For Whom the Bell Tolls: Homebuilders' Coming Demise
Judging by the recent 60% rise in the stock of luxury homebuilder Toll Brothers, Inc., you'd think a new high-end housing boom is just around the corner:
Please go to www.oftwominds.com/blog.html to view the 2 charts.
Various cheerleading pundits like Cramer are tripping over themselves with excitement that the homebuilders "have bottomed" and "now is the time to buy" because the stock market is a "discounting machine" which is anticipating a resurgence of new luxury home buyers in 4-6 months.
Uh, what planet are the housing-Bull pundits surveying? Did any of them notice these little bits of reality which might puncture their anticipated new-housing bubble?
1. The surfeit (i.e. rising inventory) of existing luxury homes currently owned by desperate sellers and banks who would love to unload then onto any willing (and solvent) buyer.
2. A tightening of lending standards which has removed the vast majority of bubble-era buyers from the pool of potential buyers.
3. A reduction to near-zero of the market for mortgage-backed securities, which removes a huge market for new mortgages.
4. As the economy slides deeper into recession, the few remaining qualified buyers of new luxury homes who don't already own a luxury home or three will find their incomes slashed and/or their jobs lost.
5. With no bottom in sight on house prices in any market or segment, the few remaining qualified buyers are increasingly reluctant to bet hundreds of thousands of dollars that they are "catching the falling knife" at the bottom.
6. Any qualified buyer of a luxury home in any market can buy a foreclosed/distressed/ short-sale luxury house for far less than Toll Brothers or any builder can profitably build and market an equivalent home.
For a more realistic view of where TOL might go when reality intrudes on the fantasy of another housing boom starting four months from now, let's look at a 10-year chart of TOL.
Before we make a few observations, please read the HUGE GIANT BIG FAT DISCLAIMER below. This is not investment advice, it is merely my observations about these charts. Disclosure: I own puts on TOL (i.e. a bet the stock will decline.)
1. In the last recession circa 1990-91, TOL slid below a $1. Since that recession was mere child's play compared to the one we are just beginning, why would anyone expect TOL to do better now than it did in 1991?
2. The recent price of $25 is in line with the price of TOL in 2004, in the midst of the greatest housing boom in a generation. At $25/share, this stock has fully priced in a housing boom just as tremendous as the one which exploded in 2004.
If that is simply not realistic, this stock is incredibly overvalued.
3. Even its recent low around $16 is in line with the value the market placed on the company and its prospects for future profits in 2003, when the housing boom was in full swing.
4. In the "normal business" era around 2000, when the economy was booming and people were buying new homes, but there was no credit/housing bubble, TOL was valued at about $4. This certainly looks like a reasonable target for this stock, with the caveat that if business gets worse than 1999-2000, then even $4/share looks awfully rich. Sub-$1 is the historic range for this stock in "bad times," not $25/share.
What can I say but fantasies (i.e. another housing boom) die hard? Given the facts of stupendous inventory, recession, tightening lending standards, falling housing prices, etc., we can anticipate some national homebuilders sliding into insolvency. It is not out of the realm of possibility that all national homebuilders will be essentially liquidated in the coming years.
(For more on the trends which are acting against another housing boom, please refer to my new "little book of big ideas" Weblogs & New Media: Marketing in Crisis for more on the fundamental trends which are firmly in place globally. (Only $10.99, such a deal! Only 70 pages long, it's perfect for a few hour break from your usual toil.) New essay on leadership by Chris Sullins: First, Do No Harm
Reader Comments
George S.
I have been reading your posts for over one year; this is my first email to you.
You have really good stuff. I have purchased two copies of your new book on "Weblogs..."
Charles Babson, if you know the name, said that he knew a stock market crash was coming in the late 1920's because the moral character of the majority of the people was corrupt--his prediction was based on morality, not charts, stock prices, earnings, etc. If 51% or more of the people were honest, then the economy would survive; if 51% or more of the people were liars, then we would be toast. How right he was.
Just a thought for you.
Harun I.
All the talk of Paulson working on a plan for the taxpayer to absorb all the bad paper made shareholders happy? At least that is what the pundits looking for a “reason” are trumpeting. I think he and his master are criminally insane.
New Book Notes: My new "little book of big ideas," Weblogs & New Media: Marketing in Crisis is now available on amazon.com for $10.99.
"Charles Hugh Smith's Weblogs & New Media: Marketing in Crisis is one of the most important business analyses I have ever read. It is the first to squarely face converging global crises from a business perspective: peak oil, climate change, resource depletion, and the junction of key social cycles will radically alter the business landscape in coming decades...."
Thank you, Ken B. ($100), for your gargantuan, outrageously generous contribution to this site. I am greatly honored by your support and readership.
Friday, September 19, 2008
Wednesday, September 17, 2008
Looking for Changes in Trend
As I post this tonight, our tax-supported government has just bailed out AIG to the tune of $85 billion, on top of the $1 trillion it has dumped down various ratholes since August of last year. These staggering sums are now ho-hum, and I expect a "relief rally" tomorrow because the Federal "rescue" means "all is right with the world now" and "this must be the bottom."
You and I now own 80% of nothing, oops, I mean the broken shards of AIG. Whoopie.
Yesterday's entry had a strong moral/spiritual theme, and I honestly believe that there will be divine retribution for all the lies, all the bailouts, all the squandering of hard-working taxpayers' money on the rescue of tax-cheating multi-millionaires. We will all pay the price for remaining silent or for joining in the completely non-productive greedfest known as the Great Real Estate/Credit Bubble.
By all rights, and I mean on a spiritual level, the U.S. financial system deserves to go to zero--yes, complete bankruptcy of the entire Empire of Lies and Debt. A better system can be built in its place. We as a nation deserve that--if we demand it. Clinging to a rotten, disintegrating life-vest will not save us. We must strike out and swim for a new and better shore.
Other late news: Thanks to correspondent Craig M., we have news that the U.S. government indirectly gave Lehman $138 billion:
"JPMorgan Chase & Co. gave $138 billion this week in Federal Reserve-backed advances to the broker dealer unit of Lehman Brothers Holdings Inc. to settle Lehman trades and keep financial markets stable amid the biggest bankruptcy in history, according to a court filing"
Thanks to John Williams for spotting this Fed involvement in what appeared to be a debtor-in-possession article on Lehman. Needless to say the court documents directly contradict Paulson's public statements about no USG assistance to Lehman.
JPMorgan Gave Lehman $138 Billion After Bankruptcy
One of the few ways we as individuals can better our situation in trying times is to anticipate possible changes in trend. Now before we begin, please read the HUGE GIANT BIG FAT DISCLAIMER posted below. This is not investment advice, just some charts and my commentary based on my own limited knowledge.
Please go to www.oftwominds.com/blog.html to read the disclaimer and to view the 3 charts.
Longtime correspondent Cheryl A. recently asked me to confirm my primary trend theses, which are:
1. U.S. interest rates have bottomed in a shallow "saucer" formation from 2003 to the present and are set to start rising, very possibly in rapid leaps which will shock the preponderance of pundits expecting essentially permanent low rates.
2. Equities (i.e. stocks) will fall to levels the preponderance of pundits believe are impossible, i.e. 6,000 and then perhaps down to 3,000 or lower.
3. Oil and gold will climb ever higher in a long-term "secular" Bull Market.
4. Oil will fall dramatically in a "head fake" which supports a false confidence that peak Oil is far in the future. On the contrary, supply constraints will reveal the price decline as a "head fake" as oil prices begin a spectacular climb to $300/barrel and up.
Please refer to my new "little book of big ideas" Weblogs & New Media: Marketing in Crisis for more on the fundamental trends which are firmly in place globally. (Only $10.99, such a deal! Only 70 pages long, it's perfect for a few hour break from your usual toil.)
To help with these theses, I asked frequent contributor Harun I. for some charts which he has graciously provided along with some technical comments. Please note that I have trimmed the charts in size and added comments which are my own interpretation.
Let's start with the Dow Jones Industrial Average as a proxy for the U.S. equities markets. Harun selected three charts of the DJIA, showing three different time frames: very long term, intermediate and short-term. (All chart notes are mine.)
Here are Harun's technical analysis comments:
The logarithmic view of long-term charts is important because it reveals percentage movement. It should be apparent that the a move to 15,000-25,000 is not the same as a move from 5000-15,000. The Dow yearly chart with trend line (1900-2008) indicates how far price has deviated from the trend line. So far this has been a down year.
At the primary level price is at the support of the lower Bollinger band and the SE channel. This is an area of critical support. Failure of this support and a strong break below the lower band will bring in shorts in fairly significant numbers. This month the bar is down. Price has been languishing at the Jan. 08 lows. There needs to be strength going into October that overcomes the resistance at the top of the current range. If not, Sept. ends as a down bar with the only likely prospect for October trading is to test the Sept. highs or breakout to the downside.
One technical aspect that argues for a rally is the fact that at lower band support MACD’s major histogram is still in positive territory while the minor is oversold. This is not much but may be enough to entice buyers should lower band support hold. But there are some stiff headwinds.
At the intermediate level one can see the resistance traders will have to overcome to get rally going. This is not impossible but but it will take work, i.e., liquidity to get it going in a serious way. If the manipulation fails it would likely be disastrous.
Stocks may rally in October into November or even the new year and beyond but that would be a cause for concern. It there is a rally watch volume and OI in the futures for indications as to the quality of the rally.
Anything can happen and as you can see there are many variables to consider and I have touched but a few. Thank you, Harun. In other words, despite the catastrophic financial news, the stock market could perversely rally for months, presumably on the false conclusion that "the worst is over, hence the bottom is in."
On the other hand, these charts suggest a couple of flies in that "rally like 1999" ointment:
1. The DJIA could descend to the 6,000 level without breaking its long-term trendline.
2. Critical support of trend channels lies just below current levels at around 10,700. The lower band was tested in the 2002-03 period and it held, setting up a multi-year rally. But that was then and this is now, and it's noteworthy that the major histogram of MACD (the red-line) was kissing the neutral line in 2002 when the price line was still around the middle channel line.
Now we are at roughly the same place in terms of MACD but are dangerously close to the lower support. In other words, if MACD continues down into negative territory, that would suggest a breach of major support, and a trip down to 10,300 or so as a "first stop" on the Bear Market Express.
3. Major tops often reveal themselves in "head and shoulders" formations, and the DJIA sure looks like it's tracing out a complex H&S pattern.
4. The lower channel which was once support is now resistance, (last chart) and rather interestingly, it is approaching the 200-day Moving Average of the DJIA (not shown) around 12,300. This confluence of major support/resistance will offer a massive "line in the sand" which the DJIA will have to breach to move above the 12,000 congestion/resistance.
It doesn't take much of a crystal ball to see the DJIA sinking below 10,700 and touching 10,300 or even lower, then racing back up in a huge "yea, the bottom is in" relief rally that runs up to the 12,300 level and then stalls out, setting up the Bear Market move down to 9,000, then 6,000, then 3,000, etc.
Meanwhile back at Gold Ranch, the yellow metal store of value will be making its move in fits and starts to meet the DJIA at 3,000--i.e. gold at $3,000/ounce.
That is of course pure speculation (double entendre intended). Tomorrow we look at oil.
New essay on leadership by Chris Sullins: First, Do No Harm
Reader Comments
Chuck D.
The last part of today's entry Liar Nation: Finally Reaping What We Have Sown (September 16, 2008) reminded me of the Biblical story of Jesus and the rich man. The rich man came to Jesus asking, "What must I do to be saved, Lord?" When the answer was, "Give away all your possessions and follow me," he left in despair because he could not do it.
While I had never thought of the story this way before, it seems to me that both you and it are saying the same thing. Everyone looks at the story only in terms of the requested action of giving worldly items away (becoming poor) in order to re-focus one's life away from the worldly and temporal.
But perhaps the story is also about something more subtle -- the actions we do and take in order to acquire those things in the first place. The challenge Jesus gives us in this story is not the just the challenge of the giving of things away, but also of refusing to be tempted to acquire them in the first place.
Your entry pretty well describes what happens when we succumb to that temptation. It is the same point that caused Thoreau to go live in the woods and then write Walden.
If this is true, then we probably do stand at the edge of TEOTWAWKI. It's just going to be in a little different form than we expect it will be. But the re-framing of the collective consciousness and assumptions that it will generate won't be pretty while we work through it.
Dave Eriqat
I couldn't agree more!
Over the years I've observed that people are no longer constrained by what's technically legal. It seems the prevailing attitude today is "whatever you can get away with," legal or not. Powerful people are the most inclined to commit illegalities because they know their high priced legal talent can probably get them off. So they commit huge frauds, which underlie much of the rot that's becoming apparent in the financial system today.
These thoughts were the basis for my own essay titled Organized Crime Nation.
But a funny thing. As the dishonor, deceit, and dissembling become palpable all around me, my own resolve to not be like that is strengthened.
U. Doran
Lying in business is called by the UCC, Uniform Commercial Code of laws as, "Fraud in the Inducement of a Contract", and is the only action that is so reprehensible under the law as to carry a penalty of triple damages. Some of the class action boys should start dragging it out soon.
Zeus Y.
Okay, now I'm officially pissed. AIG just got bailed out by the government, not a "quasi-governmental" organization but a purely private organization. They are not even pretending anymore. "Moral hazard, what's that?" This NYT article calls it "the most radical intervention in private business in the central bank's history." A couple of important points to note.
1) This is an insurance company who played fast and loose with its money, and now we are insuring them to the tune of not only loaning them 85 billion dollars but buying an 80% stake in the company.
2) This was not legislatively authorized. It was done by fiat by two Bush appointees from the executive branch and the Fed, Henry Paulson and Ben Bernanke. (How can this even be legal?)
3) The plan to privatize social security seems to be in full swing, except now its being done through the back door. Instead of opening our trillions of dollars in social security benefits directly to Wall Street fraud, waste, and abuse, we'll simply use them as collateral in bailing out companies who have almost nothing but toxic debt on their books. (It's one thing to get stuck buying a lemon, but buying one on purpose to avoid the "ripple effects" of bad financial decision-making?)
4) Smart investors like Jim Rogers of Rogers Holdings who counted on the market actually being free and shorting these companies that deserve to go under and going bullish on commodities, get screwed as well, creating another moral hazard for good and smart investment. (If the fundamentals are screwed don't bet against them, because they will be bailed out, and you'll be caught holding the bag.)
Ahh, enough. I hope you are enjoying your days being right about a lot of this economic voodoo (and I hope you are wrong about Obama not becoming president), but with crap like this deliberately enacted to prevent the consequences of Bush economic policy from affecting the election, I am less than sure. I've re-read a couple of my old e-mails and they were right on to a scary degree.
David V.
Perfect.....it hurts, as the truth often does. Today's essay should be on the center front page of every newspaper in the world. Thank you, readers--and David, how I wish the entry could be in every newspaper-- free of charge.
New Book Notes: My new "little book of big ideas," Weblogs & New Media: Marketing in Crisis is now available on amazon.com for $10.99.
"Charles Hugh Smith's Weblogs & New Media: Marketing in Crisis is one of the most important business analyses I have ever read. It is the first to squarely face converging global crises from a business perspective: peak oil, climate change, resource depletion, and the junction of key social cycles will radically alter the business landscape in coming decades...."
Thank you, Robert B. ($50), for your stunningly generous contribution to this site. I am greatly honored by your support and readership.
Tuesday, September 16, 2008
Liar Nation: Finally Reaping What We Have Sown
The operant phase of this nation in this decade: "Take the 'con,' Captain!"
It's all too easy to be distracted and confused by the complexity of the financial unraveling which now transfixes our craven media and politicos, but the underlying cause is really very simple: we have become a nation of liars, and no one cares.
We have candidates for the highest office of the land pronouncing their deep religious faith, yet not one candidate has expressed any outrage at the ubiquity, the pervasiveness, the crassness of the nation's reliance on lies or the incalculable harm perpetrated by the lies which have formed the very bedrock of the debt/credit bubble which is now, at long last, finally imploding.
Lying is now accepted as the norm and elicits bored yawns. Hillary ducking machine gun fire as she deplaned--a lie, but oh well, she "misspoke." Now we have Palin and McCain claiming Governor Palin eschewed Federal "earmarked" pork spending, only to read that the Wall Street Journal checked the record and found, ahem, the two candidates "misspoke," i.e. lied.
Palin's Project List Totals $453 Million
Last week, Republican presidential candidate Sen. John McCain said his running mate, Alaska Gov. Sarah Palin, hadn't sought earmarks or special-interest spending from Congress, presenting her as a fiscal conservative. But state records show Gov. Palin has asked U.S. taxpayers to fund $453 million in specific Alaska projects over the past two years.
Here is a brief rundown of the financial implosion sweeping the nation:
1. Appraisers routinely overstated the value of real estate: they lied.
2. Realtors sold properties they knew were overvalued and/or risky to buyers they knew were not qualified: they lied.
3. Mortgage brokers withheld negative information from buyers' mortgage applications to guarantee loan approval: they lied.
4. Applicants exaggerated their income and understated their liabilities on their mortgage applications: they lied.
5. Investment banks gamed the risk assessment guidlines to package risky mortgages as "safe" mortgage-backed securities and derivatives: they lied.
6. In order to earn huge fees, the ratings agencies accepted these fraudulently packaged and represented securities as "safe, low risk" AAA-rated investments: they lied.
7. The investment banks then sold the securities to investors worldwide as "safe" investments: they lied.
8. Banks and other financial institutions "misrepresented" the true risks of their holdings by secreting "level 3" assets and derivatives off their balance sheets or hiding them in footnotes: they lied.
9. Federal regulators claimed their oversight and enforcement was rigorous: they lied.
10. Congresspeople who accepted millions in campaign contributions from Fannie Mae and Freddie Mac stated that their goverance of those two entities was unaffected by these vast pools of lobbying funds: they lied.
11. Former Federal Reserve Chair Alan Greenspan stated repeatedly that the system was robust and safe, even suggesting homeowners choose adjustable-rate mortgages over 30-year fixed-rate mortgages: he lied.
12. CEO after CEO has stated most emphatically that the financial institution which he/she led was financially sound and adequately capitalized: they lied.
13. Investment bankers game the U.S. tax code to save their non-U.S. clientele from the terrible indignity of paying U.S. taxes, and then they claim their scams are "legal": they lied.
I could go on, but you get the point: the entire financial edifice of the U.S. is built on lies, and requires lies at every point and every level to continue generating outsized profits for the real estate, lending and investment banking "industries."
It's all based on lies. All of it. This "prosperity" could not have existed without lies by every player on every level and the "turning a blind eye" to the fraud and lies by our leadership, elected, "spiritual" and financial.
Our mainstream media and political establishment have become expert in the art of cloaking lies with innocent-sounding synonyms and phrases: misspoke, mis-stated, cannot recall, was tired, etc.
This mockery of the truth can be traced back to Watergate and the Reagan administration, which learned the lesson of Watergate all too well: prevaricate, fabricate, claim forgetfulness, mince words, and basically do whatever is necessary to skirt the truth and protect your position: lie, in other words, without appearing too blatantly to be lying.
Even Ronnie claiming that his uniformly dark hair was undyed at 80 years of age was a blatant lie, and though it might be claimed it was merely a lie of vanity, the erosion of the truth starts precisely in the so-called "innocent" or "white" lie.
Note to a supposedly "religious" nation: there are no "innocent" lies. If someone is dying of a dread disease, their family may choose to lie about their approaching fate, but even this well-intentioned lie is not innocent.
I was raised in what now seems a very simplistic religious belief: that a lie was wrong, regardless of the definition of "is." What causes people who claim to be infused with deep religious beliefs to lie, not just once but habitually, as a matter of course, even founding their immensely profitable business on the constant shading, cloaking and manipulation of the truth, without any qualms?
We are constantly brow-beaten by a zealously political "evangelical" movement which bases its authority on its religious beliefs, yet this purportedly "religious" movement has stood by silently as blatant fraud and lies have corroded the nation's character and economy. Many of the most self-congratulatory mega-churches in this nation have effectively cast wealth acquisition into a characteristic more desirable than simple personal integrity.
Did the entire edifice of lies metasticize only in godless, heathen liberal havens like San Francisco? No, it blossomed and grew in "conservative" states like Florida, Arizona and Utah, and "conservative" counties in California (Orange County, for instance).
Yet what political or religious leader has chosen to recognize this deep moral rot at the very center of the nation's finances, and speak not just to the lies, fraud and moral bankruptcy of Congress and the banking industry, but of the lies, fraud and moral bankruptcy practiced by many in their own congregations?
The Empire of Fraudulent Debt that is finally unraveling was built not just on the lies of ratings agencies, accountants, tax attorneys and investment bankers, but on the lies of countless home buyers, realtors, appraisers and mortgage brokers--"regular" Americans who consciously threw away any pretence of following the 10 Commandments and sacrificed any pretense of personal honor and intregity by lying, choosing to mask the lies behind the polite screens of "it's only a little lie," "everybody's doing it," "it's just business," etc.
Note to a supposedly religious nation: you cannot parse lies into "acceptable because it's just business" and unacceptable lies (adultery, stealing from the church donations, etc.) A lie is a lie.
My family was and is deeply religious; my father's uncle was a missionary in Africa, where he gave his life to that cause, and my father's siblings were all born in Central America, where his parents served as lay ministers for many years.
The truly religious person is humble about their faith and about their superiority, for they are keenly aware of their faults and sins and do not attempt to mask or hide their failings behind fine-sounding words.
How low we have sunk as nation, not just of Christians, but Jews, Muslims, Hindus, Buddhists and other faiths that so few community, political and financial leaders of any faith have spoken directly and openly to the moral rot at the very center of the American financial system.
Even if a person has no religious faith, there are deep moral, philosophic and even practical reasons to value personal integrity and the trust which is built on the truth and only the truth, unmediated by lies, prevarications, footnotes, excuses, half-truths, exaggerations, faulty memory, and convoluted legalistic definitions of simple moral concepts like telling the truth or lying.
Note to a supposedly religious nation: if you're really pious and religious, keep the pronouncements to yourself and act out your faith by telling the truth in all things and in all times and places. Live your faith by denouncing lies wherever you find them in public life, even if the liar claims to share your beliefs, and even if you stand to benefit financially from the lies being foisted off as "the truth, sort of."
In a simple phrase: shut up about how moral you are and stop lying: on your taxes, and on everything else, too. Don't just accept, but celebrate the collapse of a national financial system based solely and precariously on systemic lies and cloaking of the truth. Then tell us how religious you are.
As the rotten, morally corrupt financial edifice that is the U.S. financial system collapses under the groaning weight of our collective lies and our silence in the face of those lies, it is a good time to ponder Lincoln's Second Inaugural speech. Though he spoke of the great sin of slavery, his words could just as well describe the coming cost of our financial perfidy:
Yet, if God wills that it continue, until all the wealth piled by the bond-man's two hundred and fifty years of unrequited toil shall be sunk, and until every drop of blood drawn with the lash, shall be paid by another drawn with the sword, as was said three thousand years ago, so still it must be said "the judgments of the Lord, are true and righteous altogether".
It is unpopular to "call out" financial lies because we have all benefitted, if not directly then tangentally, from the House of Lies being "sold" as trustworthy; our own properties have risen (until recently) greatly in nominal value, our 401K and public pension funds have grown, our bond funds have swollen as Bill Gross begged and pleaded for a public bailout of his private capital, our mortgage rate dropped, and so on, ad nauseum.
There will be a cost to perpetrating a national House of Lies and bailing it out with taxpayer's money: the default of the U.S. government. It can't happen, you say? The gummit has to send me my Social Security checks, pay my Medicare bills and send me the interest on my T-Bills. No, it doesn't. Check in again in October 2012 and let's see how the Empire of Lies and Debt is doing.
Remember, there are myriad ways to default. One way is to magically reconstitute a "new dollar" which is worth 5% of its previous value. On Friday, your $20 is worth whatever $20 will buy; on Monday, it will buy 95% less. But there was no default. That's how the Empire of Lies and Debt "works." Rest assured, we shall reap what we have sown.
New essay on leadership by Chris Sullins: First, Do No Harm
Reader Comments
Harun I.
I found this quote from one of your readers interesting: “Palin is attractive because she comes across as honest and principled.” This is vaporous soliloquy. This is tantamount to saying she seems like a nice person. Every despotic dictator who has dragged the world down through the muck and mire of war truly believed themselves to honest and principled. Memories are short. Bush Jr. too seemed honest and principled but his extreme ideological views have not yielded anything remotely conservative or republican. His honest and principled ideologically driven persona has yielded the worst consequence of character in a person wielding great power in a very complex and fluid environment: inflexibility.
If voters truly wanted real change in terms of small government and fiscal responsibility and a regard for Constitutional law then Ron Paul would be on the Republican ticket. Choosing the aptly assessed Palin/McCain ticket is a vote for the same or worse. It is absolutely sickening and pathetic that McCain will for the most part make no appearances on without her. Obama is truly running against Palin!
We have had over 19 months to gain some perspective about Obama’s quality of character and his ideas on important issues but there was one telling moment: Beside the fact that he thought the better of the Iraq war, his response to the Georgia/Russian conflict was thoughtful and measured.
In contrast McCain who has been around for 25 years responded with threats. Palin’s response merely parrots the party line. Most Americans were not served well by the media during this brief conflict because they thought they knew that Russia drew first blood, this is not true. But I digress; in contrast to Obama what is known and what will be known about Palin will have to be assessed in a few short weeks. I really do not care much about experience. One never knows how he or his teammates will perform in combat. I do care about her responses to questions on important issues and so far those answers are unacceptable to truly discerning people.
In this complex world economics and foreign policy need to be a President’s strong points. Diplomacy is prime; war is the last resort. Emotion and rhetoric are not primitive limbic responses, they are tools used carefully to bring about a desired affect. Having an ideology that sees things as black and white, good and evil is counterproductive and potentially dangerous as we have found out with the sitting President.
Neither ticket has the answers so the question becomes who would you rather see take the fall?
John S.
I also agree with you that unless the American public in general feels the pain in their daily lives, there will not be much of an action to speak of. Although I am afraid that it will be too late by then.... I like your advise of taking care of our financial situation to prepare our self of the pending economic crisis.
I think you are giving Palin too much credit and too little credit to John McCain. I truly believe he is a Maverick and is going along with the show to get into the white house. Once there, I think he will pursue what is right in his mind not the party's. If he can endure 5 years of POW imprisonment, he can pretty much endure anything...
Also as an afterthought, how knowledgeable are you of the Soviet Union's downfall? Here is a prime example I wonder if any lessons can be learned from the Soviet's in the last decade.... Just a thought.
Good points, Harun and John, thank you.
There is an interesting book on the parallels, real and imagined, between the USSR and the US: Reinventing Collapse: The Soviet Example and American Prospects by Dmitri Orlov
I also recommend two excellent descritions of the culture of fraud and lying in our financial system:
Greed, Fraud & Ignorance: A Subprime Insider's Look at the Mortgage Collapse Richard Bitner
Fiasco: The Inside Story of a Wall Street Trader
New Book Notes: My new "little book of big ideas," Weblogs & New Media: Marketing in Crisis is now available on amazon.com for $10.99.
"Charles Hugh Smith's Weblogs & New Media: Marketing in Crisis is one of the most important business analyses I have ever read. It is the first to squarely face converging global crises from a business perspective: peak oil, climate change, resource depletion, and the junction of key social cycles will radically alter the business landscape in coming decades...."
An excerpt from Weblogs & New Media: Marketing in Crisis :
3. The Kondratieff Cycle suggests that the global asset bubbles which are just starting to deflate have a long way to go before the next cycle of financially healthy/stable growth can begin.
The Kondratieff Cycle captures the cyclical nature of debt accumulation through excessive borrowing, and the inevitability of debt repudiation as the end-state of that extreme leverage/euphoria, which is then renounced in a lengthy crash/depression that lays the foundation for a new cycle of productive growth.
What is truly unprecedented is that this low point (which typically corresponds to global depression) coincides with a global crisis in energy supply and a demographic time-bomb in which the retired/elderly are so numerous that there will soon be only two or three workers for every retiree in an era of double-digit growth in healthcare costs.
No asset class which has experienced a bubble--real estate, stocks, non-energy commodities and even bonds--will be spared from severe depreciation as assets are sold to fund retirements and as the global "glut of savings"/low-cost lending of surplus dollars dries up in a global consumer recession/depression.
Pensions both public and private which were once considered well-funded will be revealed as woefully underfunded and unable to pay out the benefits and pensions which were expected.
As capital pools and consumer spending both contract, government's ability to borrow or raise ever-larger sums from taxation will decline even as demands for promised entitlements increases sharply in both developed and developing nations.
Thank you, David H. ($50), for your outrageously generous contribution to this site. I am greatly honored by your support and readership.
Monday, September 15, 2008
Election Prediction: Electoral College Blowout for Palin/McCain
After absorbing a wide array of reader responses and mainstream political commentary, I have concluded the Palin/McCain ticket (yes, in that order) will win by an overwhelming electoral college margin.
The popular vote may well be close, but the election will be decided by about 500,000 voters in "swing states" like Ohio, Pennsylvania, Michigan and Florida.
The simple reason for my prediction is this:
Relatively few Americans vote--generally less than half of all eligible voters, compared to about 80% in other developed-world democracies like France and Japan.
If even 10% of the previously non-voting eligible voters make an effort to cast a ballot for one party or the other, they will ensure a landslide win. So it comes down to which party ticket energizes their potential supporter base.
It seems self-evident to me that while Obama has fired up a pool of previously non-voting eligible voters in Urban America, Palin has fired up previously non-voting eligible voters in rural/suburban America.
The editors of the journal The Stranger wrote an extremely insightful (and scathingly partisan) analysis of American politics, The Urban Archipelago back in the aftermath of the 2004 election.
Regardless of your own partisan leanings (left, right, none, a pox on both houses, etc.) this analysis identifies the true divide in the nation is between urban zones (Left Coast and Northeast) and Everything in Between (rural and suburban).
The question then comes down to: which of those two populations tends to vote in greater numbers /percentages? I think the answer is rural/suburban, and so I expect the voters who typically don't bother to vote will make an effort to show up at the polls.
This is the short demographic answer, but a fuller answer can be found in this incisive commentary by Wall Street Journal writer Lee Seigel. The Triumph of Culture Over Politics Liberals always think there's something broken in politics. Conservatives always think there's something wrong with the culture. Why that gives Sarah Palin and the Republicans the edge in November.
Here's the key to the election: It is self-evident that a huge percentage of new Palin supporters will not be swayed by anything she says; they are voting for her purely on identity politics, i.e. "she's one of us." She could announce that the world is flat and that we should start wearing our underwear on the outside and that would not effect her supporters' belief in her being "one of us" in the least.
If a black person votes for a candidate because she's black, that's derided as "identity politics." But that is precisely why Palin's voters will vote for her regardless of what she says: they identify her as "one of us."
Meanwhile, the white Independent voter and perhaps the undecided Hispanic voters are alert for some position, utterance or subtext would would cause them to abandon the Obama/Biden ticket. (Not to mention that weird moment in the voting booth when some will pull back from voting for a non-Caucasian president. Let's be honest and admit it's an issue.)
The reason is self-evident: the Obama campaign's appeal is based not so much on being "one of us" but on policy and issues. To wit: The country is going down the wrong path, and the solution is political and economic. Palin's subtext is: there is nothing wrong with the nation or its policies that some basic "maverick" qualities couldn't whip into shape.
That seems to reflect the complacent attitude of most Americans who are supporting Palin and McCain. Here is an extremely insightful report from longtime correspondent Michael Goodfellow, who recently stayed at a truck stop motel for a few days.
The truck stop has a 24-hour diner called the Silver Skillet. I think the healthiest thing on the menu is grilled chicken breast with a side of fries. Everything else is fried or covered with white sauce, or both. The servings are huge, and so are the customers. You could get a dozen rants about unhealthy lifestyles out of this place.
Still, listening to the conversation, it's all pretty laid back. This isn't a bitter crowd. Lots of old people telling their jokes and stories to anyone who will sit still for them. Not much talk about politics, a lot of talk about family. I really don't think of this as a group of people gone to hell, sedated by TV, lied to by advertisers, misled by government, etc.
This is just what you get when average people with undemanding careers are just trying to get by without worrying too much about the future. And they get all they want to eat... Any group of our ancestors sitting around a tree would feel right at home, and envy these people.
In other words, life is still very good for those who haven't lost their homes or jobs, and those unfortunates are a relatively small percentage of the population.
As you know, many survivalist/Libertarians/free-thinkers read this site and contribute to its content; as you also know, I consider you part of the Remnant, the 4% or so of the population who isn't lulled into complacency by the MSM and attack-dog "conservative" (gag--as if borrowing trillions from the Gulf Oil exporters and the Chinese is "conservative" in any way, shape or form) entertainers/pundits.
I think it is remarkably easy, at least for me, to reckon that more people are alert to the grave consequences of the Patriot Act, the bailing out of every non-U.S. bank and speculator (domestic and non-U.S.) who bought Fannie and Freddie-backed mortgages, the absolutely shameless bailout of every U.S. bank and so on.
Read this for an excellent summary of how the Bank of America wrote the bailout bill: The Great Swindle: How housing bill helps banks, not taxpayers.
But the truth is the vast majority of American voters are more interested in Sarah Palin's footwear and eyewear than in issues which have no discernable effect on their well-being such as the F&F bailout.
The truth is, as long as the Saudis and other Gulf oil exporters and the Chinese and Japanese keep buying trillions in low-yielding Treasury and U.S. mortgage debt, then the eventual costs of all that insanely unsustainable borrowing are made to appear, well, entirely sustainable forever.
Credit crunch? The average American, espcially those who are fired up by Sarah Palin, don't have much direct contact with credit crunch issues; they have their mortgage and their credit cards and maybe a GMAC auto loan. As long as they can make the payments--and recall unemployment is still historically low, if we are to believe official statistics--then life is still good. All the talk of Georgia and Russia and Freddie and Fanny might as well be talk about the critters some hope to find on the surface of Mars--very distant and without any discernable impact of their daily cultural existence.
Despite the bad news and the impending doom, most voters don't see it or feel it yet. Note I said voters, not citizens. Half the country can be a whisker from bankruptcy but if they don't vote, then they have zero say in the election. If voters are feeling generally pretty good and complacency runs high in those primed to vote, that's all that matters.
Voters tend to be people who have a stake in the System and who believe their voice counts. Many people feel their vote doesn't count and they have no influence, so they don't vote--thus guaranteeing their lack of influence. I suspect more rural voters feel empowered and motivated to vote, and relatively more urban voters feel listlessly disenfranchised.
As long as their government checks and entitlements are flowing, at least one card still has some credit and they have a job, Americans feel no connection to the Empire of Debt's meltdown. Only a government default on middle-class entitlements (Social Security and Medicare) or a 25% unemployment rate will actually impact Americans enough to shake the massive inertia of their complacency. Recall that most the income taxes in the U.S. are paid by the top 20%, so if a massive government bailout of bankers raises taxes by 10%, so what? Most Americans sitting in truck stop diners (myself included, as I make less than $30K a year) will pay very little additional tax.
As a result of "progressive taxes," most Americans will be unaffected by these stupendously costly "private profits, public risk" bailouts. Hey, just borrow the money, then borrow the interest payments. As long as our foreign "friends" keep buying our deficits and debts rain or shine, then the debt bubble bursting will have zero impact on "average Americans." And so they don't care about "policies" or "issues" except as they relate to the cost of gasoline.
And thanks to the Saudis pumping flat out all spring and summer, oil prices are plummeting just in time for the election. Just a coincidence, folks, that the same thing happened in 2004. The gentlemen in the flowing robes were not in attendence at the Republican convention, but they were there nonetheless.
Meanwhile, mainstream "conservative" pundits like Peggy Noonan are suddenly calling for " a debate of the issues." What a joke. Miles to Go. Like an adult who feels the need to say, "OK, boys and girls, quiet down and do your homework" when she's having too much fun, Noonan and her ilk of commentators are actually ecstatic about Palin's identity-politics success but can't let on because it is embarrassingly shallow and more than a little suspect on the world stage.
Does anyone really think Palin is on the same level as Merkel and Thatcher? Yes, they are all female politicians. But the parallels end there. (Angela Merkel is Chancellor of Germany; Margaret Thatcher was Prime Minister of Great Britain.)
In addition to an unwholesome identity politics, the other key to this election is luck.
My longtime friend G.F.B. recently wrote here that McCain's seeming run of luck is the result of the Republican Party's leadership reluctantly throwing its weight behind his candidacy. That is certainly one element of his success.
But I also believe in what amounts to Luck-Luck. The closest analogy might be "The Zone" athletes (even us amateurs) enter at certain times. I can distinctly recall several pickup basketball games in my youth in which I literally could not miss: fade-away jumpers, top of the key shots, baseline shots, hook shots, you name it. Now most of the time I am capable of missing an easy layup shot, so these games really stand out in my mind.
I think McCain is in The Zone. His flubs seem to slip away without injuring his campaign, while his half-court strategic lobs like selecting Palin are dropping through the net.
This is all pure speculation, of course, and I may wake up after the election to find the Obama/Biden ticket has swept the field. But complacency is the deadly enemy of concerted thought and careful judgment, and if America is as complacent and detached as it seems, then McCain/Palin will win handily.
McCain will then have a chance to rid the Republican party of the Rove-led hatred and partisan smear campaigns and perhaps set the nation on a path to fiscal solvency and responsibility.
But I wouldn't lay any money on it happening, though, because complacency creates a massive inertia to the kind of deep structural changes the country needs to make.
So it already seems 2012 will be the really important election, the one held in the depths of a staggering global Depression. Maybe then people will start perking up to more than high heels, papers the candidate's wife wrote in college and sarcastic one-liners zinging the opposition. If people don't get their government checks, if they've lost their job and their unemployment checks run out, if they're losing weight because they can't get enough to eat, then they'll start caring. They may just want to find a scapegoat; if so, behind that door lies fascism and or/global war.
Or maybe the duct tape being slapped onto the credit contraption and the fossil fuel jalopy will hold, and everything four years hence will be much as it is now.
While the rest of the country focuses on the political soap opera and the sit-com one-liners, how about we keep an eye on the duct tape? Here are three insightful reader commentaries I strongly recommend reading:
Reader Comments
Catarina M.
I read your post today regarding the election,the candidates, the general state of affairs and just kept nodding, yes! I can't quite wrap my mind around what has happened to this country. The Great Depression hit my family hard.
My grandfather won a sports scholarship to Harvard (good deal for a poor Irish kid from Massachusetts, especially then), gave it up to support his family during the Depression years. The ripple effects in families from hard times is something I know the younger generation cannot imagine as of yet.
People I talked to who grew up during the Depression felt families were closer then, more dependent on one another. They were even nostalgic for the closeness of those times. You see a similar effect in the immigrant families here in Arizona. Poor people need each other, count on one another. My grandfather also took a lot of pride in supporting his family and keeping them together. I'm just not sure we will see the same dynamic this time around in the country at large. Kids today are not very interested in having a family, never mind supporting one.
The most conservative, routine thing you could do in life, have a family, is now seen as too risky!
Day after day, this story unfolds. We're not quite at Argentina yet, I'm wondering if we will get there soon. We had our one and only kid during the Carter years and still recall inflation, or more like, stagflation. Diapers cost as much as a car payment:)
On the ground here in Arizona, education drove the sprawl to the far reaches of Maricopa and other counties. I haven't seen this much discussed, lots of people worry their kids will go to rotten schools and fail in life. So they moved to developments with shiny, new schools (some of which were promised and not delivered), thinking they were doing right for their kids. (The immigrant families, too, another untold side of the story.)
People got homes in Florence or Queen Creek or Goodyear and were willing to drive an hour to work so the kids could go to a "decent" school. We put our kid through city schools and charter schools here in the city, it worked out great for us. My work as an artist allowed us to see things differently from folks in the typical 9-to-5 situation, I think.
9-to-5 leaves folks stretched thin on every level, and vulnerable to "the quick fix". Which I think summarizes much of what has gone wrong for the middle-class in recent decades. Much of what was offered via E-Z credit was variations of "quick fix" for folks under enormous pressure, holding down jobs with stagnant wages. There were no quick fixes during the Great Depression and I wonder how Americans will live without them now?
John K.
The problem with painting Palin as 'not-quite-ready-to-be-prez' (justifiably) is that is shines the halogens on Obama's lack of experience.
Eloquent, when reading a speech - yes - but truly inexperienced in what matters the most. Palin is a heartbeat away from the most powerful post in the world; Obama - if elected - owns the heartbeat of the most powerful man in the world.
This is the problem the Dem's have with Palin. When they bring up her inexperience, they expose Obama's inexperience.
Please, his time as a community activist doesn't count. Sitting in the Illinois legislature voting 'present' doesn't count either. And, his time in the Senate? He's spent most of his time running for office!
One thing that really irks me is that Obama represents himself as the candidate of change that will bring people together. Really? Can anyone name one time, one bill, one anything he collaborated with the opposition on? Has he reached across the isle? Not if he voted the liberal dem line 97% of the time he hasn't.
Not that I'm a fan of McCain - did I tell you that? - but one thing you can say is that he has reached across the isle. Maybe reached across too many times but he has collaborated with dems on many major pieces of legislation.
Before you paint me as one of those despised conservatives without heart, let me tell you I'm no Republican. That party left me long ago. Call me archaic - but I'd like a party which believes in a small constitutional representative government. The only reason I'm more attracted to the Repubs vs the Dems is at least they profess their belief in smaller government. Yes too many swarmy hypocritical politicians drown out the small numbers of true conservatives.
The Dems, on the other hand and as you well know, never really give a hoot about downsizing anything to do with government. A big government, engineered by either party, is counter to what the founders best and something every liberty-loving soul should fear.
Well, yes Palin would become vice-president with too little experience but, let me point out that was the knock (the proper knock) on the following:
Teddy Roosevelt
Harry Truman
Richard Nixon
None of these men messed things up - at least as vice-presidents. Perhaps the real problem with Palin, then, is sexism.
Palin is attractive because she comes across as honest and principled. Qualities sorely lacking in todays would-be leaders.
Paul K.
I enjoy reading your musings and essays (especially those related to the real-estate bubble), but I'm surprised, if not a bit disappointed, with your latest entry.
Let me begin by saying I'm as disheartened, borderline disenfranchised, as yourself by the performance of the current administration over the last eight years. And like you, I too voted for McCain over Bush in the primaries.
Perhaps I'm mis-reading you, but I don't understand how you could, in good conscience, vote for a lesser qualified candidate to avoid rewarding party incompetence. Isn't this the very definition of partisan politics?
Palin may be longer on personality than experience, but that strikes me as the same description as her opponent running for President (not Veep). When was the last time Obama led a group of people in a crisis situation?
I'd like to leave you with one final thought. As disappointed we both are in the performance of the Republican party over the last eight years, which candidate has best demonstrated the will to go against the grain of the party line, and wisdom to embrace good ideas from across the aisle?
Regardless of how you feel about one party or another, shouldn't your vote be about the best individual for the job?
Albert R.
I am 100% white, I live in Argentina, where there are very few black people, but I have lived in Brazil, Santo Domingo and many other latin american countries and have some understanding of the situation. Have you ever considered the position of people from some of these countries, who have a fairly small percentage of black ancestry and consider themselves as white, and are so also considered by the rest of their countrymen. When they travel to the United States, as tourists or as immigrants and upon arrival they find they are now black it must be quite a shock. There must be many thousands now with that experience. P.S. I very much enjoy your web page, which I open daily.
Mary R.H.
Back in January The Atlantic Monthly published an excellent article on how the U.S. and China are financially intertwined and dependent on each other. Read at your leisure and see if you would recommend this to your other readers.
The $1.4 Trillion Question The Chinese are subsidizing the American way of life. Are we playing them for suckers—or are they playing us?
New Book Notes: My new "little book of big ideas," Weblogs & New Media: Marketing in Crisis is now available on amazon.com for $10.99.
"Charles Hugh Smith's Weblogs & New Media: Marketing in Crisis is one of the most important business analyses I have ever read. It is the first to squarely face converging global crises from a business perspective: peak oil, climate change, resource depletion, and the junction of key social cycles will radically alter the business landscape in coming decades...."
An excerpt from Weblogs & New Media: Marketing in Crisis :
10. As supply/demand imbalances in FEW (food, energy, water) and the iron hand of demographics tightens its irreversible stranglehold on government's revenues and entitlement expenses, a global loss of faith in institutions will foster backlash/blowback and social disorder.
Expectations (i.e. our private inner maps of the future), lofted so high by the past 25 years of global expansion, cheap commodities and wealth creation via financial "innovations" (previously known as asset bubbles and debt), will be a powerfully destabilizing force globally.
It is a psychological truism that those with few expectations for betterment tend to persevere and be happy despite low status and income as they view themselves as sacrificing for the future benefit of the family and their children.
But those with high expectations for wealth, status, prestige, leisure and artistic expression find even modest disappointment a bitter gruel indeed. Thus the economic downturn in Hong Kong had little effect on the happiness of the city's many maids, but it exacted a devastating toll on their status/wealth-driven, high-expectation employers.
Buy my new novel from amazon.com: Claire's Great Adventure or buy a signed copy from me (a great gift for teens)
Thank you, Lezly H. ($25), for your much-appreciated and very generous contribution to this site. I am greatly honored by your support and readership.
Saturday, September 13, 2008
Favorite Line Ever Written
and, A Healthy Debate on Chinese Real Estate
September 13, 2008
Longtime correspondent David V. recently posed an excellent question, and provided his answer:
An interesting question for your readership: What is the single best line ever written? Or the most moving, most sad, etc.
I seem to be haunted by the opening line to Dante's Inferno....
"In the middle of the road of my life, I awoke in a dark deep woods, and discovered the 'Way' was wholely lost to me".
Great idea, David, thank you--and that is a haunting line, to be sure.
Reader commentaries:
Mike D. (Mike is a China-based correspondent)
I'd like to comment on your contention that "China's property real estate bubble is enormous and the popping will have consequences." I don't believe that the residential real estate market in China can be directly compared with the US market for the following reasons:
1. By law, you can not buy a house in China with less than a 30% down payment. This is a far cry from the 0% down payments extant in the US market recently. The obvious result of this rule is that homeowners/investors are not going to find themselves "under water" any time soon as they have a healthy equity cushion and are unlikely to consider walking away from their investment.
2. Chinese banks do not have the array of exotic payment methods that have plagued US borrowers with the inevitable resets after the first couple of years. Mortgages here are blandly non-innovative. Pick your amortization, prove that you can cover the monthly payment...oh! and forget fixed rate.
3. I refer you to a recent report in the New York Times at: China Housing Slowing. China is clearly seeing a slowing of housing demand everywhere and even falling prices, especially in the south-east (Guangzhou, Shenzhen, etc.). However, foreclosures are extremely rare and you must admit that foreclosures accelerate falling prices.
4. Chinese banks do not bundle mortgages, slice and dice them, and sell them off to third parties. There are no agents' and brokers' fees as you just deal with your local branch. All in all, buying a house in China reminds me of the way we did it in Canada back when I bought my first house in 1972.
I am inclined to the view that we are having a serious correction in housing prices (especially in the hot areas), but we are not looking at the popping of an enormous bubble a la the US situation. Would the US housing market be in such a perilous situation now without the "innovative" mortgages, lack of down payments, exorbitant fees and overall lack of due diligence?
Thank you, Mike, for an insightful commentary. As always, you provide a realistic, fact-based appraisal which I appreciate very much. I agree, the bubble popping in China will not be as severe as it is in the U.S. for the reasons you state, but I do still expect it it exceed expectations for these reasons:
1. A huge number of units are held for investment. If the speculator/owners' incomes take a hit, some of those could end up in default.
2. The problem with the 30% down payment is that the equity does not protect the owner from a cash flow crunch, i.e. inability to make the payment; it only provides a cushion to the lender. I have no way of tracking the accuracy of reports coming out of China, of course, but apparently declines of 30% or more are hitting coastal areas. That would imply owners and lenders are already facing zero equity or are underwater despite the hefty down payments.
3. Due to the issues of transparency and "face" I mentioned, I suspect impaired mortgages will be held on the books and hidden in much the same fashion as impaired mortgages here in the States are masked with legerdemaine. therefore the true "health" of total housing/speculative debt will be difficult to assess.
This uncertainty is a major factor in "the credit crunch" and that will probably be a major factor in China as well at some future point. Also, managers have a major incentive to cloak the true size and scope of impaired debt; there is literally no reason to be accurate as only bad things can happen to your career if you provide an accurate accounting.
4. Though the Chinese banks do not bundle mortgages into MBS, they have a long history of playing fast and loose with credit, i.e. extending it freely to cronies and political insiders as favors to boost their careers. I believe anecdotal evidence is very strong that the Chinese middle-class also fell prey to the bubble mentality in real estate, i.e. that it can never go down, the Party wouldn't allow real estate to plummet, etc., which fueled the bubble and subsequent crash in the Chinese stock market.
5. Commercial real estate lending in China appears to have been very extensive to developers, many of whom are now going under. In other words, the bubble won't necessarioy take down homeowners but the subsequent effect on the banking sector and economy could nonetheless be quite severe.
6. Our Chinese friends seem in total denial that real estate in China could actually fall and keep falling--the same disease which continues to infect Americans and Europeans. I have heard for years from friends in the U.S. that housing would not fall in their locale, and now they have all been proven wrong. Even now at this late date there is enormous denial that the housing bubble is a long way from bottoming. I detect the same myopia in China.
7. For many years I have engaged in fruitless quasi-religious debates with several very intelligent readers about China "decoupling" from the U.S. and an export-based economy. I say "quasi-religious" because the views of believers in decoupling are simply beyond reason, i.e. similar to religion. Good numbers are hard to come by, but I think it is self-evident that the capital flows and outsized profits in China's economy are all export-based.
Once the export sector (i.e. non-domestic manufacturing) starts shrinking dramatically, so will capital inflows and profits, both of which are being reflected in the stock market's speculative collapse. Once the export sector begins declining, real estate will follow suit.
8. Based on a number of cultural and macro factors, I believe the evidence is overwhelming that all major Asian economies are still fundamentally export-based. Despite years of trumpeting "domestic growth," statistically the domestic economy in both China and Japan has been lackluster. South Korea has boomed only because lavish consumer credit was unleashed on an unwary populace. Now the South Koreans are facing the same wrenching credit contraction and "hangover" the debt-strapped U.S. consumer faces.
9. Lastly, I continue to focus on the tremendous disappointment which will inevitably sweep China as the "Chinese economic miracle" is revealed to be a standard-issue business cycle just like any other economy throughout history. The belief that China's boom would be never-ending is so near and dear to peoples' beliefs (both Chinese and Westerners) that there is great resistance to seeing this entirely normal financial ebb.
The low-hanging fruit of rapid development is gone, and China faces the usual challenges of a maturing growth-cycle. Global recession will complicate that, as will a global credit contraction and various currency issues.
I believe that disappointment is a sorely underestimated political wild card which will play out in dynamic fashion over the next four years as the global recession rapidly morphs into a global depression.
New Book Notes: My new "little book of big ideas," Weblogs & New Media: Marketing in Crisis is now available on amazon.com for $10.99.
"Charles Hugh Smith's Weblogs & New Media: Marketing in Crisis is one of the most important business analyses I have ever read. It is the first to squarely face converging global crises from a business perspective: peak oil, climate change, resource depletion, and the junction of key social cycles will radically alter the business landscape in coming decades...."
An excerpt from Weblogs & New Media: Marketing in Crisis :
10. As supply/demand imbalances in FEW (food, energy, water) and the iron hand of demographics tightens its irreversible stranglehold on government's revenues and entitlement expenses, a global loss of faith in institutions will foster backlash/blowback and social disorder.
Expectations (i.e. our private inner maps of the future), lofted so high by the past 25 years of global expansion, cheap commodities and wealth creation via financial "innovations" (previously known as asset bubbles and debt), will be a powerfully destabilizing force globally.
It is a psychological truism that those with few expectations for betterment tend to persevere and be happy despite low status and income as they view themselves as sacrificing for the future benefit of the family and their children.
But those with high expectations for wealth, status, prestige, leisure and artistic expression find even modest disappointment a bitter gruel indeed. Thus the economic downturn in Hong Kong had little effect on the happiness of the city's many maids, but it exacted a devastating toll on their status/wealth-driven, high-expectation employers.
Thank you, Debbie J. ($25), for your very generous and much-appreciated contribution to this site. I am greatly honored by your support and readership.
Terms of Service
RE: European Union AI Act, and Our Use of Generative AI Tools and Agents Policy
All text on this site is composed by Charles Hugh Smith or by a credited guest-author. No Generative AI Tools are used in the composition / writing of any text or graphic content created by Charles Hugh Smith. This site deploys no AI agents or generative AI tools. This site is not responsible for the disclosures, use or non-use of AI agents or generative AI tools in advertisements displayed by Investing Channel or other ad placement services.
Audio files generated by text-to-audio transcription tools are identified as such.
Our Privacy Policy:
Correspondents' email is strictly confidential. This site does not collect digital data from visitors or distribute cookies. Advertisements served by third-party advertising networks such as Investing Channel may use cookies or collect information from visitors for the purpose of Interest-Based Advertising; if you wish to opt out of Interest-Based Advertising, please go to Opt out of interest-based advertising (The Network Advertising Initiative) If you have other privacy concerns relating to advertisements, please contact advertisers directly.
PRIVACY NOTICE FOR EEA INDIVIDUALS
This section covers disclosures on the General Data Protection Regulation (GDPR) for users residing within EEA only. GDPR replaces the existing Directive 95/46/ec, and aims at harmonizing data protection laws in the EU that are fit for purpose in the digital age. The primary objective of the GDPR is to give citizens back control of their personal data. Please follow the link below to access InvestingChannel's General Data Protection Notice.
https://stg.media.investingchannel.com/gdpr-notice/
Notice of Compliance with The California Consumer Protection Act
This site does not collect digital data from visitors or distribute cookies. Advertisements served by a third-party advertising network (Investing Channel) may use cookies or collect information from visitors for the purpose of Interest-Based Advertising. If you do not want any personal information that may be collected by third-party advertising to be sold, please follow the instructions on this page: Do Not Sell My Personal Information.
Regarding Cookies:
This site does not collect digital data from visitors or distribute cookies. Advertisements served by third-party advertising networks such as Investing Channel may use cookies or collect information from visitors for the purpose of Interest-Based Advertising; if you wish to opt out of Interest-Based Advertising, please go to Opt out of interest-based advertising (The Network Advertising Initiative) If you have other privacy concerns relating to advertisements, please contact advertisers directly.
Our Commission Policy:
Though I earn a small commission on Amazon.com books and gift certificates and gold (BullionVault) purchased via links on my site, I receive no fees or compensation for any other non-advertising links or content posted on my site.
Copyright Notice:
All original images (Drawings and Photographs), text (essays, books and works of fiction), audio and video recordings, musical compositions, graphic design, graphic design elements and HTML coding on this site are the copyrighted work of Charles Hugh Smith unless otherwise credited or noted. They are published as information for the private use of site visitors, and any reproduction or redistribution of this content or coding in any media in any format or distribution channel (text, audio, video/film, web) without the written permission of the copyright holder is strictly prohibited. All rights in all media reserved globally.















