June 2008 - Gateway to Chaos

Working for A New Story Foundation is interesting and exciting, but sometimes the work we do in looking at social trends and cycles can be a bit scary. What we see in our forecast for June and through the end of this year, I must say, makes me want to gather my family together and hunker down. Unfortunately, as with many Americans, family components are scattered across the country. I would like to share this excerpt from our latest (June) issue of MoodCompass:

"We recently prepared a long range forecast for the second half of this year for internal planning purposes. To sum it up, the entire second half of the year looks increasingly serious, chaotic, violent, and disruptive. The situations that individuals will be facing in this country and on the planet for at least the next six months should be extremely challenging. While we can’t know the specific events that will take place, what we do know is that the situations that present themselves will be perceived over and over again as far outside what “normal” is supposed to be. The second half of 2008 is a different world, in a sense, from the first half.

What that means is that June is the turning point, a one way door into a very different global context than that with which we have become familiar. Through whatever choices, decisions, and actions are made this month, the world will be set on a course that will bring increasing chaos, disruption, and distress for at least the remainder of the year. Although this is not the end of the world, what is likely, in the coming six months, is runaway inflation in certain sectors concurrent with extremely depressed prices in others; outbreaks of civil unrest in some locations due to disagreements with government policies or to general distress and frustration; outbreaks of public panic in some areas due to perceived or actual disruption of fuel or food (for more information on public panic events: http://anewstory.org/documents/public_panic_crisis.ppt).

The focal point for June itself is the third week of the month. There is a high likelihood of a geopolitical crisis and excessive losses in the stock market beginning early in the week."

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For the lastest updates on social mood see http://marketmood.net/.

Change is in the Air – and the Tone is Quite Somber

One of the topics in the news lately is concern over food shortages. While there is no real shortage, a public panic with hoarding behavior and outbreaks of violence can become serious. For more information on public panic and how to prepare for the possibility of this type of event, please see http://anewstory.org/documents/public_panic_crisis.ppt.

The following excerpt is from the May issue of A New Story's MoodCompass:

Change is in the Air – and the Tone is Quite Somber

As there has been much talk by various analysts in the media about the worst of the credit crisis being over, one might hope that this indicates a transition to a more upbeat mood. Our analysis of the social mood factors for the coming month, however, shows the global sentiment to have an extremely serious tone. Whether the fears that drive the global situation are based on real or imaginary concerns, by the end of the month there is a likely shared conclusion—that something is going seriously wrong.

For the lastest updates on social mood see http://marketmood.net/.

In Like a Lion - March 2008

If you watch the news or follow the financial markets, March may get a bit scary. If not, you may not notice the fallout from March for a few months. Because the mood configuration for March signals a likely severe stock market decline I strongly encourage you to consider moving funds in IRAs or 401(K)s from growth funds to guaranteed income funds. However, even this is not a sure thing in the current environment. The best investment is cash or U.S. Treasury bonds, regardless of how little interest that pays. The worst investment is almost anything else.

As far as later fallout, the Fed chairman Bernanke testified today that the economy is in serious trouble, that unemployment is likely to rise, and that some banks are likely to fail at some point. Some of this is likely to happen sooner than later. It is not hard to imagine people wondering whether the Great Depression II is upon us by the end of next month. There is little to do financially to prepare at this point. The best thing to do is to invest in mutually supportive relationships. When times are tough, independence is not an asset, it is a liability. Spirituality may be a source of strength for those who have such an understanding. Cherish each happy moment. Our basic values will be challenged in the next few years. We may have to reassess what the most important things in life really are.

The following excerpts are from A New Story's March MoodCompass

Geopolitical Tensions Escalate -- US Stock Market Crashes

The defining shift in mood for February was seen in the extreme change in the way that United States society views the rest of the world. Previously, the world was seen as a relatively stable place to transact business. Although there had been concerns about a slowdown in the U.S. economy, there was an assumption that growth in the rest of the world would well be able to compensate. The shift in February from high Directing to high Manic saw the view of the non-U.S. world change from a growth focus to one of uncertainty, chaos, and fragmentation. Geopolitical uncertainty propelled crude oil to new records in spite of the undue stress such high prices are placing on already fragile economies. In March, this theme of an unsafe world is continued. In such an uncertain geopolitical context, what else can global investors do, but make a massive move to "take money off the table?" Thus the global sell-off ensues. U.S. markets may lose in excess of 15% at the lowest points this month.

March News Highlights

The following is based on a combination of recent events, global trends, and the March oscillations of social mood

Following on increasing geopolitical crises from last month, tensions in Israel reach a high pitch, with violence in Gaza and a new war looming with Hezbollah in Lebanon. Peace negotiations brokered by the US forestall major Israeli retaliation, but tensions remain high all month, punctuated with increasing outbreaks of violence. Both Hamas and Hezbollah are increasingly vocal throughout the month, taunting and threatening Israel. Israeli forces and embassies remain on high alert. Syria may take up sides this round, and Iran reiterates its firm backing of Syria should Israel attack. Israel's PM Ehud Olmert continues to assert that Iran is conducting secret efforts to develop a nuclear warhead, in increasingly hostile tones.

The situation in the Darfur region of Sudan will have become critical early in March. The United Nations gives repeated warnings of a full-scale war spanning the entire region, encompassing neighboring Somalia, Eritrea, and Chad, perhaps spreading into DRC and/or the northern part of Kenya. Widespread starvation will reach critical levels, as food aid deliveries are intercepted before they can reach distribution points. Fragile Kenyan peace negotiations may break down as a result.

The United States will continue to have difficulty in reviving the waning interest of countries assisting its efforts in Afghanistan, even as Taliban resurgence advances on positions long secured by coalition forces. Continued post-election instability in neighboring Pakistan will further stretch the American forces, and may lead to a crisis near month's end. India may make a statement of caution toward the Musharraf government if the instability is not quelled.
Economic conditions worldwide deteriorate through March, resulting in a rapid decline in US stock prices across all sectors (estimated losses 15-20%). There may be scattered news and rumors of renegotiating global currencies agreements, resulting in several sharp drops in the USD. Continued high prices in crude oil will be driven by Middle East instability, tempered by recession indicators in the US, and coupled with record-high reserve levels. OPEC negotiations may be strained as various elements renew their push for a general acceptance of a "basket of currencies," heavily weighted with Euros and Yuan.

http://anewstory.org/markets/March_MoodCompass.pdf
(subscription required to view; reprinted with permission)

Deepening Despair, Increasing Geopolitical Concerns: U.S. Social Mood for February

The following is an excerpt from the MoodCompass for February. It is serious, but gives a heads up to what appears to be a very serious month, socioeconomically speaking. February (especially the second half of the month) is a good time to stay close to home and loved ones.

February is a month of exceptional despair (extreme Somber) for U.S. society. The Fed may cut rates, the government may discuss economic incentives or other emergency measures to jump start the economy. However, no matter what is suggested, promised, or actually done, with the high Somber/Directing filter (extreme high West) anything said or done either sounds like it comes from a place of panic, or is responded to with panic. In addition, at any time that some glimmer of hope begins to show, some new bit of bad news that wasn't a part of the previous equation is likely to appear. Back in January, there was great concern expressed about the U.S. economy and the possibility of recession. Those fears have not gone away in February, but a whole new set of worries have arrived.

For the past few months, the rest of the world has been seen as steadily expansive, and as possibly having the ability to compensate for slowing U.S. growth. This view shifts drastically in February. While in January some U.S. analysts may have considered other economies to be "on the right track", and looked admiringly at Asia's growth, for instance, these kinds of commentaries will change to less complementary terms. From the view of U.S. society, the world in February looks suspicious, deceitful, belligerent, and manipulative (high Manic/East). The focus is no longer on how well some other countries are doing, but how dangerous some of them are, and how they cannot be trusted. The high Manic in general signals chaos and unpredictability. We do not know what "they" are going to do next. This sentiment will cause the price of crude oil to climb, even though the global economy is slowing, stock markets are plummeting, and the U.S. Dollar is rising—not a good combination for recovery.

How to Stay Out of Debt

I'd like to share a video with you this month. It's funny, however its simple but true solution is so obvious it is almost painful. This video is How to Stay Out of Debt brought to you by the classic Saturday Night Live cast of the 1970s. Enjoy!

Clouds of Economic Despair

In the last few days, two people, on two separate occasions, approached me with their concerns about what is happening in the markets. One of them said that he couldn't say exactly why, but it feels like a "Great Depression" might be imminent. He has never been involved in stocks, nor cares much at all about the world of finance. The other also had no money in the markets herself, but was concerned for a friend who had a significant sum in various investments. What has stood out from these encounters, is the sense of alarm from two people who normally could care less about the stock market or economic indicators.

There has been increasing talk of the possibility of a recession in the financial news. I have seen a few of them come and go in my lifetime, with little personal impact, other than a looming possibility of a job lay off which I was fortunate enough to escape. Yet, during those other recessions I don't recall anyone who I personally knew speaking of "Great Depressions" or describing a sense of large, imminent, engulfing doom. Something is different this time. Whatever is happening, is not like any of the recessions I have lived through. I can't help wondering whether people had such feeling in 1929 just before the big crash.

It is impossible to know whether we will have a one big event market crash such as that fateful October in 1929. It may not really matter. Whether we have a single big crash event, or a consistent and persistent economic contraction, the result would be the same. We may be witnessing the beginnings of a profound transformation of the lifestyles we have become used to.

The only practical advice I had for my friends is this: For the time being, and for at least a couple of years, stay away from long term investments; don't buy a house. Stay away from the stock market and money market funds, keep your debt down, and hold on to cash. And by the way, in case what is going on means that banks will be failing, and that looks likely, make sure your money is in a conservative, solidly rated bank.

This could be a long, rough ride.

Could the Market Crash of 1987 happen Now?

It seemed best this month to use excerpts of two interesting articles for this month's entry.

Could 1987 happen again?
http://www.marketwatch.com/news/story/could-1987-happen-again/story.aspx?guid=%7B9EB9B81B%2D3592%2D47C7%2DAA51%2DE79F3EC99602%7D

LONDON (MarketWatch) -- This October marks the 20th anniversary of the 1987 stock market crash, the biggest one-day post-war percentage drop for U.S. markets.

The crash came against a backdrop of inflation fears, rising oil prices, Middle East tensions and a host of other eerily familiar worry signs in Wall Street's most notorious month, and helped cement October's reputation as the toughest month for the markets, at least psychologically. So, could it happen again?

Could the world's stock markets wake up one morning this month and suddenly find there is no 'bid' for shares and start plummeting? Could someone mess up in the Middle East, where tensions are already high, and do something so completely unexpected that people suddenly just want out?

Or could an overheated market in Asia, Shanghai perhaps, suddenly roll over, sparking a cascading series of falls as complex, computer-driven derivative positions suddenly lose their footing leading to one great global belly flop?

Yes.

Uncertainty and fear are ever present agents in the markets and can overwhelm greed and optimism at any time. Unexpected geopolitical and financial events are an ever present possibility.

The Ides of October
Commentary: How 2007 is different from 1987 and how it's the same
http://www.marketwatch.com/news/story/how-2007-different-1987-how/story.aspx?guid=%7b087A4B09-AD6A-436B-98EC-FF63FB5EB4BB%7d&print=true&dist=printTop

The more we wade through the minefield that is today's credit crunch the more is written about the last time we saw such problems -- 1987. Parallels are also being drawn in politics, the dollar, war and Wall Street itself so this confluence of coincidences may not be such happenstance at all. Perhaps it is telling us what is going to happen in the very near future.

October has the reputation as being the scariest month of the year and not because it is the home to Halloween. All of the really big market plunges -- 1929, 1987 and even the mini-smashes of 1989, 2000 and 2002 -- all happened in this month so investors are understandably concerned.