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Generational Dynamics Web Log for 12-Aug-2010
12-Aug-10 News -- Wall Street turns pessimistic

Web Log - August, 2010

12-Aug-10 News -- Wall Street turns pessimistic

World Health Organization says that swine flu pandemic is over

Markets fall as pessimistic mood takes hold

As usual, financial experts on tv on Wednesday looked at one another with puzzled expression and asked, "Why is this happening? There's no news that we didn't already know."

Statements like that, which are very common, never cease to astound me. If you think about the mind frame of the person saying it, he obviously believes that stock prices have absolutely no meaning except the emotional state of the investor based on the news of the day. And these idiots give investment advice to other people!

Wall Street stocks fell roughly 3% on Wednesday. According to the NY Times, stocks fell because, "evidence is mounting that growth abroad is also slowing and may be unable to sustain the fragile rebound here." A major reason for the pessimism, according to the article, is that the Federal Reserved released a report warning that "the pace of the nation's recovery had slowed." In addition, China's economy is cooling, and American exports are faltering.

Thus, "The optimism had pervaded Wall Street only weeks ago has faded quickly. In its place is a growing realization of what many ordinary Americans have been feeling in their bones: this is not the economic recovery the nation had hoped for. Indeed, while the economy is growing again, it is growing too slowly to create many jobs or boost household incomes."

What's becoming clear is that the mood on Wall Street is changing as the effects of the multi-trillion dollar bailouts and stimulus packages wear off.

One interesting aspect of the increasing gloom is that even people making dire predictions are becoming more mainstream, according to an article several days ago in the NY Times. According to the article,

"In many smart-money circles, listening to bears has become fashionable, especially now that doubts remain about the sustainability of the euro zone, concerns grow that the United States may slip back into recession and that even the Chinese growth engine may seize up. But to some, the popularization of extremely dire forecasts suggests that the pendulum may have swung too far.

“Nothing is ridiculous anymore,” said Philippe Jabre, a hedge fund executive in Geneva. “There is no doubt that these days extremely negative research is being tolerated more.”

Mr. Jabre said that most of the research that came his way had a distinctly negative bias and that finding actionable ideas with a positive spin was becoming far more difficult. “These guys are reinforcing a conviction among many who invest in hedge funds that they should remain scared,” he said."

As long-time readers know, I realized in 2002 that we were headed for a new 1930s style Great Depression when I was eating lunch at the mall reading the Boston Globe, and I saw a graph of the Dow Industrials going back to the early 1900s. I took one look at it and said, "Ohmigod, the stock market is going to crash." It was that obvious, just from the graph. (See "Updating the 'real value' of the stock market.")

I was ridiculed for many years, but I must say that I almost never hear any ridicule these days. People are indeed scared, and they're finally willing to listen.

Another issue is the debate between those who are predicting deflation and those who are predicting hyperinflation. It's so obvious that we're in a deflationary spiral that I can only ascribe predictions of hyperinflation to human perversity.

In fact, a recent article in the Wall Street Journal (Access) is entitled "How to Beat Deflation," and provides investment strategies:

Investment strategies for deflation <font face=Arial size=-2>(Source: WSJ)</font>

Investment strategies for deflation (Source: WSJ)

My own recommendation, incidentally, is for everyone but the most sophisticated investors to stay out of the markets completely. Cash is king during a deflationary spiral, you should keep you cash in your mattress, in FDIC-guaranteed bank accounts, and in short-term treasuries.

However, even seeing an article like this in the Wall Street Journal shows how much the mood on Wall Street has changed.

World Health Organization declares that swine flu pandemic is over

Post-pandemic phase <font face=Arial size=-2>(Source: WHO)</font>

Post-pandemic phase (Source: WHO)

The World Health Organization (WHO) has announced that the H1N1 swine flu pandemic has entered the "post-pandemic" period. According to the announcement:

"As we enter the post-pandemic period, this does not mean that the H1N1 virus has gone away. Based on experience with past pandemics, we expect the H1N1 virus to take on the behaviour of a seasonal influenza virus and continue to circulate for some years to come.

In the post-pandemic period, localized outbreaks of different magnitude may show significant levels of H1N1 transmission. This is the situation we are observing right now in New Zealand, and may see elsewhere.

In fact, the actions of health authorities in New Zealand, and also in India, in terms of vigilance, quick detection and treatment, and recommended vaccination, provide a model of how other countries may need to respond in the immediate post-pandemic period.

Globally, the levels and patterns of H1N1 transmission now being seen differ significantly from what was observed during the pandemic. Out-of-season outbreaks are no longer being reported in either the northern or southern hemisphere. Influenza outbreaks, including those primarily caused by the H1N1 virus, show an intensity similar to that seen during seasonal epidemics.

During the pandemic, the H1N1 virus crowded out other influenza viruses to become the dominant virus. This is no longer the case. Many countries are reporting a mix of influenza viruses, again as is typically seen during seasonal epidemics."

However, Dr. Henry Niman of the Recombinomics web site, says that the danger is far from over:

"The pandemic H1N1 is a swine virus that has jumped to humans, which has not happened in a sustained manner since 1918. The similarities between the current strain, and 1918 pandemic H1N1 or seasonal H1N1 in circulation decades ago has led to a reduced infection rate among the elderly.

However, the H1N1 virus can aggressively target those under 65, the demographic for over 90% of the fatalities. These fatal cases are linked to the ability of the virus to target the lower respiratory tract, which has been linked to receptor binding domain changes such as D225G as well as low reactor alterations at positions 157-159. Recently released 2010 sequence has demonstrated that these genetic changes are on the rise, raising concerns for the emergence of a more virulent H1N1 in the upcoming months or years."

The emergence of H1N1 swine flu has nothing to do with generational theory, of course, but I continue to recommend that any household should stock up on enough dried foods, water and medicines to be able to surivive a couple of weeks. This preparation could also help in other circumstances, as the 2005 Katrina hurricane showed.

Additional links

An antibiotic resistant "superbug" bacteria has developed in India, and is spreading around the world. In the US, the superbug is likely to appear first in hospitals. NY Times

World commodity grain prices have risen 70% in the last couple of weeks, after the worst drought in 130 years and wildfires forced Russia to ban wheat exports, at least until the end of the year. The result is that we could see street riots over food in underdeveloped countries, particularly in the Middle East, North Africa, and parts of Europe. Reuters

Israel says that it will stop, with bullets if necessary, any future aid flotilla that tries to break the blockade of Gaza. Jerusalem Post

For many parts of Pakistan, especially the south, the worst of the floods is yet to come, as the nation begins the holy month of Ramadan. CNN

Australia is being overrun by rabbits. Reuters

(Comments: For reader comments, questions and discussion, see the 12-Aug-10 News -- Wall Street turns pessimistic thread of the Generational Dynamics forum. Comments may be posted anonymously.) (12-Aug-2010) Permanent Link
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Generational Dynamics Web Log for 12-Aug-2010 12-Aug-10 News -- Wall Street turns pessimistic

Markets fall as pessimistic mood takes hold

World Health Organization declares that swine flu pandemic is over

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Generational Dynamics Web Log for 12-Aug-2010
12-Aug-10 News -- Wall Street turns pessimistic