Financial Armageddon

Not So Encouraging

According to the conventional wisdom, data released this morning should be taken as an encouraging sign for the labor market.

"US Worker Productivity Growth Slowed in Q4, Which Could Signal More Hiring in Coming Months" (Associated Press)

U.S. companies will have to keep hiring steadily to meet their customers’ rising demand. That’s the message that emerged Wednesday from a report that employers are finding it harder to squeeze more output from their existing staff.

Worker productivity rose at an annual rate of 0.9 percent in the October-December quarter, the Labor Department said. While that’s a slight upward revision from last month’s preliminary estimate, it’s half the pace from the July-September quarter.

Productivity, the amount of output per hour of work, grew last year at the slowest pace in nearly a quarter of a century.

A slowdown is bad for corporate profits. But it can be a good sign for future hiring. It may mean that companies have reached the limits of what they can get out of their existing work force and must add more workers if they want to grow.

That trend already looks to be happening. A report Wednesday from ADP, a payroll provider, estimated that companies added 216,000 workers in February. The survey did not include government agencies, which have been cutting jobs.

A more reliable read on hiring will come Friday when the government issues its February jobs report. Expectations are high after two strong months of job growth in December and January, a steady decline in unemployment benefit applications and a jump in consumer confidence.

“The slowing trend in productivity growth has largely confirmed that the cyclical bounce in productivity that the economy typically experiences following a recession has run its course,” said Troy Davig, an analyst for Barclays Capital Research. “Future productivity gains are likely to be harder won, so firms will likely need to rely increasingly on adding to payrolls to increase output, rather than squeeze existing resources.”

Unfortunately, history suggests that's not quite correct. As the following chart shows, a relatively sharp deceleration in the rate of productivity growth -- like we've seen recently -- has, except on two occasions over the past five decades, preceded or been associated with a slowdown in the pace of hiring.

Of course, this time could be different -- right?

Financial Armageddon Now on Kindle

It's been four years since Financial Armageddon was first published. Even though the book is, admittedly, a tad dated -- after all, unlike with the hundreds of other books on the subject, mine came out before the financial crisis erupted -- I believe some prospective readers might still find it to be of value, if only because we haven't quite reached the stage that I predicted in Chapter 8, "Hyperinflation."

With that in mind (and given that Kaplan Publishing, the publisher of the hardcover and paperback editions, did not have the foresight to market the book in digital form), I've decided to publish a Kindle edition. For those who are interested, this version of Financial Armageddon (which is based on the revised 2008 paperback edition) is now available at Amazon.com at a price of only $2.99.

To purchase a copy, please click here:

(Note: I'm also working to get the book published in other digital formats (e.g., Nook, iPad) and that process should be completed soon.)

Kudos for Financial Armageddon

In a post entitled "Evening Edition Doom and Gloom," FinancialSpiltMilk blog highlights a report in New York magazine detailing the latest outlooks of those who "always knew that the economy would collapse."

Aside from the fact that this statement is, on its face, ridiculous, a quick Google search reveals that some of those in the minority of listed forecasters who foresaw anything like the current crisis were way off in their timing.

That said, FinancialSpiltMilk has graciously taken the time to compliment one prognosticator who was not referenced in the article -- yours truly [italics mine]:

I just saw this and wanted to get it out. NY Magazine on the Oracles of Doom and Gloom. Fortunately I have been following three of the six oracles they cite, which has helped me to survive financially in this environment. But the real reason that I wanted to post this is their future predictions. Let me address them seriatim.

Gerald Celente predicts our dollars will be worthless in the future. I generally agree. All this multi-trillion dollars in alphabet soup relief programs will quite possibly lead to the collapse of our currency in due time. Unfortunately, Celente seems to be right quite often. I look forward to searching him out in the future as I have not followed him to date.

Noriel Roubini, need I say more. I have reported here before on his predictions and recently noted I have this bad gut feeling that he is right, which is increasingly being supported by more data. Gut feelings are fine, but data tells the true story and it is not looking pretty.

Peter Schiff. I have not followed him. His prediction that this will be worse than the Great Depression could be true but I tend to think things won't get that bad. I do think it will be the worst recession since the Depression, like Noriel Roubini, but I think the global response will save us from the worst. Schiff, of course, now sees the global response as the problem, and for the most I cannot say I disagree that much, but I still think we will avert the extreme he predicts. It will likely be more like Japan, long and drawn out. The difference between that and the Great Depression may be hard to discern.

Richard Russell. He anticipates the DOW will reach new lows and break the 50% down mark. I agree totally. I would explain why in detail, but I do that every day.

Barry Ritholtz. I refer to Barry at the Big Picture on a fairly regular basis. Barry hedges his statement on the attached article, but I know from following him that he is more bullish now than his comment reveals. No, he is not all the way back into the pool by any means, but I think he thinks we are past the worst. Sadly, I don't think so, but he knows more about this stuff than me and I respect his opinion. He certainly gets lots of air time on financial news shows.

Jeremy Grantham. Several months back I read a lot about his outfit GMO. Mostly a quant shop with a good dose of common sense thrown in when the computers do not make sense. I am not a big fan of quantative analysis. Sure, it can be a backup to proper analysis, but when we give our analysis over to mathmaticians and computers, we end up like Lehman, Merrill Lynch, Bear Stearns, etc. A lot of the derivatives mess was possible due to this kind of analysis. Nonetheless, GMO has done well and Jeremy Grantham is worth your ear. His prediction that volatility will die down as we become numb could be correct, but I think that will take a long time of us being beaten in the head with bad news. I know it seems it has already been a long time - get used to it.

Just my take on the oracles. My hat is off to them for the help they have provided me this year. I, however, would be remiss not to add my own oracle. Michael Panzner wrote a little book called Financial Armageddon that came out in early 2007, which means it was largely written in 2006 or before, well before this debacle started. I started reading it at the beginning of this year and finally had to put it down as it was too scary for me. Pretty much everything that had happened was predicted by him but not everything he has predicted has happened. And the other things he predicts are somewhat worse than the oracles above predict. Nonetheless, he predicted the derivatives mess, the Fannie/Freddie mess, and numerous other messes that are still unfolding. Reading his book has been a user's guide to what is happening, so my hat is off to him as the last oracle. It is still a good read today.

Financial Armageddon: Korea and Japan Sign On

I've just learned that my publisher, Kaplan, has sold the rights to the Korean and Japanese versions of Financial Armageddon.

In celebration (or, perhaps, as a final inducement to those English-speaking readers who've not yet gone out and bought a copy of their own), I've just uploaded a PDF version of Chapter One, entitled "Debt," from the hardcover version of Financial Armageddon.

Click here to download the file.

Trader Mike on Financial Armageddon

Yesterday, Michael Seneadza, publisher of Trader Mike (a regular read of mine, by the way) had some complimentary things to say about my book in a post entitled "Financial Armageddon is in Full Effect":

Barry’s post about the SEC wanting to ban all short selling sent me to my copy of Michael Panzner’s book Financial Armageddon. Andrew stated that “tonight’s event draws me to the last paragraph of ch.7 in Michael Panzer’s Financial Armageddon“. When I read that paragraph I was reminded of how I felt while reading the book back in March 2007. The scenarios that Panzner laid out were nothing short of chilling. I kept wondering if he really believed all those dire things would actually happen or if they were just a worst case scenario. In flipping through a few chapters tonight it’s scary to see just how much of what Panzner has come to pass. Here are the last two paragraph from chapter 7 (”Depression”) which Andrew was talking about (hopefully Michael won’t mind me posting so much of his text):

A comment by Andrew on

Eventually, with a decades-long orgy of credit expansion unraveling fast; the meltdown of stock, bond, commodity, and other markets; a cratering economy; and more of the nation’s largest financial institutions precariously on the edge, the Federal Reserve and Washington as a whole will have reached a critical juncture. There will be widespread pressure, bordering perhaps on hysteria, for somebody, somewhere to take action and stem the rapidly rising tide of disaster.

Only then, after being unwilling to react quickly and forcefully enough early on, the Federal Reserve will abruptly shift gears, no longer fearing the consequences of an aggressive monetary response. In a sense, they will have nothing to lose. With immediate effect, they will give up their self-imposed yoke of restraint and move wholeheartedly into money-creation mode. That will mark the beginning of the second phase of the great unraveling.

Sound familiar? Here’s some more from Chapter 6 (”Systemic Crisis”)

No doubt a systemic meltdown will provoke a similar response. For the financial system and the markets, however, the fallout will likely be worse than any downturn in many decades, owing to a unique combination of modern developments and incendiary circumstances. The explosive growth of derivatives trading and leveraged hedge fund investing, hidden behind a shroud of lightly regulated secrecy, means that few people will have a handle on where dangerous risk is concentrated or overall levels of exposure — not until it’s too late…

-SNIP-

Simply put, people will find it difficult to react in timely, logical or focused fashion to the unfolding calamity…

-SNIP-

Despite increased levels of sophistication and the broad use of modern risk management systems, no one can be sure how new or exotic instruments and markets will behave when conditions take an ominous turn. The sheer scale of the unfolding financial crisis—in terms of the number of participants, firms, regulators, products, countries, and markets—will make it difficult to penetrate the problems…

-SNIP-

This time, however, a vast and efficient global communications network will ensure that destructive energies are rapidly transmitted to billions of people. So, too, will trading technology that facilitates and encourages traders and investors to act on their impulses. Many will find it too easy to shoot first — or point and click — and ask questions later in a 21st-century rush for the exits.. Not only will the fastest or sharpest operators look to get out. Firms that have come to depend on leverage, including hedge funds, brokers, and even banks, will also face immediate and rapidly growing pressure to scale back positions because of demands for additional cash collateral or reduced access to financing. Meanwhile, those who still have the wherewithal to initiate fresh positions or act independently will look to dive in and take advantage of the stampede.

-SNIP-

A constant global ripple effect will occur as positions are adjusted to take account of risk management strategies or cash-raising demands. The widespread use of flawed models will further aggravate the situation.

-SNIP-

By the time the systemic crisis is full-blown, there will almost certainly have been a domino-like collapse of more than a few large intermediaries and allegedly sophisticated global financial firms, including hedge funds, insurers, and brokers. As the number of failures grows, concerns over counterparty risk will take center stage. Lenders, investors, and risk managers will fret and gossip about which institution is next. Worries about fraud and chicanery will boost anxiety to a fever pitch. Even firms not in dire straits may suddenly find themselves at risk. In times of upheaval, a lack of information and concern about the ability of others to manage their exposure often spurs a self-fulfilling prophecy, where idle chatter alone leads to institutions being squeezed or cut off—just when they need access to financing most.

-SNIP-

Few areas of the financial system will be unaffected when the meltdown rages. In the insurance sector, for example, debt downgrades and defaults will occur at a quickening pace… At least some of the $2 trillion held in money market funds will anxiously flee to safer pastures as the prices of one or more pools fall below par — “breaks the buck” — because of shaky markets and holdings that turn out to be much riskier than expected.

Pretty much all of this has taken place over the last few weeks. Kudos to Michael Panzner for nailing all of this. And somehow I still have hope that much of the other stuff in the book is worst case scenario and won’t come to pass. But I’m losing hope by the day.

Financial Armageddon Is Now Available in Paperback

I'm sorry to say that many online and bricks-and-mortar booksellers have sold out of the hardcover version of Financial Armageddon. The good news, however, is that the paperback edition is now available at Amazon.com and BarnesandNoble.com.

For those who not yet taken the opportunity to read what Bruce Stratton (publisher of one of my must-read websites, SafeHaven.com) described as "the definitive work on our economic future," now's your chance.

 

The Winners Are Chosen!

On April 6th, I announced my Financial Armageddon Paperback Giveaway Contest. Today, I  am naming the winners.

I have to admit it was difficult choosing among the many fine submissions (a few of which broke the rules because they were either too long or were submitted too late). I also appreciate the flattering comments about my book (though, of course, I could not let that influence my decision).

In the end, I decided to choose four entries, instead of three. I will be soon be contacting those who won to arrange for delivery of their signed copies of the paperback edition (which is officially due out in a few weeks).

 

Thanks to everyone who took part and congratulations to the winners, whose entries are listed below:

"Given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited."
-- Ben Bernanke (May 17, 2007)

(Link: http://blogs.money.aol.ca/2008/03/17/ben-bernanke-quote-after-sub-prime-takes-down-bear-stearns/)

Posted by: Eric | April 06, 2008 at 11:15 PM

"Clearly, the recession that hasn't begun yet is over. At least, that's what all the folks who never saw the recession coming, then decided we were going to have one, and who now say it's over, believe. I know because I heard them say so on TV, time and again."
-- Helene Meisler (April 3, 2008)

(Link: http://bigpicture.typepad.com/comments/2008/04/quote-of-the--2.html)

Posted by: dukeb | April 07, 2008 at 07:43 AM

“When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.”
-- Chuck Prince (July 9, 2007)

(Link: http://www.ft.com/cms/s/0/80e2987a-2e50-11dc-821c-0000779fd2ac.html)

Posted by: Shawn | April 07, 2008 at 08:49 AM

“Things are getting very weird very fast -- and will probably get even weirder, faster, as the train wreck of bad debt meets the Saint Paddy's Day Parade of bacchanalian excess at the grade-crossing of destiny. The train is carrying America's financial system, but the engine driving it is peak oil...”
--Jim Kunstler (March 31, 2008)

(Link: http://jameshowardkunstler.typepad.com/)

Posted by: Ellen Jackson | April 07, 2008 at 01:01 PM

Financial Armageddon Paperback Giveaway Contest

In honor of the upcoming release of the paperback version of Financial Armageddon, I have three signed (and personalized, if you like) copies to give away (hot off the presses) as prizes in a simple contest I am running.

To qualify, just list the quote (no more than 50 words) you believe somehow sums up the events of the past year or so in the comments section of this post (no profanity, please). You must include the name of the person who uttered the words as well as some sort of link to the original source (blog or mainstream media), and the quote must have been published (online or in hard copy form) before April 5th, 2008.

I will choose the three submissions that I like best (and which fit the criteria specified) and post them on the Financial Armageddon blog. Winners can remain anonymous if they so choose.

Contest ends on April 9th at 9 pm EST. All decisions of the judges (that's me, by the way) are final. Don't forget to include the email link (which is not published) that's requested by Typepad when you post a comment so that I can get in touch with you if you are a winner. Email addresses won't be used for any other purpose whatsoever (I hate spam, too.)

Considering All Things: Alarms and Discursions Blog Reviews Financial Armageddon

Sean Callahan, publisher of the recently created Considering All Things: Alarms and Discursions blog, reviews my book:

Wow! If you are one of those people who like to prepare for the worst case, this is the book for you.  An eye-opening narrative describes the potential horrors yet to come as a result of gorging ourselves on debt these past 20 years.  This is definitely not your standard 1990's investment advice fare recommending dollar-cost averaging your way to a successful retirement.  In sum, the author says get ready, here comes the big economic implosion with a dramatic downturn in the average American's standard of living.  More importantly, if you think his case is credible, Mr. Panzner provides his readers a set of defensive tactics to protect wealth while posturing to take advantage of the opportunities born of the coming crisis.  I wouldn't say that if you were going to read only one book on the future of America that this is it---you might move to Australia before the last chapter---but the read provides a worthwhile exercise of the imagination for the open-minded reader. Mr. Panzner reminds us that, yes, it can happen to us and forewarned is forearmed.

Click here to read more.

Birmingham ReAL Reviews Financial Armageddon

Birmingham ReAL, a blog offering "commentary and discussion about issues affecting Birmingham, Alabama, particularly focusing on its finance, economics and real estate," features a review of Financial Armageddon:

Michael Panzner's very readable book , Financial Armageddon, details the challenges the United States is apt to face in the near future as the two fat decades of the eighties and nineties give way to a lean period in the first part of the 21st century.  He identifies four threats:  Private debt; retirement system debt; government debt; and credit derivatives.

The book was published in 2007, and the headlines of today could have been ripped from its chapters.  The collapse of municipal debt?  He predicts it.  The collapse of the dollar?  That too.  The collapse of the housing market?  Of course, but that was underway even as the book was being written.

He predicts a period of deflation followed by hyperinflation.  I can't quite fathom where he expects the deflation to come from, but he seemed to think the fed would be far less accomodating--at first--than it has been, and then would overreact the other way.  W/ the rescue of Bear Stearns by the Fed friday, I'd say the Fed is about as accomodating as could be, and that hyperinflation is around the corner, without us ever having experienced any of the deflation.  Any currency losing value as fast as is the dollar is bound to enter a hyperinflationary mode.

He predicts economic malaise or worse, high crime, civil unrest, food shortages, etc--all the stuff that doom and gloomers always predict.  The only difference is that his predictions are based on a financial system collapse that has more or less played out precisely like he guessed, except in magnitude, yet....

At the end of all this doom and gloom, Panzner notes that this cloud may have a silver lining, as the financial and economic armageddon will require us to give up our vapid, shallow, consumeristic-based lifestyles for a more humble life focused on things that matter.  If so, I'd say bring on the armageddon.

Click here to read the rest of the post. 

Trader Mike and Financial Armageddon

Michael Seneadza, publisher of the popular stock market blog, Trader Mike, had nice things to say about my book yesterday:

We’re really starting to see the “economic unraveling” predicted in the book “Financial Armageddon” play out. This Bear Stearns debacle is based on two of the major themes in that book — the abuse of derivatives and too much debt (leverage). If you haven’t read the book I highly suggest you do. It’s a surprisingly quick & easy read. If you want the CliffsNotes version, check out this podcast with the author, Michael Panzner.

Click here to read the rest of the post.

Financial Armageddon: German Edition

FinanzBuch Verlag recently published the German language edition of Financial Armageddon, with the title Das kommende finanzielle Inferno: Profitabel die zukünftigen ökonomischen Katastrophen meistern.

I'm not sure how literal that title translation is, but I have to admit it sounds even scarier than it does in English.

 

Chart Swing Trader Reviews Financial Armageddon

"Mac" at the Chart Swing Trader blog just reviewed my latest book:

On a somewhat different note, I just got done reading an interesting book called “Financial Armageddon”. It describes in detail the many, many problems that seem to be converging right now in our economy – the sub-prime mess, irresponsible fiscal policy, out of control spending, both by the government and consumer, and the use of derivatives and leverage by banks and hedge funds, among others. I read this book in a total of two days because I found it hard to put down. Although I think the book is likely a little over-the-top in terms of describing what could happen to our country when all of these problems finally play out (most “prophet-type” books that try to predict the future are), I would recommend it to anyone that wants to get a better understanding of what the problems we are experiencing now are, where they came from, why they are such big problems, and why every American taxpayer should have a strong understanding of these issues and how they will affect them in the coming years. The most bothersome part of the whole book to me was that as I watch our country get closer and closer to electing its next president, I have yet to hear any of the candidates discuss these issues at all, other than Ron Paul. I agree that terrorism and Iraq and health care and education are important issues, but if we don’t watch ourselves here, they will all pale in comparison to problems such as unemployment, inflation, and tremendous loss of personal wealth over the next few decades.

Click here to read more.

Thanks for Your Support

Thanks to all of you who visited Financial Armageddon (or bought my book) this year.

As you can see from the charts below (courtesy of Sitemeter), viewership has been in a bull market since I first began this site at the end of last December. Hopefully, those of you who heeded the many warnings posted here -- before Wall Street, Washington, etc. even figured out that there was troubling brewing -- were able to benefit from that knowledge in some way.

Otherwise, I wish you all the best in what I expect to be, unfortunately, a less-than-happy New Year.

Michael Panzner

Media Appearance: Kudlow & Company (11/23/07)

I will be a guest on today's double-helping of CNBC's "Kudlow & Company," which is being broadcast live at 2:00 p.m. EST and re-aired at 7:00 p.m. We will likely focus on the outlook for retail sales and which way the stock market may be headed in the weeks ahead. Sitting in for Larry Kudlow will be Dennis Kneale.