The Sun Shines but the Economy Melts

By: Randolph Buss | Fri, Nov 21, 2008
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My Market Notes

US Treasury : Deficits

Two Pictures

These two pictures tell the story of the recent bailout actions and the debt increases under Pres. Bush . Public debt has doubled in 8 years while the morphed bailout continues to suck even more capital. "monetary physics" tells us that real growth (GDP) can only come from true production, savings or both. Right now, the West is wallowing in negative savings and has outsourced a large majority of manufacturing to the east. Likewise, in a recession, GDP will likely fall between 3 -4 % ... which is substantial. On top of this, I fear -- looking at behavioural finance -- that consumers, who make up 70% of GDP will not be commensurate in doing their post-recession "duty" of taking on ever more "free money" debt so quickly as provided by the Central Banks . It remains to be seen how the massive liquidity injections will manifest themselves -- logic tells us of higher prices to come as more debt is created to "cover and hide" the deflationary forces. The NEED for such liquidity is overwhelming as banks continue to come to the trough for more money and yet spreads remain high. Debt to GDP is now increasing substantially.

DOW -- Consumer -- Banks

The DOW is now forming a very bearish cross of the moving averages -- this forebodes evil ahead. If anybody had any questions of this market -- this chart shows a 1929 style drop and with it trillions have evaporated off world equity markets. I have long held the opinion that for markets to recover we will need to see a recovery in both the Consumer index and the Banking index -- about the only things left in the US economy. Neither of these are looking good -- these also have or are forming BEARISH cross patterns. I would expect these charts to worsen over the next 6 months with a possible bottoming formation in mid 2009 at the earliest. If my theory is correct, the consumer will not return to rampant hedonism and debt building but rather go into "hibernate" mode : save, fearful of job loss, house loss, and rising real inflation on daily goods. This is bad for GDP and that's the only thing the Fed is selling -- consumerism.

Likewise, the Banking and Financial sectors need to recover before any broad recovery can take hold -- this is what we were told and held ransom to -- the BIG BAILOUT must occur we were told ... only it seems to be dithering. The State in US, Euroland, everywhere is being forced into the LENDER of LAST RESORT -- and the only weapon they have is to create money. The economists tell us it's not so bad -- x% of total GDP is still "ok" . Funny, those same economists never saw the coming Depression and biggest market crash since 1929. But things are different now we are told -- the world is globalized, it's all ok, we have more "financial instruments" to fight deep recessions...

This has been an abbreviated version / update : full reports available at the site.



Randolph Buss

Author: Randolph Buss

Best regards from the GMR,
Randolph Buss

Berlin, Germany
This was just a small part ... the full GMR and portfolio entries can be read at the homepage For those new readers, the Global Macro Roundtable (GMR) is conceived as a "real world" newsletter written by market analysts and not by unknown editors doing research for others. The GMR provides up-to-date analysis and gives the reader a variety of opinions on the investment markets and sectors. We are not here to massage our egos rather we are here to provide our readers with real-world research and investment opportunities, For more detail and more charts on this article and others, please visit the site. More on this in upcoming issues - if you would like to know more, please sign up for a free subscription to Der Invest Informant. As well, please visit the site daily and read the latest information and inputs.

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