Board-Ansicht
Mix-Ansicht- In the Twilight Zone - von Marc Faber; sehr interessant! - Cosa, 13.08.2002, 11:25
- Re: In the Twilight Zone - von Marc Faber; sehr interessant! - tas, 13.08.2002, 13:57
- Re: In the Twilight Zone - von Marc Faber; sehr interessant! / @SchlauFuchs - ---- ELLI ----, 13.08.2002, 18:47
- RE: @SchlauFuchs / ich werde das auch am Wochenende machen:-) - SchlauFuchs, 13.08.2002, 19:57
In the Twilight Zone - von Marc Faber; sehr interessant!
-->Moin,
sollte der Artikel schon mal gepostet worden sein, sorry; aber Interessantes kann man ruhig zweimal posten ;-)
August 6th, 2002 at 16:24 - UAE local time (GMT+4)
<font size="4">In the Twilight Zone</font>
Plunges in Western capital markets presage a dark time with real economic hardship on the way, argues Dr Marc Faber.
I have argued before that the lack of any fundamental knowledge of the future prospects and earnings of listed companies didn't just apply to the Internet and the entire TMT (technology, media, and telecommunications) sector, but to most companies.
It was clear to me that the Internet was going to bring about a world of 'frictionless capitalism', which would in turn depress corporate profits, since most companies owed a good portion of their profits to friction. Friction does inflate prices, reduces competitive rivalry, and protects margins.
Profit-friendly friction does come in many guises. Customer ignorance is probably the most important factor, while local monopolies and lack of bargaining power for small businesses are others. The point was simply that the Internet would bring far more transparency to markets and largely eliminate these frictions, while B2B hubs would make it far easier for smaller businesses to band together in order to squeeze concessions from their suppliers - something that only large corporations had previously been in a position to do.
And although I wrote at the time that I believed a period of very disappointing corporate profits was coming, I overlooked one guise of the friction, which relates to the social mood of the investment community - or, to put it more bluntly, its ignorance and boundless credulity.
In the late 1990s, companies were able to book huge profits gains simply because few people cared how companies achieved these profits. In other words, the investment community - caught in a whirlwind of speculation and blinded by the bullish comments of business leaders, analysts, and Mr. Greenspan - was
prepared to ignore all kinds of accounting gimmicks, stock buybacks financed with debt, dangerously speculative investment positions, and even blatant fraud in order to boost profits.
The situation in the late 1990s typified what the French sociologist Gustave Le Bon had observed more than 100 years ago in his classic work The Crowd, when he wrote that the crowd is 'not prepared to admit that anything can come between its desire and the realization of its desire', while 'the notion of impossibility disappears for the individual in the crowd'. For as long as stocks were rising, nobody really cared.
The social mood as a source of friction that can boost stocks and corporate profits has been extremely well analysed by Robert Prechter in a very insightful report entitled 'The Socionomic Insight versus the Assumption of Event Causality' in The Elliott Wave Theorist of June 1, 2002 (www.elliottwave.com). According to Prechter, the recent revelations of corporate fraud, including the Enron scandal, were 'not causal to any aspect of social mood whatsoever; it was a result of a change in social mood'.
He rightly points out that the stock market fell for months prior to the Enron scandal as 'this meter of social mood [the stock market] showed increasing negativity - involving conservatism, suspicion, fear, anger and defensiveness - all of which went into precipitating the Enron scandal'. In fact, Prechter argues that the Enron scandal did not discourage investors at all, since after the revelation of the scandal, in October of last year, the stock market rose and investors' bullish sentiment almost soared to a record level while at the same time consumer sentiment improved significantly.
Prechter also makes the following point: Corporate misdeeds are not even to blame for the bear market that preceded the eruption of the Enron scandal. Corporate misdeeds were in full flower throughout the 1990s, yet no scandal erupted. In fact, those misdeeds - Ponzi-like accounting practices - can be credited with raising stock prices and fattening pension plans to the same extent that they can be blamed for crushing and eviscerating them.
The proper amount of credit for both trends in stock prices is zero. The credit
goes to a change in mass psychology. Various accounting irregularities were in place for years, and they were reported from time to time, sometimes in major journals, but during the bull market, few cared. There was consistent misbehavior for a decade, but there was no scandal until well after the trend changed.
While the trend was up, people ignored the phony accounting; when the trend turned down, they began to investigate it. When the trend was up, psychology supported the illusion of corporate health; when the trend turned down, psychology caused corporate health to deteriorate rapidly.
Again the formulation of causality is the opposite of the conventional belief: Corporate misdeeds did not crush stock prices; crushed stock prices finally drew back the curtain on corporate misdeeds. What, then, caused corporate misdeeds to expand so greatly in the first place' The mass psychology of the stock mania, which was unskeptical to an extreme, invited and even rewarded companies for 'creative accounting.' It was the psychological environment of the bull market that led companies to dare to mislead in the first place.
While I am less dogmatic than Prechter is about the social mood as the cause of political, social, and economic events, and while I believe that the cause and the effect are frequently difficult to discern and, in any event, tend to reinforce themselves, I certainly do agree with him that when the social mood is optimistic and full of confidence, as it was in the late 1990s, reality is lost touch with, and careful analysis and caution are thrown to the wind, which leads to expanding P/Es and excessive valuations, and that when the mood deteriorates, a phase of sobering up and scepticism follows the preceding euphoria, which leads over time to significantly lower valuations.
The point is that in the late 1990s, and even until just recently, investors? credulity reached extremes, because everybody - corporate executives, the Wall Street establishment, the fund management industry, the accountants and auditors, the pension fund consultants, and, most of all, the government - had a vested interest in keeping investors' 'enthusiasm' and 'interest' alive through a tidal wave of liesin order to move stock prices higher and prevent the bubble economy from bursting.
How else can we explain why so many companies, including IBM and Tyco, held up so well in a declining market right up to the beginning of this year, when it was already known that something was fishy about their accounting methods'
I have discussed elsewhere the role of propaganda in the manipulation of crowds and their beliefs, but I would like to discuss here what two dictators of the 20th century, Hitler and Mussolini, wrote about how to move masses. According to
them, the masses had to be relentlessly bombarded with propaganda. Moreover,
the masses, with their primitive minds, were far more likely to fall prey to a 'big lie' than a 'small lie', because it was quite common for people to lie on a small scale, whereas the average person would shy away from big lies. Therefore, the crowd would never even contemplate that anyone might be reckless enough to twist the truth to an extreme degree. Moreover, even if later the truth was uncovered, doubts would remain.
Thus, I am not surprised that while investors are increasingly questioning the integrity of corporate America and its cronies (the auditors, the investment banks, etc), they have, so far, totally failed to question the integrity of the entire financial system that has been created by our governments and central banks! In fact, it puzzles me that people can believe that the private sector is lying, cheating, and cooking the books, and yet at the same time assume that the government is behaving ethically and responsibly, and not cooking its books and statistics!
In most countries the government makes up 20-30% of the economy. Therefore, it seems to me that investors are assuming that the 70-80% of the economy that is accounted for by the private sector is, to a larger or lesser extent, is honest, but that the 20-30% of the economy that is in the hands of the government is clean and ethical.
But how could the colossal deception of investors in the late 1990s by corporate America, which continues to this very day, have been possible had it not been sanctioned or even encouraged by the government and its agencies? Don't forget that the Nasdaq bubble of 1999/2000 was only made possible by the easy monetary policies of the US Federal Reserve Board.
And why has the US administration now allocated additional funds in order to expand the number of SEC investigators, more than two years after the bear market began, when it did nothing to even question corporate governance in the late 1990s? It is evident that, in any country, the regulators, who seem to have failed so badly in the US in the 1990s, are part of the administration. Clearly, we have to distrust the government, including the Fed and all other government agencies, the IMF, the World Bank, and so on, as much as the corporate sector, since large corporations have so much to do with who is elected and who gets what position within the administration.
Charles Allmon, the editor of the excellent New Issue Digest (P.O. Box 15381, Chevy Chase, Maryland 20825), recently commented on 'The Great Accounting
Charade', in which he takes corporate America and the government to task for not protecting the individual investors. He writes: 'Can anyone please tell me who today looks out for the individual investors? Who??
As this is written, it appears that the U.S.A. has the best government that money can buy. Money pours into Washington to keep the accounting charade flying
intact.' This, incidentally is particularly true of the Bush administration, whose Vice President, Dick Cheney, was formerly in charge of Halliburton - a company that is now under a federal probe because of its aggressive accounting at the time when he was its CEO!
In fact, as I have written elsewhere, my main concern today centres on the possibility of systematic risks continuing to be concealed by the administration - witness people like Paul O'Neill, the Treasury secretary, trying to convince the public of the underlying strength and strong fundamentals of the US economy. On June 16, 2002, he said that he didn't know why the markets are where they are today and that, 'eventually it will go back up, perhaps sooner rather than later. There is an unbelievable movement in the market without what I believe to be substantive information.'
In particular, we ought to be concerned about the continuous rapid credit expansion (in 2001, US national income increased by US$179 billion, non-financial credit by US$1.1 trillion, and debts of the financial sector by US$916 billion - in other words, debts grew ten times faster than GDP), the deterioration in the quality of credit (Ford's shareholder equity is down to US$7.4 billion from US$28 billion in 1999, while its debts are up to US$165 billion), the failure to correct the imbalances in the US external accounts, and the gargantuan derivatives exposure of financial institutions, where some accounting time bombs are certain to be set off sooner or later. If the auditors couldn't even identify some relatively unsophisticated accounting tricks, how can we possibly expect them to understand the complexity of proper accounting in the derivatives market?
It is obvious that the US government, with its lackey the Fed, is desperately trying to keep the system from collapsing by 'printing money' (so, whereas GDP increased in 2001 by US$179 billion, broad money supply soared by US$883 billion) and by keeping short-term interest rates artificially low, as well as by subsidising the housing market and consumption through government-sponsored enterprises such as Fannie Mae.
Moreover, there is a high probability that the 'Plunge Protection Team' is intervening from time to time to support the stock market and depress the gold market. And while the government is trumpeting for companies to become more transparent, its own transparency and that of its agencies is rapidly heading for the twilight zone.
The problem with this present set of conditions is that it makes forecasting even more difficult, because one is no longer dealing only with economics, the capitalistic system, and the market mechanism, which - while not entirely predictable - are at least understandable.
The current situation is one of continuous statistical revisions, hedonic adjustments (according to Kurt Richebächer of The Richebächer Letter, tel: 1-508-368-7498, for the six months ended March 31, 2002, business spending on computers increased by US$4.9 billion, from US$78.5 billion to US$83.4 billion, but hedonic adjustments turned this minor rise into a major increase of US$44.4 billion, from US$265.7 billion to US$310.1 billion), and repeated interventions in and whitewashing of the true problems of the international capital market and the global economy by governments around the world. But as Friedrich Hayek remarked, 'The more the state 'plans' the more difficult planning becomes for the individual.'
It is in this spirit that I want to warn our readers once again to be extremely skeptical about any forecast including ours. The markets are likely to become rather unpredictable in the short term and even more volatile than they have been in the past few years.
Undoubtedly, the huge monetary injections by central banks around the world (not only in the US but also more recently in Japan) over the last 18 months, and which can be expected to continue ad infinitum given the central bankers' monetarist economic ideologies, will produce from time to time very sharp short-term stock market rallies, but in the long term we can expect more economic maladjustments.
Therefore, economic hardship on an unprecedented scale will eventually follow in the Western industrialized countries and the present bear market is unlikely to end until one or several major financial institutions go bust!
Gruss
Cosa
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