Peak everything?
Chris Laird
www.PrudentSquirrel.com
Dec 11, 2007
Riding upon the greatest credit bubble in history, greater than
anything ever - (my interpretation of Doug Noland) - one
has to wonder what the future holds, if that bubble is breaking.
That bubble includes the greatest housing bubble in history,
the greatest world stock and bond bubble.
Just for the US housing bubble, it is estimated that, in a mere
5 years since 2002, $5 trillion was both pulled out of US housing
and also the housing stock rose that much in value. $10 trillion
total.
Now that the unraveling begins, one wonders, have we seen the
bottom or only the beginning?
Well, judging from the ever expanding credit collapse worldwide,
the answer is, we are seeing the beginning. If there is a hiatus'
in 08, it's only to delay the inevitable. A delayed credit crisis
and deleveraging worldwide. But, if it's not delayed, then look
for a great world stock crash in the first half of 08.
I'm not talking about a 10% correction from where we are now,
13700 on the Dow, or other world indexes also at highs (sans
Japan which hit a high in the late 80's early 90s' at about 45000
on the Nikkei).
I'm talking about a more than 30% drop in the Dow and world stock
indexes. If that happens, you can be sure the commodity complex,
including oil will drop that amount.
Then, we are talking about the aftermath, maybe a depression.
Maybe, a massive world financial and real assets deleveraging.
There are already signs of this happening. Take the massive world
credit contraction. Take the serious US and UK housing bubble
collapses.
Remember, the present world financial markets, commodity markets,
real asset markets, and bond markets, are all at record highs,
due to the incredibly cheap credit from the US and Japan during
their ultra low interest rate regimes in the early part of this
decade. Japan actually started this in the early 90's with their
half percent or lower interest rates to combat their stock and
real estate crashes just after '90.
A case can be made we are merely working out the natural evolution
of those crashes, and in the US, we had a follow on crash in
2000, 01. Then the massive US version of a Japan type deflation
battle, with US interest rates dropping to 1%, and the massive
US housing bubble that followed.
In Japan's case, that ultra low interest rate regime failed because
the Japanese consumer is averse to borrowing. Not so the US consumer,
who bailed the US out of recession after 2002, and then the world,
with a gangbusters world economic boom - fueled on credit.
Of course, that credit regime was so loose that we now have $5
or 10 trillion worth of new debt on the US consumer, not to mention
all the rest of the West, the UK figures here, and all the rest
of the West.
Now that we see weekly deterioration of world credit markets,
like this week, Societe bank in France taking on $ 4 billion
of bad SIVs because they were about to be forced into a fire
sale, HSBC taking $20 billion of more bad mortgage derivatives
onto their books, too last week or so, Banks bailing out their
money market funds, (at least so far) lest panic flight appears,
like the Florida mess, BoA freezing a big fund this week from
withdrawals.
Central banks lowering interest rates to combat the freezing
CP markets, the rising Libor rates that determine what US ARMs
reset to the US Fed and ECB putting out so far $1 trillion in
emergency financial market liquidity since August - in my estimation.
Or else see the entire banking industry in the EU and US collapse.
We are on the verge of a gigantic world financial deleveraging.
The credit market's paralysis shows this.
If all this does not abate, we are going to see a huge stock
crash in 08. We will see commodities fall 30% from their record
highs this year. We will see gold do a temporary 20% fall (maybe
only a few weeks window at those prices, then a recovery in flight
to gold for financial safety).
It would seem that 07 was a dress rehearsal. What will 08 bring?
I have heard all the typical market timing arguments, that the
Chinese won't let markets tank in 08 cause of the Olympics. The
US won't allow a market crash cause 08 is an election year. I
don't think that is going to stop what appears to be a huge world
stock crash that is getting ready to happen, due to the uncontrollable
world credit collapse. In early 08, we will definitely see corporate
earnings dropping, and world stock markets will take that as
the cue to sell off hard.
We probably have peak everything right now.
This week's PrudentSquirrel Sunday newsletter has a general discussion
about some ways to protect your savings. Prudent Squirrel subscribers
also get mid week email alerts. We have anticipated the 5 major
world stock and gold drops this year by up to a week in those
alerts.
Stop by and have a look.
Chris Laird
Editor in Chief
website: www.PrudentSquirrel.com
email: editor@PrudentSquirrel.com
Copyright 2007
Chris Laird
is not an investment advisor and this article and the PrudentSquirrel
newsletter and alerts are commentary only.
321gold Ltd
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