Apr è s Gotterdammerung (Twilight of the Gods)
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Transcript of Apr è s Gotterdammerung (Twilight of the Gods)
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Après
Gotterdammerung(Twilight of the Gods)
46th Annual Contrary Opinion ForumDavid Fuller 8th October 2008
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Governance is everything
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Failures of governanceare often due toa lack of ethics
It is a top down process
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The USA did not invent this process…
“The budget should be balanced. Public debt should be reduced. The arrogance of officialdom should be tempered, and
assistance to foreign lands should be curtailed, lest Rome become bankrupt.”
Marcus Tillius Cicero 106-43 BC
…but it took it to a new level
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Too much regulation undermines capitalism…
…but too little regulation is a recipe for anarchy…
…in which ‘creative destruction’ risks becoming total destruction
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Securities & Exchange Commission
Removes Uptick Rule, July 2007
Ignores naked short selling
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Leverage: the colossal problem
The idea that one can make ever greater profits with ever increasing leverage,
because all the risk is theoretically passed on to someone else, is totally daft. The
perpetrators knew this. They just wanted to make a quick fortune, get out before the
game blew up, and let the devil take the hindmost.
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How do we get good regulation?
Fullermoney suggestion:
Ask Warren Buffett to Chair a Commission on Standards of Governance and Regulation
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A consequence of US Credit Crisis
USA has lost credibility and moral authority in terms of democratic capitalism
What fills the void?
Authoritarian capitalism, of which China is now the leading practitioner
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What next for the US stock market?Bull points:
• Record oversold levels seen for sentiment
• Climactic selling has occurred
• Valuations are improving
• Cash levels are high
• Inflationary pressures are fading rapidly
• A massive effort is underway to rescue banks and reverse the credit freeze
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What next for the US stock market?Bear points:
• Worst credit freeze since 30s Depression
• The economy is deteriorating
• Valuations are still well above historic lows
• Deleveraging continues
• Stock market indices are in downtrends
• The stabilization package may not be enough, give the size of the problem
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“You can observe a lot just by watching.”Yogi Berra
The most important chart today?
The Ted-Spread
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1987 Crash
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The stock market is a discounting mechanism
“Bear markets have always been temporary.
Share prices turn upwards from one to twelve months before the bottom of the
business cycle.”
Sir John Templeton
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Trend acceleration is an ending characteristic
Current action for the US stock market is climactic
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Bank indices are now showing relative strength!
They are a lead indicator
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Peak Oil?• At $100 to $80 – global economy can cope
• At $80 to $60 – global economy prospers
• At $140 to $160 – global recession
• At $200 or above (as Goldman Sachs forecast for yearend 2008) global depression
• However, the global economy can adjust to gradually rising oil prices over time.
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Back to the Future?Other global concerns are in retreat
• Commodity prices are falling
• The US dollar has rebounded
• Long-term government yields have fallen
Conclusion: other than the west’s very serious credit freeze and its implications for GDP growth, other problems have waned.
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fullermoney.com Our theme: Empowerment Through Knowledge
fullermoney.com Our theme: Empowerment Through Knowledge
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Fire (inflation) vs Ice (deflation)
• 1998-2003 – fear of ice over fire
• 2004-2006 – ‘Goldilocks’ talk
• 2007-mid-2008 – fire over ice
• Current period – ice over fire
Consequently, all governments will reflate, but which economies and markets will benefit the most?
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Massive global deleveragingEvidenced by:
• Capitulating selling in stock markets
• Capitulation selling in commodities and many other assets
• Strength of carry currencies such as JPY
But…following the deleveraging, people will resume investing as confidence returns.
fullermoney.com Our theme: Empowerment Through Knowledge
fullermoney.com Our theme: Empowerment Through Knowledge
fullermoney.com Our theme: Empowerment Through Knowledge
fullermoney.com Our theme: Empowerment Through Knowledge
fullermoney.com Our theme: Empowerment Through Knowledge
fullermoney.com Our theme: Empowerment Through Knowledge
fullermoney.com Our theme: Empowerment Through Knowledge
fullermoney.com Our theme: Empowerment Through Knowledge
fullermoney.com Our theme: Empowerment Through Knowledge
fullermoney.com Our theme: Empowerment Through Knowledge
fullermoney.com Our theme: Empowerment Through Knowledge
Fullermoney forecasts:
• US and most other stock markets reach significant medium-term lows this month.
• Reversion to the mean (200-day MA) rallies to follow, carrying into 1Q 2009.
• Thereafter, pullbacks for base extension - some risk of new lows, pending events.
• Gold will remain volatile, but continue to show relative strength versus most other asset classes.
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Fullermoney forecasts:
• Following base formation development in 2009, stock markets should experience 3 to 5 year bull markets, provided:
• Prices for crude oil and agricultural commodities do not spike higher, as we saw earlier this year.
• The commodity supercycle has been interrupted by recession but is not over.
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Après le deluge - Fullermoney themes for the next up cycle:
• Asian-led emerging markets
• Commodities
• Leading industrial and agricultural shares
• Global infrastructure development themes
• Asian currencies, led by Chinese renminbi
• Precious metals