Generational Dynamics: Forecasting America's Destiny Generational
 Forecasting America's Destiny ... and the World's


Generational Dynamics Web Log for 7-Feb-2009
Eat drink and be merry, for tomorrow we die.

Web Log - February, 2009

Eat drink and be merry, for tomorrow we die.

Investors were cheering the state of confusion and panic in Washington, because the news was so bad that it meant that a fiscal stimulus package will pass and will save the world.

Friday morning's jobs report was an enormous shock to everyone - almost 600,000 jobs lost in January - the worst since 1974 and an increase in the unemployment rate to 7.6%.

In commenting on the jobs report, one young female economics expert exclaimed, "When you start to see numbers that take you way back to 1974 - that's the largest payroll drop that we've endured since then - we saw a loss of about 598,000, you get nervous -- cause that takes you back to when The Sting was the best picture for the Oscars, Roberta Flack's "Killing me softly" was the number one song -- we're going waaaaaaaaay far back."

Mohamed El-Erian of Pimco Inc. was a little more sober on CNBC:

"The employment number is very concerning. The acceleration of job numbers is of particular concern. As becky points out, we've lost half of the total jobs in the last three months, and we've gone from an unemployment rate of 4.9% to 7.6% in just a year.

So it's telling you in a very clear and loud manner that we are in the midst of something very different. It's more than just a severe and synchronized global recession.

It's more than just a banking system that's not functioning.

People are going into preservation mode, into precautionary mode. Even those who can spend are not spending, and that is a major concern as you look forward."

El-Erian said that there are four "balance sheets" that are contracting: the banking and finance balance sheet, the consumer balance sheet, the mortgage market, and the global balance sheet. He said that the rest of the world is looking to President Obama for leadership to solve this problem.

El-Erian's solution? The Obama fiscal stimulus plan has to exhibit "shock and awe," to restore confidence.

President Obama made a televised statement:

"This is not some abstract debate. It is an urgent and growing crisis that can only be fully understood through the unseen stories that lie underneath each and every one of those 600,000 jobs that were lost this month. ...

These Americans are counting on us, all of us in Washington. We have to remember that we're here to work for them. And if we drag our feet and fail to act, this crisis could turn into a catastrophe.

We'll continue to get devastating job reports like today's -- month after month, year after year. It's very important to understand that, although we had a terrible year with respect to jobs last year, the problem is accelerating, not decelerating. It's getting worse, not getting better. Almost half of the jobs that were lost have been lost just in the last couple of months."

(Incidentally, if you want to find the above transcript, you can't go to the White House web site and search for press releases. Apparently, press releases are Boomer crap. Instead, if you're lucky, you can find it on the White House Blog, subtitled "beyond the echo chamber." Also, you can no longer find President Bush's old speeches on the White House web site; apparently President Bush has become an unperson.)

Washington is still heavily bogged down in a state of near paralysis, as it has been for years. However, the jobs report was so disastrous, that it actually motivated the Congress to move ahead on the fiscal stimulus bill, which otherwise might have died.

And that's why investors are celebrating. The disastrous jobs report was GOOD NEWS. It means that the fiscal stimulus package will pass, and that's why the stock market surged 3%.

You know, Dear Reader, there was a time when I used to mock investors for their "bad news is good news" attitude, but now it just makes me numb, and makes me want to throw up. So, you'll have to provide your own mocking.

It was just a month ago that the world was expecting everything to get all better on January 21, the day after President Obama's inauguration. Obama himself had expected the fiscal stimulus package to pass in Congress on that day, so that he could sign it immediately. He expected to get 80 votes in the Senate, including all Democrats and many Republicans. He expected it to restore confidence immediately, as he believed President Roosevelt had done when he took office in 1933.

What is absolutely clear is that no one in Washington has any idea what's going to happen. The development of this fiscal stimulus bill is a circus, with little kids competing with one another for goodies. It's an embarassment to the nation.

At the beginning of 2009, I wrote "The outlook for 2009," telling what was REALLY going to happen, and none of that has changed.

First, it's way too early in the deflationary spiral for anything to work. There is not enough money in the world to stop it. To the contrary, we're seeing one economic indicator after another that's turning negative and accelerating in the negative direction. The world is falling faster and faster into a black hole, and nothing can stop it.

Long-time readers of this web site know that the last paragraph is not some fanciful whimsy, and that it's based on hard analysis that I've been posting for years. (See "How to compute the 'real value' of the stock market.")

Second, we're still headed for a generational panic and crash, and I've described it this way several times in the past:

"A generational crash is an elemental force of nature, like a tsunami.

You'll have millions or even tens of millions of Boomers and Generation-Xers in countries around the world, never having seen anything like this before, not even believing it was possible, and in a state of total mass panic, trying to sell all at once. Computer systems will crash or will be clogged for hours, or perhaps even for a day or two. People who had hoped to get out just as the collapse is occurring will be totally screwed, and will lose everything. Brokers and other institutions will go bankrupt."

This might happen tomorrow, next week, next month or thereafter. We can't predict when it will happen, but it's coming soon with absolute certainty.

(Comments: For reader comments, questions and discussion, as well as more frequent updates on this subject, see the Financial Topics thread of the Generational Dynamics forum. Read the entire thread for discussions on how to protect your money.) (7-Feb-2009) Permanent Link
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