World View: Afghanistan 'Peace Process' Continues in Limbo

This morning’s key headlines from GenerationalDynamics.com

• Afghanistan ‘peace process’ continues in limbo
• Russia and China angered by U.S. State Dept. child trafficking report
• Stock share prices fall sharply in global rout
• Bonds and gold hammered along with stocks

Afghanistan ‘peace process’ continues in limbo

Taliban Flag – Islamic Emirate of Afghanistan.

A meeting between U.S. officials and representatives of the AfghanTaliban had been expected on Thursday in Doha, Qatar, but the meetinghas been postponed because the Taliban had portrayed themselves as thegovernment of Afghanistan, thus angering Afghan president HamidKarzai. The Taliban had been offered the office building in Doha byQatari officials, but the Taliban hoisted a Taliban flag above thebuilding, and attacked a name plate calling it the “Political Officeof the Islamic Emirate of Afghanistan.” Qatari officials demandedthat the Taliban remove the name plate and the flag, but apparentlyall they did is move the name plate indoors, and move the flag to ashorter flagpole.

If talks ever begin, the first order of business will probably be aprisoner swap — American prisoner of war Bowe Bergdahl in exchangefor a number of Taliban fighters current imprisoned in Guantanamo Bay.Apparently the Taliban are very anxious to start “peace” talks so thatthey can get their fighters back, presumably to fight another dayagainst U.S. forces. The Taliban are a terrorist group, and theU.S. never negotiates with terrorists, so it will be interesting tosee how this works out. Reuters

Russia and China angered by U.S. State Dept. child trafficking report

The US Department of State released its annual report on humantrafficking, and Russia and China reacted angrily after beingdowngraded to Tier 3, which refers to “Countries whose governments donot fully comply with the minimum standards and are not makingsignificant efforts to do so.”

Russia’s Foreign Ministry said that the report used “unacceptablemethodology”:

“The very idea of raising this issue causesindignation. … In fighting organized crime, including counteringtrafficking, Russian authorities will never follow instructionsworked out in another country, let alone fulfill conditionspresented nearly in the form of an ultimatum.”

China’s Foreign Ministry said,

“We believe that the US side should take an objectiveand impartial view of China’s efforts and stop making unilateralor arbitrary judgments of China.”

In the case of China, the report said that trafficking wascountry’s one-child policy had produced more boys than girls, fuellingdemand for prostitution and foreign brides. U.S. State Department and BBC

Stock share prices fall sharply in global rout

Wall Street stock prices fell 2.5% on Thursday, the mostin 19 months. Stock prices in general around the worldlost 3.4% on Thursday.

The trigger was a statement by Federal Reserve chairman Ben Bernankethat the Fed my start reducing bond purchases (i.e., “printing money”)later this year. The Fed has been pouring $85 billion per month ofquantitative easing into the markets, and many people believe thatthis money has mostly made its way into the stock markets, pushing upstock prices to bubble levels. For example, last month we described how the investment bankInteractive Brokers allows wealthy people to borrow $1 million at 1.3%to invest in the stock market, ostensibly for yields above 5%. Thisshows how new debt and leverage has been used to push up stock marketprices.

What Ben Bernanke did was to merely say that the $85 billion per monthof quantitative easing would gradually be reduced, possibly startingin the fall. Many investors have been counting on this money so thatcould keep borrowing and add to their debt, and hope to use theborrowed money by investing in the stock market bubble.

So what always happens is that eventually the bubble starts tocollapse, and investors suddenly have to start paying back the moneythey borrowed. This forces them to sell other stocks, pushing stockprices down even further, in a “vicious cycle.”

It’s impossible to predict when the current bubble will deflate, butit’s possible that it’s deflating right now. Stocks are enormouslyoverpriced by historical standards. According to Friday’s Wall Street Journal, the S&P 500 Price/Earnings index on Fridaymorning was 18.28, which is astronomically high by historicalstandards. We can’t predict when the stock market crash will occur,but we can say with certainty that it’s coming, and when it does, theS&P 500 Price/Earnings index will fall from its current 18.28 down atleast as far as to 6, which is where it was in 1982. When thathappens, the Dow Industrials index will fall to 3500 or lower. If thepattern of the 1929 crash is followed, and that’s quite possible, thenthe Dow Industrials will fall to 1400.

However, I want to repeat and emphasize that it’s impossible topredict when this will happen. It’s still possible that Fed chairmanBen Bernanke will reverse himself, and promise more and more and moreand more quantitative easing into the future, and that could pushstocks up to even higher bubble levels, and postpone the inevitablecrisis a while longer. Bloomberg

Bonds and gold hammered along with stocks

The common wisdom from mainstream economists is that when stocks godown, then bonds and gold go up, since investors take their money outof stocks and put it into bonds and stocks. However, mainstreameconomists are getting that one wrong as well. However, bonds aroundthe world fell 1-2%, while price of gold fell 7%, silver fell 7%, andcrude oil fell 4%.

All these prices fell for the same reason that stocks fell –investors had to pay off their debt by selling any assets they had.

At the same time, the value of the dollar rose sharply against othercurrencies, continuing the deflationary trend that we’ve beendiscussing for ten years. USA Today and Washington Post

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