12 'Dr. Dooms' warn Wall Street's optimism misleads, will trigger new crash
Jan. 5, 2010, 12:01 a.m. EST
By Paul B. Farrell, MarketWatch
ARROYO GRANDE, Calif. (MarketWatch) -- Test time: A neuroeconomic peek inside your brain's new strategy as we enter the "Doomsday Decade" and leave behind the "Lost Decade" ("lost" because the Dow dropped from 11,497 to 10,428 in 10 years, while Wall Street got rich wiping out almost 10% of your retirement funds). Test your 2010 strategy. Are you an ...
Optimist? As the new decade starts, are you an optimist who trusts Wall Street's advice that 2010 will be a great time to buy stocks. Wall Street says the "Lost Decade" (what a great title) is now behind us. So you believe that the 60% market rally since the March 2009 bottom will continue, with at least 20% gains in 2010.
Pessimist? Or, you're distrustful, cynical and pessimistic about all predictions made by Wall Street's bosses and pundits. You're particularly skeptical of any and all forecasts by the "too-greedy-to-fail" bankers who stole trillions from taxpayers, the Fed and Treasury, then failed to stimulate the economy and now pocket mega-bailout bucks as record bonuses, just one year after we saved Wall Street from near bankruptcy.
This is a simple test of your mindset. Betting odds say most of you will pick answer "1." Why? America was founded by optimists. You believe that a "happy conspiracy" binds politicians, CEOs and Wall Street, making capitalism work and America a powerful nation: So you accept Wall Street's greed, lies and thievery as the price of "free-market capitalism," and part of America's DNA. You embrace "capitalism-without-morals."
Unfortunately, optimism also blinds us to our individual and national faults: Hidden saboteurs tell us we know more than we do, have amazing skills we don't, and are protected by divine forces against dark enemies and even our own irrational stupidity. Yes, optimism is our inner enemy that periodically triggers trillion-dollar meltdowns.
New strategy: 'Getting back to even' means new risks, more debt
True optimists are gung-ho about the future, expecting to recover losses and, as CNBC television host Jim Cramer preaches, "get back to even" in 2010. But the problem is no one has a clue if the market will ever "get back to even."
Quite the opposite, since Fed chief Ben Bernanke is pushing the same optimistic cheap-money fantasies that his predecessor Alan Greenspan used to create the dot-com and the subprime crashes. We can expect to see the next bubble fizzle and pop, pushing us deep into the dreaded Great Depression 2 that the Fed and Treasury are trying to avoid by downstreaming today's problems onto future generations.
But soon future generations will start screaming: "The buck stops here" and revolt when the buck isn't worth much, and they've lost faith in the dollar (just like China). Then the game of musical chairs will end, tragically, sadly, stupidly, unfortunately. Why? Because we failed to stop short of total disaster, failed to prepare, and it's too late.
So to all you optimists who plan to actively invest in 2010 because you accept that America's "capitalism-without-morals" is working in spite of Wall Street's quasi-criminal behavior: Here's some dark-side input to factor into your investment equation for 2010 and beyond.
Listen closely to the words of our 12 "Dr. Dooms." For a moment, take off your rose-colored glasses, step out of your denial, see the Great Depression 2 dead ahead, really look at the future our "Dr. Dooms" see in their "Doomsday Scenarios:"
1. Faber: The 'American Empire' has peaked, is on a decline
Hong Kong economist Marc Faber says "the average life span of the world's greatest civilizations has been 200 years ... Once a society becomes successful it becomes arrogant, righteous, overconfident, corrupt, and decadent ... overspends ... costly wars ... wealth inequity and social tensions increase; and society enters a secular decline."
2. Grantham: Learned nothing, doomed to repeat past, only bigger
Money manager Jeremy Grantham warns that our irrational nightmare will repeat. A year ago we came dangerously close to the "Great Depression 2." Unfortunately, we've "learned nothing ... condemning ourselves to another serious financial crisis in the not too-distant future."
We had our bear-market rally. Next, historical cycles plus our irrational behavior guarantees another, bigger global meltdown. We "learned nothing."
3. Stiglitz: Wall Street creating short respite before next crash
Nobel economist Joseph Stiglitz recently warned: Unless Wall Street's incentive system is drastically reformed, "the financial sector will only try to circumvent whatever new regulations we put in place. We will simply have a short respite before the next crisis." Warning, nothing's changed, it's worse: Lobbyists run Obama, Congress and the Fed.
4. Johnson: Running out of time before Great Depression 2
Yes, "we're running out of time ... to prevent a true depression," warns former IMF chief economist Simon Johnson. The "financial industry has effectively captured our government" and is "blocking essential reform," and unless we break Wall Street's "stranglehold" we will be unable prevent the Great Depression 2.
5. Ferguson: Fed's easy money fuels new bubbles, meltdowns
In the 400-year history of the stock market "there has been a long succession of financial bubbles," says financial historian Niall Ferguson. Who's the culprit? The Fed: "Without easy credit creation a true bubble cannot occur. That is why so many bubbles have their origins in the sins of omission and commission of central banks."
Another bubble (and crash) is virtually certain, thanks to Washington's $23.7 trillion explosion in debt, the Fed's support for the $670 trillion shadow banking system and Wall Street lobbyists getting superrich thanks to Wall Street's insatiable greed.
6. Taleb: Fed haunted by ghost of Greenspan's failed Reaganomics
When Obama reappointed Bernanke, Nassim Taleb, risk-management professor and author of "The Black Swan," warned of a new disaster: "The world has never, never been as fragile," yet Obama reappoints an economist who "doesn't even know he doesn't understand how things work." New proof? At last week's American Economic Association, Bernanke was still shifting the blame: "The best response to the housing bubble would have been regulatory, not monetary."
Wrong: He conveniently forgets he was advising Bush earlier, did nothing. Now Obama's stuck with a Greenspan clone and an insane ideology focused solely on saving a failed banking system by flooding the world with inflated dollars guaranteed to trigger another meltdown
7. Soros: Dollar dead as a reserve currency, nest eggs dying
Billionaire investor George Soros' "New Paradigm:" America's 25-year "superboom ... led to massive deregulation ... blindly chasing free markets ... unleashed excessive greed ... created the dot-com and credit meltdowns" and a "shadow banking system" of derivatives.
"The system is broken. The current crisis marks the end of an era of credit expansion based on the dollar as the international reserve currency," warns Soros. "We're now in a period of wealth destruction. It is going to be very hard to preserve your wealth in these circumstances."
8. Hedgers: make billions shorting stupid politicians, bankers
Soros isn't alone. Lots of hedge fund buddies made hundreds of millions and billions betting on the stupidity of Washington with the Fed's cheap-money policies. Alpha magazine reports that four hedgers made more than $1 billion each in 2008. The top-25 "managers made $464 million each on average last year ... a kingly sum, especially during a year of global recession, stock market wipeouts and vanishing wealth."
9. Shiller: Dot-com, subprime meltdowns, 'third episode' next
Economist Robert Shiller a "Dr. Doom?" Remember a decade ago with "Irrational Exuberance?" Now he's warning: "Bubbles are primarily social phenomena. Until we understand and address the psychology that fuels them, they're going to keep forming. We recently lived through two epidemics of excessive financial optimism, we are close to a third episode, only this one will spread irrational pessimism and distrust -- not exuberance."
10. Kaufman: Irrationality replaced reason, science, technology
Henry Kaufman was Salomon's chief economist and "Dr. Doom" for 24 years: "Why are we so poor at managing our key economic institutions while at the same time so accomplished in medicine, engineering and telecommunications? Why can we land men on the moon with pinpoint accuracy, yet fail to steer our economy away from the rocks? Why do our computers work so well, except when we use them to manage derivatives and hedge funds?"
Kaufman warns: "The computations were correct, but far too often the conclusions drawn from them were not." Why? Selfish, myopic politicians and bankers.
11. Biggs: Sell everything, buy guns, food, head for the hills
In his 2008 bestseller "Wealth, War and Wisdom" former Morgan Stanley research guru Barton Biggs warns us to prepare for a "breakdown of civilization ... Your safe haven must be self-sufficient and capable of growing some kind of food ... It should be well-stocked with seed, fertilizer, canned food, wine, medicine, clothes, etc ... A few rounds over the approaching brigands' heads would probably be a compelling persuader that there are easier farms to pillage." Biggs sounds like an anarchist militiaman.
12. Diamond: Nations ignore obvious till it's too late, then collapse
The end will be swift. In our age of short-term consumerism and instant gratification, few hear the warnings of our favorite evolutionary biologist, Jared Diamond. Societies fail because they're unprepared, will be in denial till it's too late: "Civilizations share a sharp curve of decline. Indeed, a society's demise may begin only a decade or two after it reaches its peak population, wealth and power."
The warnings were everywhere in 2008, but Greenspan, Bernanke and former Treasury Secretary Henry Paulson were in denial: It will happen again with Obama. Downstreaming problems will fail. Future bubbles get too big, crashes more deadly.
By Paul B. Farrell, MarketWatch
ARROYO GRANDE, Calif. (MarketWatch) -- Test time: A neuroeconomic peek inside your brain's new strategy as we enter the "Doomsday Decade" and leave behind the "Lost Decade" ("lost" because the Dow dropped from 11,497 to 10,428 in 10 years, while Wall Street got rich wiping out almost 10% of your retirement funds). Test your 2010 strategy. Are you an ...
Optimist? As the new decade starts, are you an optimist who trusts Wall Street's advice that 2010 will be a great time to buy stocks. Wall Street says the "Lost Decade" (what a great title) is now behind us. So you believe that the 60% market rally since the March 2009 bottom will continue, with at least 20% gains in 2010.
Pessimist? Or, you're distrustful, cynical and pessimistic about all predictions made by Wall Street's bosses and pundits. You're particularly skeptical of any and all forecasts by the "too-greedy-to-fail" bankers who stole trillions from taxpayers, the Fed and Treasury, then failed to stimulate the economy and now pocket mega-bailout bucks as record bonuses, just one year after we saved Wall Street from near bankruptcy.
This is a simple test of your mindset. Betting odds say most of you will pick answer "1." Why? America was founded by optimists. You believe that a "happy conspiracy" binds politicians, CEOs and Wall Street, making capitalism work and America a powerful nation: So you accept Wall Street's greed, lies and thievery as the price of "free-market capitalism," and part of America's DNA. You embrace "capitalism-without-morals."
Unfortunately, optimism also blinds us to our individual and national faults: Hidden saboteurs tell us we know more than we do, have amazing skills we don't, and are protected by divine forces against dark enemies and even our own irrational stupidity. Yes, optimism is our inner enemy that periodically triggers trillion-dollar meltdowns.
New strategy: 'Getting back to even' means new risks, more debt
True optimists are gung-ho about the future, expecting to recover losses and, as CNBC television host Jim Cramer preaches, "get back to even" in 2010. But the problem is no one has a clue if the market will ever "get back to even."
Quite the opposite, since Fed chief Ben Bernanke is pushing the same optimistic cheap-money fantasies that his predecessor Alan Greenspan used to create the dot-com and the subprime crashes. We can expect to see the next bubble fizzle and pop, pushing us deep into the dreaded Great Depression 2 that the Fed and Treasury are trying to avoid by downstreaming today's problems onto future generations.
But soon future generations will start screaming: "The buck stops here" and revolt when the buck isn't worth much, and they've lost faith in the dollar (just like China). Then the game of musical chairs will end, tragically, sadly, stupidly, unfortunately. Why? Because we failed to stop short of total disaster, failed to prepare, and it's too late.
So to all you optimists who plan to actively invest in 2010 because you accept that America's "capitalism-without-morals" is working in spite of Wall Street's quasi-criminal behavior: Here's some dark-side input to factor into your investment equation for 2010 and beyond.
Listen closely to the words of our 12 "Dr. Dooms." For a moment, take off your rose-colored glasses, step out of your denial, see the Great Depression 2 dead ahead, really look at the future our "Dr. Dooms" see in their "Doomsday Scenarios:"
1. Faber: The 'American Empire' has peaked, is on a decline
Hong Kong economist Marc Faber says "the average life span of the world's greatest civilizations has been 200 years ... Once a society becomes successful it becomes arrogant, righteous, overconfident, corrupt, and decadent ... overspends ... costly wars ... wealth inequity and social tensions increase; and society enters a secular decline."
2. Grantham: Learned nothing, doomed to repeat past, only bigger
Money manager Jeremy Grantham warns that our irrational nightmare will repeat. A year ago we came dangerously close to the "Great Depression 2." Unfortunately, we've "learned nothing ... condemning ourselves to another serious financial crisis in the not too-distant future."
We had our bear-market rally. Next, historical cycles plus our irrational behavior guarantees another, bigger global meltdown. We "learned nothing."
3. Stiglitz: Wall Street creating short respite before next crash
Nobel economist Joseph Stiglitz recently warned: Unless Wall Street's incentive system is drastically reformed, "the financial sector will only try to circumvent whatever new regulations we put in place. We will simply have a short respite before the next crisis." Warning, nothing's changed, it's worse: Lobbyists run Obama, Congress and the Fed.
4. Johnson: Running out of time before Great Depression 2
Yes, "we're running out of time ... to prevent a true depression," warns former IMF chief economist Simon Johnson. The "financial industry has effectively captured our government" and is "blocking essential reform," and unless we break Wall Street's "stranglehold" we will be unable prevent the Great Depression 2.
5. Ferguson: Fed's easy money fuels new bubbles, meltdowns
In the 400-year history of the stock market "there has been a long succession of financial bubbles," says financial historian Niall Ferguson. Who's the culprit? The Fed: "Without easy credit creation a true bubble cannot occur. That is why so many bubbles have their origins in the sins of omission and commission of central banks."
Another bubble (and crash) is virtually certain, thanks to Washington's $23.7 trillion explosion in debt, the Fed's support for the $670 trillion shadow banking system and Wall Street lobbyists getting superrich thanks to Wall Street's insatiable greed.
6. Taleb: Fed haunted by ghost of Greenspan's failed Reaganomics
When Obama reappointed Bernanke, Nassim Taleb, risk-management professor and author of "The Black Swan," warned of a new disaster: "The world has never, never been as fragile," yet Obama reappoints an economist who "doesn't even know he doesn't understand how things work." New proof? At last week's American Economic Association, Bernanke was still shifting the blame: "The best response to the housing bubble would have been regulatory, not monetary."
Wrong: He conveniently forgets he was advising Bush earlier, did nothing. Now Obama's stuck with a Greenspan clone and an insane ideology focused solely on saving a failed banking system by flooding the world with inflated dollars guaranteed to trigger another meltdown
7. Soros: Dollar dead as a reserve currency, nest eggs dying
Billionaire investor George Soros' "New Paradigm:" America's 25-year "superboom ... led to massive deregulation ... blindly chasing free markets ... unleashed excessive greed ... created the dot-com and credit meltdowns" and a "shadow banking system" of derivatives.
"The system is broken. The current crisis marks the end of an era of credit expansion based on the dollar as the international reserve currency," warns Soros. "We're now in a period of wealth destruction. It is going to be very hard to preserve your wealth in these circumstances."
8. Hedgers: make billions shorting stupid politicians, bankers
Soros isn't alone. Lots of hedge fund buddies made hundreds of millions and billions betting on the stupidity of Washington with the Fed's cheap-money policies. Alpha magazine reports that four hedgers made more than $1 billion each in 2008. The top-25 "managers made $464 million each on average last year ... a kingly sum, especially during a year of global recession, stock market wipeouts and vanishing wealth."
9. Shiller: Dot-com, subprime meltdowns, 'third episode' next
Economist Robert Shiller a "Dr. Doom?" Remember a decade ago with "Irrational Exuberance?" Now he's warning: "Bubbles are primarily social phenomena. Until we understand and address the psychology that fuels them, they're going to keep forming. We recently lived through two epidemics of excessive financial optimism, we are close to a third episode, only this one will spread irrational pessimism and distrust -- not exuberance."
10. Kaufman: Irrationality replaced reason, science, technology
Henry Kaufman was Salomon's chief economist and "Dr. Doom" for 24 years: "Why are we so poor at managing our key economic institutions while at the same time so accomplished in medicine, engineering and telecommunications? Why can we land men on the moon with pinpoint accuracy, yet fail to steer our economy away from the rocks? Why do our computers work so well, except when we use them to manage derivatives and hedge funds?"
Kaufman warns: "The computations were correct, but far too often the conclusions drawn from them were not." Why? Selfish, myopic politicians and bankers.
11. Biggs: Sell everything, buy guns, food, head for the hills
In his 2008 bestseller "Wealth, War and Wisdom" former Morgan Stanley research guru Barton Biggs warns us to prepare for a "breakdown of civilization ... Your safe haven must be self-sufficient and capable of growing some kind of food ... It should be well-stocked with seed, fertilizer, canned food, wine, medicine, clothes, etc ... A few rounds over the approaching brigands' heads would probably be a compelling persuader that there are easier farms to pillage." Biggs sounds like an anarchist militiaman.
12. Diamond: Nations ignore obvious till it's too late, then collapse
The end will be swift. In our age of short-term consumerism and instant gratification, few hear the warnings of our favorite evolutionary biologist, Jared Diamond. Societies fail because they're unprepared, will be in denial till it's too late: "Civilizations share a sharp curve of decline. Indeed, a society's demise may begin only a decade or two after it reaches its peak population, wealth and power."
The warnings were everywhere in 2008, but Greenspan, Bernanke and former Treasury Secretary Henry Paulson were in denial: It will happen again with Obama. Downstreaming problems will fail. Future bubbles get too big, crashes more deadly.
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