Friday, February 20, 2009

Dow Crashes Through 8000 Because the Market Knows the Bailout Won't Work - Here's Why

Imagine for a moment you sell water (or salt) in the Sahara desert (or in the Amazon Rainforest). You get very rich because it's a precious commodity. Then things change; for whatever reason, it starts raining (the Amazon becomes a desert, creating natural saltt pans as the Earth is exposed and leaches away) more and more. So your Water/Salt Business starts to struggle.

So you apply to the government for a bailout, because selling water/salt is all you know, and all you'll ever know - except it continues to rain/drought continues and people continue to look elsewhere to get a cheaper substitute to your 'product'. You haven't realised that your temporary bonanza is over - forever. One of the reasons for this is because everyone around you believes - hopes - the same thing.

In the above scenario the fundamental shift is climate. While this is true currently, it is still too gradual for us to notice, or to serious for us to understand. What has happened in reality is Financial Climate Change - credit has dried up, making the way we've done business obsolete. Immediate examples that spring to mind - well, the biggest purchases consumers make in their lives - homes and cars.

Why would this suddenly come to an end? Well, for one simple reason. When it becomes to expensive to own a home, everything else becomes moot. And what would make it too expensive to own a home? A few things. Energy (electricity, fuel to drive to the deployed accoutrements in suburbia - malls etc). You might think that energy is the least of our costs, but actually it underwrites ALL of our expenses. Energy that becomes more expensive is inflationary, as we've experienced in food. And when inflation goes up, interest rates go up.
The reason interest rates have been brought down has been to stimulate growth. Growth is still not happening because credit has disappeared. And credit has disappeared because we've mortgaged our futures on unsustainable (and un-maintainable) living arrangements.

Here's an insight: our lives are not going to get better from here onwards, but worse because our unsustainable lifestyles can be maintained less and less in our present circumstances. Anyone who uses the word 'recovery' or says 'a Depression is not going to happen' is living in a dreamworld. Yes, that's most people, including 'industry experts'. Our greed has dumbed us down significantly.

The psychology of previous investment is why we insist on bailing out banks, and automakers and all the rest. Things have changed. This is a permanent, fundamental shift. Even if we could swish a magic wand, we would only find ourselves back where we were in 2008. People driving cars and spending money, oil prices and food prices rising, ethanol crops vying for space with food crops, and bankers hedging their money on the one commodity (in this delusional scenario) that has to get more expensive - oil. Except, you cannot invest your future on a resource that has no future. But we have. Suburbia has no future. Neither does cheap motoring. There is no future for property markets the way they are configured (to run on cheap and abundant energy).
That means skyscrapers and shopping malls and suburban sprawl houses will no longer be profitable. Renting will be, in places, and walkable communities connected to organic systems will work.

There is no future for SUVs and long distance trucking, and airlines, and courier companies. This is because energy is no longer cheap or abundant. You may think $40 oil is cheap, but if you have no money, or you're drowning in debt, it's a lot more expensive than when you're solvent, demand is robust and it's $100.

There is a future for agriculture - sustainable farming. For new public transport arrangements, especially those utilising light rail. For new European-styled Urbanism. The accoutrements of suburbia are finished - these include supermarkets, highways, malls, macro mechanised farms, industrial sized schools, conglomerations of fast food fry huts, and the motoring showrooms and banks that 'cater' to all this excess.

It's hard to say goodbye to all those things, but unless we do, we pour more good money down the drain, and worsen our prospects even more. We are being moved to the edge of a cliff. Will we evolve? Will be begin to learn; to think differently, to ADAPT?. Will we grow from here, will we choose to change - RADICAL change, not a leader doing some administrative work on our behalf. Will we shift as nations and as a civilisation or remain stuck in our idiocy, our greed and our sick, self indulgent lifestyles? It's your call. And whatever you choose, you'll be living with those consequences for the remainder of your life. It's decision time people.
clipped from

The Dow broke through a bottom reached in November, pulled down by a steep drop in key financial shares. It was the lowest close for the Dow since Oct. 9, 2002, when the last bear market bottomed out.

The blue chips' latest slide dashed hopes that the doldrums of November would mark the ending point of a long slump in the market, which is now nearly halfway below the peak levels reached in October 2007.

The market's inability to rally signals that investors see no immediate end for the recession, which is already 14 months old and one of the most severe in decades. Investors also haven't been impressed with two major economic initiatives from the Obama administration this week, an economic stimulus package and a mortgage relief plan.

The Dow lost 89.68, or 1.2 percent, to end at 7,465.95.

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