Friday, December 14, 2007
The Accleration of the Macropocalypse
Inflation fears explode.
The macropocalypse is descending, like a giant bird of prey, faster than anyone thought it might.
Let me spell out in painful but simple detail what's about to happen.
The macropocalypse isn't going to be just another recessionary period.
What the macropocalypse really means - and I've been remiss in not writing about it for a year or two now - is that nothing less than a fundamental redesign of the global financial system is necessary.
OK - honestly. That sounds a bit silly. I feel a bit retarded even writing it :)
But the reality is: the centre cannot hold - the current global financial system simply cannot allocate capital, assets, risk, or returns with any semblance of efficiency anymore.
And that means, in turn, that the ensuing period of instability is going to be - until the machine is reengineered - to put it bluntly, a time of global financial crisis.
The structural pressures are too great to bear, and there is a choice of discontinuities, each vying to be first to bring down a major global financial institution.
When that happens...
Unfortunately, it's the guys closest to the edit - the traders - that can feel this in their bones. With a few notable exceptions, like Stephen Roach and Nouriel Roubini, most economists - the guys that influence policy, etc - are missing the forest for the trees; focusing on orthodox ideas like simple liquidity crunches, instead of the fundamental rot in DNA that's causing liquidity to evaporate like water in the desert.
It is picking up speed, no doubt about that and I am convinced you are correct. It could happen overnight triggered by a single event....but it could drag on for quite a while. Markets have a funny way of doing that.....but seeing Citi take in its 7 SIV's and assuming $50 billion of additional debt to do it.....is very suggestive that maybe it won't take that long.