The Unsinkable brian cork™

Brian Patrick Cork is living the Authentic Life

economic recovery: Full Steam Ahead

January23

It seems that everyone has a lot to say about the current crazy markets. Having not seen the crash coming, many pundits are now predicting the end of the financial world as if it’s a foregone – and logical – conclusion.

Meanwhile, the markets have gone (from my perspective) into a random twitching period where fundamental laws do not apply and technical issues produce violent swings. For example, foreign exchange is in chaos; no one can explain why the yen is so strong.

The Japanese economy is in trouble like the rest of the world. Interest rates are 0%, the carry trade unwound long ago, growth is shot and the deficit is massive. There must be a good reason the yen rallies and falls in huge swings, but it seems no one knows what it is. It’s a fine example of pure volatility.

This wild volatility is not surprising, as the global financial engine has blown a gasket. Yet the bulk of the damage is done, and the engineers, however uninspiring, are nonetheless at work.

Seeing the famous-name banks trade, you might think you were watching financial Armageddon before your very eyes. But I believe the bottom’s been hit. The market is not going to free-fall off a cliff. The accident has happened and the patient is in intensive care.

I was a bit early to the party for the crash, and I can quite believe I might be a bit early for the coming rally, but it will come and it will be very strong.

“Just as most investors missed the market top, the bottom’s here now, and nobody seems to notice.” 

In crashes, a 25% drop is the norm and 50% is extremely uncommon. The next step down, 75%, is exceptionally rare and limited to massive bubbles like China and the dot-com boom. Frankly, however bad the current situation seems, the next phases will not compare with what has gone before or the worst-case outcomes that have been predicted.

What could happen next to knock the market in half again? The market prices in sentiment along with all available information; as such, it must be near bottom. Unless the world was to descend into war (which isn’t actually such an extreme prospect, but still something most people would consider highly unlikely) the only way is up. It’s just a case of when.

I’m stating this the same way I called the bear–loudly. I don’t see the point in hedging opinion, because, at this point, people want something definitive.

economic-recovery-cartoonIs there another crash ahead? I believe the answer is no. While lots of people think this crash has just begun, but I think it’s winding up to go bullish. That doesn’t mean there won’t be harsh economic times ahead for many, it just means the market will rally

The long term is a different matter, and there I think the markets will trade in a wide range for a number of years, reproducing the sort of boom-bust cycle we got used to in the ’70s. This will be caused by the triage of the central bankers and their titanic infusions of money.

We have already seen inflation fears flip into deflation terror and we’ll see it flip back again. This will save up plenty of crashes for later, but along with them will be huge upswings, as crude monetary easing will follow tightening–which followed the easing before–generating a massive swing-trade scenario in stocks.

It will take time, and strangely enough, many derivatives, to take the shaking volatility out of the world economy over the next few years. Derivatives that suppressed the risk for the last few years and then erupted will have a major role in restoring stability. Volatility is a blank check to the market; while it’s killing us now, it will soon become a lucrative business for traders to unload, and spreads will return to normal.

As the great men speak and plan their rescue of the rest of us, the real saviors will be the billions of individuals all working on their own bailouts. Right now, around the world, regular people are trying to work through this emergency of their own accords. This is the ultimate force that will overcome this crash.

In the end, we will push the world economy back from recession and into another round of progress. It’s going to take time, and after this financial earthquake, it will be tough. Even as the aftershocks have us running for safety, the recovery will be underway, and soon enough, its effects will be seen.

Bottom-line…

2009 is going to be awful for many people.  However, it should be pretty darn good for people that use their heads, make good decisions, leverage best-business-practices, and have a plan.  Stay focused. /1

Calling it as I see it – Stock markets call recoveries early.

Going into the weekend, consider “economy of mercy” by Switchfoot.

By the way…  I am, for the moment, deeply engrossed with The Clash.  So, let’s fire up “London Calling” if only because I think we should.

be to my Brothers and Sisters

Brian Patrick Cork

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1/ NOTE:  Brian also has a business Blog that apparently fascinates world leaders and decision-makers alike (but, few others). It can be viewed and relished at: The Human Capital Blog.

Full of Magic Beans

December30

My God Brother Steve called me “Bean Bean”. Here is a link to the story. Many of my friends refer to me as “Bean”, or “The Bean”. In fact, most call themselves “Brian’s Beans”.

I call people I like or admire (some times both) “Human Beans”.

So?

Most seem to think I know what I talk about. And, it seems like magic.

It certainly feels like magic.

In any event… As promised in my prior post “Question everything and accept Nothing”, here is some critical thinking, and potential economic predictions…

WARNING:  This may come across a tad grim.  But, I promise to be more playful in the next few weeks.

My guess, looking through the economic fog that currently surrounds us, is that the global economy is on the edge of a major event.  I am thinking of something in terms of a waterfall-like decline. 

Chaotic, tumultuous, steep.  As we go over the brink – let’s admire the view.  Here are (some of) my forecasts for 2009.

The past two years were phase one of the downturn:   a financial crisis affecting Wall Street, banks and brokers.  The next two years will be phase two:  a sustained decline affecting “Main Street” — industry, commerce, retail, governments, etc.

This is me, again, thinking in terms of the Laws of Natural Selection.

So, there will be “selective success” in-and-amongst Main Street – backing up through banks and Wall Street.  … You know, manipulation and related shenanigans. But, this is how it always works.  And, needs to work. America likes progress.  So, if members of the House and Senate want to keep their seats, they must needs deliver.

So…  Barack Obama will invoke all manner of interesting stimulus.  This will probably start in the first quarter with banks pumping money into the marketplace with private equity and Venture Capital in hot pursuit.

This is when and where the rich get richer (never mind Democratic ideology – that is all hog-wash any way) and the shrinking middle class becomes all the more befuddled.

It id likely going to be a front; but, it will be jarring nonetheless. January will start the first quarter with a bang.  

(1)  A hail of pink slips (but mostly redundant workers that can be replaced with contractors) as most businesses seek to reduce headcount by 5% – 10% — and seriously affected businesses do much more.    Like retail, as they close their marginal stores.  I think the unusual number of layoff announcements during the December holidays foreshadowed the main event,

(2)  Retail bankruptcies.  The extraordinary number of retail bankruptcies during the Christmas shopping season sets the stage for the tsunami hitting in the first few months of 2009.   See “Retailers Brace for Major Change“, Wall Street Journal, 27 December 2008.

The big stories for 2009

The primary theme of this downturn has been the unexpected breaking of “links” — components of our economic system.  One such, the opening act of the crisis, was the mass failure of mortgage brokers starting in December 2006.  The a long series of banks, investment banks, insurance companies, and the government-sponsored enterprises followed them into collapse — or forced marriages (mergers and acquisitions) /1, or life-support on the government’s teat.

Cork: So what will be the surprises for 2009?

(1)  Many non-financial firms will collapse (meaning that their functioning is seriously disrupted due to financial problems).  Some of this is expected:  in the auto, retail, and construction industries.  Most will be unexpected, big and small.  Some will result from banks cutting off their loans (anecdotal reports suggest this is happening now to small firms).  Some will result from revenue declines.  This will drive many small and medium banks over the edge, following their larger cousins.  There will be lots of bankruptcies as 2009 runs and even more in 2010.

(2)  Many local governments and agencies could collapse, perhaps even some states (e.g., Michigan, California [again]).  More bankruptcies, although this might be a 2010 story — however (this is where it REALLY gets interesting) this will be strongly mitigated by Federal aid and Wall Street /2.

(3)  The recession will spread from the developed nations (most now in recession) to the emerging nations. 

  • For example, watch China, as most experts expecting GDP growth of 4% – 8%.  Outright decline is possible, and would force everyone (optimists       and pessimists alike) back to the chalkboards to revise their calculations.
  • Watch the oil exporting nations, many of which will run large fiscal deficits.  Iran needs $90 oil to balance its budget, Algeria $56, Saudi Arabia $50.  Mexico has forward sold much of its 2009 production; after that the deluge if oil prices have not recovered.

Cork again:  What about the government?

The primary implication of the above (well considered) speculation is that the Obama Administration starts behind the curve.  The major factor will be when (or if) they update their OODA (observation-orientation-decision-action) loops to run as rapidly as events — responding to current events instead of (like Bernanke and Paulson) the situation as it was 3 months ago.  

I am confident that this will happen at some point in the downturn.  Perhaps they might eventually understand the overall processes at work, and act preemptively (look for preemptive Presidential pardons.  This is a tip that government and Wall Street “understand” one another).

In the next few weeks I will (unless I get distracted and forget) sketch out why government policy will not help much during 2009 (NOTE: fiscal policy might be the big story for the US economy in 2010).  However, in brief – and, in my opinion, the window for Congress to act was November and December.  Bold action could have buffered (not prevented) the shock, as described here on 7 October /3.  But, I think that window has closed.  However, the recommendations remain valid; if implemented during the next few months, they will help in late 2009, and (on a large scale) in 2010.

Meanwhile…  I bet we haven’t even begun to consider the nightmare and madness all this means for poverty-strickened nations like Africa in terms of even larger-scale starvation, disease and war. That will signal a real tipping point when shredded economies have no choice but to turn on one another just to survive. More on this later.  But, look at a world map and consider what naval alliances could be formed.

Lets listen to “Don’t Stop Believin'” by Journey and “Mad World” by Gary Jules – NOT Tears for Fears.

Peace be to my Brothers and Sisters.

Brian Patrick Cork

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1/  However, this has also given us our first legitimate World Bank candidate.  Gotta love the Illuminati.

2/  You know the drill…  Buy low, sell high.  The survivors will own even more than they imagined before this all began.

3/  A significant day – always chock full of signs and portent.

What’s All This About?

"What am I looking at?", you might wonder.

Lots of stuff.

Meanwhile, here, I discuss events, people and things in our world - and, my (hardly simplistic, albeit inarticulate) views around them.

You'll also learn things about, well, things, like people you need to know about, and information about companies you can't find anywhere else.

So, while I harangue the public in my not so gentle way, you will discover that I am fascinated by all things arcane, curious about those whom appear religious, love music, dabble in politics, loathe the media, value education, still think I am an athlete, and might offer a recipe.

All the while, striving mightily, and daily, to remain a prudent and optimistic gentleman - and, authentic.

brian cork by John Campbell





photos by John Campbell

 

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