The end of tolerance
"One of the common denominators I have found is that expectations rise above that which is expected."
- President George W. Bush, Los Angeles, California, September 27, 2000.
Every epoch needs leaders of stature who will define it. America has found Bush and Greenspan to take it where it needs to go in order to fulfill its historical destiny. The duo is perfectly matched. One is clueless and has made the biggest military blunder in American history while the other is ruthless and has made the biggest financial blunder in American history.
Stephen S. Roach, chief economist and director of global economics at Morgan Stanley, has estimated that over the period of 1995 to 2002, the USA accounted for an astonishing 98 percent of the cumulative increase in world GDP, more than triple its 30 percent share in the global economy. In other words, all but two percent of global growth came from the United States.
Yet in the year 2002, the typical American man earned six percent less than he earned in 1977. He has made ends meet by resorting to two desperate measures: he sent his wife to work and he went into debt.
In 1996, the American consumer increased his spending on current goods and services by $281 billion, with debt growth of $3.5 trillion. In 2000, he spent $456.9 billion and borrowed $566.9 billion. And in 2003, spending of $367.9 billion resulted in a debt growth of $879.9 billion. Consumer borrowing is not alone in escalating to unprecedented extremes. Government borrowing has also soared. In 1997, the U.S. economy grew by $487.4 billion in current dollars, with an overall credit expansion of $1.4 trillion. That was already an unusually high borrowing ratio. In 2003, it took $2.7 trillion of new credit to generate nominal GDP growth of $504.7 billion.
The outstanding public debt as of May 29, 2004 was $7,202,833,223,419.16, or $24,484.85 per head of population, and it is increasing at an average of $1.7 billion per day (this information can be obtained at www.brillig.com/debt_clock/). Laurence Kotlikoff, writing in Fortune, explains that America's 'fiscal gap' has risen to $51 trillion - more than the value of all the private assets in the entire country - and debts have to be repaid. These credit and spending excesses have involved tremendous distortions in the world economy's structure. Still, the trillions in borrowing and spending look like 'growth' to certain economists, and newspapers are able to print cheery headlines while companies are able to report higher profits.
Even the employment numbers seem to be improving until you bother to examine them in detail. Then you notice that people are actually working fewer hours and earning less money, and all over the Anglo-Saxon world people are going bankrupt at the fastest rates in history.
This is set to continue as globalization puts American and Western European workers in direct competition with Chinese and Indians and millions of others who are willing to work for $5 or less a day. Since the cost of labor is about 75 percent of total costs in most industries, this commodity is in a huge, multi-generational deflationary cycle.
How can companies make money when their customers are going bust, and how can they defend their profit margins when the Chinese are making things at half the price? The answers will be revealed as Phase II of the Great Bear Market gets underway.
The real trick will be to re-balance world growth away from a very U.S.-centric model to a more balanced one without causing a major, simultaneous worldwide recession.
This re-balancing is about to start, and it will be the final act in the current long term American political and economic cycle that has lasted for over 200 years, ever since the American War of Independence. What is about to happen will affect everything - stocks, commodities, currencies, property, and interest rates worldwide. All will be subject to the influence of the process, and not all of these influences will be benign.
At this particular moment, most market participants are displaying 'myopic gain addiction.' They are chasing anything and everything that shows signs of increasing in value, and they seem to be in denial of the problems ahead.
One of the best indicators of an approaching turn in the stock market is the degree of fear among investors. Fear intensifies near significant market lows and diminishes near significant tops.
The Market Volatility Index (VIX) was established by the Chicago Board of Exchange in 1993. It is a measure of the premium that is charged on options and is used as an indicator of the amount of fear or complacency in the market. During October 1998, when there was a lot of fear in the market, the VIX reached a high value of 60 and the market bottomed. It fell to around 20 in January 2000 and the Dow Jones Industrial Average (DJIA) peaked. Over the past few weeks, it has touched the lowest close since June 1996 at 14.01. This indicates a top of great significance.
Another technical indicator that has exhibited extraordinary behavior is the McClellan Oscillator. Developed In 1969 by Sherman and Marian McClellan, it measures the money coming in and out of the market and indicates overbought and oversold conditions. On May 10, it stood at minus 358 and indicated the most oversold condition since September 21, 2000. Then, in 13 days, it rose 672 points to reach an overbought extreme of plus 314, the largest point rise in the shortest time span since 1984, and the most overbought condition in at least 20 years. Yet during this record reversal, the DJIA managed to gain only 2.1 percent. It would appear that the bulls are weakening and prices are ready to move significantly lower and well below the lows of October 2002.
As the negative social mood increases and markets start to fall, the prophesy of the current President of the Protestant Crusaders will become a reality, for, as George W. Bush said at Texas A&M University on April 6, 1998, "We live in a culture of moral indifference, where movies and videos glamorize violence and tolerance is touted as a great virtue." As at the time of the Spanish Inquisition, tolerance, as a virtue, will soon come to an end. Cycles repeat.
- President George W. Bush, Los Angeles, California, September 27, 2000.
Every epoch needs leaders of stature who will define it. America has found Bush and Greenspan to take it where it needs to go in order to fulfill its historical destiny. The duo is perfectly matched. One is clueless and has made the biggest military blunder in American history while the other is ruthless and has made the biggest financial blunder in American history.
Stephen S. Roach, chief economist and director of global economics at Morgan Stanley, has estimated that over the period of 1995 to 2002, the USA accounted for an astonishing 98 percent of the cumulative increase in world GDP, more than triple its 30 percent share in the global economy. In other words, all but two percent of global growth came from the United States.
Yet in the year 2002, the typical American man earned six percent less than he earned in 1977. He has made ends meet by resorting to two desperate measures: he sent his wife to work and he went into debt.
In 1996, the American consumer increased his spending on current goods and services by $281 billion, with debt growth of $3.5 trillion. In 2000, he spent $456.9 billion and borrowed $566.9 billion. And in 2003, spending of $367.9 billion resulted in a debt growth of $879.9 billion. Consumer borrowing is not alone in escalating to unprecedented extremes. Government borrowing has also soared. In 1997, the U.S. economy grew by $487.4 billion in current dollars, with an overall credit expansion of $1.4 trillion. That was already an unusually high borrowing ratio. In 2003, it took $2.7 trillion of new credit to generate nominal GDP growth of $504.7 billion.
The outstanding public debt as of May 29, 2004 was $7,202,833,223,419.16, or $24,484.85 per head of population, and it is increasing at an average of $1.7 billion per day (this information can be obtained at www.brillig.com/debt_clock/). Laurence Kotlikoff, writing in Fortune, explains that America's 'fiscal gap' has risen to $51 trillion - more than the value of all the private assets in the entire country - and debts have to be repaid. These credit and spending excesses have involved tremendous distortions in the world economy's structure. Still, the trillions in borrowing and spending look like 'growth' to certain economists, and newspapers are able to print cheery headlines while companies are able to report higher profits.
Even the employment numbers seem to be improving until you bother to examine them in detail. Then you notice that people are actually working fewer hours and earning less money, and all over the Anglo-Saxon world people are going bankrupt at the fastest rates in history.
This is set to continue as globalization puts American and Western European workers in direct competition with Chinese and Indians and millions of others who are willing to work for $5 or less a day. Since the cost of labor is about 75 percent of total costs in most industries, this commodity is in a huge, multi-generational deflationary cycle.
How can companies make money when their customers are going bust, and how can they defend their profit margins when the Chinese are making things at half the price? The answers will be revealed as Phase II of the Great Bear Market gets underway.
The real trick will be to re-balance world growth away from a very U.S.-centric model to a more balanced one without causing a major, simultaneous worldwide recession.
This re-balancing is about to start, and it will be the final act in the current long term American political and economic cycle that has lasted for over 200 years, ever since the American War of Independence. What is about to happen will affect everything - stocks, commodities, currencies, property, and interest rates worldwide. All will be subject to the influence of the process, and not all of these influences will be benign.
At this particular moment, most market participants are displaying 'myopic gain addiction.' They are chasing anything and everything that shows signs of increasing in value, and they seem to be in denial of the problems ahead.
One of the best indicators of an approaching turn in the stock market is the degree of fear among investors. Fear intensifies near significant market lows and diminishes near significant tops.
The Market Volatility Index (VIX) was established by the Chicago Board of Exchange in 1993. It is a measure of the premium that is charged on options and is used as an indicator of the amount of fear or complacency in the market. During October 1998, when there was a lot of fear in the market, the VIX reached a high value of 60 and the market bottomed. It fell to around 20 in January 2000 and the Dow Jones Industrial Average (DJIA) peaked. Over the past few weeks, it has touched the lowest close since June 1996 at 14.01. This indicates a top of great significance.
Another technical indicator that has exhibited extraordinary behavior is the McClellan Oscillator. Developed In 1969 by Sherman and Marian McClellan, it measures the money coming in and out of the market and indicates overbought and oversold conditions. On May 10, it stood at minus 358 and indicated the most oversold condition since September 21, 2000. Then, in 13 days, it rose 672 points to reach an overbought extreme of plus 314, the largest point rise in the shortest time span since 1984, and the most overbought condition in at least 20 years. Yet during this record reversal, the DJIA managed to gain only 2.1 percent. It would appear that the bulls are weakening and prices are ready to move significantly lower and well below the lows of October 2002.
As the negative social mood increases and markets start to fall, the prophesy of the current President of the Protestant Crusaders will become a reality, for, as George W. Bush said at Texas A&M University on April 6, 1998, "We live in a culture of moral indifference, where movies and videos glamorize violence and tolerance is touted as a great virtue." As at the time of the Spanish Inquisition, tolerance, as a virtue, will soon come to an end. Cycles repeat.
