Saturday, December 09, 2006

A tale Of Two Markets

We are either at the start of another bull market, or at the end of the world as we know it.

We do know that eventually this market and the world economy will experience a long bad stretch of very unpleasant times. We also know that inevitable does not necessarily mean immediate, or even soon.

I can remember when total US debt passed one trillion dollars and thinking "this can't last." We now can add a trillion more a year, and we have stayed afloat.

I have a very bad feeling about this.

Living by the ocean and watching waves I see one sucked off shore and both resisting and contributing to the next wave. When a tsunami or megatsunami comes however those unfortunate enough to watch see the whole ocean draw back as it is sucked into the incoming trough of a single massive wave.

What I feel tugging at the ocean of finance right now are two tsunamis. One is the end of the experiment of the Federal Reserve system that started in 1913. The other is the end of even larger consequence - the end of the industrial age.

The Federal Reserve has almost destroyed the value of the dollar under the guise of protecting it. I have heard there is now legislation to pass the treasury department's control over the mints to the non-governmental Federal Reserve. Why let a private bank like the Federal Reserve take even more control? Some would say it is panic.

Why did California pretend to privatize electrical service? They had screwed it up so bad they needed to blame privatization for the problems politicians had created. Is the Federal Reserve the next So. Cal. Edison, and are hedge funds and derivatives the next Enron?

An even greater problem is the transition from big to small brought on by the ending of the industrial age. Big bureaucracies are doomed by their own clients that are being empowered by technology to seek individualized, disintermediated solutions.

The big markets deal in just the sort of organizations that will deflate and implode as the netcohort slices and dices their operations.

The question now is, are we seeing the waters drawing out in response to these two perhaps distant earthquakes? There will be peace after the dual financial tsunamis subside, but little will be left standing.

Now we know from experience that the stock market anticipates normal recessions by six months or so, and we are likely to feel that pullback start soon.

How will the stock market anticipate the final destruction of the dollar and the dismemberment of all those huge institutions? And by what amount of time will it anticipate such huge disasters?

It might be time to look for a route to higher ground.

And now a switch of metaphors, because it is easier to reuse one of my quotes than rephrase it into tsunami speak.

"IT has not happened, does not mean IT will not happen. When the fire department tells you your untrimmed weeds are a fire hazard, they are not wrong because your house has not yet burned down." - A.R. Wallace

be careful out there

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