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Generational Dynamics Web Log for 8-May-2010
8-May-10 News -- World markets continue to deteriorate

Web Log - May, 2010

8-May-10 News -- World markets continue to deteriorate

Tensions worsen between North and South Korea over warship sinking

Thursday's stock market plunge baffles Wall Street

The attempted explanations for what happened on Thursday have continued to be comical.

According to The Hill, the White House doesn't rule out sabotage in Thursday's market fluctuation. And I started laughing hysterically when I heard Fox News Channel's Bill O'Reilly say, "There's no question that the market was manipulated, but the guys behind it are far too smart to get caught."

The thick-headedness of these people is that they have learned nothing from the millions of panics that have occurred throughout all times and places in history, and the conceit of these people is that they think they're smarter than their grandparents, whom they think of as doddering old fools who were too dumb to avoid panics. What they forget is that their grandparents were young once, just as thick-headed and conceited, and also considered their own grandparents to be doddering old fools.

That there was simply a good old-fashioned panic going on on Thursday is perfectly obvious, for the reasons that I explained yesterday. With the Greece crisis triggering market plunges around the world, there are no people with enough superpowers to manipulate what's going on. The whole idea is moronic.

There were more sophisticated arguments being bandied about on Friday to explain the plunge. I understand the argument to be the following: Someone with "fat fingers" at Citibank accidentally typed a "b" (for billion) rather than an "m" (for million), placing a huge sell order for Proctor & Gamble stock. The New York Stock Exchange (NYSE) automatically enacted a 60-90 second trading halt because of some rule designed to prevent panics, and so the trade ended up being fulfilled at the Nasdaq stock exchange, rather than the NYSE.

So there's plenty of opportunity for finger-pointing in this fantastical scenario. In particular, the NYSE blames the Nasdaq for not enacting a similar 60-90 second trading halt. But the Nasdaq people respond that it was the 60-90 trading halt second that actually CAUSED the 1000 point plunge, because people panicked when trading was halted. Citibank responds that there was no "fat finger" error, and the NYSE claims that all of their computer software was working correctly.

There will be multiple investigations, and it may well be that someone will come up with a "cause" -- perhaps someone's fat finger, perhaps something else. But this result will confuse a cause with a trigger. People in financial markets around the world are extremely anxious. The mood is right, the time is right for a panic, and all it will take is the right kind of trigger. But a trigger is not a cause, and if one trigger had not occurred, then some other trigger would have had the result.

Worldwide markets continue fall as leaders look for solutions

A couple of weeks ago I wrote that, based on surging bond yields and CDS prices for Greece and Portugal, there was already a panic in progress. Since that time, the panic has been spreading. The euro currency has been crashing, while the dollar currency has been strengthening. This week, markets on Wall Street and in Europe and Asia have been plunging. The fire that started in Athens is quickly spreading around the world.

It's seems like months ago, but it was only six days ago that European officials agreed on a 110 billion euro bailout of Greece that was supposed to "restore confidence" to the markets and stop the crash. Today, this bailout seems completely irrelevant.

European officials are meeting again this weekend. On Friday, they agreed to set up some sort of emergency stabilization fund to stop Europe from falling into the abyss.

There's no doubt that they're feeling a sense of desperation. The Telegraph quotes Silvio Berlusconi, the Italian prime minister, as saying that Europe is "in a state of emergency," as indeed it is. Europe's 27 finance ministers will meet on Sunday to see what they can do.

The article also indicates that the Bank of Japan has said it would inject $20 billion of liquidity into the markets to forestall a further crisis.

President Barack Obama has also gotten involved. He spoke with German Chancellor Angela Merkel on Friday morning, and promised his cooperation. VOA News quotes him as saying, "We agreed on the importance of a strong policy response by the affected countries and a strong financial response from the international community." You can always count on some fine words from these politicians.

One thing that I've learned in the past three years is that government officials can use central banks loans, quantitative easing, and fiscal stimulus programs to postpone problems for a long time, and even create a new stock market bubble, as has happened in the last year. Maybe the Europeans will come up with something this weekend, but with the failure of the Greek aid program, it really looks to a lot of people like they've run out of bullets.

As I've said many times, Generational Dynamics predicts a massive financial crisis with absolute certainty. It remains to be seen whether the Europeans can kick the can down the road one more time.

North/South Korea tensions continue to rise over warship sinking

It's now been six weeks since the South Korean warship Cheonan was sunk on March 26 by an explosion, killing 46. South Korean leaders have carefully avoided accusing the North of being responsible for sinking the warship, for fear that saying so would compel them to a declaration of war. Investigative teams from Korea, the U.S., and other countries have been collecting evidence, and they've now almost conclusively proven that the sinking was caused by a torpedo exploding beneath the ship. It's believed that the torpedo could only have come from the North Korean military.

The situation has caused considerable political friction within South Korea itself. In a perverse twist of logic, the Seoul government is considering criminal prosecution of opposition political leaders who are claiming that the administration of president Lee Myung-bak has been hiding evidence about the Cheonan sinking. The defense ministry called these comments "groundless and politically motivated," and filed a complaint with the prosecution.

If a war between North and South Korea is to be avoided, it will have to be done through the mediation of the Chinese. On Friday, president Lee said that he expects China to accept the results of the investigation of the Cheonan sinking, and to play an "appropriate role," according to the Korean Yonhap news service. This means that the S. Koreans will expect the Chinese to punish the North Koreans.

The Chinese are caught in the middle. North Korea is China's favorite indulgence, but the South Koreans are going to get military revenge if the Chinese don't cooperate in punishing the N. Koreans, as we reported a few days ago. (See: "4-May-10 News -- S. Korea considers military options against N. Korea.")

Another bizarre twist occurred this week, when North Korean president Kim Jong-il returned from a train trip to Beijing, where he met with Chinese president Hu Jintao. Out of that meeting came the announcement that the North Koreans would suddenly like to resume nuclear reduction talks, according to Yonhap. This is really a big joke, presumably a distraction ploy.

The tension grows each day. Nobody wants a war between North and South Korea, but nobody wants North Korea to be able to get away with this for free.

The South Korean army is going to take some unilateral actions, according to an analysis in the Asia Times. The S. Korean military will extend its patrolling in the portion of the Yellow Sea that North Korea claims, and in case of a confrontation, the S. Korean military will launch a counter-attack immediately. For the South Korean military, the sentiment is "never again."

Additional links

Beijing officials have been trying to cool down China's growing real estate and economic bubble by making it more difficult to borrow money, but the biggest developers are circumventing the restrictions by borrowing from Hong Kong banks. Taiwan's China Post

Lack of enough sleep poses a "death risk," according to UK and Italian researchers. BBC

For techies: The best free software of 2010. PC Magazine

Nasa launched the Voyager 2 spacecraft on August 20, 1977, and it's still working after traveling 8.6 billion miles in 33 years. However, its communications have become erratic in the last couple of months, and engineers are trying to diagnose and fix the problem. Space.com

Does body spray make you irresistible to women? ABC News

Brazil has signed the Nuclear Nonproliferation Treaty, under which it's allowed to enrich uranium for peaceful purposes, but it's now suspected of developing nuclear weapons in secret. Spiegel

Hidden in the new health care bill is a massive, hidden tax change that will hit small businesses next year. CNN Money

(Comments: For reader comments, questions and discussion, see the 8-May-10 News -- World markets continue to deteriorate thread of the Generational Dynamics forum. Comments may be posted anonymously.) (8-May-2010) Permanent Link
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