The Road Ahead

As Merrill Lynch brokers arrived at their desks this morning they were greeted with an urgent memo as to how to deal with the possibility that the stock exchange might not open this morning. Europe and Asia had crashed over night and the futures were showing a possible 1000 point fall at the open, which would trigger curbs that would keep the market from opening. Talk about panic.

It didn’t happen and now the market is fighting back from a 500 point drop. My guess is the fear is twofold. First to hear Greenspan admit that the current crisis “didn’t fit his model” was not exactly confidence building. As Vince Farrell wrote this morning.

Greenspan was “shocked” that managements of financial institutions didn’t look to their own self-interest to protect the capital of their firms. The “shock” is at best naive. Companies don’t have self interest, people do. Since huge bonuses were paid to reward short-term results, the investment bankers were motivated to put out what would sell and sell today. The devil take tomorrow. Protecting the balance sheet was senior management’s job and there was a collective failure on that score. He also bemoaned the fact that the models that had been so reliable turned so bad. The models he used had been compiled during the good times. They should have been stress-tested for bad times. He as much said so. “Beware of geeks bearing models,” Warren Buffett has said. Models pre-suppose rational behavior.The geeks don’t know how else to proceed.

The second fear factor is the vulnerable state of many of the world’s developing economies–the actual engine of world growth. Brazil, Russia and India are having to spend billions to keep their currencies from a wholesale devaluation and the big western banks, who supplied the capital for local development are not lending. The list of vulnerable countries (below) is pretty scary.

It’s obvious we are entering a worldwide recession. China may avoid the peril, but almost every other economy will be hit hard. The German market (DAX) is down 10% in four days. No one is going to be spared the carnage.

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0 Responses to The Road Ahead

  1. Zhirem says:

    Just received my copy of Charles Hugh Smith’s Weblogs and New Media: Marketing in Crisis. Planning on completing my first pass at this by Monday. Ironic that I think some of the premises of the book are playing out before our eyes.

    Initially, I would suppose the following:

    1.) Global markets will continue to contract. There will be nervousness aplenty for the next 4 to 8 business quarters. Perhaps longer, though I think such a period of volatility will shake out numerous market players.

    2.) Auto financing will be the next big US shoe to drop as far as consumers are concerned. Big auto will not survive this time period in their current incarnations. Significant assistance will be required to right their ship, and that assistance will not be forthcoming from our citizenry, who is still struck dumbfounded by American Big Auto’s lack of foresight into hybrid and plugin vehicle technologies and products. We remember that GM had an electric car prototype in the 80’s. Certainly a few test vehicles in the 90’s, and nothing but silly-sized SUV’s rolling off their factory floors for some time now. Hummer? Won’t survive the next significant oil price uptick.

    3.) We are already seeing evidence of innovation and new product development for green and alt energy solutions coming online from Asia. China announces a solar-powered car. New breakthroughs from Korea in solar film. Indian technological advances in both solar and battery storage and capacity. America is already behind the curve, and will need to take collective hold of our asses and make a mammoth-sized effort to retake leadership positions in all green and tech, product, and means of production within 4 years, or lose momentum and likely trillions to not-USA solution providers. (Note today’s news about Australia’s infrastructure plans for vehicle recharge stations, battery exchanges, etc. All online within the next *4* years.

    4.) Discussions or race, religion and reason will (relatively) quickly fall to the critical issues of the day. Pragmatism will overtake perverted senses of idealism, as our fellow citizens will discover that indeed, our generation will *not* have the luxuries of wealth and good living that the Boomers have had. Bungling, but forward-movement in the areas of socialized medicine and health care concerns are inevitable as significantly large employers in the US (mainly the automotive sector and other remaining manufacturing) will not be able to keep up with their responsibilities to pensioners and even with the healthcare needs of their existing (if declining) workforce.)

    5.) Someone talk me down off the ledge.


    Thoughts? Am I on crack, or can anyone else see these (seemingly to me as inevitable) things coming down the pike?

    – Zhirem

  2. rhbee1 says:

    1.) Global economies have been modeled on our own. As their markets contract, what does that model tell them to do? Or are we already past that point? It’s indeed a new world where “resolving this economic, ecological crisis on terms that favor the most people”, “eco-equity”, to quote Van Jones in the Green Collar Ecology will have to take precedence.

    2.) Cars, cars, cars, the Cars . . . it’s time we grew up and kicked our addiction to selfishness in our transportation plans. It’s time for them to prove that they can produce a vehicle we need rather than what we desire.

    3.) The competition with world economies that are taking advantage of the shift in power that our economy’s failure provides is called opportunity in the business world. It is up to we progressives to take, and make, use of the power released by this occasion.

    4.) Racism, opposing religions, they never die.

    5.) Ledge or bridge . . .?, that is the question.

    Ahhhh! to quote Dilbert.

  3. Z–Items 1, 2, and 3 make perfect sense. Item 4 makes sense to a Mayberry optimist like me, but something tells me that we’re gonna have to be really careful to avoid stumbling blocks on the road to national pragmatism. Such stumbling blocks would include: short-term decreases in gas prices, fake ‘stimulus’ handouts to consumers, irrational fears about globalism (fears that if taken to a logical, isolationist, conclusion would result in me being deprived of chocolate, bananas, and…god forbid! coffee), etc.

    Now, come down off that ledge and have a cup of coffee and a chocolate-chip banana muffin!

  4. Ken Ballweg says:

    The notion that the slide into a Depression is preventable is looking less and less likely. The most pampered public in history (Colbert voice: “we beat Rome, we beat Rome, we’re #1, we’re #1”) has a long way to go to accept how deep and how long this will take. The anger is going to be intense, the bargaining initially totally irrational and self protective (that is the American Way), the Depression stage (of the American psyche not just the economy) may start the stages over again (Kubla Ross never assumed the progression through her stages was neat, tidy and necessarily linear).

    We still have to get past the fact that the stock market is not the driver of our economy, consumption of goods is. The Fiscal Predators have smoke up our skirts so long, that the risk is that three conflicting mantras are ingrained in the American Public:
    1. Markets are self correcting.
    2. Taxes are wrong.
    3. [the real killer] the future will always be so much better that the increased worth of everything will cover unlimited borrowing now.

    We are now officially living in the “exciting times” of the old Chinese curse. Who knew the resource we would use up on the way to our Collapse would be as intangible as credit?

    My new business plan: get the gov to relax immigration of Cubans, then import a bunch of them to hire out as personal trainers on how to survive on an average income of $350 a month.

  5. Dan says:

    Zhirem I think you’re mostly right.

    One of our biggest challenges will be overcoming the Thinking-Is-Bad or Thinking-Is-Liberal or Thinking-Is-Socialist or (to steal an idea from the movie “Idiocracy”) Thinkin’-Is-Fer-Fags mindset that has led us to an addled, puerile “Decider” with a shadowy Strangelove controlling him, who boast that they create their own realities. That has led to “Drill Baby Drill” as the least possibly rational response to our energy quagmire. That has led to the shark tank feeding frenzy that has given us the credit meltdown. That has led to some Republicans saying (with straight faces!) that the only way to deal with the financial mess is to suspend all capital gains taxes.

    And we still have a right wing that will use abortion and gay marriage to deflect all attention and all talk away from anything that might expose the Halliburton/ADM/ExxonMobil/AT&T/Pfizer/Enron/Lehman Brothers “Steal It All Now” program.

    The two big questions now are:

    1) Have enough of the people of this country finally removed their heads from their alimentary canals?

    2) Is it too late, even if they have?

    Because the paradox is that, in this thinking-challenged country, things have to get really bad before the somewhat-but-not-entirely-brain-damaged set will say, “Wait a minute now…all these wars for freedom, and all these tax breaks, and it hardly seems like things are getting any better.” So bad, in fact, that we might already be over the edge of the cliff.

    I will add in a third question, after having watched a story last night on the PBS News Hour about a company (a very busy company that can barely keep up with demand) that goes to foreclosed homes and takes the contents of those homes, in many cases consisting of *everything* except the clothes on the mortgage holder’s back, and dumps it all straight into landfills,

    3) Are we really worth saving, if we’re that stupid about how we loan money, and if we’re that reckless and careless about turning our backs on the messes in our lives?

    And a fourth,

    4) Now that oil is back down under $70, is there even a slender hope that our national response will be anything except to start buying even bigger gas guzzlers?

  6. PTLafferty says:

    Zhirem, you are most decidedly not on crack, but don’t jump! While I’m not certain about your numerical specifics, there is one number you bring up that I couldn’t agree with more.

    The Aussie four year plan is what we must push for (or beat) here. While Gore’s 10 year plan is better than nothing, we simply cannot wait a decade to push for massive innovation in infrastructure. This simply isn’t attainable unless we 1) find a way to stop the anti-intellectualism that is rampant in the United States and 2) cut military spending. If we all go jumping off ledges, there will be no one left to scream this from the rooftops. Keep thinking and fighting the good fight!

  7. Rick Turner says:

    Z, item #3 on your list is exactly what some of my first posts here a good six months ago were all about. Even Al Gore thought we could export manufacturing but that our superior intellect would keep the US ahead in the tech race. That, of course, is just racist bullshit…to think that we are smarter than the little brown and yellow people of Asia…who are just as smart as we are, who study like mad in school, and who have a work ethic like we maybe had 100 years ago.

  8. Dan, I was wondering about the gas guzzler thing myself. Geez I hope not. I’m hoping that other pressures (food prices being up top) will keep people concerned enough about their own personal budgets to keep them from stupidly burning gas. Of course your Point #3 makes me wonder about that.

    Great point on the thinking thing too. Can’t say it often enough. Stupid is not sexy.

  9. Jon Taplin says:

    Zhirem- I tend to agree with most of the community that your predictions are all in the process of coming true.

    My guess is that the auto sector contraction scenario is already moving at warp speed. GM and Chrysler merging? WTF.

  10. Jesse C says:

    2a) I think that while auto financing is going to take a massive hit, the looming christmas season is going to bury retail. Not only do people not have a lot of money or space on their credit cards, but consumer sentiment is pretty damn low which means even people who have some money are scared to spend it. I think that all adds up to one of the worst Christmas seasons in history and a really bloody Q1.

  11. Rick Turner says:

    I’m seeing more bicycle riders here in town, and electric assist is no longer unusual.

    Retirement age will rise, whether officially under Social Security or just because so many folks’ retirement accounts have been seriously damaged.

    I just heard tell that my ex mother in law has lost hundreds of thousands in value over the past couple of months.

    What is the real net cost of (OK, let’s call a spade a spade) socialized medicine? If the field were to be leveled and there no longer be surprise payouts for the uninsured who go to the ER with a cold; if people got preventative health care; if everyone were covered and we all shared the risk equally, how much more…or less…might the total medical bill for the US be compared to what it is now? What is the real cost of having so many be uninsured?

    The auto industry…if any industry in the US deserve its apparent fate, that’s it.

    Most of the output of NanoSolar, the company in San Jose that prints sheets and sheets of photovoltaic panels is going to Germany. WTF? The Germans hate the idea of having to buy energy from the Arab world and from Russia. It may be xenophobic and racist of them, but it’s driving them greener faster.

    If there was ever a time to slap on that one buck gas tax, it’s now when gas prices are plummeting.

  12. The consumption thing, especially around the holidays, has been bugging the heck out of me for several years now. The ads for computers and cars (?!). Unreal. I’m probably going to spend about the same as usual, maybe a little less, but I (and a lot of other fiber-oriented people) give hand made or hand baked gifts to those we know don’t mind receiving them. I haven’t taken the handmade pledged (which would require me to give ONLY handmade) because I know some folks in my family (well, the in-laws) prefer to receive store bought. Anyway, this is the long version of…I’m glad some sanity may be returned to the holiday season (even if it is involuntary).

  13. Dan says:

    “Most of the output of NanoSolar, the company in San Jose that prints sheets and sheets of photovoltaic panels is going to Germany.”

    Don’t worry, Rick…wait a couple years. We’ll ship those manufacturing jobs overseas just as we start buying huge quantities of the product.

    Have faith in America’s ability to screw up.

  14. billy-bob says:

    Hey y’all ought to the Crash Course at Chris Martenson’s site:

    Chris has prepared a brilliant series of video pieces that speak calmly, rationally, and analytically to what is happening to our economy, environment, and culture.

    Section 15 on “bubbles” should help to convince you as tot how truly F**k’d we are. Chris also covers money, growth, prosperity, peak oil and a number of other topics.

    I was reasonably familiar with many of these subjects, but these pieces really provided depth and pulled all the concepts together into a coherent but scary whole.

    Don’t worry, it’s not conspiracy theory (quite the contrary in fact)–although you will find a good helping of Armageddon gold nuts in the forums on the site

  15. billy-bob says:

    I was going to add that we may have reached the “tipping point” for capitalism as we have known it.

  16. Rick Turner says:

    A huge issue in “developing countries” is the systematic and near universal corruption that spins 97% of the IMF and World Bank funds into “projects” (read off shore bank accounts) for the 3% of the upper class. Haiti is, of course, the most obvious example of this in our hemisphere, and the very history of that country establishes a tradition of that rip off of the poor as being normal. Have we as Americans ever been on the right side of that one? But then extend that all across our hemisphere and then across the globe. We have been barely ahead of Leopold II in our support of despots for a buck. This is not “free market capitalism”, and Alan Greenspan be damned for not understanding that greed must be restrained.

  17. Rick Turner says:

    Wouldn’t you love to be a fly on the wall in Greenspan’s therapist’s office? It’s kind of sad, really… This guy has had his “model” of human behaviour totally blown to pieces in all of this. It’s actually amazing that he hasn’t eaten the muzzle of a Smith and Wesson for breakfast yet. He actually thought that the kings of Wall Street would act in the interests of their companies’ stockholders and not in their own fast track self interest!

    Where are Morgan and Milena now that we really need them…to kick around… Ayn’s apprentice has lost the faith!

  18. billybob says:

    greenspan: cluster-f**k fractal personified

  19. Heado says:

    Zhirem said:

    “We remember that GM had an electric car prototype in the 80’s.”

    I just saw the documentary “Who Killed the Electric Car,” ( it appears that GM had more than a “prototype” electric car. In California, the GM EV1 had waiting lists (film says up to 5,000 people committed to buy), public charging stations, and pretty much everything other than an effective marketing campaign to spread the word. Heck, there were even public protests against GM when they called in all the leases (they would not sell the cars outright, everyone had to lease them no matter what.).

    The film implies that GM never wanted the car to succeed.

    If more Americans were to see this film, I’d have to agree with you, that “assistance will not be forthcoming from our citizenry…”

  20. bernard says:

    I just saw the documentary “Who Killed the Electric Car,”

    The oil companies ( the sisters) did.

  21. bernard says:

    Look for the money trail and you will find out who did what to who, very simple, Watson, elementary.

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