Myopia: state of the economy

October 28, 2007 · 0 comments

Watch this video of Fox, dated December 2006, 10 months ago.

You all now by now that Merill Lynch reported last week a 2,3 billion US$ loss against a 3 billion US$ profit last year. All analysts were taken by complete surprise, since most lack any deep-digging foresight. Meanwhile Leterme promises the Belgians 200.000 new jobs. No word on the state of the global economy; amazing.

Yesterday evening we had dinner with a group Mital Arcelor people who were visiting their Brazilian activities. You couldn’t call them really optimistic on the foresights of Belgian’s competitiveness compared tol their Brazilian operations.
And meanwhile the ticking sound becomes louder every day.

Some still don’t realise that many parts of the US industry are already in a state worse than recession. If it were not for Federal Reserve Chairman Bernanke putting huge amounts of money in the market, the stock market would literally collapse. And the worst is yet to come; US housing prices are projected to drop well into 2009.

The Euro is going to a 1,5 US$ high, oil is going to the 95 US$ and gold is at a record price of 771 US$. How long can this go on? Forever ! Interest rates in the US can go down to 0% like in Japan. Soon you can use the dollar like toilet paper.

The US is going to a major depression, no doubt about that. We’ll only see the real dimensions of that depression after the US presidential elections.

My questions:

1. Will Brazil and South africa decouple from the US? South Africa is already doing so.
2. Will the US dollar become trash?
3. How will the equity markets evolve compared to other fixed assets (real estate in Brazil/South Africa, Brazilian commodities,…)

Did you read the US economic indicators last week:

ICSC Chain Store Sales Index For Oct 20: -1.5%. Previous: +1.0%.
Redbook Retail Sales Index For Oct 20: -0.2%. Previous: +1.0%.
Oct Richmond Fed Manufacturing Index: -5. Previous: 14.

Can you recall a negative five score in the US manufacturing index?
Meanwhile the press cheers on the Apple and Google stock and no word on these indicators.
Whirlpool, UPS, Apple,… all the same story: crappy US sales, strong international.
CNBS: “who is going to be the first with a 1.000 US$ price target on Google?”

And no analyts is downshifting their Q4 forecasts, even as the firms themselves are.  If UPS 1% can hold its 1% growth (if!), that means an overall growth of 4%, not the 10-12% needed to maintain their P/E ratios.

What is going on here?  Is there anyone out there who is forward looking? The US stock deflation is plain obvious:
The US *is* in recession

Only 8 years ago and we have already forgotten the old song from the ‘Internet bubble’.
I’ll help you remember what happens next.
Make sure you’re out of the epicentrum of the blast.

The question what the state of the Belgian economy will be in 2008 with a Belgian crisis on November 7th is a question I leave aside.

Prepare your scenarios, buckle up and prepare yourself for a unique moment in history.