THE DOT - if this turns orange or red be alert

Tuesday, December 1, 2009

Brainstorming Tuesday

1. What shall we do with the drunken sailor?
Hedge Funds and Long only funds get lured into buying an insane market top - greed has takenover again and the FED is druming the beat to create the next crisis.

Excerpt

SocGen On Life, The Universe And The Impending Burst Of The Biggest Central Bank Created Bubble In History


Albert Edwards and Dylan Grice's latest must read slideshow:

We have just had the worst decade’s performance for equity investors on record. Relative to government bonds, equities have been an even bigger disaster. Surely after such a terrible decade for equity investors things can only get better?

On a ten year view, equities may indeed prove to be a good investment. On a 1-2 year view, however, we still see much pain to come. After what we have been though so far, where the bulls? optimism has been crushed in 2001/2 and in 2007/8 surely there must be a heavy weight of self-doubt yoked onto the shoulders of the bulls ? but apparently not!


The lesson from Japan is that while de-leveraging plays itself out, the global economy will remain extremely vulnerable. The Great Moderation is dead. It was built on a super-cycle of private sector debt. We know from Japan, we now return to what was before, i.e. highly volatile and unpredictable cycles. Recession will quickly follow recovery.

US equity valuations did not reach revulsion levels in March this year. After some 15 years of gross overvaluation do we really believe that this valuation bear market that has been in place since 2000 will finish with equities looking cheap for only three months? Long term-valuation measures suggest equities will fall substantially below March lows.

Government bonds are now an extremely poor investment. On a 10-year view, the insolvency of government finances will surely end in substantially higher inflation. Yet on a 1-2 year view, we believe the key threat remains deflation. Markets will react aggressively to this as the cycle stalls in 2010. Expect sub-2% bond yields to accompany new lows on the equity market next year. Thinking the unthinkable has paid off over the last decade and should continue to do so.


Edwards Slideshow -

2. The Russians tried that and did not win in Afganistan - anyway as soon as the forces are pulled out the new/old balance of power will return. One of the biggest drug producing countries has its own natural balance. That's a war America can only loose if it does not intend to occupy it open end and that would be a stupid idea.

Excerpt

Obama to Send More Troops, Set Timeline for Afghan Withdrawal

By Hans Nichols and Indira A.R. Lakshmanan

Dec. 1 (Bloomberg) -- President Barack Obama will announce tonight he is sending an additional 30,000 U.S. troops to Afghanistan and that American forces will begin withdrawing by July 2011, administration officials said.

The deployment of the extra force will be expedited and will bring the number of U.S. military personnel in Afghanistan to about 100,000. Obama will outline a plan that includes a timetable for Afghan security forces to begin taking over from U.S. troops before the end of his first term, one of the officials said.

With the unveiling of his strategy, Obama is tying his presidency to the outcome of a war that has deteriorated since the U.S. ousted the Taliban from power eight years ago.

Obama’s televised speech from the U.S. Military Academy at West Point “is really going to prove that he owns the war,” said Karin von Hippel, a scholar at the Center for Strategic and International Studies in Washington.

The address comes after a months-long strategy review and will be directed at a range of listeners, including voters weary of the war, lawmakers divided over its cost in lives and money, a scandal-plagued Afghan government and a stubborn Taliban insurgency.

Obama’s speech will last about 30 to 40 minutes and will focus on a strategy to “disrupt, dismantle and destroy al-Qaeda and its extremist allies” and help prevent another 9/11-style attack, spokesman Robert Gibbs said on NBC’s “Today” show.

Afghan Takeover

The ultimate goal, Gibbs said, is to “transfer the responsibility” to Afghanistan’s security forces as they meet unspecified political and civilian benchmarks.

“This will not be nation-building,” Gibbs said. “This will not be an open-ended commitment.”

The president’s challenge is to demonstrate the U.S. is committed to defeating terrorists and stabilizing Afghanistan without creating the impression that American forces will be there forever, said Patrick Cronin, a senior director at the Center for a New American Security in Washington.

“There are multiple messages and multiple audiences,” said Cronin, who until recently ran the Pentagon’s Institute for National Strategic Studies. Obama needs “to show the American public and the Senate and the House of Representatives that we have an exit strategy, not a permanent commitment,” while simultaneously convincing Afghanistan, Pakistan and U.S. enemies “that we are willing to see this through,” he said.

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