What to expect from a Barack Obama presidency and other News from Generationaldynamics.com

What to expect from a Barack Obama presidency

A landslide victory on Tuesday now seems all but certain.

A number of people have asked me which candidate I favor for the Presidency.

For reasons that I’ve stated many times, I consider both John McCain and Barack Obama to be fine candidates, and I do not favor either one over the other. It is impossible to predict which candidate will be better able to handle the historic crises that are approaching.

However, from the point of view of Generational Dynamics, there are important, identifiable differences between the two, and on the eve of the almost-certain election of Barack Obama, it seems worthwhile to outline them.

A victory for McCain means “more of the same,” as his opponents claim, but not exactly as they mean. A victory for McCain means a continuation of Boomer values, as they grew out of the 1960s. Thus, a victory for McCain means a continuation of domestic and foreign policies developed by President Carter, President Reagan, President Bush (#41), President Clinton, and President Bush (#43). And yes, I’m once again making the point that I’ve made many times before that if Al Gore had been President after 9/11, we’d be in exactly the same place today as we are.

A victory for Barack Obama — combined with a substantial Democratic Party victory in Congress — means something quite different. It means a sharp turn into a new, unknown direction and a new, unknown set of values. People in Obama’s generation reject Boomer values, often simply BECAUSE they are Boomer values, and so whatever new values the government adopts are going to be different and untested.

Obama partisans see “change” as an unmitigated benefit, but that’s far from true. It’s going to be different, it’s going to be a sharp rejection of Boomer values, accomplishments and compromises, it’s going to provide some benefits, and it’s going to provide disasters in other areas. Exactly what that mix of benefit and disaster will be cannot be predicted at this time.

That’s not to say that an Obama victory is better or worse for the United States than a McCain victory. The country is facing a historic financial crisis and a new “Clash of Civilizations” world war either way. But President Obama would be likely to over-react to dangerous situations, simply because he’ll be unable to resist pressure from his own partisans. McCain is older and has the credibility to say, “Let’s wait a few days before doing anything,” but that would be much harder for Obama.

I think it’s worthwhile to address the charges of “anti-Americanism” by Obama. And for this, I’d like to contrast Obama to the 2004 Democratic presidential candidate, John Kerry.

Obama was accused of being anti-American because of his close relationship with Reverend Jeremiah Wright, who is about as vitriolic a hater of this country as anyone. Obama claims that he never knew of Wright’s views, but I’ve never believed that story for a moment.

In fact, Wright’s hatred of America is part of the culture of older-generation blacks in southern Africa, as I’ve described in writing about people like Zimbabwe’s Robert Mugabe and South Africa’s Thabo Mbeki. Barack Obama was a community organizer in a community that shared this southern African view. In fact, Obama has never, as far as I know, explained his reason for his celebrated opposition to the Iraq war in 2002, but I feel fairly certain it’s because of his cultural surroundings, where America is hated, and its military is considered to be modern day terrorists and Nazis.

Now, long-time readers may recall that I was bitterly critical of John Kerry in 2004, because of remarks he had made in 1971. In 1971, Kerry said that American soldiers were committing war crimes “on a day-to-day basis with the full awareness of officers at all levels of command.” These atrocities included rape, torture, and cutting off ears, heads and limbs.

Kerry did not use the words “Nazis” and “terrorists,” but it was pretty clear to me that that’s what he was saying.

I was wondering if Kerry still held those same views in 2004, but I could never get an answer. Finally, in 2006, I did get an answer, as I reported in “John Kerry and Seymour Hersh trash the armed forces.” Kerry said on a radio show, “The American people rely on the truth. And when I came back from Southeast Asia, I told the truth. And I’m proud that I stood up and told the truth then, and I’ve told the truth about Iraq every single step of the way.”

So, in 2004, Kerry still retained his despicable previous views. It’s my opinion that if a Kerry presidency would have been an utter disaster, because we would have had the War against Terror led by a President who believed that his own armed forces were worse terrorists and Nazis than al-Qaeda.

But here’s the contrast between Kerry and Obama. Maybe Obama drank the Reverend Wright kool-aid, maybe he didn’t completely. But Obama has totally rejected and repudiated both Reverend Wright and his former anti-American views.

I’ve seen Obama on television several times now, including the excellent interview by Bill O’Reilly. I feel personally comfortable that Obama has never thoroughly shared Wright’s vitriolic hatred, and if he shared it at all, he’s rejected it.

In other words, Obama has changed his mind, where Kerry did not. Obama can’t admit that he changed his mind, of course, so he made up this cock and bull story about not knowing what Wright’s views are. I personally have no problem with his changing his mind, and I have no doubt that Obama will be as patriotic and devoted a President as McCain would be. Both men are dedicated to the success and survival of America in the world crises to come.

Obama’s partisans have the view, encouraged by Obama himself, that things are going to “change,” and that the economy and foreign relations are going to improve overnight. In fact, I’ve been hearing Obama make claims that things are going to start changing on Wednesday, the day after the election. That’ll be a pretty good trick.

Unfortunately, a lot of people believe it, and they’re going to be bitterly disappointed.

Here are some things to watch for after an Obama victory:

• A lot of people believe that an Obama Presidency with an overwhelming Democratic Party majority in Congress will mean the end of bickering and fighting, and that Congress will pass laws immediately that will solve all the world’s problems.Don’t hold your breath. The bickering is caused because the government is now run by the Boomer generation and Generation-X, and these people don’t know how to lead and govern. Recall that President Bush and a Republican Congress both won in 2004, and yet Congress accomplished nothing in 2005.

  In particular, for those who think that Obama will turn America into a Socialist or Communist state, be reassured that nothing even remotely close will occur.

• A lot of people believe that Obama and the Congress will pass more economic stimulus packages and more bailout packages, and that will solve the economic problems, and restore the stock market bubble. As we’ve written many times, this is impossible. Policies that restrict free markets and free trade will be extremely controversial. There will be a great deal of fury directed at Obama over these policies, and his failure to solve the economic crisis.
• A lot of people — around the world — believe that Obama will immediately improve America’s relations with countries around the world. This is the most dangerous area of all, because Obama’s youth and inexperience, combined with the enormous pressure from both the left and right, will cause Obama to make dangerous mistakes in times of pending crisis.

The above is my summary of what an Obama presidency will be like. But as I’ve said many times before, there’s no way to know whether this presidency would be better or worse for the country than a McCain presidency. The financial disaster and the world war are coming anyway, and there’s no way to predict whether McCain’s caution or Obama’s over-reactions are better for what’s coming. In fact, we’ll never know.

An Obama Presidency promises to be both exciting and scary. It’ll be fun to watch, except for the disasters.

(Comments: For reader comments, questions and discussion, as well as more frequent updates on this subject, see the Presidential Election thread of the Generational Dynamics forum. Read the entire thread for discussions on how to protect your money.) (4-Nov-2008) Permanent Link

Markets enter another turbulent week, as effects of bailout are questioned

Investors seemed very optimistic for the first time in weeks on Friday, according to Art Cashin, UBS floor manager for the New York Stock Exchange. He described it this way, completely contradicting remarks he’s made in the recent past: “It looks less and less likely that we’re going to get a significant retest and/or break of the lows. This rally looks like it might have some legs.”

The market did close higher on Friday, which was the first time in several weeks that the market went up two days in a row. So it took only two days to turn Cashin from a hard-nosed analyst into a mushy Pollyanna. It’s not too hard, is it. These people are really desperate for good news.

If you look at the recent past beyond just two days, you can see something quite different. Here’s how John O’Donoghue of Cowen and Company, LLC, described it on Bloomberg tv: “But I’ll tell you I’ve been doing this a long time, and to see the dramatic moves in the last 5 or 10 minutes of every day, where nobody knows where we’re going, is quite disconcerting to say the least.”

Playing the stock market today is the equivalent of playing a roulette wheel. For the last several weeks, the major characteristic of the stock market is a huge movement at the end of the day, often several hundreds points one way or the other on the Dow within a few minutes. This huge movement is caused by panic buying, but more often by panic selling by hedge funds and mutual funds to meet margin calls and collateral calls.

In this environment, all short-term indicators are totally meaningless. I’m not exaggerating in the least when I say that no one knows what’s going to happen in the last half hour of the trading day, since it appears to be completely random.

So betting on stocks today is more likely than not to be a losing proposition in the very short run, but that doesn’t even include the expectation of a stock market crash. So for those who are considering getting back into the stock market, unless you’re addicted to gambling — in which case you should start going to Gamblers Anonymous meetings — do not under any circumstances get into the market at this time, or in the foreseeable future.

Here’s how a member of the Generational Dynamics forum sees the current situation:

“I have traded the SPX futures market before, spending an entire year doing nothing else back in the 1990’s. I don’t know of any trade other than maybe timing some interday options plays that doesn’t promise anything short of total financial destruction. The declines and advances going into the close aren’t about huge orders on either side, but instead I believe about huge speads between bid and ask being put into the system by the market makers, plus a premium being charged on either side to be in or out of the market over night. I counted the fade into the close when the market bottomed on October 10th and I believe the last 23 minutes lost 438 points. It had just rallied about 800 on a straight line in the prior 50 minutes. The idea that anyone has the skills to get on either side of a move like this is absurd. We are talking about a market full of air. The close Friday bottomed out with 13 minutes left then rallied about 150 points. There have been some hot trading days in the past where a 150 point move would be considered huge, yet we are seeing it in 10 minutes time over and over again. This is more than oversold or overbought as the moves go in both directions. This is about a lot of stock needing to move with no one on the other side.There is an absolute delusion out there that people are waiting to get back in this market. They didn’t get out. I doubt $150 billion of public money got out of this market before the decline, about 2 or 3 days trading volume at best. The biggest problem facing the market are almost zero bonds being issued right now worldwide. A few investment grades and that is it. So, we are going to get this market going again without any bond money? Money can’t go in both directions and it is clear the problem is a lack of capital in the system, which portends toward more selling to reduce leverage instead of a plunge back into stocks. We are looking at 3% dividends and lower for the entire market while high grade bonds in the top echelon of companies are returning around 7% or higher from what I can deduce. We are a long way from a final bottom in this market. If John is correct, we still have a generational crash ahead of us or better yet, we have a group that just might go down with the ship.”

In fact, many analysts are expect a 20-30% market correction as part of a “crash event” for a “capitulation,” and Generational Dynamics predicts that we do have a generational panic and stock market crash ahead of us, as regular readers know.

The major question being debated by investors is whether the $700 billion bailout will work to end the credit crisis.

Once again, we hear a lot of mind-numbingly Pollyannish statements from commentators. One of the worst and most bizarre I’ve heard was from CNN commentator Fareed Zakaria on Sunday afternoon. Here’s what he said:

“Before we get started, some thoughts on the current economic crisis.For the last few weeks, I’ve been something of a contrarian. I’ve been making the case of optimism, relatively speaking. Yes, we’re in a deep financial crisis, yes a deep recession is on its way, if not already here, but the world is not coming to an end.

And I feel this week there’s a bit more evidence that things are stabilizing. Look, capital is flowing into the banking system, credit is beginning to thaw, stock markets are stabilizing somewhat.

The next phase of the crisis has spread to emerging markets, but even there, we’re seeing a spirited response. The IMF has suspended its usual bureaucratic delays, and very stringent conditions, and it’s putting together a loan package in excess of $100 billion for countries like Pakistan, Ukraine, Brazil, and Mexico.

Now, the reason that this crisis will not turn into a Great Depression, fundamentally, is that the governments of the world are throwing everything they have at it. And governments are more powerful than markets. They can shut down stock trading, nationalize banks, print money, whatever it takes. In the end, the government will win.

The next phase of this struggle will begin next Tuesday, when America will elect a new President. That person will have a mandate to make big changes to the economy, to get it moving, which means what, a large stimulus package, investments in energy, support for homeowners, all of which will boost confidence. And confidence produces economic activity. So be an optimist. It’s good for the economy.”

This is exactly the airhead attitude that’s gotten us into so much trouble in the first place, and has continually been making the problems worse.

Why will the government win? China is a country where the government (the CCP or Chinese Communist Party) has almost complete control of the economy. The CCP has been trying for years to cool down the country’s bubble economy, with no success whatsoever.

Until this year, when they’re finally getting what they wished for, except that the Chinese economy is crashing, as the economic bubble collapse, and now the Chinese are desperately trying measures to blow the bubble up again, which will surely fail.

As I’ve said many times on this site, mainstream macroeconomics could not predict or explain the dot-com bubble of the 1990s, the credit bubble of the 2000s, the credit crisis, or how we got to where we are today. Mainstream economics has been wrong time after time after time.

So how the hell can Zakaria be so sure that governments even have the vaguest idea what’s going on, let alone how to fix it?

It’s pretty obvious that Zakaria’s views are the standard Obamamania views. The reasoning goes like this: “Obama will win on Tuesday, and the Democrats will win big in the Congressional races, so Obama will be able to do what he wants, and he’ll know what he wants to do, and he’ll do it, and everything will be wonderful and fine, because President Obama will make it so.”

This would be fun to watch if the consequences weren’t so serious.

Incidentally, I’ve quoted Fareed Zakaria before, in a 2006 article called “Learning-disabled journalists and politicians continue to predict Iraq civil war.” Zakaria was an ABC commentator at that time, and I quoted him as saying, “If you look at the last 3-4 months, it’s absolutely clear that a civil war dynamic has set in. This is happening. … The trend is moving in the wrong direction on every issue that relates to a building civil war.”

Zakaria had been making similar predictions for years, but was apparently too learning-disabled to realize that when you’re wrong week after week, then it’s time to change your predictions.

Actually, Zakaria’s new statement is so bizarre, I could hardly believe it. He said, “And governments are more powerful than markets. They can shut down stock trading, nationalize banks, print money, whatever it takes. In the end, the government will win.”

I’ve given hundreds of examples throughout history where governments most certainly did lose. I can’t imagine what Zakaria is thinking.

Commentators have been pleased during the past week, because Libor, and other measures of interest rates for inter-bank lending, have come down, indicating that banks are more willing to lend money to one another.

However, that just means that the Fed is guaranteeing all interbank loans. The Fed’s new bailout problem is also guaranteeing some types of commercial paper, and those forms of credit increased last week as well.

But a Financial Times analysis finds that the bailout is having a “negligible” effect on the market as a whole. For companies not on the Fed’s Christmas list, the credit freeze is as tight as ever.

According to the article, “If the objective – or rather, objectives – of the world’s governments through their suite of emergency financial measures is to sustainably normalise markets and stabilise the world economy, then they are palpably failing.” It points out that even the portions of the program that appear to be succeeding will fail again immediately as soon as the Fed bailout funds are withdrawn.

As I wrote last week in “What’s coming next: Understanding the deflationary spiral,” it’s actually not mathematically possible for the bailout to work. The huge credit bubble of past years is now leaking quickly, probably at the rate of $1-2 trillion per week, and the world’s central banks cannot possibly keep up with that loss.

And so, from the point of view of Generational Dynamics, nothing has particularly changed in the last few weeks. Ever since the credit crisis began in August, 2007, we’ve seen the governments of the world try everything they can, and we’ve seen pundits and commentators say that the worst was over, and they’ve been wrong time after time after time.

There is one major event that we’re still waiting for, the generational panic and crash, that I’ve described this way several times in the past:

“A generational crash is an elemental force of nature, like a tsunami.You’ll have millions or even tens of millions of Boomers and Generation-Xers in countries around the world, never having seen anything like this before, not even believing it was possible, and in a state of total mass panic, trying to sell all at once. Computer systems will crash or will be clogged for hours, or perhaps even for a day or two. People who had hoped to get out just as the collapse is occurring will be totally screwed, and will lose everything. Brokers and other institutions will go bankrupt.”

This might happen tomorrow, next week, next month or thereafter. We can’t predict when it will happen, but it’s coming soon with absolute certainty.

(Comments: For reader comments, questions and discussion, as well as more frequent updates on this subject, see the Financial Topics thread of the Generational Dynamics forum. Read the entire thread for discussions on how to protect your money.) (3-Nov-2008) Permanent Link

China’s economy slowing down significantly

Chinese society is at risk of increasing instability, as economic reports indicate that unemployment is surging.

China’s President Hu Jintao is known to believe that the country’s most challenging problem is unemployment.

If that’s so, then Hu is coming face to face with a nightmare.

It’s a situation that is only going to get much worse in the next few months. According to “conservative” estimates by the Dongguan City Association of Enterprises with Foreign Investment, 9,000 of the 45,000 factories in the cities of Guangzhou, Dongguan, and Shenzhen — the heart of China’s industrial south — are expected to close before the Chinese New Year in late January. That could mean up to 2.7 million workers facing unemployment, in a region with tens of millions of migrant workers who depend on employment to send money back to their families in poor rural areas.

New figures indicate that profits from China’s state owned enterprises (SOEs) fell 9 percent through September, after a 7.7 percent decline in the first eight months from a year earlier.

This all coincides with trends that have been building to this point:

Baltic Dry Index and price of copper for 2004 to 31-Oct-2008 (Source: InvestmentTools.com)

• The Chinese had been in a huge economic frenzy leading up to the summer Olympics in Beijing, but economic activity started falling off as summer approached. Activity has been trending down ever since, and now appears to be accelerating downward.
• The Chinese economic bubble has been highly correlated with the Baltic Dry Index and the commodities bubble, as shown in the above graph. The Baltic Dry Index tracks the costs of shipping dry bulk goods, including commodities like copper and iron ore. The above graph shows that the BDI and copper prices have been crashing at historically fast rates, and that the crash continues.
• Perhaps most ominous for many in the general population is the 69% fall in the China Securities Index (CSI 300 Index) of stocks.
  

  China Securities Index, through November 1, 2008 (Source: Bloomberg)

  I first wrote about the Chinese stock market craze in February, 2007, when it was at its peak. At that time, there were 80.5 million open stock trading accounts, with 90,000 new accounts are opened every day, overwhelmingly “retail” accounts for ordinary citizens. Millions of Chinese mortgaged their homes, and borrowed money from any source available, including their family and friends, in order to invest in the stock market.

  That’s great as long as the stock market bubble continued, but the CSI 300 Index has been falling sharply for months now, and there must be tens of millions of people who have lost most of their life savings.

China’s economic growth has decelerated for five straight quarters. Signs of weakness span property, industrial production, export orders.

Worried Chinese officials are taking desperate measures. Many of the measures being taken are similar to those being taken in America by the Fed. The Chinese central bank has lowered interest rates this, having already lowered rates on September 15 and again on October 8. The government is increasing public spending. And the thousands of manufacturing firms that have been closed their doors are being encouraged to switch from export-driven products to products that will be consumed by the Chinese themselves.

What seems increasingly clear is that the Chinese economy itself is crashing very quickly. From the point of view of Generational Dynamics, this economic crash has been a long time coming. The Chinese economy has been growing at double-digit rates since 1980s, and no economy can continue at that rate. Furthermore, the economic activity reached bubble-level frenzies in recent years, and now the bubble is leaking increasingly rapidly.

The Chinese government is taking every desperate step it can to stop the leaking from the bubble, and try to make it grow again, just as American officials are trying every desperate measure possible to stop the leaking of the credit bubble.

Both attempts are doomed to failure. No government is powerful enough to stop these bubbles from leaking, once the leaking has begun.

In the case of China, an economic crash is a very serious matter. China has a long history of massive internal rebellions and civil wars, creating bloodbaths that have slaughtered tens of millions of people in a short period of time. As I described in “China approaches Civil War,” there was the White Lotus rebellion that began in 1795, the Taiping rebellion that began in 1852, and the Communist Revolution that began with Mao Zedong’s genocidal Long March in 1934.

From the point of view of Generational Dynamics, China is now about due for its next massive internal rebellion and civil war, and this collapse of the Chinese economy is exactly what is needed to trigger a new rebellion.

China’s government has been out of the news for several months now, ever since the massive devastation from the Sichuan earthquake caused worldwide public opinion to change from hostility over the Tibetan rioting to sympathy. This sympathy has lasted through the Olympics games, and continues to this day.

However, new trouble in brewing in Tibet, as we recently reported. And there have been huge anti-China rallies in Taiwan, following efforts by Taiwan President Ma Ying-jeou to develop closer relations with China. These are the kinds of things that cause the paranoic Chinese government to overreact.

From the point of view of Generational Dynamics, China is headed for a massive new civil war with 100% certainty. The expectation is that such a civil war will be redirected by the Chinese authorities into hostilities against Japan and America, and that this will lead to a new world war.

(Comments: For reader comments, questions and discussion, as well as more frequent updates on these subject, see the Financial Topics and the Geopolitical Topics threads of the Generational Dynamics forum.) (2-Nov-2008) Permanent Link

Dalai Lama hints at significant change of strategy for Tibet vs China

A special strategy meeting for Tibetan exiles will occur in mid-November.

This little-reported story that may have important significance in a few weeks.

The Dalai Lama is changing his position from one of preaching conciliation, compromise and tolerance with China into something that’s a lot more confrontational.

The Tibetan spiritual leader shocked observers last weekend for his unusually blunt statement.

On Saturday, the Dalai Lama told a public function in his exile location, Dharmsala, India, that he has “been sincerely pursuing the middle way approach in dealing with China for a long time now but there hasn’t been any positive response from the Chinese side.” He added: “As far as I’m concerned I have given up.”

In an interview on Thursday with the BBC, he made the following bitter statement:

Dalai Lama describes his faith in China’s government. (Source: BBC)

“My faith in China’s government has become tiny, tiny, tiny.Our main aim has been to improve conditions inside Tibet. That has not happened. Now the suppression is much, much increased – very, very tight control, something like military occupation – like that. Sometimes I feel like the Tibetan people are passing through a death sentence – something like that.”

He’s called an extraordinary mid-November meeting of Tibetan exile leaders to discuss future strategy. One possible outcome, though far from certain, would be a call for full Tibetan independence.

Ironically, this call for independence would do little to stir up the Tibetans, since the Tibetans are in a generational Unraveling era. The most you could expect from the Tibetans would be a few demonstrations, and perhaps some scattered violence.

But the Chinese have the most nationalistic, paranoid government on earth. It’s quite possible that the Chinese Communist Party (CCP) will take this change of strategy as a major threat, and will overreact.

The Chinese DID overreact last March, with an extremely violent crackdown on demonstrating Tibetan monks. Worldwide attitudes towards the Chinese became increasing angry and xenophobic until May, when a massive earthquake in Sichuan province created a period of good will that lasted through the Olympics game in August.

It became clear in March that the fault line between Han Chinese and Tibetans is very deep and full of hatred. This hatred exploded in March, and the Dalai Lama’s announced intention to change strategy raises the possibility that it will explode again. (31-Oct-2008)