Readers of the AEC know that I have repeatedly pointed out G.E., which is (was?) literally 1% of the U.S. GDP, as the canary in the coal mine. It was my view that G.E. simply will never grow in real terms, EVER AGAIN. It then follows that there will be NO GROWTH in U.S. GDP, or world economic production.
In a no growth environment (steady state) assets that provide steady cash flow, and actually pay it to their bond and share holders instead of having an over priced dick-with-ears (but no brains... actually no, they were smart enough to rip us off) CEO, are the only game in town. Better yet, own your own business or farm.
Why on earth would anybody pay 20 X earnings for no growth? They won't. Stocks are not cheap in real terms. It is all about the US$ - deflation or inflation.
But here is the rub.
There is not enough Gold or Silver above ground for every American to "own a little Gold". There are 300 Million + Americans, and only 55 Million head of cattle, so we can't all own some cattle, and there are only 4 million or so sheep and a similar number of goats (yet there are over 100 million cats and dogs) so we can't all own some small livestock, either. But we have Trillions of US$ in the system.
See a problem here?
Mentatt (at) yahoo (dot) com
14 comments:
Speaking of growth, or shrinkage, as the case may be, has anyone looked at the weekly oil data? If you take out build up of reserves, imports are below 9.5MM barrels per day.
Regards,
Coal Guy
The world is overflowing in oil in storage (and natural gas too) -- one report was 150 million barrels of oil stored in tankers offshore around the world. Even if the economy roars back at the end of the year (which can't last), or if all those tankers are emptied due to backwardation (future price of oil collapsing), peak oil is NOT going to slap the world down this year. 2010 ... maybe ...
150 million bbls = 1.8 days of world usage.
If normal multiples are, say 10 or 12 times, the Dow would end up around 4,500?
If earnings fall off another, say, 30% too, the Dow would then be around 3,000?
And if the dollar devalues also ....?
AND a gold shortage? Yes, I think I can safely hazard a guess about the likely direction of the price of gold! And farmland too.
But i can't work out what happens to a debt-based fiat money system which relies on growth, if there's no growth to pay the interest.
If the whole world also stopped producing for the 1.8 days ... which it isn't. YOu have all the existing production to burn as well. From a marginal perspective, that little bit of oil goes a long way. :)
>But i can't work out what happens to a debt-based fiat money system which relies on growth, if there's no growth to pay the interest.<
1. Pump up the easy credit. It's fun at first until it is realized that the payback is bad news- especially for the US which is facing a massive geopolitical dislocation as well.
Or..
2. KABOOOM. Disorderly contraction prevails. Once the oil tankers stop arriving- the bus departs for Dmitry Orlov-land.
Donal:
5000 to 6500 would be my guess, but what the heck do I know...
Bureaucrat:
There is too much oil NOW. One barrel too much makes for a glut, then a contraction in investment in productive capacity, until you have 1 barrel too few and then you have a shortage.
If the economy contracts faster than oil imports, which is what is happening here... perhaps because the market with it millions of individual decisions sees/views it a certain way?
We shall see VERY, very soon. Decline rates of near 8% in existing fields without replacement fields will overwhelm the contraction no latter than 60 Billion Barrels, or about 2 years, by my estimates.
I guestimated a bottom near dow 3K right after Washington Mutual fell by simply drawing a long term trend line from the 70s through roughly 1984 slicing off the later credit boom/bubble that is now collapsing. Of course somewhere between here and there pensions would start collapsing their parent companies and creating further havoc so who knows. Personally I would prefer PEs around 6 to 10 on anything save possibly oil or companies that will benefit from a collapse of globalization. I reckon once the magnitude of the calamity before us becomes clearer TPTB will prefer to project blame on others than face the music. Come to think of it the banksters already tried once… “subprime” anyone? As if a bunch of pathetic deadbeat losers could collapse the global economy all by themselves.
I take part of that back the subprime were mostly innumerate and unable to judge weather they could afford an ARM or not. It’s best not to expect someone to do something they can’t do.
Greg- The Mad Scientist is recommending platinum as good investment at this time as opposed to gold. Do you feel that he has made a good case?
thnx
Dan:
They were not so innumerate as you might think...
Howard Stern had a bunch of beautiful strippers on his show (what a surprise!). he asked them who the VP was, who the chief justice was, who the Speaker of the House was... of course none of them could eve hazard an answer (not being elitist... I am sure they came from neglectful and abusive homes, or they would have been school teachers and physicians)... but when he asked them how many lap dances it took to pay their rent? Bingo!!
Everyone of them had that on the tip of their tongue.
Regarding the MS recommendation:
I cannot give advice in this forum, as I am bound by SEC regs. THe M.S. is not.
I will say that I would never bet against the M.S.
And I will disclose that, at the moment, I own Platinum futures.
thanks for sharing.......
___________________
Sharon
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