2008 All Over Again?

The S&P500 inched down last week by almost half a percent.  Volume ticked up, again demonstrating more conviction behind price drops than price increases.  Volatility ticked up which also supported the validity of the price drop.  Momentum also continued to wane; the bounce after the Japanese disaster is now waning.  The breath of rising vs. falling stocks also weakened; many more stocks fell than rose last week.

There was little in the way of macro news last week.  The most important, the ISM services index, came in well below expectations.  Initial jobless claims were close to expectations, slightly below the 400,000 mark.  And consumer credit, while rising more than expected, was horrible beneath the surface.  Why?  Because the rise was fueled by growth in student and auto loans–but all of this debt was provided by the federal government.  And this is not sustainable.

Here’s some interesting food for thought:  Several recent developments are eerily reminiscent of events in 2008.

Oil prices are going through the roof.

Gold and silver prices are soaring.

The US dollar is plunging relative to other major global currencies.

Headline inflation is creeping higher.

Major commodity prices, especially food grains, are spiking to record heights.

Global anger is growing over dangerously high food costs.

Several foreign equity markets are near record high levels.

US small cap stocks are near record highs.

In a bid to lean against inflation, the ECB raised interest rates.

And there’s more.  But what most interesting is what happened later in that year, 2008.  As record input costs kept surging, and with financing costs growing in Europe, the global economy had a heart attack, a heart attack that was nearly fatal.

What’s different this time, in 2010?

That’s the scary part.

This time, the global lifeguards–the major sovereign governments of the world–are struggling to stay afloat themselves.  They’re up to their eyeballs in debt and have used most of their monetary policy bullets.  In short, the major governments of the world may not be able to “save the global economy” should it suffer another heart attack.

Last week Portugal joined Greece and Ireland as the third of the PIIGS to fail financially and require a bailout from the EU and IMF.  Spain could be next.  But it really may not matter.  Because if the global economy hits the wall later this year, then the possible failure of Spain will be the least of the world’s worries.

And given that virtually NONE of the underlying causes of the global financial crisis, and the ensuing Great Recession, has been fixed, then it’s virtually certain that the world will enter another crisis.  And it will enter this crisis without the rescue ability of the major sovereigns.

The major unanswered question is simply–when?

Scary indeed.

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