Several years ago, at one of the seven Laurie Anderson performances I have attended, Ms. Anderson (now Mrs. Lou Reed – although I seriously doubt whether she uses that moniker) described her first meeting with Philip Glass. Immediately after meeting Glass, she anxiously asked him: “Are things getting better or are things getting worse?”
These days, that same question is on everyone’s mind. It appears as though the mainstream news media are hell-bent on convincing us that everything is just fine. Nevertheless, many of us remember hearing the same thing from Ben Bernanke and Hank Paulson during the summer of 2008. As a result, we ponder the onslaught of rosy prognostications about the future of our economy with a good degree of skepticism. Regardless of whether there might be some sort of conspiracy to convince the public to go out and spend money because everything is all right . . . consider these remarks by Steve Randy Waldman from a discussion about market monetarist theory:
Self-fulfilling expectations lie at the heart of the market monetarist theory. A depression occurs when people come to believe that income will be scarce relative to prior expectations and debts. They nervously scale back expenditures and hoard cash, fulfilling their expectations of income scarcity. However, if everybody could suddenly be made to believe that income would be plentiful, everyone would spend freely and fulfill the expectations of plenty. The world is a much more pleasant place under the second set of expectations than the first. And to switch between the two scenarios, all that is required is persuasion. The market-monetarist central bank is nothing more than a great persuader: when “shocks happen”, it persuades us all to maintain our optimism about the path of nominal income. As long as we all keep the faith, our faith will be rewarded. This is not a religion, but a Nash equilibrium.
The persuasion described by Steve Waldman has been drowning out objective analysis lately. Obviously, the sovereign debt crisis in Europe has created quite a bit of anxiety in the United States. The mainstream media focus is apparently targeting that consensual anxiety with heavy doses of “feel good” material. One must search around a bit before finding any commentary which runs against that current. I found some and I would like to share it with you. The first item appeared in Bloomberg BusinessWeek on November 22:
Pacific Investment Management Co.’s Chief Executive Officer Mohamed A. El-Erian said U.S. economic conditions are “terrifying” as the nation struggles to recover from recession.
The odds of the U.S. returning to recession are as much as 50 percent, El-Erian said during an interview on Bloomberg Television’s “In the Loop” with Betty Liu. U.S. economic growth was worse than expected and congressional policy makers are gridlocked over what to do about the economy and the deficit, which risk exacerbating an already weak recovery, he said.
“We have less economic momentum than we thought we had and we have no policy momentum,” said El-Erian, who also serves as co-chief investment officer with Pimco founder Bill Gross at the world’s largest manager of bond funds.
“What’s most terrifying,” he said, “we are having this discussion about the risk of recession at a time when unemployment is already too high, at a time when a quarter of homeowners are underwater on their mortgages, at a time then the fiscal deficit is at 9 percent and at a time when interest rates are at zero.”
Let’s not forget that all of this is happening at a time when we are plagued by the most dysfunctional, stupid and corrupt Congress in our nation’s history. President Obama is currently preoccupied with his re-election campaign. His own leadership failures are conveniently re-packaged as products of that feckless Congress. As a result, Americans have plenty of justification for being worried about the future.
One of my favorite commentators, Paul Farrell of MarketWatch, recently shared some information with us, which he acquired by attending an InvestmentNews Round Table, as well as from reading Gary Shilling’s expensive newsletter:
Get it? Main Street America, you should “expect very slow growth” in 2012. That was the response when asked what “scenarios are you painting for your clients?” The panelist at a recent InvestmentNews Round Table then added: “It’s going to be ugly and violent.” Why? Because the politicians “are driving things” and they are “capricious, which leads to volatility.” And clients are “not really happy,” but “they lived through ‘08 and ’09,” so 2012 will be “just a little bump in the road.”
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So don’t kid yourself folks, recent economic and market “ugliness and violence” not only won’t end soon, it’ll get meaner and meaner for years after 2012 elections … no matter who wins. Only a fool would believe that a new bull market will take off in 2013. Ain’t going to happen. That’s a Wall Street fantasy. Fall for that, and you’re delusional.
In fact, you better plan on a very long secular bear the next decade through 2020. With the European banks, credit and currency on the edge of a global financial meltdown, there’s a high probability that a black swan virus, a contagion will sweep the world, making all investing “uglier” and more “violent” for Americans in 2013, indeed for the rest of the decade.
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Shilling sees “a secular bear market really started in 2000 and may persist for a decade as a result of slower GDP growth,” yes, persist till 2020 “with 2% to 3% deflation.” He warns: “Nominal GDP might not gain at all,” like recent flat-lining. Which coincides with the expectations of America’s professional financial advisers.
Are you still feeling optimistic? Consider the closing thoughts from a piece by Karl Denninger entitled, “The Game Is About Done”:
30+ years of lawless behavior has now devolved down to blatant, in-your-face theft. They don’t even bother trying to hide it any more, and Eric “Place” Holder is too busy supervising the running of guns into Mexico so the drug cartels can shoot both Mexican and American citizens.
What am I, or anyone else, supposed to do in this sort of “market” environment? Invest in…. what? Land titles are worthless as they’ve been corrupted by robosigning, margin deposits have been stolen, Madoff’s clients had confirmations of trades that never happend and proved to worthless pieces of paper instead of valuable securities and while Madoff went to prison nobody else has and the money is still gone!
Without enforcement of the law — swift and certain — there is no deterrent against this behavior.
There has been no enforcement and there is no indication that this will change.
It will take just one — or maybe two — more events like MF Global and Greek CDS “determinations” before the entire market — all of it — goes “no bid” as participants simply stuff their hands in their pockets and say “screw this.”
It’s coming folks, and I guarantee you this: Whatever your “nightmare” scenario is for such an event, it’s not bearish enough.
Keep all of this in mind as you plan for the future. I would not expect that you might hear any of this on CNBC.