Market Reflections

Thoughts, ideas and musings on current state and evolution of financial markets

Dr. Doom – 2009 to Be `Catastrophic’ for Global Economy

Link to Dr.Doom interview

I have observed Dr. Doom ( since 2003. I believe he is a Swiss national living in Hong-Kong. Always very serious and very extreme. IMHO, Dr. Doom is an old school economist (a very good one) who sees the economists running the show (e.g. Green …, Trischet, Bernanke, King, …) doing everything differently than he would. Since they must be wrong, the world must go wacko. Now (or never) is his heyday for sure. Like most economists whose work I have read, Dr. Doom always appears to search for “right” answers from the past. As a rule, they seem to discount the impact of technological, social and cultural changes to the economy. Perhaps this is the reason why so few of them make a fortune for themselves ;-)

Other than that I agree with almost everything Dr. Doom said in the video with exception of few items:
- I do not believe in gold for following reasons:
- In global economy gold (or any other precious metal) is not a currency, none of the economic powers recognize it as such and IMHO, have no reason to do that in foreseeable future.
- Gold has practically no utility value in personal or industrial consumption
- For someone to wish to acquire gold at present valuation the person must be wealthy. As you have observed the wealthy are hit hardest this time around.
- Since it is not a currency of any kind and Dr. Doom expects its valuation to grow substantially from current level he must also assume that there will be a sufficient market for it at much higher price levels. Well’ a person owning gold must be able to sell it for whatever “worthless” paper money he chooses to go the grocery store.

- I do not believe that Asian economies recover before us because all viable Asian economies are strongly biased on export. They can not recover before their markets have money to buy their stuff again.

- I do not believe that resource companies (Rio Tinto BHP, gold miners, … oil companies) will recover early because as long as there is no growth in their market there is also limited demand for their product.

Dr. Doom is probably right that current “bail-out” bubble around the world (tell me one meaningful country that is not bailing out something) will depreciate the value of paper currencies relative to hypothetical gold currency and other tangible, real assets. The real, tangible assets in tough times must have utility value for the “middle class” to care. I don’t know enough about other countries, but in US, I see the real-estate probably becoming ahead with mortgage rates at historic lows, Treasury and Congress pushing money into banks and mandating them to halt foreclosures and write loans. At the same time starting new sizable infrastructure projects that will tie up the builders and contractors. Prices for concrete and lumber will likely appreciate, but not copper because roads and bridges don’t need it. Possible, farmers don’t have money for seed this year, but it is also possible Congress will mandate the banks to loan farmers. Note, we are in “half socialist” economy now . Many things are different. For better of worse (I think) government has a lot of power over banks for some time to come. Same in China, government can not afford to let people go hungry.

Like Dr. Doom pointed out markets are very volatile and large swings should be expected. He promotes investing rather than trading. I think a very short term trading is much better idea. Not the same as it was a year ago, but the way markets work today. Only thing that will make all this work meaningless is if they ban markets all together. So far I don’t see signs of that happening.

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2 Responses to “Dr. Doom – 2009 to Be `Catastrophic’ for Global Economy”

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