Friday, June 1, 2012

OUR 2008 MARKET COLLAPSE ... ON A GLOBAL LEVEL

Wall Street fell 2 percent today. Many analysts want to blame it on the bleak jobs report. My friends, it goes beyond that.

For years now - in my classes, in numerous posts, and in private presentations - I have argued that history is whispering in our ear. In a few words I have tried to point to the conditions that have led to economic collapse and political breakdown in the past. Then I explain how these conditions are being recreated today.

Politically and economically a perfect storm is on the horizon.



There are many indicators that I discuss in my book, in my classes, and in my blog posts (which will also appear in my next book). Still, one thing is clear: the hedging, gambling, and artificial markets that have been created on a pile of debt have been made worse by successive bailouts and favorable legislation.

I bring all of this up because of this post from Zero Hedge. It directs us to what the founder of Global Macro Investor, Raoul Pal, has to say about the looming perfect storm. He agrees with what I've been saying for years and it's not pretty.

But unlike other investor windbags trying to scare people into investing with them Pal succinctly outlines what been happening to the global economy and leaves it at that. In a few words he writes that this looming perfect storm will soon become our reality because:


[t]he problem is not Government debt per se. The real problem is that the $70 trillion in G10 debt is the collateral for $700 trillion in derivatives ... Yes, that equates to 1200% of Global GDP and it rests on very, very weak foundations.

Translated what this means is that the combined debt of the largest economies in the world totals about $70 trillion (as a point of reference, in 2012 the entire U.S. economy will produce about $15 trillion in goods and services). The world's financial players have placed about $700 trillion in bets on this debt. Put another way, $700 trillion in global hedging and gambling rests on a pile of debt.

Worse, because that debt is unstable (think Greece, Portugal, Spain, Ireland ... EU ... England ... etc.) it effectively rests on a weak and largely artificial market.

In more practical terms, what happened in the U.S. economy in 2008 is now being done globally. And it's all made possible, in part, because successive bailouts and favorable legislation have anesthetized our political and financial leaders to the market stupidity we've created and engaged in over the past 30 years.

Raoul Pal thinks we have about 6 months left before the house of cards comes tumbling down. Definitely by 2013 he argues. I'm not so sure about the dates.

But rest assured, we're f**ked.

- Mark

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