Thursday, November 20, 2008

Depression Update

-The S&P 500 fall another 6.1%, meaning that nominal stock prices are now back to their January 8, 1997 level. It also means that the S&P 500 is down more than 50% from its peak in October 2007.

-Initial jobless benefit claims reaches the highest level since 1992, with the 4-week average reaching the highest level since 1983, and the level of continuing jobless benefit claims reaching the highest level since 1982.

-Meanwhile, both leading and coincident indicators fell from their previously reported levels while the Philly Fed manufacturing index indicated an accelerating pace of contraction.

-The Swiss National Bank meanwhile seems to be in full panic as it reduced its target rate by a full percentage point, leaving it at 1%. Apparently, the Swiss National Bank believes it is more important to provide short-term stimulus than safe-guarding Switzerland's hard money status, something which is bearish for the Swiss franc.

-The U.K. fiscal situation continues to deteriorate. In October, net borrowings reached £1.4 billion, up from -£1.8 billion (i.e. debt was paid back by £1.8 billion) last year. For the first 7 months of the fiscal year, net borrowing rose from £20.1 billion to £37 billion. The U.K. now looks likely to have the by far biggest fiscal deficit of any major industrialized country except the U.S.

UPDATE: The preliminary purchasing manager survey from the euro area was released after this post was initially posted, but it is certainly consistent with the general theme, to say the least.


Blogger Wille said...

Seems to me like it is pretty close to the deaththroes of fiat currencies in terms of trust - every central bank backing a so called "hard" currency is doing what they can to debase them.

It's hard to know anything in the current climate, but I am guessing the central banks cannot see the woods for all the trees:
They are so worried about short term deflation that they are panicking and releasing an inflationary holocaust in the long term to paraphrase Jim Rogers.

Would you agree or disagree with that conclusion?

3:19 PM  
Blogger stefankarlsson said...

Yes, as I wrote in the answer to a question in the Q&A section, I believe that while there will continue to be deflation in the short-term because of deleveraging, ultimately the enormous sums of money that central banks pump in will cause significant inflation in the medium-term. Some say that once deleveraging stops, central banks will be quick to reverse course, but I think the fear of renewed deflation will cause them to reverse course too late.

4:08 PM  
Blogger Wille said... conclusion is the exact reason I put a sizeable chunk of my liquid assets in gold a few days ago (at just north of $730/ounce).
Also, I suspect the pound will plummet short term as it looks likely next mondays pre-budget report will contain tax cuts and unfinanced public spending exasperating the UK budget deficit..

Regardless of the outcome of my prediction, it is a good hedge for risk - if gold goes down, it probably means the economy is improving better than thought, if it goes up, well, then it has paid off and will offset the devaluation of my cash.

I've nicknamed my position in gold my "If the shit hits the fan-fund".. :D

4:26 PM  
Anonymous Anonymous said...

Not only would I assume it to be extremely difficult to time a de/inflation shift, but the question is also what they actually *can* do -?
It is one thing to pump out money, but it is another thing to collect them. I get the impression that the most active printers are the FeD printers and the US has a particular problem; it is so much in debt that it will not have assets to trade for the printed money. (And as Schiff is quick to point out, no one will lend to the US for the same reason.)
I'm wondering how the rest of the world will hold up, if it of itself does not cause inflation, against a massive US based inflation?
Any theories?


9:51 PM  

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