring plans for 2010. Banks are simply NOT lending - credit availability could not be worse. Municipalities in PA are announcing 300% real estate tax hikes, employee layoffs and cancelled projects.  Maybe it's just dark down here in this hole and you're up top.  But I see no signs of this dramatic recovery.  Nope, I see the consolidation of a newly shrunken economy and then you might see slight upward ticks, but the consolidation of the New Normal is still in progress. I suggest your forward looking instruments are relics of a different paradigm.

Leo Kolivakis's picture

I suggest you look at NIPA corporate profits, ISM new orders, housing starts, resale market, employment in the next two quarters. I also suggest you all realize that inflows into hedge funds are way up, and since most hedgies are ent long, this market will continue to grind higher. Deflation is a possible outcome but if it happens, it will be policy-induced (ie. raising rates too quickly and too aggressively).

Leo Kolivakis's picture

Those of you who still do not see fundamentals improving should read this analysis carefully:

S&P 1,250?: Corporate Profits Say Maybe

NIPA stands for National Income and Product Accounts, one of which is Corporate Profits. This is the broadest measure of profits and it is up.

I quote this passage:

The Magic Number - Corporate Profits came in at $1,356 billion, up a startling 10.6% for the quarter. Applying the formula from the chart, I get 1,356 X .80 = 1,084 + 181 = 1,265, round to 1,250. From Monday's close of 1,106, this implies a further increase of 13%. Under this scenario, equities are still an attractive investment, although the 30% that was out there in July has mostly been realized and from here the risk/reward ratio is less attractive.


Refinements – This approach has the advantage of simplicity. In an effort to improve predictive power, it is possible to introduce other variables into the equation. Interest rates and unemployment are two primary concerns: the first can be related on a mathematical basis, the second is more of a judgment item.


Interest Rates – For purposes of comparing equity earnings yields to bond yields, I am using the Moody's Baa corporate bond rate, available daily or weekly from the Federal Reserve. This number displays a strong inverse correlation with the S&P. As you might expect, consideration of current interest rate levels suggests a higher target. After fiddling with the numbers a while, I get a target value of 1,321, round to 1,300.


Unemployment – Also displays an inverse correlation with the S&P. The period of time used does not include any episode of high unemployment comparable to what we have today. Developing a formula that accounts for both interest rates and unemployment, and that tracks history acceptably, I get an indication of 1,035, round to 1,050. The question here is about unemployment as a trailing indicator, vs. the intuitive view that the economy cannot recover without an increase in employment.


Corporate Profits increased 14.5%, in spite of the unemployment. Or perhaps because of the unemployment. If you fire people faster than your business declines, profits will increase. My feeling is that corporations have become much quicker to lay off in the face of slowdowns, or even when business conditions are acceptable but higher profits are desired. The attitude of management is, let them sleep under bridges, we are going to make a profit. It seems to be working, and I am unable to rule it out as a possible ongoing trend.

Cost cutting helped bolster profits but it wasn't just cost cutting. ISM new orders are surging above 60. With profits up, business investment is picking up and companies are starting to hire again. More jobs are on their way but the level remains depressed relative to pre-crisis.

Leo Kolivakis's picture

Read it...so what? No mention of corporate profits and focus on lagging indicators. I am not exactly a rookie at looking at economic data!

theprofromdover's picture


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Lets remind ourselves of the past decade, and what funded the growth.

It was a sequence of financial 'innovations' to free up credit, and Greenspan asleep at the wheel.

On Main St, stores & Auto-dealers promoted monthly term deals on everything, buying on credit got available to everyone.

Credit card limits automatically increased when you maxed out, especially if you didn't ask for them to be raised. Need a second card, no problem sir.

Interest rates dropped, inflation figures were massaged. We were secure, confident and well-off.

Cheap money meant asset prices rose. Re-mortgaging came in, 'equity-release' became a buzz-word.

China offered us everything for pennies.

In the commercial markets, the banks were tripping over each other to suck money out of businesses, sell & lease-back, IPOs, mergers & acquisitions, all sorts of gimmicks, re-value assets and borrow on them.

We all worked and played harder, and it was fun. Deep down I reckon everyone knew there might be some discomfort somewhere down the line, but we were sure we would be looked after by the system.

Fast-forward to today.................

Where is the engine to drive a recovery? None of the above are available, and indeed most of them are stuck in reverse gear. Any wishful thinking that says we can get back to 2006 levels (or whenever) has no basis in reality.

The best future we can hope for is to keep a lid on energy prices, and a grip on inflation. If we are lucky, a few of the evil dead in Wall St. may pay for their crimes. The rest of us -revolution or not- will have to get used to a new, lower standard of living. If we can clear out the layers of pork in Washington, remove the excessive vig from the banks, insurance, healthcare, pensions and advertising industries, we might turn a corner in 2 to 3 years.

Otherwise, false hope (leads to disappointment).

I don't think there has been enough cold, hard, staring in the mirror by everyone. Joe six-pack has an excuse, cos the flat-screen tv tells him nuthin' to worry about, carry on. For the rest of us free-thinkers, some lateral thinking is required.


tip e. canoe's picture

"If we can clear out the layers of pork in Washington, remove the excessive vig from the banks, insurance, healthcare, pensions and advertising industries, we might turn a corner in 2 to 3 years."

in a no growth environment, the only way to create wealth is to clear the excess waste and the only way to create value is to clear out the impediments to value.

hidflect's picture

Why is no-one concerned about deflation? Is it because it's never been seen full-force in America in living memory and so is discounted as a myth? People are so adjusted to prices always going up that the idea of prices going down seems unreal? I've been living through 15 years of deflation here in Japan and it's just as pernicious and destructive as any 70's high inflation period ever was. And the conditions are perfectly positioned for it. Ben at 0% caught in a liquidity trap (as Japan was). Wallets snapping shut, massive over-supply in realty and banks over-extended, unable to lend being propped up by the govt. All the same as Japan 1991. Rates may stay close to 0 for the next 10 years. And that won't necessarily translate to a market bull run. Laws of nature decree America's economy in dollars has to deflate to the size of its productive capacity. And most of that got sent to China. Inflation is the wrong direction to correct this gap.

gabeh73's picture

I think we are not too scared of deflation, because the reality of our political system is that massive deflation means foreclosures at new record highs that make 2008 (town meetings)look very calm. In addition to foreclosures, you have municipal and state government pension crisises everywhere, the choice between huge tax hikes or governemnt employee cuts...and that would generate a huge amount of political pressure for inflation. Even if they haven't caused inflation thus far, there is no doubt that it could be done through more populist pleasing inflation packages that are similar in effect to a helicopter drop.

I'm not saying this to discount your opinions, just stating some of the reasons people can't se massive deflation really happening.

Bernanke's book with Mishkin "Inflation Targeting", was written several years before he was fed chairman and it was clear that even at that time, Bernnake was 100% on board the "inflation is better than deflation" camp...he even states he has no problem with 7% inflation targets if that is was the Congress wants to make it.


ATG's picture

As TD et al posted, Fed inflation in the 30s did not

accomplish much except pave the way for FDR to

outlaw gold in violation of the Constitution. The

Depression continued for two decades including

World War II despite all the king's Keynesian




gabeh73's picture

I'm not saying it will be good. Just that Bernanke really genuinely believes that it is a good idea to have mo-betta money printing and if the politicians are about to face a revolt, they will gladly hand out $10,000 checks if they think it will keep them in office one extra day.

Anonymous's picture

It's the differences with Japan that are scary - trying to muddle through with that playbook on the reserve currency will likely lead to unforeseen exigencies.

Atoyota's picture

Recovery? Jobless? Spend your way out of debt?

With main-street about to tank?

Sovereign defaults? (+Greece)

Anonymous's picture

the only innovation I am seeing these days in America is in the coffee business - diedrich coffee, keurig ready paks and green mountain roasters!!!! Kind of like our economy in 2010 - ROASTED !!!

ATG's picture

Big4 has coffee in a bull mode, up 295% so far.


Cursive's picture

Thanks, Leo, for the transcript of the TechTicker interview with Saut/Markman.  Pimping the pumpers.  Has Saut's bruised ego healed after his attack on Rosie last week?  More substantively, could you enlighten your readers with an explanation as to why a low interest rate environment should excite investors if bank lending and consumer credit are both declining.  Saut made the distinction between the liquidity phase and the fundamental phase.  I fail to see any pick-up in the fundamentals.  Did you see the NPD Group's Weekly Tracking Service for actual point-of-sale data out today?  For the week of Black Friday, total revenue was down 1.2 percent from last year.  How 'bout them low interest rates?

Mr. Anonymous's picture

Leo and his tribe need to believe their own bullshit.  That way, when the shit hits the fan (again) they can all shout 'But whocouldaknowed?'.  AGAIN.  Keep stealing and using the same stale excuse, right Leo?

Won't work this time,.  We barely accepted it the last time.  And frankly, I don't care if y'all didn't know, that's your problem.  Either way, heads will roll.

Leo Kolivakis's picture

My tribe? I was more bearish than all you ZHers put together in 2006. My assessment changes as I pay close attention to the markets and the economy. All else, including a lot bullshit spewed here, is on my ignore list.

Anonymous's picture

recovery? you have got to be kidding me man. there is no recovery in sight.

Anonymous's picture

In 90-91 period there was no second dip recession because there was real debt destruction through banks bankruptcies. The systme was being cleansed from the 87 through 1990. All insolvent banx were let go through bankruptcy. And then there was the computer industry that picked steem at that time and led to a vibrant recovery through the nineties. Now if we could only have a Bill Gate and a Steve Job for, say the green industry,then may be there is a chance. But to count on a recovery depending on Cofee resellers or clothing outlet?I don't know who is there to extend credit,since now everybody is scared of lending a DXY=76 only to get a DXY=50 few years down the road...

tip e. canoe's picture

well the way the green industry is evolving in this country so far (i.e. those on the receiving end of capital), it's only really about one green, and it ain't the grass.

the tech boom was built from the bottom up, the green boom is hammering its way from the top down.

Anonymous's picture

I do not see how a complete economic paradigm shift is avoidable. Charts, graphs, Dow theory, Fibanaci are totally irrelavent at this point in the game. It is late 4th quarter in the end game period! Everything else is just smoke.

Benzass Miphist's picture

 "What do you think will happen if we have another epic crash so close to 2008? Total social anarchy. The power elite won't let this happen again."

Leo, you are implying that the power elite intentionally crashed the market in 2008 ( a widely held suspicion all along).  The panic in the fall of 2008 wasn't due to the recognition of Wall Street's unbounded greed which most people always understood, but to a new revelation of their incompetence.

Maybe the power elite isn't so stupid to crash the market so soon after 2008, but neither may they be smart enough to prevent it. 

Deep's picture

Leo what are you seeing that i am missing. The S&P is probaly going to come in around mid 50's for earnings this year, and the consensus for next year is around 70-75. So by my calculations thats almost 50% profit growth for next year with flat or declining revenues, margins near all time highs again, and the job cuts done. Margins only have down to go, unless by your magical wand revenues skyrocket next year. As Rosenberg states, frugality is the new norm. Have  you looked at the P/E levels of most stocks.

For you too say everyone is singing that same song, you obviously spend to  much time on this site. Beacuse last i looked everyone is bullish, all the polls are telling me this, all the papers are telling me this, everyone on tv is seeing this. Get out in the real world Leo, wake up.

Leo Kolivakis's picture

Deep for deep insights? You still have not answered my question. Is the bond market pricing in a robust recovery? Because where I am standing brother, I don't see it. Now let me go back to sleep.

ATG's picture

Just in case Leo did not go back to sleep,

the long bond yield of 4.464% is pricing a PE

of 22 and the S&P500 reporting PE is 83 based

on cost-cutting margins (layoffs) higher than the

15 year average. Doh! 

Anonymous's picture

"...what are you seeing..."
Probably stuff like
zero interest rates (ABC, invest in anything but cash)
persuasion, the full force of the gov't in propping up and
manipulating markets because if there is trouble then
pension plans and annuities, etc fold and people get
very unreasonable
some actual recovery in spite of gov't policies just cause
we have to recover some day
US economy not as messed up as some others

Deep's picture

"Greed and fear are the only two constants. As the markets grind higher, the fish will bite."

After 2 crashes in a span of 8 years, i really don't think the average retail guy is coming back. Baby boomers are approaching retirement, i really doubt they are going to say "hey honey, lets go back for a third time" Looking at the fund flow data, the retail guy has been selling this rally. Where is all this magical buying power going to come from. Credit is contracting, i dont see jobs anywhere, i do think job losses for the most part are finished, but i dont see job growth. Incomes have been stagnent for years and are getting worse. The days of using your house as an ATM are over.

Also, my generation, i am 30, are no where near ready to take over the baton from the baby boomers. We have school debt out are ears, house prices have tripled from when are parents where buying houses, yet incomes have flatlined.

I see very little growth for the next few years, and the question is what is the market pricing in. It is not pricing in no growth, is is pricing a robust recovery which i find hard to believe. Revenues are flat or declining, margins are at the very near top, so where is all this growth going to come from.


I am not predicting doom and gloom, but the question is the market is pricing in a scenerio that i really see is very unlikely. The consumer is no mood to go on a binge. I think 6 months from now, people will look back and say "What where we thinking, no volume rally, bond yeilds at depressed levels, and above average P/E levels.



Leo Kolivakis's picture

"It is not pricing in no growth, it is pricing a robust recovery which I find hard to believe."

Really? That's news to me. Care to share where exactly you see the market pricing in a "robust recovery"? Everyone - and I mean everyone - is singing the same song: once the stimulus fades in the first half of 2010, growth will be sluggish at best for a long time. Bond market is not pricing in a robust recovery - at least not yet. A few more strong jobs reports and that will change.

Haywood Yablomi's picture

Why does anyone listen to this guy?  Seriously!  You are the classic turkey according to Nassim Taleb.  OK, the farmer has fed you well for the past year.  But I've got news for you: it won't last forever.

Mr. Anonymous's picture

A few more 'strong jobs reports'?

We STILL lost jobs even with a report that was cooked.  WTF?  Whatever.  What's the point in talking to you, you're part of the system and the system must be smashed and built anew.

Let's state the obvious, because some people are slow: the markets are not the economy.  The economy is matter and the markets anti-matter hell-bent to destroy the only thing that matters.  The economy.

Again, go get a real job.  We are sick of supporting your evil asses.



tip e. canoe's picture

"Care to share where exactly you see the market pricing in a "robust recovery"?"

the banks' balance sheets perhaps?

john_connor's picture

common equities, with the exception of some solid dividend paying companies, are garbage.  More and more debt issued with decreasing cash flows spells disaster.  Its not that value has actually increased, its only that some people are willing to pay a 140 plus multiple and sell it to another sucker at a higher price.

Im in for some short term long scalps, but otherwise its "sell and hold."  

Mr. Anonymous's picture

"What I see in 2010 is speculative pockets going into specific sectors or stocks.

Clearly Bubble Ben has shown his hand but don't be so convinced that the Fed will not raise rates in 2010. If the recovery comes in stronger than anticipated, you might see some significant rate hikes in the second half of 2010. That's when the markets will really get interesting . . ."

See, in Leo's world, the world of markets, the recovery is locked in, a matter of but how big.   Unfortunately, the sheeple do not seem to be so compliant this time and just refuse to believe  that the latest bubble storm has passed and good times are here again.  The sheeple just ain't spending like they were.  The fish ain't biting.

Believe it or not, the sheeple are gonna get the markets this time and and the elites will finally find out what happens when you fuck a stranger in the ass.

The junkies on the gaming tables are about to find out what happens when the real world intrudes.


Leo Kolivakis's picture

Greed and fear are the only two constants. As the markets grind higher, the fish will bite. Memories are short and people will want to make up their losses. I said this before, it's in the interests of everyone - power elite, bankers, small and big investors - not to have another catastrophic crash. What do you think will happen if we have another epic crash so close to 2008? Total social anarchy. The power elite won't let this happen again.

Mr. Anonymous's picture

"Total social anarchy . . ."

Ah, Leo, you're such a tease.

And you STILL just don't get it.  Yeah, greed and fear are the constant.  But guess what?  Fear still reigns.  I know, not with people like you, the feckless Gamesters still on the tables.  But here's a word for you: the regular peeps think YOU and YOUR WORLD are full of shit.  You will NEVER get the under 30 crowd to buy into your bullshit.  Talk to non-gamers, they don't trust the markets for zip.  And if their money wasn't locked down by the government/Wall Street complex behind a wall of penalties and fees, they'd have already taken their money out.  I know, for the gamblers, like you, the games continue.  But, believe it or not, Leo, there are actually people in the world who try to do something constructive, productive with their lives, rather than stay up all night at the Keno tables.

We are sick of you and yours' bullshit.  Why don't you get a real job?  Earn your own way.  And no, playing the markets is not a real job, it's parasitism and we are SICK OF CARRYING YOUR WEIGHT.

SuperSmart Leo is the ultimate fade because he represents the ultimate conventional thinking, the human face on near-record bullishness when the world around them is in pain.

Good luck with that, Leo.

Anonymous's picture

"Total social anarchy . . ."

Oh, Leo, you're such a tease.

Anonymous's picture

>What do you think will happen if we have
>another epic crash so close to 2008? Total
>social anarchy. The power elite won't let
>this happen again.

Forgive my ignorance, and my extreme cynic stance, but why not?

http://www.youtube.com/watch?v=akwjAjcQnqM (Posse Comitatus gone)
http://www.youtube.com/watch?v=0Zfz3ZdCCu8 (Hitlers Youth here)

Look hard at that young man's expression as he talks and tips his head. To me he literally looks like a zombie, his brain totally off as he regurgitates what he's been told.


Who in NYC grows their own food? How is Total social anarchy going to happen on an empty stomach and no water? ... And a shutdown of electricity so people are freezing their asses off? Gas and oil mean nothing without an electric fan to circulate that heat. And how many people in any US city, in the middle of the winter, have food to eat independent of a simple highway shutdown?

At this time of year most of the people in the US can be forced into hunger pains in 3 days or less. Again, just shut down the highways. That simple.

So long as banks still compete with individuals, and youth are turned against adults, and banks are fat with cash:


Why would the fat cats not want another opertunity to consolidate more of our assests into their ownership?

Why allow individuals to own a house when you can take the house back for 2 failed mortage payments, then resell it. Then rinse and repeat. Far more money in people never paying it off and forcing forclosure. Who cares what the momentary price is when you can force it into forclosure and resell at any time, in effect the mortgage holder is the slave and pays the bank to maintain the house for the next buyer. The bankever owns the asset, and treats it as a rental.

I fear we're fish in a barrel, being fattened up by forcing as much debt ("transfer of asests") onto each of us as possible.

Why should a bank lend out it's money when it can make more money buying assets of another market crash?

Not saying you or I are right or wrong. I am saying the robust command and control of global commerce by so few, seems unique to history. Seems easy for them to setup the dominos to win either way, and for us to lose.

If we were still farmers we'd be able to tell the banks and gov to f'off. We'd all have food and the basic skills to defend and protect ourselves. In that case total social anarchy would be possible as even our children would have those skills to protect themselves for themselves and their family ... Not for "the state" in order to eliminate hunger pains.

Assetman's picture

Great post, anon.

To clarify, debt is being forced upon us due to insane deficit spending policy.  We can only be thankful that our "coupon" remains low for the time being.

At the same time, though, we are being cajoled into taking equity-- as evidenced in the many offerings coming to market over the last 6 months or so.  If you think BofA is on the cusp of greatness in financial services-- go ahead and participate in the $20 billion equity deal coming up.  They will be glad to take that money and repay TARP so management can get their bonuses.

It still results in setting another stage for a "transfer of assets"-- and that is exactly what the power brokers will try to do.  Those in power will continue to play this game and consolidate-- so long as the government can provide the necessities for the masses and is willing to assist in the shell game. 

We are too tied to our service orientation to not depend on government assistance-- we all can't be farmers overnight.  There's a very high degree of tolerance before we get to social anarchy.

trav777's picture

oh GTFO...in Argentina, lights on, water running.  USSR, same.

The lights won't go out and the food won't stop being delivered.

There is enough oil production and other energy in the US to satisfy basic sustenance.  Sure maybe we have rolling brown- or blackouts but the Apocalypse is not coming.


WaterWings's picture

And soon we will have solar-powered ice cream trucks for every neighborhood, thanks to Da Boyz.

A collapse in the United States, especially in the context of a worldwide collapse, will be far worse than Argentina or the USSR. This system has been pilfered beyond the point of return. The number of people with disposable income has dropped sharply. There will be no recovery, only a new reality - and it will not be pretty. We are probably facing war. But until then we'll have FEMA in charge of food distribution - they have top talent; we'll be okay.

Compare the US and the USSR:


America is at the very limit. Tires are worn thin approaching winter...haven't had an oil change for who knows how long...one of the windows doesn't work anymore...behind on payments...just enough cash to pay insurance...don't even wash or vacuum it anymore...maybe make it through winter...damn, have to pass emissions this year...waiting for a crash.

Anonymous's picture

To clarify the point I was making:

If "social anarchy" comes, all the gov has to do is shutdown the power plants so there is no electricty (gas and oil heat are mostly meaningless without electricity to operate the systems that consume the oil or gas) and shut down the roads so there is no food delivery.

The very idea of "social anarchy" suggests the citizens have the resource to resist. Modern life means that is no longer so. Has not been so in the US for many decades.

Today's governments have more power than even to control the masses espicially in winter.

So again, all the cards are in the hands of the "elite". If it were the middle of summer this would not be so, people could stay out night and day rioting and people could more easily drive around road blocks to obtain food .... But not so easy in winter if even possible in winter (think New England states) ...

tip e. canoe's picture

and in case your prognosis on mass hunger comes stateside, then this might be a good thing to grow -- alfalfa:


tip e. canoe's picture

"If we were still farmers we'd be able to tell the banks and gov to f'off."

in that case, maybe we should all become farmers, even in NYC.

RobotTrader's picture

We just came out of a historic bust of epic proportions.

Rallies off lows after those events typically last more than 9 months.

More like 1 - 2 years.

WaterWings's picture

Speaking of the markets, right? Not the real world.

Assetman's picture

Yeah, "history" would tell you that.

But we've approached a 50% retracement level much quicker than "history" would suggest, thanks to some "invisible hands".

Here's another instance where extrapolating from "history" can become a very, very dangerous exercise.  The conditions policymakers facing is totally different than the inventory-based receesions in the recent past.  And moreover, the execution in policy is much different than the credit contraction-driven depression in the 1930s.  We could have a 10 month rally and be done.  Or, perhaps, it could last 4 years.  Who really knows?

I would love to be surprised on the upside and see the prospect for higher interest rates.  But what's the underlying source of the upside? 

What Leo suggests certainly cannot be dismissed.  Self-sustaining economic growth and the Fed reacting by taking away liquidity are possible events.

The difficult question is whether it's a probable scenario.  When you peel through all the crap of available economic data and still see deflationary headwinds remaining in RRE, CRE and consumer credit-- you get a much more uncertain picture.

ATG's picture

Deflation for the first time in four generations

anything but typical. Wall Street did not realize

until 1935 they were in a Depression despite/

because of Hoover/FDR alphabet acronym

government programs and Fed foolishness.

Buying dips and holding declines a recipe for

poverty. Buying breakouts in a decline a

prescription for disaster. All the funny money in

the world cannot repair the credit/debt implosion.

If anyone cares to look, money supply

quantitative tightening despite poker rhetoric