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Generational Dynamics Web Log for 16-Oct-2014
16-Oct-14 World View -- Stocks plunge in Greece as its financial crisis is renewed

Web Log - October, 2014

16-Oct-14 World View -- Stocks plunge in Greece as its financial crisis is renewed

Wild stock market swings could signal coming Wall St plunge

This morning's key headlines from GenerationalDynamics.com

Wild stock market swings could signal coming Wall St plunge
Stocks plunge in Greece as its financial crisis is renewed
The price of oil plummets along with stocks

Wild stock market swings could signal coming Wall St plunge

A trader watches the screen at his terminal on the floor of the NY Stock Exchange on Wednesday (Reuters)

A trader watches the screen at his terminal on the floor of the NY Stock Exchange on Wednesday (Reuters)

The Dow Jones Industrial Average briefly fell over 450 points on Wednesday, before cutting losses and ending the day "only" 173 points down. Traders were influenced by a welter of bad data -- a retail sales index and a manufacturing index falling significantly more than economists had predicted.

European stocks fell to a ten month low, with index values falling 2-3% across the board. For the past few months, Europe has been increasingly in a deflationary spiral, with the inflation rate now below 0.1%.

Traders are also concerned that the Ebola crisis will harm the global economy.

Possibly more significant are the wild swings that have characterized the stock market during the last couple of weeks. Economist Robert Shiller, appearing on CNBC last week on Friday, said that he was concerned about the wild swings, and that they happened in 2008, 2007, and 1929, just prior to the crash. So if, for example, stocks gain 500 points tomorrow, then it would be cheered as good news, but in fact it would just be a large swing upwards. The next one might be a downward swing of 1000 points.

At the very least, the wild swings signal a time of danger. Generational Dynamics predicts that we're headed for a global financial panic and selloff. The S&P 500 Price/Earnings index is around 19, much higher than the historical average of 14, indicating a huge stock market bubble. A crash has to happen sooner or later, and it's possible that these wild swings are signaling that this is the time. Reuters and Bloomberg and Telegraph (London)

Stocks plunge in Greece as its financial crisis is renewed

Greece's Prime Minister Antonis Samaras sought to restore public calm on Wednesday, as stocks on the Athens Stock Exchange plunged 6.25%. Socks have fallen 23.24% since January.

Even more significant, the yields (interest rates) on Greece's ten-year bonds spiked sharply upward to 7.73%. This means that if Greece wants to borrow money on the open market, Greece will have to pay 7.73% interest, which is not affordable.

Long-time readers will recall the drama of the various European bailout events of Greece in the 2010-2012 time frame. See, for example, "28-Nov-12 World View -- Europe's new charade in Greece's bailout announcement", in which Greece was given a new 44 billion euro bailout loan, and Samaras said:

"A very grey, a very dark period for Greece officially ended yesterday and it has ended for good. We Greeks were made for tough times, and when the going gets tough, it brings out the best in us."

Promises like this were never going to be kept, as I said repeatedly, and as pretty much everyone basically knew. Underneath the "tough times" rhetoric was a Pollyannaish assumption that Europe and the world would return to the "growth" of the mid-2000s decade credit and real estate bubbles, when anyone could borrow money to do anything. That was never going to happen again, but it was this fantastical assumption that led to the rosy predictions that Greece's dark days were over.

It was always just a matter of time before Greece's bailout would fail, and it appears that the time is now. Greece is facing both an economic crisis and a political crisis. The radical left-wing political party Syriza is becoming increasingly popular in the polls, with the result that the government may collapse in the next few months, forcing new elections, bringing far left communist politics back to the European political stage.

Syriza wants to renege on the bailout money that Greece owes to Europe. This would push Greece's government into bankruptcy, and push bond yields up well into double or even triple digits, making it almost impossible for Greece to borrow money. Kathimerini (Athens) and AP and Business Insider

The price of oil plummets along with stocks

The price of a barrel of West Texas Intermediate (WTI) oil fell 5% on Wednesday to $81.84, well below the $100-120 range of the past few years. Two reasons are being given for the startling collapse in oil prices.

First, the supply of oil is surging. In the U.S., shale oil production ("fracking") has been growing rapidly. Non-OPEC countries have been exporting more oil. Canada has replaced Saudi Arabia as the largest source of imported oil to the U.S.

Second, the demand for oil is falling. Sluggish economies around the world mean less oil is needed, and even China's demand is softening.

Generational Dynamics predicts a global deflationary spiral, and the falling price of oil is part of that. Countries like Russia, Iran and Saudi Arabia, which depend on income from oil sales, will be suffering economic woes that will translate into a general global slowdown. CNBC and Fortune and Forbes

(Comments: For reader comments, questions and discussion, see the 16-Oct-14 World View -- Stocks plunge in Greece as its financial crisis is renewed thread of the Generational Dynamics forum. Comments may be posted anonymously.) (16-Oct-2014) Permanent Link
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Generational Dynamics Web Log for 16-Oct-2014 16-Oct-14 World View -- Stocks plunge in Greece as its financial crisis is renewed

Wild stock market swings could signal coming Wall St plunge

Stocks plunge in Greece as its financial crisis is renewed

The price of oil plummets along with stocks

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Generational Dynamics Web Log for 16-Oct-2014
16-Oct-14 World View -- Stocks plunge in Greece as its financial crisis is renewed