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More Portents of Doom   (December 13, 2006)


Let's start with an incisive excerpt and chart from this week's Barrons: the "cliche alert" chart suggests that a sudden spike in soothing financial cliches--"the goldilocks economy," "soft landing" and "global liquidity"--portend stock market doom.



Here's a few choice paragraphs from Up and Down Wall Street:
IN HIS LATEST CHILLY BLAST FROM UP New Hampshire way, Fred Hickey, proprietor of the wonderful High-Tech Strategist and member of the Barron's Roundtable, muses on the disconnect between Wall Street and the real world, like Nashua, which he calls home. The differences have never been greater, he laments, and the wealth disparity is at the highest level in history. By way of illustration, he cites the fact that the average pay of the top 126 hedge fund managers last year was $363 million, up some 45% from the year before. He doesn't tell us what the annual paycheck of the average working stiff in Nashua is, but we suspect it's somewhat less than $363 million.

Fred's point is that the enormous financial gap between Wall Street and Main Street obviously colors their views of the economy and how easy or hard it is to make ends meet Because he's more attuned to vox populi, he doesn't go along with the notion common in the Street that everything's fine and dandy. And he cites the recent Democratic sweep in the elections as proof that it isn't.

The discontent he detects among the populace bodes ill both for the economy and the stock market and he's a growling bear on both. And he's also flat-out bearish on his special preserve, the electronics sector.
The article goes on to note that Mr. Hickey suggests shorting all the darlings: Google (GOOG), Research in Motion (RIMM), etc. For a single manager to "earn" $363 million--a sum far larger than the net profits of many major corporations--is truly obscene. If you absolutely must narrow all the portents of doom down to one, this is it.

Next up is a report from the critical Holiday shopping/retail sales front from correspondent Harun I.:

Anecdotally, my wife reports holiday shopping traffic is down substantially in my area. She is hearing the same thing from her sister and her colleagues. Of course there may be an increase in online shopping. I think we would agree that online shopping will not make up for the overhead of bricks and mortar stores. I went out with her on Black Friday and was surprised that it we had no problem with parking or checkout. The mall was normal.

As I drive around I notice European and Asian luxury SUV's and sedans parked in the driveways of even the most modest of houses. All this free money must seem pretty good...for now.

As you say the economic reports will say everything is just fine. Oh what a wonderful world.
When will the financial press begin covering the disappointment which is this Holiday shopping season? Soon? Or after the market has already sniffed a whiff of disaster? No doubt the latter; cheerleaders, after all, are still gamely cheering the home team on even as the opponents (in this case, reality) are stomping their exhausted players and easily scoring again and again (i.e. making huge profits by shorting the market).

For a truly disturbing--and therefore fascinating--comparison of the USSR's demise and a depression-like collapse of the U.S. economy, let's turn to a lengthy report which was forwarded by two frequent contributors, Our U.K. Correspondent and Jim W., our RV "Wheel Estate" Correspondent:

USSR and USA: Closing the 'Collapse Gap'.


On another note: Readers have recently requested links to previous entries; I list them here in the event others may also have missed the originals:

Columnist Jim Willie was kind enough to mention a recent post on the housing bubble's stairstep collapse; here it is: Housing's Stairstep Descent.

Another reader asked for the pancake recipe submitted by reader Chris H.; here it is: Light-As-Air Pancake Recipe. Enjoy!

Last but not least, here are two blatantly contradictory holiday recommendations:

Can't think of what to give people who already have everything? Hate shopping? With Amazon.com gift certificates, they pick their own gift and love you for it.

Don't waste money on useless gifts this year! Buy yourself some investment gold instead at the online gold vault BullionVault.com.


For more on this subject and a wide array of other topics, please visit my weblog.

                                                           


copyright © 2006 Charles Hugh Smith. All rights reserved in all media.

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