Strategic advices and recommendations: 1/ Which indicators to trust in this crisis?

In the current framework of a historical change of referential system, it is important to focus on reality and therefore to follow the indicators and information on the economic activity (instead of the financial activity) coming from the economic players themselves (instead of governments and lobbies).

Indeed, as discussed in the introduction to this GEAB N°35, the ongoing change of referential system, combined with the huge-scale manipulation of the entire financial sphere over the past year, has resulted in a complete loss of reliability of financial indicators and/or any indicator measuring the situation of global financial players. Bank statements on their present or future profits and on the value of their assets, indicators of the situation of a particular market of financial products… the whole world of finance is telling absolute nonsense in an attempt to save itself. Financial markets’ fundamentals are so much manipulated to avoid new bankruptcies that, according to LEAP/E2020, no one really now knows what is going on any more. One thing only is certain: in the absence of an economic rebound at the end of summer 2009, this whole house of cards will collapse once more, as all private and public strategies elaborated in the past year were based on that hope… a perfectly vain hope, according to our team. In any case, please, stay away from the financial sector!

As regards states and other supervising authorities, they in fact do not understand much more to the situation. They are content with running after banks’ capital needs and manipulating all available indicators for economic players and the general public to believe that the worst is behind them (1). An example of manipulation of assessment operations is provided by the “stress test” of US and now EU banks (2). The aim was to convince everyone that things were nearly okay and, not blushing of the obvious manipulation, it is the conclusion they came to – except that they failed to convince anyone.

But beyond the financial indicators, states also fiddle more and more the unemployment figures which, all countries included, only reflect 50 to 70 percent of real job losses, according to our team. The more the situation will worsen, the wider this gap between statements and reality will be, as indeed politicians and bureaucrats always prefer lying than acknowledging their failures. They convince themselves that this attitude is legitimate because it is their duty to “gain time”. However, in the field of unemployment, they fall victim to their own communication. Indeed, we often heard those final declarations from official economists (from among those who discovered the existence and severity of the crisis while reading newspapers’ headlines) claiming that the unemployment rate is a delayed indicator, a « retarded » indicator so to speak. This is probably a very interesting opinion, maybe even true in a « classical » non-systemic crisis, but in the present case, it is false. The scope and rising pace of unemployment have built up a huge wave, destroying consumption, investment, and jobs, that will really start affecting the US, UK, Eurozone, Japan and China this summer. This time, unemployment is not a “retarded” indicator but an advanced one which is generating its own phase of the crisis (3).

In summary, you should follow closely the evolution of international trade, the results and forecasts of carriers and producers in key sectors: metallurgy, electronics, commodities,… Don’t waste too much time on services; they have a natural tendency to be difficult to quantify besides their yearly results. In the past few months, many companies, in the US in particular, reduced all their costs; otherwise they would have published even worse results. But we can expect these worse results to reappear in the next few months.

A last indicator to bear in mind: big equilibriums. They enable to anticipate the general direction of ongoing changes. For instance, from the table below which gives the detail of global assets under management, we can make a fairly good estimation of global wealth in assets. Indeed if we compare these assets to the « ghost-assets » (USD 30,000-billion according to LEAP/E2020’s latest estimations), we can observe that the ongoing crisis is about to suppress around 30 percent of the value of global assets. Considering that, according to today’s estimations, a maximum of USD 10,000 billion worth of assets have vanished yet, we can consider that only a third of the crisis has elapsed.

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Notes:

(1) It will become a growingly difficult exercise considering the tens of millions of new unemployed accumulating in every region of the world.

(2) About these « stress tests », LEAP/E2020 wishes to highlight the fact that the one conducted by the US government was a complete masquerade. Besides the fact that the current reality exceeds by far the worst scenario envisaged by the test (which guarantees bad surprises at the end of the road, in a few months from now), the appalling spectacle of « regulators » (the US government) negotiating with the ones « regulated » (banks) illustrates how justified was LEAP/E2020’s recommendation to the G20 regarding the need to launch external investigations on the situation of the market places of London, New-York and Switzerland. Indeed, the only concrete element highlighted by this « US stress test », is that US banks still have a major problem of solvency (their acknowledged USD 75-billion bailout needs probably represent one tenth of the amounts really required by 2010). As long as no independent observer goes there to understand what is going on, Wall Street will remain a financial “black hole”. Regarding the recently announced project of « European stress test », LEAP/E2020 expects it to be a similar attempt to conceal real problems. However, the polycentric nature of the EU and internal competitions between states, EU institutions and financial centres could provide the opportunity for a real dive into the reality of what is going on in London in particular. In terms of “mischief between friends”, the EU is never disappointing.

(3) It is in fact a decisive factor of the phase of geopolitical dislocation anticipated to start at the end of 2009.