Doomsday scenario

Marc Faber is now using the phrase "total collapse". A commenter on this post says he's joking, because he's smiling, but I don't think the commenter understands European schadenfreude. The Dance of Death illustration on Dr Faber's website should warn you that he is in a very long tradition that sees death and disaster as the spice of our transitory existence.

Faber lives in Chiang Mai, northern Thailand, a country whose King is a proponent of national economic self-sufficiency. It's also worth noting that Chiang Mai is a fairly short air-hop from Burma, Laos and China; and that Dr Faber collects Mao memorabilia and has business interests in Vietnam. I see him as a long-term planner who covers all possible options.

As Dr Doom notes, "...a major crisis like we had should clean the system but nothing has been cleaned," so why should all be well again? But you could choose to side with Faber's co-interviewee Giles Keating of Credit Suisse; very nice accent, nice bearing - just the sort of thing the clients like.

However, witness also Karl Denninger today, commenting on a report that US Federal Government support for the economy could reach almost $24 trillion:

A couple of market technicians have noted certain "patterns" in the market that have potential downside targets of zero. That sort of thing normally results in a loud guffaw from me - even though I'm bearish I'm not that bearish - I couldn't imagine anything short of global thermonuclear war, ala "Joshua", that could lead to such an outcome.

Well I think I just found something purely economic that could lead to that outcome, and it's right here.

Be prepared. As the Greek saying goes, "There is no borrowing a sword in time of war." I'm going to go back to doing what I started to do a few months ago: draw extra cash and stash it in a locker. And some other things (though not weapons - the tiger is the endangered species, not the rabbit).

Investment cataclysm?

The Mogambo Guru points out that the Standard & Poor's 500 Index stands at $940, but the earnings last week were $7.21, a price-earnings ratio of 130.

Historically, the p/e ratio of the S&P 500 has averaged less than 20 - whether you measure from 1881, 1900, 1945 or 1970.

If the earnings don't improve dramatically and soon, the implication is a super-crash. But even if earnings triple from last week's level, that would merely put us back to where we were in December 1999, when the S&P's p/e ratio stood at its highest-ever (up to then) level: 44.2. And as you know, the market went on to halve in value by 2003.

So the S&P earnings have to become three times better than they are now, just to match the pre-Millennium crash conditions.

The dominant feeling I have now is a diffuse sense of denial.