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[bahtat] 02/2/2010 13:15

Funny how reality is always so far removed from 'Analysis'.

[energyi] 02/2/2010 12:58

A "Y-shaped" downturn?
Reasons to expect a More severe recession or Depression
========================================================

Note: I have been asked by a company that I work with sometimes to explain why I am "so surprisingly bearish"

My opinion is that a Depression is already "baked in the cake", and we will be "eating the cooking" soon. The best we can hope for is to delay the inevitable, and/or to make a very severe recession or depression as quick and painless as possible. Recent actions by political leadership and monetary authorities in the US and the UK have delayed the most severe part of the recession. But the cost has been high, and the eventual downturn may be worse than if they had taken different actions or simply done nothing.

There is much talk of a possible "W" shaped, or double-dip recession. What is being little discussed is what I call a "Y" shaped downturn, where the second fall is so severe that it dwarfs the first dip, so that the second leg down comes to a lower level, and there is no symmetry between the first and second part. When the two economic falls are put together the resulting pattern may look more like a Y than a W. And the recovery may be slow in coming, with no immediate recovery coming out of the Y drop. The overall result may be worse than the 1930's, a Greater depression, rather than a repeat of what we saw eight decades ago.

Why am I expecting anything so severe? Many of our best known and best publicisied economists are already talking about a recovery which they say is underway. Indeed, the US has just reported Q4.2009 economic growth in excess of 5%. On my own GEI website, I have been accused by one poster of "drifting off into neverland talking about what to do after a financial holocaust which has not happened yet."

My fear is that the downturn will come quickly, and those who fail to prepare will be blindsided, and suffer a very large loss of wealth. The time to make preparations is when confidence is high, and the cost of preparations is low, because fear has receeded. After a strong nine months rally in global stocks (which by the way, I forecast back in March as the market was turning up), there is widespread denial of problems, and huge complacency. Preparations can be made now, and hedges put in place, at a low and bearable cost.

The basic problem that I see is two-fold: Too much debt, and widespread malinvestments. There is no longer a reasonable balance between the cash flows generated by investments, and the funds needed to service the debts. The severity of the problem is masked, but only temporarily, by record low interest rates. Even with the low rates, debts are going bad, and the number of troubled loans is increasing. When the inevitable rise in rates comes, debt problems will multiply, and the financial sector will seize up with another and more severe credit crisis. That is the overall argument, and I want to take you through some of the evidence:

+ A second leg down in house prices lies dead ahead, with a larger fall in the UK
+ Commerical property is headed towards a debacle in both the US & the UK
+ A second banking crisis seems inevitable (as the above problems manifest themselves)
+ Sovereign credit ratings have come into question
+ Days of low inflation from the first downturn are ending (as low inflation from early 2009 gets lost)
+ Rates are bound to go higher, as savings rich countries flee sovereign credit risk
+ Iceland, and its stagflation are a model for the future
+ Weaker currencies are not really a cure, since they will bring much cost-push inflation on food & energy
+ The longer term cure only begins after we face reality
+ New types of investment are needed, economies must be restructured, and that is a slow process
+ As savings are rebuilt, growth will be slower.

Charts:
Total Debt - versus GDP

/more:

Networth per citizen*


Corporate Earnings

/B


Historical PE Ratios

/B


US GDP

/B


Second Housing bust


CPI inflation
xx
/UK

/B


Interest rates
xx
Greece - sovereign risk
xx

== ==
*The United Kingdom is an interesting economy in particular because its aggregate consumer debt alone ($2660 US Billion) is roughly equal to the nation's total GDP. In this sense, the UK is just like your friend that spends exactly what they make, or even beyond their means to try and impress his/her friends. This is worse than living month to month – it's like living a month to two months behind! And now, the UK is accumulating new debt at a faster rate than the economy. If the UK were a private citizen, it might be time for him/her to sell off what they can and move to Panama, or declare some type of bankruptcy.

So what are the causes of the high debt-to-income ratios in Europe? Expensive labor. Expensive exports. Expensive currency. Small population. High levels of taxation and large social welfare systems. On the international front, European nations are having a difficult time competing with an increasingly devalued dollar (and consequently the Chinese Yuan and The Japanese Yen), and domestically, these nations are taking care of their citizens to a point that would make any red-blooded Texas Republican cringe.
/see:

GEI thread:

[energyi] 11/12/2009 13:28

DrBubb's House price predictions from HPC and GEI



M Hali.ns Na'wide Rt'move Delus% Ave.H&N Amom% AyoY%
9 159,818 150,501 213,570 137.6% 155,160 -0.37% -16.52%
F 159,208 147,746 216,163 140.8% 153,477 -1.08% -17.66%
M 157,066 150,946 218,081 141.6% 154,006 0.34% -16.69%
A 157,156 151,861 222,077 143.7% 154,509 0.33% -16.37%
M 160,869 154,016 227,441 144.5% 157,443 1.90% -12.55%
J 158,807 156,442 226,436 143.7% 157,625 0.12% -10.99%
J 160,686 158,871 227,864 142.6% 159,779 1.37% -8.11%
A 161,930 160,224 222,762 138.3% 161,077 0.81% -5.27%
S 164,854 161,816 223,996 137.1% 163,335 1.40% -2.53%
O 165,430 162,038 230,184 140.6% 163,734 0.24% 0.13%
N 165,617 162,764 226,440 137.9% 164,191 0.28% 2.21%
D

? 165,617 162,764 226,440 Latest 164,191
L 157,066 147,746 213,570 Low .. 153,477
t .Mar'09 .Feb'09 .Jan'09 Timing .Feb'09
% + 5.44% 10.16% + 6.03% Rally% + 6.98%
H 201,081 186,044 241,642 Peak . 192,490
t .Aug'07 .Oct'07 .Oct'07 Timing .Aug'07
% -17.64% -12.51% -6.29% Rally% -14.70%

/see:
/GEI:

[adda] 24/7/2009 13:21

Yes definitely, great thread have only just come across it. Was looking for something on US Treasury debt. Nxt week US Govt has to issue 250 billion dollars?!!! What happens if they struggle to find buyers? Rates move higher and box 9 comes in to play. Think I should move to CAnada/Australia/South Africa????? no/ any politically stable country with a decent rule of law which in my words is commoditised. In other words has an abundance of commodities in the ground which acts as a support to its currency.

[energyi] 24/6/2009 01:21

From:

QUOTE /G0ldfinger/ ============

Things, periodically, become over- or undervalued. You just have to find out when exactly what is the case. It's not really rocket science. Here, a long term chart that shows you when houses are over/undervalued with respect to gold. It's easy, isn't it? :lol:


UNQUOTE ===================

That's a great chart. I always like seeing it, when it is updated.
Maybe we should start a thread here (something like this one) on Long term House prices.
Anyone else interested in that idea?

[energyi] 07/5/2009 01:56

Is this all coming to the UK?

Source :

[barnes wallace] 27/3/2009 06:34

good point relishing.

[relishing] 26/3/2009 21:44

When all said and done it is their money though isn't it simon?

[simonshack] 26/3/2009 21:01

how do these guys live with themselves...i think i'd be watching my back all the time

[barn owl] 20/2/2009 09:25

Gordon Brown's borrowing is truly astronomical - as figures clearly revealed yesterday. The UK debt rose by £1.5 trillion following the bailout of the banks. The book on debt is cooking alfresco style at this rate.

[energyi] 05/2/2009 13:59

POLL - how long will the House price crash last?
How far Down?

[mrphil] 16/1/2009 07:48

What a surprise, LMH suspended this morning. Now I just wonder why shareholders weren't too keen on giving them even more of their hard earned cash recently?!

[giant steps] 13/10/2008 23:37

Last Updated: 11:01PM BST 13 Oct 2008



Financial services in Britain have changed forever after the state seized control of two of the country's biggest banks in an unprecedented £37bn bail-out that brings an end to the era of easy credit and bumper bonuses.

[giant steps] 23/9/2008 22:22

September 24, 2008
Downgrade to BBB- batters Bradford & Bingley shares



Extract
"
Shares in Bradford & Bingley (B&B) closed at a record low yesterday as the bank was downgraded two notches to one level above junk status. News that the embattled buy-to-let mortgage lender had extricated itself from having to buy £1 billion of unwanted mortgage assets next year came after the market closed, too late to prevent the shares sliding 12 per cent to 24p.
"

[giant steps] 23/9/2008 22:21

September 22, 2008
Morgan Stanley to raise $9bn in deal with Mitsubishi UFJ



Extract
"
Mitsubishi UFJ, Japan's largest megabank, is poised to pay least $9 billion (£4.8 billion) for a stake of up to 20 per cent in Morgan Stanley, the troubled Wall Street lender.
"

[sponges] 22/9/2008 20:23

Thanks for the info MRPHIL - yea I won't be throwing any more good money at this one !