Moving to a trans-industrial paradigm

Moving to a trans-industrial paradigm

Depression.. or collapse of industrial system?

Why is there an underlying assumption that a market collapse and financial meltdown needs to be a bad thing? Doom and gloom is all the talk , as if the only positive thing is when the markets are going up. Many believe that increasing markets are ‘healthy’ and declining markets need ‘fixing’. Isn’t the idea of pure market capitalism that the markets determine the prices freely, i.e. what market participants are willing to (and can afford) to pay, not what sellers would like prices to be? Is it a question of what is vs. what should be? Every seller would like a higher price, but their dreams about higher prices are only justified by people willing to pay the price.

Short sellers have known for a long time the profits that can be made in declining markets. Catastrophe is opportunity; it is the birth of modern day fortunes such as Rockefellers and Morgans. These noble houses were not crafty geniuses who invented the cure for cancer, they were shrewd, well-informed executives who were at the right place at the right time, and they had the cash to strike.
In fact, it is much easier to profit from calamity than success, because of the predictability and calculability of crises . Success is more difficult to predict, and you do not have a measure of how successful a company can be. If a company goes IPO at $20 per share, and you expect them to increase, the price could go to $50 or $500 like Google. However, if you expect bankruptcy, you have a ground floor at zero. In addition, the statistics are in your favor, 95% of all businesses in USA fail . Knowing that, it makes sense statistically to bet on failure rather than success.

Stocks have the tendency to swing upwards less on hype than downwards on fear. Example, if there is a rumor that the FDA will approve a new drug for a drug company, it may increase by 5%. However, if the existing business vanishes due to a lawsuit because their latest drug has a terrible side effect, it could drop into oblivion and possibly bankrupt the company.

“You want to profit at the expense of others?”
First, short selling a company stock is not profiting at the expense of the company. In fact, if management proves a short seller wrong, a short seller can lose a lot in a short squeeze. Short squeezes account for large upswings in declining shares that otherwise might not exist. If a company is successful and the balance sheets are clean, there is no mechanism for a short seller to profit. Secondly, there are many other opportunities to make money in a collapse than short selling.

Commodities
The commodity boom has been obvious after the fact, but some, like Jim Rogers, were predicting it from the beginning. It is far from over if you can understand the basic fact that in a depression there is scarcity, and with scarcity comes increased demand and increased price. The commodity bubble is not a traditional bubble and commodities are not inflated, they are reverting to real prices based on demand. As global warming affects crops and real demand for hard commodities increases, there will be huge trading opportunities in the commodities markets .

Distressed equity
Companies hurt by a failing industrial system will turn to anyone with cash to keep the business afloat, and those investors can make hefty demands. There will be a fire sale of businesses and hard assets because they will be essentially worthless, as companies will face hard times to turn those assets into revenue . However, the assets are not worthless, so there will be a value play in purchasing distressed assets in many forms: equity, real estate, debt. Anyone who is financially desperate selling their family heirlooms on eBay understands there is someone getting value for 5 cents on the dollar.

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