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Depression to last at least until 2020; Dubai is harbinger: analysts

kondratieff Waves

“The cost of money just got a lot more expensive for everyone.” — Citizens Bank commentary

Now, just as Bear Stearns was a harbinger of a string of failures of overly leveraged investment banks, the concern is that Dubai could be the canary in the coal mine for heavily indebted countries. The debts of everyone, including Japan and the United States, not to mention emerging markets, have risen greatly as the countries have fought the ravages of the global recession. — NY times

A writer has recently come back from Dubai after 2 years of work for one of the international companies. He has always had the feeling since his arrival there that Dubai is just a fake picture of success.

He worked for middle management and was very disappointed of the way management in big companies behaved. Most big corporate executives come to the part of the world simply because they could not make it back home or because of the big fat salary and the less work they were required to do, that is, just pretending in corporate meetings that things are happening, but upon a close observation it is apparent all they want is to let time pass months after months to ensure they get their bonus.

dubai fire canary coal mine

The labor market is screwed and the hiring process depends on connections and the ability to show skin for ladies. Well, it is not deniable it is easy to save some cash there to help pay down whatever personal expenditures, but generally disappointed of the conditions the
very materialistic culture there. It is surely heading in the wrong direction and the worst yet to come.

Could Dubai be the final nail in the coffin of the international economy with its subsequent price of oil spikes that it will surely bring? Indeed, Dubai has been coined as the “canary in the coal mine” by many analysts as the hub of oil and futures trading in the world and what happens there likely will have repercussions throughout the world over.

We are facing a Depression that will last 23-26 years. The response of government is going to seal our fate because they cannot learn from the past (PDF file) and will make the same mistakes that every politician has made before them. Even if the Dow Industrials make new highs next week (impossible), the Depression is unstoppable with current models and tools.

What happens in deflation is people do not spend, but hoard money because they see lower prices tomorrow and they prefer to wait for lower prices. A deflationary environment so always happens when the economy is really, really bad. Indeed, it is clear we are entering the Kondratieff winter or deflationary depression stage and people are afraid. Because they are afraid they will not spend money, but the Federal Reserve and central banks around the world want them to do. They go to the hoarding of money we are seeing with the banks. Banks lend money and not the panel they improve their capital base. So we do not get moving fast money in this environment and thus the velocity of money slows down tremendously.

U.S. markets fall on Dubai crisis

Debt anxiety fuels selloff
Friday, November 27, 2009 | 4:59 PM ET CBC NEWS

U.S. stocks continued to slump in afternoon trading Friday amid growing concern over Dubai’s financial stability.

The Dow Jones industrial average began the day with a loss of more than 200 points and it ended down 154.48 points, or one and a half per cent, to 10,309.92.

The Nasdaq index fell 37.61 to end the day at 2138.44 and the broader Standard & Poor’s index of 500 stocks finished down 19.14 to 1091.49.

Nervous investors in many countries continue to show concern regarding the ability of the Middle Eastern emirate of Dubai to repay two-thirds of its national debt. The investment arm of the Dubai government, Dubai World, on Wednesday defaulted on $59 billion US in debt and asked lenders for a reprieve on repayment until May.

Former Bank of Canada governor David Dodge told CBC News on Friday he doesn’t see the default as a crisis.

“We know that commercial real estate around the world, whether it’s the United States, Europe, whether it’s the Mideast, we know that commercial real estate is probably the one thing where we haven’t seen as yet the full effects. We know we’ve got more coming in terms of problems with commercial real estate in the United States,” he said.

Speaking from the annual Bennett Jones economic outlook conference in Lake Louise, Alta., Dodge said “it’s part of a correction in financial markets which we know was still to come.”

Vancouver-based Citizens Bank said in a commentary Friday that financial markets are preoccupied with concerns about Dubai’s debt.

“Perhaps the financial effect of this specific problem will be contained locally and will not infect the greater global economy,” it said.

“However, one effect of this event will be that the cost of money just got a lot more expensive for everyone. Credit guidelines will be tightened again by all banks, not just those who are affected by Dubai; this will make it more difficult for consumers and businesses to borrow at all, never mind the interest rate. It would not be an understatement to say that Dubai is driving everything in the market at the moment.”

Kondratieff Winter: Depression Until 2020?

The following lays out the sequence of the events following the 1929 stock market crash.

Phase 1

“A flight from questionable securities into strong securities.” This occurred during the initial stock market crash in 1929. The stock market recovered 50% of its losses into April 1930. Then as the bear market resumed, all securities, except for the gold shares, were sold regardless of quality. Following the stock market peak in October 2007, this flight from questionable securities into strong securities gathered momentum into November 2008. Following a probable stock market partial recovery into April 2009, all securities, except for gold shares, will likely be sold, as the bear market resumes with a vengeance.

[Skipping to next]

Phase 4

“The flight from banks into cash and gold (which ultimately caused the whole US banking system to collapse.)”-Then-1930-1933; now, mid-2008, perhaps until mid-2009; by which time US T-Bills are likely to become suspect monetary investments, which would make gold the ultimate store of value.

Phase 5

“The flight from the dollar to gold.”-Then, October 1931-March 1933. In 1933, President Roosevelt stopped the flight to gold by suspending gold convertibility for the dollar and confiscating all privately held gold. Thereafter, the only way Americans could own gold was by investing in gold company shares. Nevertheless, the value of Homestake Mining shares had already tripled prior to the confiscation. This 5th stage is still pending, awaiting the demise of the dollar.

The Long Depression will last until 2020 and Robert Prechter agrees:

Riding the Waves of Irrational Behavior

By Justin Fox Monday, Nov. 30, 2009

When times are good in financial markets, we’re willing to convince ourselves that they’re good for a reason. The fundamentals are great, the experts tell us. Innovation is creating new opportunities and new wealth. We’ve gotten better at managing risk. After a few years of market trouble, though, the tone changes. “When the trend is sideways to down, they think the machine is broken,” says Robert Prechter. “Jeez, it can’t be us.”

dubai world vs bear stearns

Wanna bet? Prechter does. He has made a career out of his belief that financial markets are ruled not by fundamentals but by waves of irrational behavior. Lately, after a long run of relative obscurity, he’s been getting lots of attention. So have other believers in cycles and waves: the New Yorker recently expended 10 pages on Martin Armstrong, a self-taught forecaster (currently imprisoned for fraud) who made several eerily on-the-mark calls using a formula based on the mathematical constant pi. Prechter appeared in that piece too, but only briefly. He comes across as too reasonable to play a starring role in such a contorted tale.

10 Things You Should and Should Not Do During Deflation

This article is part of a syndicated series about deflation from market analyst Robert Prechter, the world’s foremost expert on and proponent of the deflationary scenario. For more on deflation and how you can survive it, download Prechter’s FREE 60-page Deflation Survival eBook, part of Prechter’s NEW Deflation Survival Guide.

The following article was adapted from Robert Prechter’s NEW Deflation Survival eBook, a free 60-page compilation of Prechter’s most important teachings and warnings about deflation.

By Robert Prechter, CMT

1) Should you invest in real estate?

Short Answer: NO

Long Answer: The worst thing about real estate is its lack of liquidity during a bear market. At least in the stock market, when your stock is down 60 percent and you realize you’ve made a horrendous mistake, you can call your broker and get out (unless you’re a mutual fund, insurance company or other institution with millions of shares, in which case, you’re stuck). With real estate, you can’t pick up the phone and sell. You need to find a buyer for your house in order to sell it. In a depression, buyers just go away. Mom and Pop move in with the kids, or the kids move in with Mom and Pop. People start living in their offices or moving their offices into their living quarters. Businesses close down. In time, there is a massive glut of real estate.

– Conquer the Crash, Chapter 16

2) Should you prepare for a change in politics?

Short Answer: YES

Long Answer: At some point during a financial crisis, money flows typically become a political issue. You should keep a sharp eye on political trends in your home country. In severe economic times, governments have been known to ban foreign investment, demand capital repatriation, outlaw money transfers abroad, close banks, freeze bank accounts, restrict or seize private pensions, raise taxes, fix prices and impose currency exchange values. They have been known to use force to change the course of who gets hurt and who is spared, which means that the prudent are punished and the thriftless are rewarded, reversing the result from what it would be according to who deserves to be spared or get hurt. In extreme cases, such as when authoritarians assume power, they simply appropriate or take de facto control of your property.

You cannot anticipate every possible law, regulation or political event that will be implemented to thwart your attempt at safety, liquidity and solvency. This is why you must plan ahead and pay attention. As you do, think about these issues so that when political forces troll for victims, you are legally outside the scope of the dragnet.

– Conquer the Crash, Chapter 27

You can download Robert Prechter’s entire 60 page deflation manual for free here.

One Comment

  1. annie annie November 30, 2009

    hello new world order; we are well aware of your activities and are moooving rapidly to warn our fellow citizens. we anxiously await our meeting so pencil us in for 5/27/2012. shining a light, loving and caring. the natsarim 12

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