Down and Down She Goes, Where She Stops, Nobody Knows

The numbers are pouring in daily: shipping is down, trucking is down, exports are down, imports are down. Typically these numbers show declines on the order of 10 to 20 percent year over year. Is it naive to suppose that the U.S. economy has declined 10% or so over the last year? Apparently, as the U.S. Government reports that the U.S. economy actually grew by 1.3% in 2008.

Frankly, we just don't believe that number. Mr. John Williams at www.shadowstats.com is reporting a 4% decline in U.S. GDP in 2008, which seems more realistic.

In any case, the decline is accelerating. The fourth quarter GDP numbers would have come in worse if there hadn't been an inventory buildup. As inventories are worked off in the face of collapsing demand, production will fall further.

The 2007 Depression is a new bird for everyone. Nothing quite like it has ever happened before. The last Depression (1929-1939) occurred with a vastly different set of social and economic parameters, and is not really a prototype for current events.

No one can present a formula for making it through the 2007 Depression. Survivors will be relying on improvisatory skills. It will be an era of living by your wits.

Watch the Vultures Choke

With the stock markets of the world looking like so many corpses across the financial desert, the vultures are beginning to circle. They fancy they smell a mighty feast, and in their minds they'll soon be dining on the choicest meats available. With beady eyes fixed upon 'investments,' they feel the markets are dead enough for them to safely swoop in.

For instance, we present this piece from the Financial Times:

"Vulture funds believe British companies will offer the best investment opportunity in Europe this year, as the country faces a sharper slowdown than its European neighbours. A poll of the funds, which invest in financially distressed companies, ranked the UK ahead of Germany, France and Russia."

Although we don't know the future, we can read the handwriting on the wall, and we suspect these vultures are falling into a value trap (see this previous post for more on such traps). Frankly, the markets haven't crashed nearly enough for our liking, and in the United Kingdom, they have a really long way to go. No 'asset' is anywhere near its bottom, especially in nations like the U.K. and the United States.

We posit that these vultures will move in swiftly and with great fanfare, patting each other on the back for scooping up 'bargains of a lifetime.' Soon thereafter, we expect the world markets will take yet another hard nosedive. The 'smart' money will be wiped out, and the carcasses of the vultures will join those of their supposed feast.

In this economic climate, we suggest it is better to be financial jackals. One shouldn't just wait until the prey stops moving: one should let it sit and rot for awhile. Jackals find that foetid meat aids the digestion... and so will it aid investing.