Well not literally, but if things carry on like this for another week or two the lights will be going out all over the world, at least in the trading rooms, and by extension in workplaces, factories, farms, schools and hospitals as the globalised version of the economy judders to a complete halt.
We are now looking at the S&P 500 heading down to 900, the dow heading down below 9000, and the FTSE headed below 4000. This an event building towards the scale of 1929 - which could lead to a medieval scale depression and bloodbath, followed by very unpleasant global conflicts over resources, particularly water, gas, food and oil. Taxes will have to rise to pay for the orgy of borrowing; there will be enormous demand destruction - it's essentially the end of the rampant consumer society that began in the 1960s and accellerated through the age of reagan, thatcher, the bushes, clinton and blair. Not such a bad thing perhaps. It points to an entirely different social and economic order - the banking system at least partially owned and guaranteed by the state, self-help and local community aid/mutualism will be essential - and one in which the economic assumptions that have prevailed over the last thirty years are completely unravelling. So Flash needs to do some more careful thinking. He actually thinks some of this could be quite a good thing. A monumental adjustment, or a monument to the massive expansion in credit and borrowing begun by Thatcher and Reagan. But one thing is sure, flash parties for the masses are over and we're heading into a more austere few years. For example, Heathrow Terminal 5, a monument to the millennium, is terminated. Flash was hanging around there on Saturday night and observed that the only people buying anything were in the pub that sold cheap beer. Austerity...
In pure capital destruction terms, this is carnage. It's beyond insane. Flash is out for the moment. He just can't risk any more cash in this crazy market. On the other hand he thinks that he ought to be buying equities aggressively but the volatility is so extreme that it's just impossible. He may make a couple of strategic equity purchases in the next couple of days - BA at 128p looks pretty darn cheap, BT at 154 likewise, similarly with some of the utilities and even the real estate stocks.
All the gold shorts stopped out, unsurprisingly; the dollar longs are what has kept him in the game over the last couple of days but in the wild swinging back and forth they too got stopped out. He made a pile of cash shorting EUR/JPY too. Flash thinks that going long gold for the next few days may actually be the right call now as the currency markets are just so messed up too - no liquidity - spreads widening - the whole international financial system going through its death agonies. It's likely that investors will continue to pile into gold. But Flash thinks that the outcome of this is likely to send gold tumbling as deflation accelerates, fuelled by dollar strength. In the final analysis, gold has to trade in line with the rest of the commodity complex.
In Flash's view, the dollar will continue to appreciate against all other currencies, particularly any emerging market ones which have been the beneficiaries of the cheap dollar over the last few years. A lot of emerging markets have pumped up their economies by buying cheap US assets denominated in dollars - and this trade is now unravelling (and thanks to a fried who runs a proper hedge fund for this insight. The US trade deficit will shrink. The Euro is toast. It could easily go back to parity with the dollar. Sterling will also get at least mildly toasted, as we could have just as big a mortgage meltdown here - especially if property prices halve in value, which looks entirely possible. People who are thinking that their 80% mortgage is comfortable will get nasty shocks if property prices drop another 15 - 20%, The banks aren't lending anyone anything, and most households are way over-extended, and unemployment/layoffs will kick in, making the gloom even worse. Wage inflation has been modest, and is likely to remain modest if the labour market contracts, as competition for jobs will push down what people can ask for.
States and whole countries are now going bankrupt. California is on the brink, Iceland is over the edge, and Indonesia looks badly messed up. China is going to have some severe challenges as demand for manufactured goods collapses. Its labour market will contract and the flow of cheap dollars is going to stop.
Governments are going to be under intense pressure. Tax revenues will be severely reduced; this will lead to pressure on public services; there will be pressure to control imported inflation but also to stimulate investment. Probably one of the only viable solutions is for government to keep up its investment in the public sector, and to borrow more to fund it. If government doesn't take a Keynesian turn then the prospects for those people that are not able to insulate themselves in highly skilled occupations are really bleak. Education, reskilling, retraining and keeping public services going will be crucial, otherwise we risk turning the country into a divided rathole like NYC in the 1970s.
Borrowing will push sterling down, and this may stoke inflation, but it'll make exports more competitive, not that there's much left to export as far as UK manufacturing is concerned. And the UK economy, built on services, is in a particularly vulnerable position. Flash thinks that the value plays, if and when the dust settles, would be infrastructure, engineering, manufacturing, educational services, utilities, and some value-based retailers. If he didn't thoroughly disapprove, he'd also be investing in security services, prisons and defence. But he won't do that. He's also still bullish on the potential of small scale creative industries, but they'll have real trouble accessing capital. So he expects a newly politicised, DIY ethos to take hold, fuelled by web, accessible media technologies and small scale platforms of all kinds, digital and physical. The web will be crucial but the big mass media institutions could well get absolutely stuffed. Major tech companies like Google and Apple could well continue to be winners, so this could be a great time to buy them; on the other hand their prices might fall another 30 - 40% from here given the action of the last few weeks.
Even with a global recession, the pace of technological change is unlikely to slow. Flash thinks that its ingenuity and innovation that is the only thing that will stop UK plc from going down fast. And in some ways he thinks it's pretty good for some of the smugger business grandees to get caned. But he also knows that the people who really get caned are those at the bottom of the pile. And that worries him a lot.
It's like a riot in which the traders are just smashing up everything in the city. Not unlike when the lights went out and the looters went on the rampage in New York in 1977. And it's very hard to see what will calm anything in this market. People that were outright short will be coining it; as readers of this blog will know, Flash has been in naive optimist mode, trying to call a bottom, for the last three months. He was wrong.
However, it's precisely because of this bleakness that Flash is looking for a bounce.
But Flash thinks he needs to see the dow up another 900 points and holding there, the S and P back to 1080 or 1090 before he trades again. Perhaps this is the grandmother of all corrections and stocks are just going to trade cheaper. After all, not that many folk are going to have much cash left once this riot unravels and a damage assessment can be done.
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