global economic leadership

Leaders adjust. Followers adjust, too, but not as early as leaders adjust. Leaders adjust now.

“Global economic leadership” references any adjustment among global economic patterns that are followed by similar adjustments, like in other places by other people. In current stock markets worldwide, certain stock markets in Europe have recently formed a pattern that may be followed in the very near future in other places like North America (including the US).

In addition to briefly glancing at a few European stock markets below, I will also show some charts of prices (in US Dollars) for bundles of global commodities, plus one sector of the US stock market.  By the way, commodity prices in general have also formed a pattern similar to some European stock markets- recently dropping below the prior lows of 2010.

So, one background question that you may have is this: will US stock markets follow the trends already developing in commodities and many European stocks? Is such a decline merely possible or in fact probable- or even “almost certain?” In regard to what you may be interested in knowing about whether it would be favorable for you to explore some adjustments to your own finances, I will offer some perspective below on what I currently recognize as probable, possible, and so on.

Before we look at the charts, note that for more than 7 years, I have been alerting people to the unprecedented risks and opportunities which were at first only forecasts made from monitoring and analyzing certain “leading indicators” and soon, between 2005 and 2007, were clearly evident for anyone who was willing to notice them. So, I invite you to review the charts below and consider that we may be about to witness a global economic bottleneck, that is, a total interruption of business as usual (and of politics as usual).

It would be something like blowing a fuse or an engine simply stalling. Of course, there will still be certain forms of economic activity- if only “the essentials”- but the “bottleneck” may be so sudden and so definitive that a resumption of anything approaching “normal economic conditions” may take years to develop, depending on how quickly people recognize the changes emerging and adjust to them.

Now, let’s glance at those price charts. First, let’s review a price chart of a global commodity index for the last 3 years. Note that while lots of middle class “mom and pop” investors have poured back in to stock markets and the real estate markets since early 2009, the prices of commodities (driven by businesses rather than consumers) has not rebounded as far as prices of most stocks.

Note that the index fell about 70%, then rebounded in early 2009, with a secondary peak in October 2009, followed by a lower peak in the first days of 2010, then plateauing at a lower peak in April. Currently commodity prices are down over 60% from their 2008 high, near the lows at the end of January 2010 and the end of September 2009.

If prices do drop sharply below those levels soon, as I expect, my long-term forecast remains that prices of commodities (followed by stocks and real estate) will break the lows of early 2009 and stay way down for several years, which many would call a global economic depression. One specific forecast, which I have been openly publishing since early 2003, is that global lending markets would “seize up”… as in basically stop functioning, leading to a collapse of real estate prices in particular, since real estate markets are uniquely dependent on borrowing (lending).

Anyone following the news about an international debt crisis,   already evident in relatively small nations like Greece and Dubai, is aware that something big in lending markets may be different recently from prior decades. Further, anyone who has been monitoring the depression in Japan of the last 20 years could be very clear on the social psychology of initial denial, then some isolated blame (of select targets) plus increasing hope, then optimistic bail-outs that initially raise hopes to all-time highs, (like in recent weeks about the bailing-out of Greece) but then fail, then more blame plus at least some outbursts of belligerence (as has already happened in Greece), then enough fear that eventually leads to more and more personal responsibility and practical adjustments by businesses and households. The same pattern of social psychology is evident in every single economic depression of which I am aware, including several involving the United States.

As for the specific recent bail-out of Greece, note that the basic new development is that Greece admitted that it could not pay back it’s current debt promises, and then the big alleged “solution” for that was that it went even further in to debt (borrowing enough to cover it’s immediate financial obligations). That is actually not an especially favorable development in regard to the long-term financial solvency of Greece. The new bail-out of Greece is similar to filing a chapter 13 bankruptcy that allows for continuing operations rather than a chapter 7 bankruptcy in which they simply cease operations. The bottom line is that now Greece is even further in debt than before. Their long-term (in)stability is in no way improved. However, hope is at such extremes of mania that such so-called “good news” sparked a rally in many stock markets.

So, away from interpretation and back to some raw data, next is a chart of a price index of 100 prominent European stocks, again showing a drop below the February 2010 lows:

I will now show several individual national stock markets in Europe to give a sense of the breadth of the pattern already evident, then show a chart of the “energy sector” of the US stock market, which has already broken it’s February low as well.

Here is the stock market of Spain, which has already sharply fallen below it’s February 2010 lows:

Here is the stock market of Austria:

Here is the stock market of France:

Here is the stock market of Belgium:

Here is the stock market of Switzerland:

Finally, here is the US stock market’s “energy sector,” which already dipped just slightly below it’s February 2010 low (so far), similar to many European stock markets but unlike most US stock sectors (so far!).

Here’s some news on the morning of May 19th (this article was written May 18th, then updated): on “Europe’s mounting debt crisis” (only it is not just Europe!) and then on the one week drop of 27% in U S mortgage applications: “The data continue to suggest that the tax credit pulled sales into April at the expense of the remainder of the spring buying season.”

In other words, the US government’s intervention (the tax credit portion of the economic rescue plan) only temporarily delayed the natural correction of the imbalance in real estate prices being unsustainably high. Soon, housing will be much more affordable relative to other investments- but that is horrible for the huge numbers of aggressively speculative middle class investors who are already “upside down” on their mortgages (with their real estate currently worth less than they owe on their mortgages, meaning that they would have to sell stock, for instance, just to get out of their mortgages when real estate prices collapse- or “if” they fall: LOL).

on “Europe’s” debt crisis:

http://finance.yahoo.com/tech-ticker/europe%27s-mounting-crisis-%22we%27re-on-life-support%22-chris-whalen-says-490996.html;_ylt=AtrUKW4AY.R.7.rhT.QQedq7YWsA;_ylu=X3oDMTE2ZmxlcnR0BHBvcwMxMQRzZWMDdG9wU3RvcmllcwRzbGsDZXVyb3Blc21vdW50?tickers=euo,UUP,tbt,dji,gspc,xlf,FXE&sec=topStories&pos=9&asset=&ccode=

on US mortgage applications falling to 13 year lows:

http://finance.yahoo.com/news/Mortgage-Applications-Plummet-siliconalley-1293323636.html;_ylt=AgosjMVHF_Lc.XbNBSIaT0O7YWsA;_ylu=X3oDMTE1YTZtZTVoBHBvcwM2BHNlYwN0b3BTdG9yaWVzBHNsawNtb3J0Z2FnZWFwcGw-?x=0&sec=topStories&pos=4&asset=&ccode=

So, I will conclude with the same words that I began. You may have a new experience of them now, and if you are interested in exploring prudent adjustments to what is already clearly developing, I invite you to let me know.

Leaders adjust. Followers adjust, too, but not as early as leaders adjust. Leaders adjust now.

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