How then, do we move backwards? How does a society, with most of the people having no clue of future events, move from being dependent on a vast and intertwined network of goods and services produced by the indigenous people of whereever, to a local resource and renewable energy based society, and do so in the timeframe available (20-30 years using the most liberal extimates, 10-20 with resonable estimates, 5-10 with worst case scenarios), all the while prices on everything increasing, world politics getting more militaristic, governments continuously reducing civil liberties, shortages of goods on the market and weather patterns resembling bad Hollywood movies?
Joined: May 27, 2007 Posts: 1071 Location: The Post Peak Oil Historian
Posted: Wed Jun 18, 2008 10:54 pm Post subject: Royal Bank of Scotland warns of global stock market crash
The Royal Bank of Scotland has advised clients to brace for a full-fledged crash in global stock and credit markets over the next three months as inflation paralyses the major central banks. "A very nasty period is soon to be upon us - be prepared," said Bob Janjuah, the bank's credit strategist.
A report by the bank's research team warns that the S&P 500 index of Wall Street equities is likely to fall by more than 300 points to around 1050 by September as "all the chickens come home to roost" from the excesses of the global boom, with contagion spreading across Europe and emerging markets. Such a slide on world bourses would amount to one of the worst bear markets over the last century.
Cash is the key safe haven. This is about not losing your money, and not losing your job," said Mr Janjuah, who became a City star after his grim warnings last year about the credit crisis proved all too accurate. RBS expects Wall Street to rally a little further into early July before short-lived momentum from America's fiscal boost begins to fizzle out, and the delayed effects of the oil spike inflict their damage.
link _________________ In a time of deceit, telling the truth is a revolutionary act.
- George Orwell
Posted: Wed Jun 18, 2008 11:35 pm Post subject: Re: Royal Bank of Scotland warns of global stock market cras
I think it might have already started,, but instead of a large big crash this one will take about 6 months [sprial downward],, but if Isreal bombs Irans nuclear 'weapons' plant soon as they said they will, than there will be a very big market crash over night...
Posted: Wed Jun 18, 2008 11:39 pm Post subject: Re: Royal Bank of Scotland warns of global stock market cras
"cash is the key safe haven"
Is this cash in the bank or does he mean cash in a shoebox under the bed?
Quote:
I do not think I can be much blunter. If you have to be in credit, focus on quality, short durations, non-cyclical defensive names.
well, you can't get clearer than that can you? Can anyone assist with a simple translation?
It's a funny old paper is the Telegraph. Their articles seem to swing from doom to optimism and back at quite a high frequency. Although, this one had me muttering "oh crap" as I read it.
Posted: Wed Jun 18, 2008 11:52 pm Post subject: Re: Royal Bank of Scotland warns of global stock market cras
Evans-Pritchard is pretty good at parsing out the BS.
If you have to be in credit is the key phrase in that sentence. He means, buy real assets. Inflation will kill all currencies and debt instruments not backed by hard assets.
What this article warns against is just credit crunch, second verse, same as the first. The difference is how much electronic monies the central banks will be forced to create to keep owner banks solvent.
You need to remember that inflation isn't higher prices, it's more money chasing fewer goods. _________________ Cougar
"Use it up, wear it out, make it do, or do without." - Brigham Young
Posted: Thu Jun 19, 2008 12:00 am Post subject: Re: Royal Bank of Scotland warns of global stock market cras
Excuse me, but this explanation didn't make anything clearer to me.
(I'm a hardcore economic ignorant)
If you have to be in credit - well a lots of us owe mortgages.
And what can be a quality there?
Let's say there is inflation. Let's assume that you salary stays mainly the same (I bet that's realistic?).
You will have to pay more on milk, flour .... so you (and me) will have trouble paying back the mortgage - Right??
The only thing what might get cheaper is human labour - you might be able to pay a plumber instead of DYO??
Posted: Thu Jun 19, 2008 12:46 am Post subject: Re: Royal Bank of Scotland warns of global stock market cras
Well, stagflation, (higher prices, stagnant or reduced wages) would be what you describe. This may indeed be what we are looking at. If you are lucky then it will be pure inflation with increased income to create higher prices, but I doubt it.
Why do you have a mortgage? In this day and age smart people are renting or purchase outright.
Posted: Thu Jun 19, 2008 12:52 am Post subject: Re: Royal Bank of Scotland warns of global stock market cras
Quote:
Let's say there is inflation. Let's assume that you salary stays mainly the same (I bet that's realistic?).
You will have to pay more on milk, flour .... so you (and me) will have trouble paying back the mortgage - Right??
This is a very good question that concerns me personally.
Should we invest our savings into an energy efficient house and some land for a garden - but then be stuck with a mortgage (there is no way we can pay it all down)?
Or should we just keep the cash and pay rent, but lose the cash in the inflation process (and in addition, *not* have a garden and *not* live in an energy efficient house)?
Posted: Thu Jun 19, 2008 1:04 am Post subject: Re: Royal Bank of Scotland warns of global stock market cras
chenopodium wrote:
Or should we just keep the cash and pay rent, but lose the cash in the inflation process
Any suggestions?
There are many fungible and liquid alternatives to cash that hold value quite well in the face of inflation. In Mexico I knew many families who collected old glass soda bottles for the deposit. It was a low class savings account that kept them from losing out to inflation.
Examples? junk silver, gold coins, guns, gasoline, raw land. There are also many choices of ETF (exchange traded funds) that will track oil, gold, or other commodities and will work quite well as a hedge against inflation.
Additionally, real estate is about the only deflating asset class right now so purchasing a house while the market is in free fall is about as smart as lighting your cigar with a $100 bill.
Posted: Thu Jun 19, 2008 1:16 am Post subject: Re: Royal Bank of Scotland warns of global stock market cras
Quote:
Additionally, real estate is about the only deflating asset class right now so purchasing a house while the market is in free fall is about as smart as lighting your cigar with a $100 bill.
I agree with that... but:
what about *building* a house, and in addition, a totally energy efficient house that does need heating in winter (or hardly any), and has solar panels etc, so thus shielding us from increasing energy costs at least somewhat? (and we could grow a lot of stuff)
If we just buy land - the land would probably not be close by to be used for gardening (it will be hard to find land and rent nearby). And if we keep renting, we can't install solar panels and save on energy costs for heating...
Otherwise I agree with gold and the other things you mentioned (instead of leaving the cash).
I guess the main question right now is to build a house or invest in other hard assets (and keep renting)
Posted: Thu Jun 19, 2008 1:54 am Post subject: Re: Royal Bank of Scotland warns of global stock market cras
Quote:
"I do not think I can be much blunter. If you have to be in credit, focus on quality, short durations, non-cyclical defensive names.
When he talks about credits, he is talking about bonds, not mortgages. He is saying stick to highly rated corporate bonds and/or highly rated sovereign bonds. And keep your duration short. Avoid lower rated bonds (junk bonds) and those corporates with weak balance sheets that would be negatively exposed to higher refinancing costs.
But even yields on government bonds have jumped recently on the back of higher inflation expectations and rate hikes to come. So if you bought several months ago while the stock market was tanking then you're likely underwater on a marked to market basis. That does not mean those issuers will default, but if you had to sell now, it would be at a loss. I am happy to take that market risk to be in highly rated, liquid, German bunds in euros and out of the US dollar. But that is just me.
If you can afford to buy a house or an apartment, and can pay your mortgage come Hell or high water then do it. If we are in an inflationary environment land will hold its value better than cash. While rental prices will adjust up with inflation over time in the absence of rent controls. Owning the roof over your head free and clear is the best investment most people will ever make. Once you're no longer making those mortgage payments you can invest your cash in income producing assets or safe assets (like gold) that will be effective hedges against inflation.
In this uncertain financial environment paying down debt is the safest investment bar none. _________________ The organized state is a wonderful invention whereby everyone can live at someone else's expense.
Posted: Thu Jun 19, 2008 2:15 am Post subject: Re: Royal Bank of Scotland warns of global stock market cras
You are assuming the average individual will be able to continue making mortgage payments for the next 15-30 years. I think that is a dangerous assumption. How many average folks lost the home or farm in the depression?
What I'm trying to communicate is that a person should probably be looking to keep all options open at this point.
BTW, to answer chenopodium's query, if you can buy land and regulation will allow unconventional construction methods where you can live well with mostly sweat equity I highly recommend that course as long as it comes without a mortgage.
Regulation is one of the most insidious causes of inflation IMHO and is the main reason why housing has become so expensive in the first world. _________________ Cougar
"Use it up, wear it out, make it do, or do without." - Brigham Young
Posted: Thu Jun 19, 2008 3:07 am Post subject: Re: Royal Bank of Scotland warns of global stock market cras
Most investment decisions assume the future will look something like the past. Here is a summary of what Mises had to say:
Quote:
Mises made his point unmistakably clear: "It was in this way that those goods that were originally the most marketable became common media of exchange." Mises therefore defined money as the most marketable commodity. "It is the most marketable good which people accept because they want to offer it in later acts of impersonal exchange" (Human Action, p. 401.).
Money facilitates credit transactions. What are credit transactions? "Credit transactions are in fact nothing but the exchange of present goods against future goods" (TM&C, p. 35).
We now have Mises's definitions of money (the most marketable commodity) and credit (the exchange of present goods for hoped-for future goods).
Money serves as a transmitter of value through time because certain goods serve as media of exchange. Why do they so serve? Because of "the special suitability of goods for hoarding" (p. 35). This economic function of money also involves the transport of value through space. It is not that money circulates that makes it money. Lots of goods circulate. It is that money is hoarded – is in someone's possession as a cash balance – that is crucial for its service as a medium of exchange. He wrote that "it must be recognized that from the economic point of view there is no such thing as money lying idle" (p. 147). In other words, "all money must be regarded at rest in the cash reserve of some individual or other."
He then goes on to say that if we knew for certain what good or commodity would hold its value the best relative to other goods we would hold only that commodity. As we cannot know that for certain we hold the next best thing, which is that which is most liquid, so that our options are left open.
Quote:
What is called storing money is a way of using wealth. The uncertainty of the future makes it seem advisable to hold a larger or smaller part of one's possessions in a form that will facilitate a change from one way of using wealth to another, or transition from the ownership of one good to that of another, in order to preserve the opportunity of being able without difficulty to satisfy urgent demands that may possibly arise in the future for goods that will have to be obtained by exchange (p. 147).
Mises did not accept that any commodity, not even gold, had an absolute value, but only a relative value. He was not against money per se, but just against the government's monopoly over money creation. As he correctly saw that they would abuse their power to create money by creating too much. You cannot argue with that! _________________ The organized state is a wonderful invention whereby everyone can live at someone else's expense.
Posted: Thu Jun 19, 2008 4:01 am Post subject: Re: Royal Bank of Scotland warns of global stock market cras
Quote:
You are assuming the average individual will be able to continue making mortgage payments for the next 15-30 years. I think that is a dangerous assumption. How many average folks lost the home or farm in the depression?
Exactly this is my worry. We have a dual income, and we are planning so that we can afford the mortgage if we just have one income, and will try to pay off the mortgage in the next few years as much as possible.
Of course this all depends on how doomerish our future will be... If we both lose our jobs, and can't borrow money from relatives, then it would be bad. But then again, if we face such a collapse, then wouldn't most people be stuck with their mortgages, and would the banks really forclose all the properties...?
Quote:
BTW, to answer chenopodium's query, if you can buy land and regulation will allow unconventional construction methods where you can live well with mostly sweat equity I highly recommend that course as long as it comes without a mortgage.
Unfortunately, if we buy the land, we are forced to build on it within a year or so, it we have to sell it again. Also, there are regulations as to how the house should look like (it has to fit into the neighborhood), so I am not confident that we could personally build anything at all....
Difficult choices... they so much depend on the future scenario!
Posted: Thu Jun 19, 2008 6:42 am Post subject: Re: Royal Bank of Scotland warns of global stock market cras
I do believe in PeakOil ... but come on people! What's with this exagerated doomerosity?
Ok ... reckless lending caused some banks to have some huge losses, but I look around. Our stock market index is down over 30% for this year, yet all the companies reported higher then expected profits, they have strong balance sheets, etc ...
IMHO, some people are no longer in touch with reality.
Tell you what will happen ... at least a quarter of the world's population that is not producing anything, just using up resources, will eventually vanish. That will cut down resource usage, and we will get along just fine.
I am a software developer. Writing software is pretty much like how the real world works. You develop until you get something going. Then you start optimizing and end up with code that uses 25% of the original resource requirements. Same with the real world. We made the "code", now it's time to "optimize".
Look around you and do some math. We can cut our resource usage by 50% with zero impact on our lives. Just smart thinking _________________ capitalism *is* fun blog
mrobert, what kind of a guy 'downloads' a game from a hacker website? That seems sort of like tempting fate or not? ; - ) _________________ The organized state is a wonderful invention whereby everyone can live at someone else's expense.
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