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Generational Dynamics Web Log for 13-Dec-2014
13-Dec-14 World View -- Stocks plunge again, as economy spirals into deflation

Web Log - December, 2014

13-Dec-14 World View -- Stocks plunge again, as economy spirals into deflation

Russia may pause military hostilities in Ukraine for the winter

This morning's key headlines from GenerationalDynamics.com

Stocks plunge again, as economy spirals into deflation


NY Stock Exchange
NY Stock Exchange

The Dow Jones Industrial Average fell 315 points on Friday, capping off a brutal 3.8% fall this week on Wall Street. In Europe, Britain's FTSE fell 2.5%, Germany's DAX fell 2.7%, and France's CAC 40 fell 2.8%.

Oil prices continued their free fall, into the below-$60 range. West Texas Intermediate oil fell 3.6% to $57.81 per barrel, down 12.6% for the week.

Also on Friday, the Dept. of Commerce announced that wholesale prices (Producer Price Index) fell 0.2% in November, faster than the 0.1% fall predicted by analysts.

The fall in wholesale prices was led by a fall in overall energy costs. Those prices fell 3.1% on the month, due to a sharp drop in the cost of petroleum products. Energy prices have declined for five straight months. The gasoline index declined 6.3% in November. Home-heating oil costs fell 2.8% and diesel-fuel prices declined 3.5%. From a year earlier, energy prices were down 5.9%, according to the producer measure.

According to Friday's Wall Street Journal, the plunge in stock prices has pushed the S&P 500 Price/Earnings index (stock valuations index) on Friday morning (December 12) down to an astronomically high 18.66, down from the even more astronomically high 19.54 from last Friday (December 7). This is far above the historical average of 14, indicating that the stock market is in a huge bubble that could burst at any time. Generational Dynamics predicts that the P/E ratio will fall to the 5-6 range or lower, which is where it was as recently as 1982, resulting in a Dow Jones Industrial Average of 3000 or lower.

As I've been saying for years, starting in 2003, Generational Dynamics predicts that the economy is in a deflationary spiral. Since mainstream economists have been predicting inflation and hyperinflation, it's pretty clear that mainstream economists don't have the vaguest clue what's going on. Today's reports may give them pause.

One more warning: Hedge funds and other investors now have the entire weekend to think about what they're going to do next, and they may all reach the same decisions -- up or down. The major plunges of the 1929 crash and the 1987 false crash both occurred on Monday. So we may know by midday Monday whether the stock market is going to continue plunging, or whether it's going to recover in the short run. USA Today and Bloomberg and Nasdaq

Russia may pause military hostilities in Ukraine for the winter

In the last few days, Russian military attacks on Ukrainian positions in east Ukraine have markedly subsided, and Russia's state media has cooled its rhetoric on the highly nationalistic "Novorossiya" (New Russia) project, referring to all of southern and eastern Ukraine. According to Ukrainian General Staff estimates, Russian troops in Donbas currently total 32,000, including between 6,000 and 10,000 regular Russian Army personnel, the remainder being irregulars recruited locally and from Russia. But the Russian troops have avoided full scale conflict, for fear that the West would impose further sanctions. Instead, the troops transitioned to a kind of positional warfare, but have failed to make any gains against the Ukrainian forces in doing so. In particular, the Ukrainians have blocked Russian probing moves on Mariupol, and the land route from Russia to occupied Crimea.

Part of the calculation is that Russia's economy is heading for disaster. Putinís policy of state and crony capitalism plus protectionism has eliminated Russiaís economic growth. Since July, Western sanctions have stopped all refinancing of Russian foreign debt, whether private or public. Since June, the price of oil has fallen by 40 percent and with it the ruble exchange rate. These three factors are likely to worsen.

Russia's adventures in Ukraine, while politically popular, have been extremely costly for Russia. Now that Russia has invaded, occupied and annexed Crimea, Moscow is saddled with annexation costs and providing any humanitarian aid that's necessary. In east Ukraine, Russia must provide for an estimated 3.5-4 million people that live on the territory that Russia occupies. Russia is now preparing its tenth humanitarian convoy of hundreds of trucks with food, medicines and other supplies, but these are only a temporary emergency procedure.

There's a debate among economists as to how long Russia can continue in this way. It's true that Russia has hundreds of billions of dollars in foreign reserves that it can tap, but it's also true that Russia's economy may be in a downward spiral. So it now appears that Russia is going to pause for the winter in order to consolidate its gains, and make plans for warmer weather. Jamestown and Peterson Institute for International Economics

Uganda calls for mass Africa pullout from International Criminal Court

Uganda's president Yoweri Museveni said Friday that at the next meeting of the African Union, set for January 30-31, he will propose that all African countries withdraw from the International Criminal Court (ICC)

"I will bring a motion to the next sitting of the African Union to have all African states withdraw from the court, then they [Western nations] can be left alone with their own court. They have used it as a tool to target Africa."

Museveni's remarks came just a few days after an ICC case targeting the president of Kenya collapsed in an embarrassing debacle. Museveni accused the West of using the ICC to destabilize African nations.

Although that ICC does appear to have targeted Africa, that's only because war crimes trials for other countries have taken place in other courts. There are trials targeting the Khmer Rouge for their alleged war crimes in Cambodia's "killing fields" war in the 1970s, but that trial is being held in the "Extraordinary Chambers in the Courts of Cambodia" (ECCC) in Angk Snuol, Cambodia.

There's a trial targeting Ratko Mladic for atrocities committed at the 1995 Srebrenica massacre in the Bosnian war, but that trial is being conducted in the "International Criminal Tribunal for the former Yugoslavia" in The Hague.

There were trials in 1945 for Nazi war criminals, but they were held in special courts in Nuremberg, Germany. Japan's war crimes trials were held in 1946 in the International Military Tribunal for the Far East (IMTFE) in Tokyo.

So, taken as a whole, war crimes courts have certainly not specifically targeted Africa.

From the point of view of Generational Dynamics, these war crime trials are only for political show, and will do nothing to prevent war crimes in future. AFP and Al-Jazeera

(Comments: For reader comments, questions and discussion, see the 13-Dec-14 World View -- Stocks plunge again, as economy spirals into deflation thread of the Generational Dynamics forum. Comments may be posted anonymously.) (13-Dec-2014) Permanent Link
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