Sunday, May 29, 2011

This Time Is Not Different

Barron's says the only way out is for Greece to restructure. "Europe's official approach has been to muddle along and hope the problem will go away. It won't." The European banking system is like the U.S. banks in the summer of 2008. Total reality denial mode. It will cause a panic flight to Treasuries when their house of cards finally topples.

Greece talks about setting up a "bad bank". Doesn't anyone notice this is right out of the 2008 crisis playbook? Kicking the can is what you do when a crisis is too big to solve. They have been having "emergency meetings" every weekend. Does that remind you of anything?

There is going to be another deflationary bust that ruins the delusional, moral hazard crowd. Albert Edwards agrees with the Credit Bubble stocks thesis: "we still expect to suffer another deflationary bust that will take government bond yields to new lows before government profligacy and the Fed's printing presses take us back to both double-digit inflation and bond yields."

No one remembers the obliteration that happened three years ago. Here is a reminder: Arizona Land Sells for 8% of Price Calpers Group Paid at Peak.

Thirty years of non-stop rally has created a mainstream investment management community whose investing styles expressly exclude the possibility of severe bear markets/depressions. Most investors - and all long-only investors - are resigned to failure and capital impairment should a severe bear market occur.

This doesn't bother them because they figure they will "make it up" on the next wave up. And, as Prechter puts it, "most of the time, ill-timed optimism is harmless because most of the time, recessions are indeed mild and brief. [...] Small, mild retrenchments occur more frequently than large ones so forecasting errors are only mildly damaging."

The bull-market-only investing genotype is an evolutionary dead end. Investors need a money manager whose style contemplates severe bear markets, otherwise they are doomed to severe capital impairment. Picture a plane crashing into mountain with full afterburners on. There is a lot of money to be made at the expense of the dip buyers before they figure out what is happening.

1 comment:

CP said...

Euro Falls From 2-Week High on European Sovereign Debt Concerns