143 comments on Financial bubble - who will say that the emperor is naked?
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143 comments on Financial bubble - who will say that the emperor is naked?
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Nice essay, Jerome, but I'm so tired of waiting for this impending implosion.
I've made plans to come over to Paris in October ... unless of course, economic armageddon happens first.
Don in Colorado said,
"I'm so tired of waiting for this impending implosion."
What a great sentence!
I don't know how long you've been waiting, but some of us have been waiting since the 1970's....gas lines, hyper inflation, double digit interest rates and unemployment...of course, the era of "growth" was over, the book "Limits Of Growth" was written then, so was Treasury Secretary William Simmons book "A Time For Truth" that said if the U.S. ever went more than 1 trillion in the red, that was pretty much the end of the nation....
Of course, many who kept waiting for the "impending implosion" missed out on the biggest personal wealth building era in world history. And I have to love those who say, "well it's all fiat money, not the REAL thing". These folks are living in giant homes (REAL), on dozens of acres of paid for land (REAL), with big luxury cars (REAL), and their kids are by now graduated from REAL colleges and making nice incomes....., they have spent their lives eating REAL food at nice restuarants, going to REAL vacation spots, wearing REAL clothes and jewelry.....what wasn't REAL about it?
Oh, fuel costs....I'll give an example...I know a guy who just bought a big sport ute (I tried to talk him into one of the Diesel Benzes, but he said, "I'm not listening to that racket...(referring not to me, but to the Diesel engine clatter! :-) When I pressed him on the issue of fuel costs, he said, "let it go up, I can pay for the gas out of my energy investment dividends alone...."
I recently heard one of the "coming doom" debunkers say he didn't have time for it, he was going to enjoy life....the person speaking to him said, "but just you wait", to which he replied, "NO, you wait, I'll live.."
RC
Remember, we are only one cubic mile from freedom
You know, you don't have to wait any longer for the disaster, you are allready right in it. You have to grasp the larger picture. Your rich friend, he eats supermarket-food, so even when he choses only the alleged healthy stuff (fruits and vegetables), he gets a lot less for his health as twenty or thirty years ago, because it is all produced industrially and so the healthy things (vitamins etc...) in it are almost gone (REAL).
He works in a hyper-clean office and therefore has all kinds of allergies (REAL).
To displace himself, he uses his nice climatised car instead of walking or cycling, he doesn't know the weather, he doesn't meet someone accidentally, he gets fat (REAL).
To not get fat, he works out in a fittnes-club and pays 50€ a month (REAL).
In fact, he lives a complete sterile life. He follows the fashion and the offers he sees in the advertisement at 20:00, just when he comes home, he eats what they tell him, he wears what they tell him, he looks how they tell him, his girlfriend also, his flat or house, his insurrances, his „friends“, his opinion about everything, even his freetime, where he is supposed to be free, is stuffed to fulfill the wishes of the system. He is a slave to this system, that he is so happy that it functions so great. This is all REAL.
Your friend doesn't live while you wait, he is desperate (REAL) while you live, because you know what is going on (you read the oildrum), you can decide, he doesn't have a choice, until he in turn begins to wait, as he calls it.
Interesting isn't it those of us who considered disaster the last 20 or 30 years probably have a better life than the players? Better prepared, less hubris, more time.
"I'm so tired of waiting for this impending implosion."
That pretty much sums up the problem. If a event doesn't happen in the time frame humans are concerned about, they assume it will not ever happen.
Jared Diamond described it best in his book “Collapse” as “creeping normalcy.” Then one day, the last whatever is used up.
That pretty much sums up my opinion. In the early nineties there were a lot of books which predicted imminent collapse of the US economy and Japan was supposed to become the next superpower. Anyone remember books with names like "Bankruptcy 1995", "The Great Reckoning" and "Blood in the Streets"? And Robert Prechter has been calling for the Grand Supercycle Great Depression since at least 1995. And in 2002 market seers like Martin Weiss were predicting that the Dow Jones Indistrial Average was going to plunge by 1000 points any day now.....
On any given day there are a lot of people predicting the next great depression or the stock market collapse. On rare occassions they are right. I have arrived at the conclusion that no one can predict the financial markets with any degree of certainty.
You know, when the doomsters made their predictions in the 70s, they were writing about 70 years of oil left - we're still pretty much in that time frame, except that we've wasted 20 years in the last 30 in a senseless last splurge. It has indeed lasted a lot longer than pretty much everybody expected (but so did the dotcom bubble, if you remember that time. I was also one of the bears then, and I was long mocked), but it will come to an end - and in fact, the longer it goes, the more painful it will end.
Look at this and tell me it will not end in tears:
I agree that it will come to an end. But my point is that no one knows when. Take it from someone who has lost a lot of money on put options.
Correction: no one knows exactly when. But we know it ain't gonna be ten years from now, and it almost certainly won't be five, and it is very unlikely to be three, and it's unlikely to be two, and it may not be even one, and it just could be very soon, and there's a chance it could be very, very soon.
Credentials? I've been predicting the coming collapse since 1959. A lesser person would have lost all self-confidence.
"Credentials? I've been predicting the coming collapse since 1959. A lesser person would have lost all self-confidence."
Dave, you think your good, I've predicted 6 of the last 4 recessions!
That's 150% accuracy! Well, by my math anyway....:-)
RC
Remember, we are only one cubic mile from freedom
One blog I'd like to recommend to both you and Jerome is interfluidity, the weblog of Steve Randy Waldman. It seems to me he is among the most pessimistic of the really good econ-bloggers (leaving out Jerome for a moment!) He's written a lot of insightful articles on shorting, and troubles with our current market mechanisms, derivative markets in particular.
Here's one he wrote on the ethics of shorting:
http://www.interfluidity.com/posts/1143383914.shtml
Jerome, in the financial world nothing is obvious. If you think otherwise you are going to lose a lot of money.
Five years ago, OPECs stated goal was to maintain the price of oil between $22-$28 per barrel. People thought that oil at $35 per barrel was a calamity. Here we are at $70 per barrel and the global economy is doing fine. Yeah I know that Senegal and Nepal are beginning to have problems, but most people thought that even the economies of developed world would take a big hit above $40/barrel.
So what prediction would you have made for the financial markets if you knew in 2002 that the price of oil was going to be around $70 per barrel in 2007?
We all know that debt cannot grow forever and oil will not last forever, but no one can use that to time the collapse of financial markets. It could last a lot longer than most people here imagine.
Hi Suyog,
Thanks and
re: "It could last a lot longer than most people here imagine."
I'm wondering...do you see any possibilities for anything other than collapse?
If so, could you share?
Major financial bubbles are like VLCC's they take a while to get going in one direction and then they take a while to get turned around. If October 2005 was the peak in the real estate finance bubble (the biggest of them all), we just finished the first year of gradual decline and are ready for the first serious downleg. Compare the stock market in 2000 where it more or less treaded water for a year before making the first plunge in April 2001.
It is interesting to compare the 1929 crash. It was such a gradual thing. There was a great sucker rally in 1930 as people refused to accept that the implosion was occurring. Inflation will further mask the crash this time around. The best comparison is the Great Disorder in Germany in the early 20's. It was a great time to be leveraged in stocks.
Gas is $3.50, homes are impossible to sell. The stock market is booming. Few realize that the implosion is actually well underway already.
Houses are possible to sell. I just sold mine, for a gain of 3% (which is not much of course, bought it in 2002).
Ah, but if you had recently refinanced it and spent the extra cash on that shiny new Ford Excursion you've been flauting in front of your neighbors, you'd probably be in the hole by about 10% and up feces creek lacking propulsion apparatus while looking at further declines. Much harder to sell when it's a losing proposition and you can't cover the difference.
I'm not sure how it is in other parts of the world, but here in Los Angeles the roads are full of new, shiny 12 mpg SUV's. The drivers: ordinary folk making a middle class income that simply does not support such extravagance.
People here literally believe they have been given a free $300,000 (the rise in price of the median home in '01 to '05) to spend as they wish and now they are getting the SUV they never could afford in the 80's and 90's. Never before in history have so many ordinary people been given eight year's salary tax free, but maybe this time it really is different : )
A cashout refi paid for the vehicle and the $400 monthly gas bill is what a car payment used to be, so see, it is affordable.
Of course, the home prices will adjust in real terms over time and that gas bill will jump to $800 and even $1200 per month. Resources that could be used to purchase plug-in hybrids that could get us through the nightmare ahead are being devoted to vehicles that will be obsolete within a few years. It is a foolishness so extraordinary that one is baffled and amazed. And yet given the information available to them, people are not making irrational choices. Plumbers are not financial historians, nor are they geologists. History is full of follies like this and why should it be any different this time?
Home sales are at a 13 year low and a large share of those are forecosure sales. Yet people still think of their homes as being worth the 2005 peak price, and they are spending money (and planning for future expenditures including energy) as if they had $200,000 "in the bank." When that money disappears and America is forced to purchase its oil with "hard currency" it will be a very, very rude awakening indeed.
is that figure inflation adjusted? - 3% in 4 years isn't that much.
>Nice essay, Jerome, but I'm so tired of waiting for this impending implosion.
You're nuts if you want this to happen. When a global finance crisis begins its going to affect billions of people. Violence, Poverty, Drug abuse will all rise.
The German Hyperinflation of 1923 and Parallels with the US Monetary Policy
http://www.usagold.com/germannightmare.html
Could the current administration be trying to crash the currency? A Weimar type hyperinflation would:
Eliminate the Middle Class
Concentrate Wealth even more at the top
'Reset' the economy by wiping out debt
Soften the public up towards an even more repressive Govt that will take 'drastic measures' to 'handle the crisis'
It occured to me while I was reading an article about using famine as a weapon
http://www.ucc.ie/famine/roots/pdfs/Roots%20of%20Famine2.pdf