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Thursday, February 11, 2010

Prepare For the Worst: Can We Go Now?

I know what some people will say.

Back in 2006 when I warned several of my clients, and astrologers online about all the corruption rampant in the markets - especially the housing market - I was derided as a "gloom and doomer," as if my forecast and warnings were meant to make people feel bad on purpose.

I always wondered about this, as if seeing what was happening, and warning about it somehow meant that I wanted it to actually occur? Nope. That's not me. I did not want it to happen, but, as a mundane astrologer, I knew that it surely would.

Most generations are that predictable.

So, I continued to warn throughout 2006, and 2007, and again in 2008, but few listened even as the signs continued to show that things were going to get bad. I remembered telling a friend in the heady days of the year 1999 that the Baby Boomers were going to ruin not only the information technology and markets, but, also the housing market.

People who heard this from me back during those wild days of economic growth thought I had lost my mind.

As always, an astrologer looking far ahead at global transits knows how to separate the lies from the truth, and mundane astrologers always follows the truth - no matter where it may lead.

Today, it has led to this -

  • Millions of foreclosures
  • Unemployment rates in double digits
  • Whole nations bankrupted
  • Societal disruptions
Can we go now?

The loss of national sovereignty - effectively being held at the bankers' gunpoint - will see populations hit the streets en mass demanding the heads of bankers of all stripes. Things have gotten so bad that even the Archbishop of Canterbury has been slamming the international banking cartels who caused the global economic crisis.

I mean, come on. Bankers, Wall Street types, and politicians everywhere are in the sights of the masses. If anyone remembers the end of the film Frankenstein, one might like to not forget those pissed off and formerly ignorant masses who just wanted to go on living their lives in peace.

Pissing off the little people who are voters as well as torch bearers isn't exactly wise you know.

As in my past forecasts on global transits I continue to warn of transference from social acrimony to populist unrest and then to geopolitical conflicts. If history has taught the world anything its that any kind of popular uprising that focuses on the rejection of wealth can easily lead to class wars.

These are the after-effects common to the dynamic of human history. With inclining world transits which the powers-that-be think do not affect them only proves the fact they do not know what they are doing. If they did, then that would make them mad.

Would it not?

Severe economic crisis and social unrest are precursors to rebellions, revolts, revolutions, and sometimes war. That is how wars usually starts. Those trying to lead the world into another war through economic crisis should also be the first to run point on the front lines if they feel so strongly about making trouble.

There's nothing like putting your own ass on the line if you are truly committed to the "cause" of running the world into the ground.

Global transits of this time look an awful like those that preceded the Great Depression of the 1930s. I've known this for years. Back at the start of that decade a Saturn-Uranus-Pluto T-Square in cardinal signs typified the economic disaster of that era. We have another now setting up which will peak later this year, and my forecast is of tougher times ahead.

Saying this, President Barack Obama could turn out to be more like Herbert Hoover rather than Franklin Roosevelt. During the start of the Great Depression years of 1929-1933, the Saturn/Uranus/Pluto T-Square ushered in an unprecedented era of economic collapse that was not fully ended until the early to mid-1950s, and after the Second World War and Korean War.

Should President Obama not see the light and truths about the root causes of the current economic depression, he will not only see just one-term as U.S. president, but he could be blamed for the entire mess which he surely did not start himself, but has to face with daring, and courage in our present age.

Will he see the light? Perhaps, however, the global economic crisis is really about generational change, and until that generation is given its walking papers from public and private policy and management we will not see anything resembling positive change, but, we will see "change" yes, and it will not be positive if the current generation continues to have its way.

Here are some insights from the British Telegraph newspaper -

"History repeating itself? President Obama has been accused by some economists of making the same mistakes policymakers in the US made in the Great Depression, which followed the Wall Street crash of 1929.

The labour force contracted by 661,000. This did not show up in the headline jobless rate because so many Americans dropped out of the system. The broad U6 category of unemployment rose to 17.3pc. That is the one that matters.

Wall Street rallied. Bulls hope that weak jobs data will postpone monetary tightening: a silver lining in every catastrophe, or perhaps a further exhibit of market infantilism.

The home foreclosure guillotine usually drops a year or so after people lose their job, and exhaust their savings. The local sheriff will escort them out of the door, often with some sympathy –– just like the police in 1932, mostly Irish Catholics who tithed 1pc of their pay for soup kitchens.

Realtytrac says defaults and repossessions have been running at over 300,000 a month since February. One million American families lost their homes in the fourth quarter. Moody's expects another 2.4m homes to go this year. Taken together, this looks awfully like Steinbeck's Grapes of Wrath.

Judges are finding ways to block evictions. One magistrate in Minnesota halted a case calling the creditor "harsh, repugnant, shocking and repulsive". We are not far from a de facto moratorium in some areas.

This is how it ended between 1932 and 1934, when half the US states declared moratorium or "Farm Holidays". Such flexibility inoculated America's democracy against the appeal of Red Unions and Coughlin Fascists. The home seizures are occurring despite frantic efforts by the Obama administration to delay the process.

This policy is entirely justified given the scale of the social crisis. But it also masks the continued rot in the housing market, allows lenders to hide losses, and stores up an ever larger overhang of unsold properties. It takes heroic naivety to think the US housing market has turned the corner (apologies to Goldman Sachs, as always). The fuse has yet to detonate on the next mortgage bomb, $134bn (£83bn) of "option ARM" contracts due to reset violently upwards this year and next.

US house prices have eked out five months of gains on the Case-Shiller index, but momentum stalled in October in half the cities even before the latest surge of 40 basis points in mortgage rates. Karl Case (of the index) says prices may sink another 15pc. "If the 2008 and 2009 loans go bad, then we're back where we were before – in a nightmare."

David Rosenberg from Gluskin Sheff said it is remarkable how little traction has been achieved by zero rates and the greatest fiscal blitz of all time. The US economy grew at a 2.2pc rate in the third quarter (entirely due to Obama stimulus). This compares to an average of 7.3pc in the first quarter of every recovery since the Second World War.

Fed hawks are playing with fire by talking up about exit strategies, not for the first time. This is what they did in June 2008. We know what happened three months later. For the record, manufacturing capacity use at 67.2pc, and "auto-buying intentions" are the lowest ever.

The Fed's own Monetary Multiplier crashed to an all-time low of 0.809 in mid-December. Commercial paper has shrunk by $280bn ($175bn) in since October. Bank credit has been racing down a hair-raising black run since June. It has dropped from $10.844 trillion to $9.013 trillion since November 25. The MZM money supply is contracting at a 3pc annual rate. Broad M3 money is contracting at over 5pc.

Professor Tim Congdon from International Monetary Research said the Fed is baking deflation into the pie later this year, and perhaps a double-dip recession. Europe is even worse.

This has not stopped an army of commentators is trying to bounce the Fed into early rate rises. They accuse Ben Bernanke of repeating the error of 2004 when the Fed waited too long. Sometimes you just want to scream. In 2004 there was no housing collapse, unemployment was 5.5pc, banks were in rude good health, and the Fed Multiplier was 1.73.

How anybody can see imminent inflation in the dying embers of core PCE, just 0.1pc in November, is beyond me.

Mr Rosenberg is asked by clients why Wall Street does not seem to agree with his grim analysis.

His answer is that this is the same Mr Market that bought stocks in October 1987 when they were 25pc overvalued on Shiller "10-year normalized earnings basis" – exactly as they are today – and bought them at even more overvalued prices in 2007, long after the property crash had begun, Bear Stearns funds had imploded, and credit had its August heart attack. The stock market has become a lagging indicator. Tear up the textbooks."

It appears that the Obama administration, now a year into office has some transitions and changes of its own to start if the new administration is going to truly tackle the economic crisis and resulting social chaos that is now underway.

According to the Telegraph, "Doug Wilder, who was elected Virginia governor in 1989, launched a broadside against the man he supported in the Democratic primaries when most senior party figures were championing Hillary Clinton.

He had backed Mr Obama because of his promise of "change", he wrote in an article for Politico.

"Now, across many fronts – in public policy and politics alike – people have rightly been questioning whether the change has been for the better. Unfortunately, the answer so far is clear: not yet."

The former governor continued: "The need is becoming more obvious by the day: He must overhaul his own team, replacing the admittedly brilliant advisers who helped elect him with others more capable of helping him govern. Getting elected and getting things done for the people are two different jobs."

Mr Wilder's surprise intervention came as a Washington Post poll delivered further bad news for Mr Obama. The survey found Republicans have significantly narrowed the gap with Democrats on who is trusted to deal with America's problems – a sign that Republicans are set to make major gains in the midterm elections.

When asked how would vote in November's midterms, 46 per cent said they would back Democrats and 46 per cent Republicans. Just four months ago, Democrats held a 12-point advantage.

On all the big domestic issues such as economy, health care, employment and the budget – where Democrats hold traditional advantages – slim majorities of Americans disapproved of the job Mr Obama is doing.

Thus far, Mr Obama had made no changes to his inner circle. Since Democrats lost a Senate seat last month in a bombshell defeat in liberal Massachusetts, calls for the dismissal of his chief of staff Rahm Emanuel, a former Chicago congressman, have increased.

Mr Wilder said Mr Obama had to fire people, starting with Tim Kaine, another former Virginia governor and the current chair of the Democratic National Committee – the party's political operation.

"The changes must go much deeper," Mr Wilder wrote. "Obama's West Wing is filled with people who are in their jobs because of their Chicago connections or because they signed on with Obama early during his presidential campaign.

"One problem is that they do not have sufficient experience at governing at the executive branch level. The deeper problem is that they are not listening to the people. Hearing is one thing; listening is another."

What's Next?

With the crew of policymakers worldwide - your guess is as good as mine, but here are my insights.

It does not look good.

I am not bullish on global recovery in 2010, mainly because the same generation of people that started the whole mess are still in many of the same positions, making the same trouble, while gulping as much money as they can to support and save themselves. They care nothing about the future, or, you and me.

Now, saying this, I am not a doom and gloomer, but a realist who also happens to be a professional astrologer.

From the looks of global transits this year, and in the years ahead, we all are in for some fantastic sights - and all of it will be because a generation of incompetent and corrupted ways led the world down the dark slippery slope it is now careening down at breakneck speeds.

Is there hope? Always. Is there a way out? There are many. Can we fix the system? Perhaps, but not with the same crew of bumblers that began it all.

There are some strange things going on, such as the fact that China has ordered managers of its vast currency reserves to withdraw from risky dollar assets and retreat into core debt guaranteed by the United States. This is a clear sign that Beijing is battening down the hatches for fresh trouble on global markets, according to economists.

Now, we have this headline in February 2010 -

China Orders Retreat From Risky Assets

"A Communist Party directive leaked to the Chinese-language edition of the Asia Times said dollar reserves should be limited to US Treasuries or agency mortgage debt such as Freddie Mac that enjoys Washington's implicit backing.

BNP Paribas said the move has major implications for global risk assets. "The message from Beijing is that we don't like this environment," said Hans Redeker, the bank's currency chief.

"When the world's biggest investor turns risk-averse, that is something you take notice of. We think this could become the new theme for the markets in the medium-term," he said.

The directive covers both the State Administration of Foreign Exchange (SAFE) and China's state-controlled commercial banks. Together they have an estimated $3 trillion (£1.9 trillion) of foreign holdings.

The exact break-down of China's holdings are a state secret but it is understood that SAFE bought large amounts of corporate debt as well as municipal and state bonds during the boom years of 2006 and 2007. Any move to liquidate holding of California debt at this crucial juncture could have serious implications.

The exact motives for China's shift of strategy are unclear. Analysts say the authorities may fear that the end of quantitative easing by the US Federal Reserve could cause risk spreads to widen sharply, triggering heavy losses. The shift in policy appears unrelated to the US spat with China over Taiwan.

SAFE has some very sophisticated economists. The chief investment officer of its reserve management department is Changhong Zhu, until recently head of derivatives for the hedge fund operations of the giant US financial group PIMCO, and viewed as one of the 'rock stars' of the global hedge fund industry.

The move by Beijing comes at a time when China's current account surplus is falling. This reduces reserve growth, reducing the supply of global liquidity.

Mr Redeker said this will have the paradoxical result of boosting the dollar. Flight from risk can lead to an automatic rise as hedge funds, banks, and investors across the world cut back leverage on dollar balance sheets.

David Bloom, head of currencies at HSBC, said the explosive dollar rally over the last six weeks has been the reversal of the dollar carry trade. "It has been short, sharp, and vicious. People borrowed in US dollars to invest in places like Brazil, Turkey, and New Zealand and now it is unwinding."

"We don't think the dollar rally is going to last much beyond the first quarter because we're in a new world of rotating sovereign crises where politics matters again. It's Greece right now but it could be the UK next, and then US which has yet to take any steps at all to tackle it fiscal deficit," he said.

Hope, Fear & Forecasts

Global transits of 2010 clearly show that if anything is for certain, it is change. The question is just what kind of change? If left to the pundits, things will return to "normal" - that is pre-2008 levels, which we all know will never happen - then not much will be done except to continue the kind of lip-service that has been emanating from Washington D.C., Wall Street, and the international banking community.

The "hope" is that things will get better. The "fear" is that things will get worse. So, what is the forecast?

A little bit of all of the above I'm afraid. For 18 years, the establishment that is now on its way out of power has deluded itself, and the world, that it knew what it was doing when it de-regulated the banking, insurance and real estate systems in the 1990s.

This led to massive levels of derivative speculation through hedge fund betting, and zoom, we were all off to bubble land. The causalities of the bubble's burst continue to add up with tens of millions of unemployed, millions of residential and commercial foreclosures, and societal turmoil building to a crescendo.

This year's Cardinal Crisis transits will surely bring the Panic of 2008 to its peak with powerful anger directed at those responsible.

However, even if the anger is fully expressed, and the evil players brought to justice for starting the mess to gain wealth for themselves; there still is the little problem of what do to next?

How do we fix the mess? Can it be fixed? If not, then what is next?

I support a progressive movement into the future. This means setting course ahead, with new crews, and leave the generation whom caused the mess behind on their Lost Gilligan's Island, because this is Star Trek, and the world has got new realms to explore and problems to solve.

However, the problems will not be solved with Gilligans running around the bridge of the Enterprise.

So, staying put in the current generational stagnation along with their outworn political correctness and rampant cynicism is a recipe for disaster. We've been fed that bloated crap since 2001 and its time to dine elsewhere. The Panic of 2008 and Banking Crisis proves that the last 17-18 years have been a failure.

My forecast is not positive, at least not for the near to medium term. I have been forecasting this for years, and my forecast has not changed. I wish it would, but then again, people of a certain generation continue to be all too predictable.

The thing is this: Until the generation that created this mess gets out of the way, or is removed out of the way - things will not improve in the least.

In fact, things will get worse. That constitutes the short version of my long-range forecast.

There are plenty of opportunities that, if used effectively by the incoming new generation, can help to lead many countries, including the United States, out of this economic mess; however, the outgoing establishment that played the major roles in starting, supporting and expanding the crisis cannot be allowed to remain where they are.

That much is sure.

1 comment:

Joseph said...

Thanks Theodore. Very sobering and insightful.

Albert Einstein's quote comes to mind: "The significant problems we have cannot be solved at the same level of thinking with which we created them."