Tuesday, June 7, 2011

A Random Walk

I am trying to be cheerful. Honestly, and then write a nice feel good article. An article about our goldilocks economy, make believe rainbow of never ending growth where unicorns eat the corn out of your hand. But I am finding it difficult to be cheerful.
But it should not be so. I see the futures jumping six handles pre-market and it seems the selling of the last few days might come to a close. Then we might start the never ending upward movement. After all, is that not the objective of our Govt.
But instead of the rainbow or unicorns, I see a great depression coming. It is like watching a train wreck in slow motion. Should we call it depression or great balance sheet contraction? When the bubble goes bust and bust it will, when all the sushi hit the fan, what we shall be left with? What will happen to the millions upon millions of middle class investors and retirees may be many pension funds who have taken on the risk to increase the yield for their members and other hard working lots.
There are so many Black Sawn events on the horizon that we might be tempted to think that swans are black after all. The financial downturn of 2008-2009 was just a snap shot of what is supposed to come. And when the next default hits us, which may be as early as August end 2011, the Governments of the world will have much less ammunition left to do anything. None of the problems which caused the crisis of 2008/2009 has been solved. They have simply been pushed down the road for another day. The too-big-to fail Banks have gone bigger, the assets in their books have further gone down the value, even with the “mark to fantasy” rules because home prices keep falling and the end of the fall is nowhere in site. After couple of Trillions of dollars, all we have to show for are 50,000 jobs in McDonald flipping burgers. Those who are fortunate to have jobs, have seen their wages being stagnant or being asked to do more work for the same while food inflation and gas price increase is taking out their discretionary spending ability.
The situation in Europe is so bad that there are no words to define the situation.  The EU leaders are engaged in the game of brinkmanship and are waiting for a miracle of happen. One day we hear that Greece is being bailed out, next day it is not. The fact is, there is no way out. EU is just buying time for their Banks, same as in USA. No country in the world can pay loan which is 160% of their GDP and when they are in recession, as is the situation with Greece.  More debt cannot be a solution for the debt problem.   The situation is same with Ireland, Portugal and the 800 pound gorilla named Spain. The risk of contagion is real and imminent.  We might see a Banking collapse in Europe by end of summer and things go downhill thereafter.
But hey, if they have been able to kick the can down so far, they might be able to do it for a while longer. The markets are rigged and they ( Big Banks & Central Banks) will continue their best effort to do so, until one day it snaps and the common investors are left holding the empty can.
So while the going is good, do not get fooled by the fairy tale but prepare for the coming depression and bubble collapse. It may not be tomorrow. In fact we might see a good poop up in July/August when they convince everyone that the music will never stop and draw in all the cash that are sitting on the sideline. But come September, at least I shall be on the other side of the fence. You have been warned.