Re: 1929 deja vu

From: Michael S. Lorrey (
Date: Mon May 01 2000 - 06:43:00 MDT

Forrest Bishop wrote:
> From: Max More <>
> Date: Mon, 24 Apr 2000 11:44:22 -0700
> Subject: Re: 1929 deja vu
> At 02:00 AM 5/24/00 , Forrest [Bishop] wrote:
> >I agree that the current situation is not like 1929- today's bubblicious
> >stock mania, massive credit creation excesses,
> See for example:
> "The fact that a dangerous real estate bubble runs simultaneously makes
> this both an extraordinary period and one unfortunately quite vulnerable to a
> financial accident."

Which I don't buy. The current real estate bubble is half that of the
late 80's. It has a long way to go to get anywhere near as speculative
as it was then.

> Doug Noland has done some interesting analysis on money/cedit/debt creation
> by GSE's.
> My central thesis is that an unwinding in any of these highly leveraged
> positions (e.g. stocks, real estate, hedge funds, and above all banking-
> particularly gold banking) will cascade into the others.
> Example 1.: A person uses a 125% ditech re-fi to invest in stocks, pulling out
> profits to pay the mortgage. Stocks go down, mortgage payments missed, bank
> is short on reserves, has to unwind some of its leveraged positions, such
> as OTC currency hedges and stocks. Multiply by 10 million Joe Sixpacks.

Joe sixpacks who still think that their house is their primary
investement and who are working 50-60 hours a week, making plenty of
money on overtime to pay their mortgages.

> Example 2.: The systemic risk to the global financial system *may* now be
> great enough that a single actor can cause widespread collapse, similar
> to Nobel Prize-winning LTCM- the "house of cards" argument. Say Soros cuts
> a deal with the Chinese to supply several hundred tons of gold at price
> (spot + X). China sell its US T-bonds to finance. Connect dots.

China just liquidated lots of gold last fall, as did many other
countries, which is why the price went down rather than up leading up to

> Here in Seattle we are seeing signs of financial stress- people I know or know
> of that have lost *large* amounts in the stock market and a whole lot of
> stiff upper lips- call it a mood index.
> Prediction: Seattle will lead the nation on the downside.

As it did the last time, but losses by high tech investors is nowhere
near equivalent to hundreds of lost or canceled airplane orders by
airlines during the gulf war.

> > consumer and corporate
> >debt loads, current account deficit, real estate inflation, surreal
> >government statistics, fraudulent accounting practices in technology
> >firms like Lucent, Intel, IBM, Microsoft, etc., gold banking implosion-
> >in-the-making,
> See for example:
> This is the nastiest one. It can lead to a fundamental shift in the
> monetary order. To the *rest* of the world, gold is money.

Nut eeny mere. The selloff of gold overseas last fall demonstrated that
most foreign countries no longer regard gold as money.

> >bank derivatives exposures (ala LTCM writ large), and
> >so forth ad nauseum make the crash/depression of 1929-1939 look like a speed
> >bump.
> >I couldn't disagree more. The strictness of accounting standards is much
> >tougher now than then.
> Some significant amount (I don't have figures in front of me for this) of
> corporate earnings in the past few years has come from playing in the stock
> market,
> with other companies stocks. This works great on the upside (everyone is a
> genius in a bull market)- but yields nasty fire-sale de-leveraging on the
> downside.
> Prediction: Many prominent companies will have horrific 2nd quarter earnings.

Corporate profits have been up. Even the 'miserable' earnings report
issued for MS was 'only' 2 cents higher than expected, for 'only' a 28%
increase in revinues.

Sorry, fear mongering isn't going to cause a bunch of extropians to

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