The Other McCain

"One should either write ruthlessly what one believes to be the truth, or else shut up." — Arthur Koestler

The Economy: How Bad Does It Suck?

Posted on | November 24, 2011 | 6 Comments

The Dow Jones Industrial Average lost 236.17 points Wednesday, closing at 11,257.5. Since Nov. 11, the Dow has lost 896.13 points (7.4%), and the forecast is ominous:

Stocks suffered a sixth straight day of losses on Wednesday as frustration over the euro zone’s debt crisis, coupled with weak Chinese factory data, further dented investor sentiment.
A weak German bond sale sparked fears the debt crisis was even beginning to threaten Berlin, with the leaders of France and Germany still at odds over a longer-term structural solution.
The poor demand for German government bonds showed that investors viewed investing in the euro zone as being too risky.

Here’s a cheerful headline:

“Disastrous” bond sale shakes
confidence in Germany

Megan McArdle explains at the Atlantic:

A year ago, Germany and France could probably have saved the euro–at least for a time–by stepping in to guarantee all the debts of the peripheral euro zone nations. To be sure, this would have created quite a lot of other problems, but it would have saved their banks and their currency union.
However, a year ago, governments were nowhere near ready to take such drastic action: the French and German governments didn’t want to put their credit rating behind Greek profligacy, and their voters wouldn’t have stood for it if they’d tried.
At this point, however, with the panic in full flight, it’s not entirely clear to me that even a 100% guarantee would staunch the bleeding for more than a short time. Do the Germans really have enough to guarantee the debts of most of the rest of the euro zone?

After two “recovery summers,” it’s all gloom and doom this fall:

Dexia Bailout On Verge Of Collapse, Threatens
To Take France AAA Rating Down With It

Euro on ‘Death Watch’ After
Investors Spurn German Bonds

Sarkozy: Europe’s “Liquidity Run” Has Begun
Because There Is An Unsolvable $30 Trillion Problem

So: Stocks suck and bonds look shaky. Which means . . . gold?

Gold and silver futures declined for the second time in three days as the dollar’s rally muted demand for precious metals as an alternative investment.

Wait — what?

Gold fell further on Thursday as declines in equities blamed on the euro zone crisis prompted investors to sell bullion to cover losses, while a firmer U.S. dollar also put pressure on prices. 

In other words, the economy sucks so bad right now, rich people are being forced to sell gold in order to make up for money they’re losing in every other area of investment. But perhaps there are financial opportunities in international catastrophe.

Egypt Slips Deeper Into Crisis on Sixth Day of Protests
–

Unrest stirs fears inside Israel
–

Kuwait arrests activists for storming parliament  
–

MILITIA GROUPS RUN WILD IN LIBYA

Investing in oil futures might work, but maybe it’s time to panic?

Survival Shop Reports Jump
In Sales To People Preparing
For “Possible Collapse”

Let’s face it, folks: The economy sucks real bad, and it’s only going to get worse. And you know what that means? It’s time for you to start shopping our Amazon’s “Black Friday Deals Week” specials: Great savings for you, commissions for me, and that way we’ll have enough money to stock up on freeze-dried food, Coleman lantern fuel and ammunition. Lots and lots of ammunition.

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Category: Economics, Europe, Germany, Gold

Comments

  • http://edwardroyce.livejournal.com/ edward royce

    Why do I feel like Lily Von Schtupp just before going on stage……?

    And why can’t I log in with my Yahoo! account?  meh.

  • http://qwertyaltofuori.blogspot.com Red

    Ain’t nothing wrong with being prepared. Stock up on the necessities and keep your powder dry ;-) Oh, and Happy Thanksgiving Stacy and Smitty and  respective families.

  • Anonymous

    Essentially, the Euro zone is collapsing and people are catching on that China is indeed in the middle of a huge Real Estate and municipal bond bubble (lucky for them, their growth rate will shield them from the worst effects).

    While volatile, the DOW hasn’t really moved much outside its range of the past couple of years.  For the US, the only things that will lead to the DOW reaching above its current range is the SCOTUS knocking down ObamaCare and/or a new Conservative administration actually willing to take on the governments fiscal problems.

    Also, it is important to note that the US economy is slowly chugging along.  Not much growth…but not declining.

    As I tell my Clients (when I put my CFAguy hat on), the DOW is not an indicator of current economic vitality.

  • Anonymous

    These market fluctuations and EuroZone liquidity problems are alarming but,
    the thing which should move us all to pitchforks and torches is the looting
    @ MF Global. Those pilfered funds were people’s investment and retirement, private and state pension funds etc.
    Worse yet, under the surface it is all of the big houses.
    MF Global was a political hit and many of those monies are in political insiders pockets. Not lost into some black hole.

  • http://edwardroyce.livejournal.com/ edward royce

    China’s “growth rate” isn’t going to shield them from anything.  The real estate bubble -is- the growth rate.  Nobody I know believes that the purported GDP numbers have any validity.  We all go by energy usage.  New construction, if in use, requires more energy.  New factories, data centers, office buildings, industrial parks, apartment complexes, shopping malls, skyscrapers, etc.

    If the GDP numbers are pointing to a 9% growth rate but the energy usage is actually only going up by 3% then it’s hard to reconcile the two unless the GDP numbers are either fake or being inflated with unused construction.  Hence the real estate bubble.

    China is in serious trouble.

    The past growth has been predicated on borrowing vast sums from Chinese savings and often put into NPL (Non-Performing Loans e.g. bad loans that’ll never be paid back) loans to corporations that have an incestuous and often corrupt relationship with national and provincial ministers.  And there is literally no telling how much of that cash has been looted out of these banks.

    Now the merry-go-round is ending and the game of musical chairs has begun and we can all be assured that the one group without a seat at the end will be the Chinese people.  And they aren’t going to be happy about it.  At best this will cause domestic turmoil.  At worst a civil war.  Either way the disruption and dislocation of manufacturing will have add-on effects on our economy and Europe’s when we really don’t need any more.

    And that’s not even including the inflation rate that China is dealing with now that’s above 14%.

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