'The End is NOT Nigh'

No charts today, just some musings and thoughts........

Over the past few weeks we have seen may markets take a serious turn for the worse, global bonds yields have dived (except in Europe's PIIGS countries where they have either risen or soared), and most non-precious metal commodities prices have dropped sharply. - As I read though the weekend press and various on-line news articles it is clear the optimism of late 2009/early 2010 is rapidly abating and I start to see articles referring to where has it gone wrong, what mistakes were made, what could be have been done or what should be done. My feeling is that whatever they did (or do), whether it is the austerity route, or continued fiscal expansion, there is very little that the authorities really could do,, any more than any government could do to protect its coastal region from a Tsunami wave racing towards it..... I wish I could be more positive or more upbeat ( I am a natural optimist - glass half full type person, and have never been a perma-bear) but my reading of the situation does not allow room for optimism right now. -- To continue the tsunami metaphor, we face a huge deleveraging tsunami; consumers, households, governments, municipalities, corporations, all are deleveraging in what I believe is the downside of the long-wave business cycle, with equity markets probably poised for much deeper losses. [The long-wave business cycle is a controversial theoretical concept, originally proposed by Russian economist Nikolai Kondratiev. The existence of the Long-wave cycle has been argued, and debated by economists for many years. The truth is it will take many decades or even centuries before its existence can be truly proved or disproved, in the meantime its existence remains conceptual at best.]

-- I think I'll stop here before I jump out the window, in fact first I'll try and balance things out.....

I am a strong believer in Human Nature, in Democracy, in Capitalism, Free Enterprise and Free Markets, even though all have many imperfections (which is why we need rules and regulations, sometimes we need protecting from ourselves). I think the Central Banks have largely acted in a responsible manner the past couple of years, (even though their total and utter irresponsible behaviour in the recent past has been a major contributing factor in exasperating an already bad situation. - Al Greenspan gets my vote for world's worst ever Central Banker.) - The major world economies are generally in better shape to withstand the next few years than at any time in the past (though I could also post a million caveats). We have strong democratic institutions, political and non-political, open media, a strong humanitarian streak and living standards far better than anything we ever had. -- I keep hearing talk of how the fear is that the west is heading into Japan style deflation. If we are heading for deflation I hope it is the Japanese style. Since the early 1990s Japan has had an abysmal growth record, and has periodically suffered bouts of deflation, though nothing of a serious nature (so far). However Japan's unemployment rate has never yet exceeded 6% and it remains one of the worlds leading economies. I visited Japan a few years ago and for a country supposedly mired in recession it had an incredible vibrancy and its people certainly did not appear downbeat. The fact that equity markets were at levels less than 20% of their highs a decade and a half previous was of little concern. - I am no fool either, I know that underneath the surface there are problems, that its standard of living had not advanced for years, that it has built up a huge government deficit which has since got far worse and has to be dealt with, that it has a serious demographic problem, etc, etc. I also understand how Japanese society is very different from the major Western societies. But it would probably be best if we could ride out the next 10 or so years in a similar fashion to the way Japan has so far riden out their so called 'lost decade'.

I have also read articles that the next global depression (if that is what we are facing) will likely end in global conflict. -- The supposed rationale for this is that the last global depression ended in global conflict. -- That was co-incidence, that is all... --There were many many reasons leading to WWII, I am not going to enter that debate here, though I will add that yes economic hardship was one contributing factor to the rise of the Nazis, but that can not be attributed to the Global Depression. Also to counter this idea, what about the global depression of the 1870s and 80s, did that end in global conflict,,, NO... - Furthermore, conflict either local, regional, or global has been and remains a continuing process ---- Since I have been alive the British forces have been involved or engaged in conlflicts on one scale or another almost continuously, be it Northern Ireland, the Falkland Islands, Kosova, Iraq or Afghanistan or the Cold war (which is much better than a real war). Much the same can be said for the US and to a lesser extent many other countries. A world without war or conflict would be wonderful, however it is probably but a pipe dream. - I do accept that depressions make the world a less stable place, but also wars do not happen because of depressions.

I am not optimistic, but neither do I think 'The end is nigh'. We face a a tough decade or so, statistically we face a 'reversion to the mean' and eveything that goes with that. However, in the long run it is part of a natural process and cycle; Spring, Summer, Fall and Winter, but eventually spring will come again......