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Sunday, August 21, 2011

Markets Will Gravitate to ZERO

 Readers Warning

The content of this article covers issues that some readers may find either upsetting or highly controversial, so in all fairness we believed you should be forewarned .The article has two objectives. First, is to provide an inside glimpse into the current discourse among leading global investors and economists. Next to outline the thinking behind variables as they pertain to the current structure, trends and conditions of the markets and economies.

Before reading the response below, we urge you to read Brain Bloom's original article that was published last week in the UK. The title is"The Real Impact of the Primary Bear Trend that Commenced in 2000" Brian is a published author, friend and savvy trader. There are differences in views and references brought out in this exchange that should spur insights and further conversation. You are also welcome to add and share any comments below.


Hey not fair...what's science have to do with economics?

Markets Will Gravitate to ZERO

Laws of Nature Win…Hooray!

Thanks Brian:

Great charts and clearly said. You should consider writing as a career.

A few points are salient and bring further concern to the analysis. First is the number for CPI. It is more than cooked, in my view; it is blatantly fraudulent and will be manipulated by governments in all the years ahead to fool the people. My view would be to use the changes in the price of oil or gasoline as a more realistic proxy for inflation. I think the numbers would be more shocking. 

Related to CPI is the concept of global purchasing power. If a unit of such existed, measuring both bonds and stocks by this measure would find that both asset classes are seriously underwater. Certainly, the year 2000 was the start of the longest running bear market in our history. I draw one additional observation here. Most people treat all the numbers in your analysis as reality. When indeed, nothing could be further from the truth due to both the deliberate corruption and misguided conceptual models used. The true realty is somewhere behind the numbers that very few comprehend or fashion to do so.

As a result, it leads to poor decisions at every level of society. And the planet, people and future generations will suffer considerable costs and harms consequently.

Reference to Hedge Funds provokes curiosity and questions of meaning. The term is applied to a vast group of entities who share few traits that are similar. The failure of that test means that they are not homogeneous and thus defy simple analytical concern. Some for instance also invest directly in operating companies, real estate and god only knows what else. So this mix of traits makes Hedge Funds even less relevant for effective contrast or comparison with the markets.

As to your conclusions, I agree that investing in China or Russia, and others for that matter, is dubious. The uncertainty of law, corruption and political stability must be measured in any investment evaluation. Thus deeming any venture of higher risk; requires a higher reward. If such reward is commensurate with the risk in your mind, by all means proceed.

Real estate is still a viable investment. It should be based on the flow of global liquidity and the prospects for future economic activity to centre itself in the geographic area of concern. The old adage, location, location, location... in some respects makes it a simple decision based on macro-eco trends and circumstance. For instance today, selling a million dollars worth of real estate holdings in Buffalo N.Y., and then using the funds to acquire an equivalent property near the tar sands in Ft McMurray, Alberta is a slam dunk transaction. A no they say!  

As to the outlook for gold, currencies, markets and economies; gold is now the reserve currency in the real world. In the official government and media world, they hold onto the false belief that the US dollar is still the reserve currency. All of us may get very, very rich as long as the majority of people have a belief in this foolishness. Their confidence will be shaken only when the ravages of hyperinflation arrive. That could be sooner than we think.

The coming hyperinflation is directly related to the severe imbalance of resources (supply) and population (demand). Remember too, that supply and demand are economic abstractions used to often misguide our decisions by creating false equations and stories. The real concrete equation is the resource/population mix that is trending to a severe terminal imbalance”. Resources are disappearing and yet populations continue to expand. There will therefore be a hyperinflation that cannot be cured by the best economic magicians, "Sadly, very sadly, other measures will prevail in laws of man or nature".

To touch briefly on the stock markets, there is one physical reality and outcome that most rarely reflect on. Stock markets will gravitate towards zero. At some point in time the actual physical and mathematical realities will prevail and they will have no value whatsoever. Heresy? How? Pretty easy to understand actually, as we gravitate towards no resources; few if any, companies will be able to operate profitably. When there are no resources the answer is clear. No stock in the world will have any value. Thus by the simple rules of mathematics and physics, the gravitational forces of these object constructs will act to make all stocks worthless at some point. Few predictions may be said with a higher degree of certainty. Very few indeed.

Overall Conclusions

Yes maybe for investment bankers their game has changed as the over-abstractions of financial engineering will pass into infamy. Because no algorithms designed by hundreds of MIT PhDs, can ever predict reailty. That is an irrefutable fact. Irrefutable! How we were fooled for so long remains a mystery; but there is no doubt, that the likes of Goldman Sachs and others have a much shortened life expectancy. Sooner or later, the algorithm of common sense rules the day.

However, as to the “Rules of the Game”, they have never changed. Just as we ignore the game of musical chairs pertaining to stock markets, we failed to appreciated or truly understand the “Rules of the Game”. These Rules are universal and include the principles of physics, mathematics, time relativity and thermodynamics. Ignoring these Rules has put currencies, markets, economies and our very existence at great peril. “Somehow this doesn't feel like a Game”. 

Best of bests

The Maverick Economist” 

T A McNeil
CEO and Founder
First Financial Insights Inc.
Toronto, ON

This has nothing to do with Markets or Economics...Really? Think again!

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