ForexSpirit

On this blog I’ve more than once mentioned the name Nassim Nicholas Taleb, author of Fooled By Randomness and The Black Swan. He was interviewed this week, along with Benoit Mandelbrot, on PBS’s NewsHour. If anything, Taleb has a very sobering outlook on the future of things where he frets that the very fabric of society could unravel if the world of finance continues to go downhill.

How this unraveling might take place (or at least one thread of it) was recently highlighted by John Mauldin when he discussed how global trade is being hamstrung by the inability of buyers and sellers of products to obtain Letters Of Credit. A seizure in the letter of credit market would mean that we’d have no economy, never mind a credit system.

Or there is this rather gloomy outlook by Jim Kuntsler, wrapped up in a very vivid image of watery destruction:

To switch metaphors, let’s say that we are witnessing the two stages of a tsunami. The current disappearance of wealth in the form of debts repudiated, bets welshed on, contracts canceled, and Lehman Brothers-style sob stories played out is like the withdrawal of the sea. The poor curious little monkey-humans stand on the beach transfixed by the strangeness of the event as the water recedes and the sea floor is exposed and all kinds of exotic creatures are seen thrashing in the mud, while the skeletons of historic wrecks are exposed to view, and a great stench of organic decay wafts toward the strand.

Then comes the second stage, the tidal wave itself — which in this case will be horrific monetary inflation — roaring back over the mud flats toward the land mass, crashing over the beach, and ripping apart all the hotels and houses and infrastructure there while it drowns the poor curious monkey-humans who were too enthralled by the weird spectacle to make for higher ground. The killer tidal wave washes away all the things they have labored to build for decades, all their poignant little effects and chattels, and the survivors are left keening amidst the wreckage as the sea once again returns to normal in its eternal cradle.

The other random factoid in my head at the moment is how during the Great Depression the crash in October 1929 was by no means the end of the stock market’s woes. Before the end of the Depression the stock market was to see 90% of its value wiped off the board. In today’s world, with the DJIA hitting an all-time closing high of 14,164.53 on October 9, 2007, a 90% drop would see the DOW at 1,416. Not something that can be easily contemplated by any stretch of the imagination. It is just something that I like to keep in mind when all the financial pundits are screaming that the worst is over and now is the time to buy.

Personally I think we’ll see 7,000 before we see 10,000 on the DOW again, and even then I’m not sure how much support will exist at that level, even if it is 50% off from the all-time high.