Two Smart Guys See the Dangers Ahead!

Two smart guys see the “Grand Disconnect,” but apparently neither one of them recognizes the real cause of ever-diminishing aggregate demand for all things, i.e. the Super Tsunami “Kondratieff” Long-Wave.

And remember folks, the entire world’s economies were slammed by ONLY the first of three waves of the “Kondratieff” in 2007/08, with yet two more such events ahead of us!

Predicting the Next Shock to the Global Economy

Bloomberg; By A. Gary Shilling Nov 1, 2012 6:30 PM ET

“The growing gulf between the behavior of investors enamored with monetary and fiscal largess and the reality of globally weakening economies -- a phenomenon I call the Grand Disconnect -- is profoundly unhealthy.
It will end, sooner or later, in any case. One way it could be eliminated is through the rapid expansion of economies globally. The past and current massive monetary and fiscal stimulus or other forces might rekindle growth. Some investors point to the recent stabilization of U.S. house prices as the beginning of a revival.
… What will cause the agonizing reappraisal by bullish investors? Probably a shock, as was the case in limited ways with the euphoria over the first two rounds of quantitative easing by the Federal Reserve and Operation Twist. The Greek debt crisis in early 2010 ended the QE1 stock rally. The QE2- spawned bull market ended in early 2011 with the second flare-up of Greek worries and the widening European financial and economic woes. The optimism generated by Operation Twist concluded with the realization that Europe’s travails may be unsolvable, and with worries about the fiscal cliff in the U.S.
Forecasting specific jolts is hazardous, though I can list several possibilities....
....
A fall off the fiscal cliff is another possibility. If Congress and the administration don’t act by the end of this year, the Bush-era tax cuts will expire, the payroll tax on employees reverts to 6.2 percent from 4.2 percent, unemployment benefits drop from a 99-week maximum to 26 weeks, and $1.2 trillion in mandatory federal-spending cuts and tax increases over 10 years begin to kick in. …
…Another possibility is that a surge in the price of oil, possibly triggered by an Iran-related crisis in the Middle East, shatters investor euphoria. That’s what happened with the oil embargo in 1973 and Iran’s Islamic Revolution in 1979. To be sure, the U.S. is becoming less dependent on imported energy, and little of the imported oil is from the Middle East. But petroleum is fungible and price increases elsewhere will affect the U.S., along with Europe and China. A huge energy-cost increase would be a debilitating tax on already-stressed consumers.
There also is the danger that a major European bank will fail, generating a global financial crisis. Banks are so intertwined through loans, leases, derivatives and other instruments that a blow in Europe would be felt around the world.
…  This series makes clear that I disagree with the “It’s so bad, it’s good” crowd. Conditions are so bad, they are just plain bad. The huge monetary and fiscal stimulus in the U.S. and elsewhere in the past five years has failed to offset the gigantic deleveraging in global private sectors. And such measures are unlikely to do so until that process is completed in another five to seven years. “

And Bill Gross continues to raise the decibel level of his warnings and apparently no one is listening to him either!  I must add Shilling and Gross to the name of 'Smart Guys' who can see the disasters directly ahead that will be spawned by the FED's insane ZIRP!

Bill Gross Says Quantitative Easing Not Spurring Investments

Bloomberg; By Susanne Walker - Nov 1, 2012 11:24 AM ET

“  Bill Gross, who runs the world’s biggest mutual fund at Pacific Investment Management Co., said there is no evidence that investment is being spurred by the Federal Reserve’s quantitative easing program.
“All of the money being created and freed up is elevating asset prices, but those prices are not causing corporations to invest in future production,” Gross wrote in a monthly investment outlook posted on the Newport Beach, California-based company’s website today. Lower interest rates are being used “to consume as opposed to invest,” he said.
Investors should recognize that asset and currency prices ultimately rest on the ability of the economy to grow, Gross wrote. If real growth is stunted in the U.S. and globally, then investors should also acknowledge “bite-sized” future returns and the growing risks of “misguided” monetary and fiscal policy that may disrupt financial markets at some point. The so- called fiscal cliff may be the first of a series of disruptions, though Gross expects some type of compromise on the possible tax increases and budget cuts. .

(On the coming presidential election Mr. Gross is especially prescient!)

…. “Fact is they’re all the same -- bought and paid for with the same money,” Gross wrote. “Pulling a Democratic or Republican lever will deliver the same results every four years.” …”