What do you think?
Warren Buffett's market indicator, Market Cap versus GDP, is at all time highs, in excess of 160%. This is a warning level, and today Warren said his Berkshire-Hathaway empire is sitting on $95B in cash, which is earning just 1% in Treasury Bills. They have also not made a major acquisition in over 15 months. This is consistent with our own commentary that says to move towards cash positions even as the markets are moving higher. Warren did not say a market crash or correction was imminent, but he DID say that he has no idea what the markets are going to do in the short term, and that they will be higher in 10, 20 and 30 years. To us, that sounds like "between the lines" communication, laden with a warning to not look for a rosy picture in the short term.
What do you think?
Data released from late December, regarding prices of commodities during 2016. Our call back in very early March of 2016 proved to be quite accurate (see blog entries below). Yet another reason to become an AP subscriber.
Sources: U.S. Energy Information Agency (EIA) & Bloomberg L.P.
Note: The 24 commodities in the graph comprise the S&P GSCI. All price changes reflect changes in front month futures contract price for each commodity. WTI is West Texas Intermediate, RBOB is reformulated gasoline blendstock for oxygenate blending, and ULSD is ultra-low sulfur diesel.
Jan 2, 2017: It is likely that the answer has changed! If you look at our earlier post below, regarding the famous statement by John Templeton about the life and death of bull markets, the final stage is "...die on euphoria."
The post-election rally puts us into euphoria territory now, but why would we classify this as euphoria, anyway?
First, it is based solely upon expectations for some economic changes as yet undescribed and unvetted which are hoped for from the next administration. No plans, no budget, no schedule - just "hope". Not in an early phase of a market recovery, but AFTER new all-time highs were set a bit earlier in the year. Secondly, the PE of the market (as represented by the S&P500) is higher now than it ever was, except for just prior to the crashes of '29 and '08. Third, overall market capitalization versus GDP is now at all time historic highs. This is the so-called "Buffet" indicator. With the "value" of stocks at 160% of GDP, this is definitely "bubble" territory. Finally, corporate debt is also at an all-time high, as corporations have been borrowing heavily while interest rates have been at historic lows. Total corporate debt is now nearly double what it was just prior to the recession of '01-'02 and the Great Recession.
The euphoria phase can last another week, month, quarter or year, but being in this phase very typically means that a precipitous fall can be triggered much more easily that in earlier phases. Some well-followed pundit(s) might "predict" a crash, some foreign financial or socio-political event might cause much more concern than in the previous several years, or "smart money" will simply figure out that this particular party is over, and begins a significant pullout, while the "front men" brokers keep pumping the market with optimistic rhetoric and "buying opportunities". Whatever the trigger is, the initial stages will be faltering and halting as the upper limits of prices are reached. Our AP-SI indicator triggers as the market falls (over a few months), and warns as the markets enter euphorically high territory. Let's see what this first week of 2017 brings...
- AP -
The Federal Reserve decides to leave interest rates alone in September. We would expect their next token bump up no earlier than December, and more likely in Q1 of 2017. As more people re-enter the work force, and without evidence of significant acceleration of inflation, we'll make a guesstimate that they won't take any action until the unemployment rate nears 4.5%, which is likely to occur in the first half of 2017 (barring any weird election outcomes.)
“Bull-markets are born on pessimism, grow on skepticism,
mature on optimism and die on euphoria.”
- John Templeton
Pessimism was found from mid-2008 to the market bottom of March 2009. Skepticism was found in healthy abundance from mid-2009 through 2013. Cautious optimism for the past three years, and continues. No sign of euphoria, is there?
Share your thoughts with us!
As of June 23, the popular vote says the Brits want to "leave" the EU. Aside from their small physical isolation from the continent, they had also retained their beloved currency, the now tarnished pound sterling. Apparently what rubbed the Brits the wrong way was having some social and financial decisions, restrictions, and regulations sourced from across the channel in Brussels. If we in the USA would think of some kind of analog to consider, maybe the the IMF or World Bank setting some widely felt rules would have rubbed us the wrong way. Or maybe if Canada would have issued some declarations for the US to follow in order to keep us all in compliance with NAFTA? And then we had a referendum to stay in, or abrogate NAFTA?
There are aspects to treaties that are bound to be irritations to the involved parties. After all, treaties are compromise agreements, and in a good compromise, it's not ALL win-win ... there is some sacrifice on the part of each treaty participant. Apparently, the majority of the Brits who voted on the referendum felt that they were sacrificing a bit too much for the EU, and not getting enough benefit in return. Emotional arguments, not necessarily based in actual fact, swayed enough people to vote for "Exit", and now the globe has to deal with the repercussions. The Brits feel the keenest repercussions immediately, with the further devaluation of the pound, the clobbering of their stock market, and incurring the wrath or disdain from the global financial community in whatever forms that may take.
For us in the USA, we now have to deal with circumstances over which we had and have absolutely no control. The emotion responses of the entire European continent, and beyond, read "tail", will be wagging the American dog for weeks, or even months, to come. Will the collection of global knee-jerk responses kick us into another recession? Unknown at this time! The US financial battleship has received one artillery round hit. Is the damage, real or imagined, serious enough to push the ship into a course change, or will it just be a "rock the boat" incident? Only time will tell. We have to see how OTHER economies respond to the disruptions, and how those disruptions reach into our own economy.
Our prognostications at this point:
1 - Short term interest rates will fall as flight to quality ensues for a few weeks.
2 - The Fed will not raise rates any time this summer, in order to not contribute to financial nervousness.
3 - Stock markets have a 50-50 chance of retracing back to the repeated lows set over the last 20 months, with nominal "return to the mean" for the S&P500 being about 1950. A full retracement to previous lows would briefly test 1850.
4 - Market index performance will then be decided by economic statistics feedback, over the course of the next 3-4 months. Specifically, what happens to the trajectories of jobs growth and leading economic indicators? (We'll keep that at the forefront of our own monitoring of the US macroeconomy.)
5 - Look for the political opportunists who will be attempting to use this financial scare to advance their own agendas, no matter how skewed and unreasonable as their platforms might be.
Excerpt from Bloomberg Daily report, 6/6/2016
The four-year bear market that pushed raw materials to the lowest level in a quarter century came to end as supply constraints drive a recovery in everything from soybeans to zinc. The Bloomberg commodity gauge rose 1.1 percent Monday to push its rally from a January low past 20 percent to meet the definition of a bull market.
West Texas Intermediate declined 0.1 percent to $49.64 a barrel in early Tuesday trading after jumping 2.2 percent on Monday.
This is the value of patience, and dispassionate observation of the markets. We provided a 3-month advance view of the commodities recovery. No one else was publicly calling the bottom of the commodities bear market as early as we were. Now watch as everyone else rushes to get the news out - late.
The end of collapsing commodities prices, that is. It is too early to declare a full turnaround, but over the past six weeks, the prices of oil, copper, and precious metals have rebounded. Oil is appearing to begin a turn just like it did after the price collapse of 1999, quickly up over 20% from recent lows. Gasoline took a hard dip well below $2/gallon (at least here in the midwest) which lasted for a few weeks. It has since turned north again, looking up closely at that $2 level. Gold is up $200 from its recent lows, and copper is up about 10%. Until these trends are confirmed by price action over the next 3-4 months, it is only educated speculation on our part that the corner has been turned. However, we have been bottom-fishing for low-cost ways to participate in the recovery of these commodities should they materialize. Our personal favorite approach is to use a few long-expiration LEAP options (Jan 2018 expirations) on some of the stocks and ETFs representing oil and metal plays. We'll continue to look for signs confirming (or denying!) this trend, and provide details on our subscriber page tab above: "Current AP Indicator Status".
Here is the final paragraph from our December Financial Update:
"Finally, on our Christmas wish list: We wrote Fed Chairwoman Janet Yellen (yes, really, we did!), and suggested that any interest rate moves the Fed makes in the short term start out very gradually, even at the token level. Furthermore, it should be accompanied by a two-year roadmap for interest rates, so that economic participants (consumers, business owners, financiers, financial planners, etc.) can make rational and constructive decisions, rather than play another series of monthly rounds of the "What will the Fed do next?!?" guessing game."
Give us your comments - tell us what you would like to see the Fed do in the December 2015 thru March 2016 timeframe. Thanks!
Here is what our subscribers read just a few months ago, with a little highlighting to show how events played out between then and now, along the ways we were expecting.
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September 2015: As anyone in the community of investors has already known for a couple of weeks, the stock markets dipped solidly into correction territory, ostensibly as a result of the Chinese currency devaluation. Our own opinion is that the markets were in elevated territory, and when that is the case, almost any relevant excuse can be used to trigger corrective moves. We discussed this in our blog after the first down draft occurred, with some guidelines for where the S&P500 should expect to encounter support and resistance. However, the economy in general, is in an otherwise good state. GDP growth continues at a moderate pace, unemployment continues to move slowly downwards, and inflation has not yet returned up to the levels which the Fed prefers to see over the long term. Deflation continues to be a whispering threat, but should disappear completely if unemployment dips below 5.0% by the end of the year. The Fed will meet this month again, and let the country know if they believe things are strong enough to begin to move interest rates upward. We see action this month by the Fed as now being a 50-50 chance of beginning with a token raise of interest rates. The stock markets have already corrected, so a token increase may now indicate to the markets that the Fed does have enough confidence in the economy to begin to the process of restoration to normal. They will weigh this against any probability they see as the rate hike causing any further spooking of the market, and triggering a deepening of the correction, which in turn affects consumer confidence, spending, etc. But there are no existing overheated economic sectors, and energy is still very soft, and likely to get even softer. Long term, the remainder of the economy benefits when less cash goes toward the support of combustion, and more into capital available for constructive pursuits and discretionary spending. If the Fed does raise rates, we would expect the stock markets to retest recent lows (S&P500 back to the low-to-mid-1800's). Conversely, a no-go for the rate hike this month could support a relief rally for another few weeks, until the October guess-what-the-Fed-will-do-next game begins. This cycle could go on for months, into the first quarter of 2016, to a point where the uncertainty itself begins to have negative effects on economic confidence. As a consequence of this short term uncertainty, coupled with the corrective move in the markets, we have increased our recession probability to a bit over 1 in 5. To us, this is still not a call for action, yet it is a call for increased vigilance. Nervousness and volatility are going to be more prevalent in the coming months, and there are budget politics afoot in Washington between now and October 1.
We believe that good news would need to come in three forms for the markets to shake off the correction and resume modest upward movement again: First, the Fed would need to say that they are now convinced that the economy is on solid ground, and picks a date in the near future, at which time they will begin a fairly predictable interest rate set of interest rate hikes. "Telegraphing" intent tends to allow people and market mindsets to adjust to the concept of things changing, without inducing panic when changes actually happen. Second, cool heads will prevail in Washington, and reasonable and bi-partisan agreements are made to extend the debt ceiling, pass a budget which is non-punitive to any segment of society, or at least a continuing budget resolution, all so as to avoid even the hint of another government shutdown. Finally, the markets themselves will resist any panic-over-nothing responses, and at worst, trade sideways for several weeks. Granted we may be hoping optimistically here, but if these do come about, then overall economic confidence and activity can continue to improve, and recession probability could recede to sub-10% again soon. That end result is primary goal of Federal Reserve policies, after all.
We will do a little prognosticating here: Using the S&P500 as the market metric, we see upward resistance in the 1992-2005 and 2040-2045 regions. If the market rebounds hard against either one of these levels in the next few weeks, it could likely retest the recent lows in the mid-1800s. As AP subscribers read in our August update a few weeks ago, we stated that a floor in the market would be around 1845, and it did indeed close at a low of 1867 last Tuesday, before rebounding. If there is any truly serious economic or political crisis, the basement floor for the S&P would be 1500, but we consider movement down to those levels to be highly unlikely.
We'll revisit these views in a few weeks to grade their accuracy. In the meantime, please consider subscribing to AP in order to receive the September update, due out in approximately ten days. Thank you!
In recent days, the US stock markets have reflected those overseas, first selling off 1% or more on several consecutive days, then a couple of huge down days on August 21 and 24. There are multiple drivers behind this, including softness in many major economies, most notably China's, limited visibility on global growth drivers, and a continuing deterioration of commodity prices, especially in the world's one industrial lifeblood commodity, oil. US markets, prior to the past six weeks, had steadily tracked upwards for 23+ months, with a couple of short-lived corrections along the way.
The correction that we are in serves two purposes. First, it takes out weak money and speculative investors who rely too much on margin (loans) to leverage their positions. Reduction in this speculative overhead helps to restore balance and proper pricing to equity prices. So the second purpose of the correction is that it buys time for the long term investor's positions, to allow corporate earnings to catch up with the values of shares that are implied in their prices. Before the correction, the PE ratio of the S&P500 was over 21. Now it is around 19. If the market takes six to nine months to return to its recent highs, earnings as projected forward would keep the PE of the index at or below this current level, in historically "safe" territory.
In this instance, the market corrected itself, as investor emotions were at a tipping point, and external events (Chinese currency devaluation and market issues) pushed investors over to the sell side. There was no Fed intervention with interest rates to cause this sharp equity correction. When is the last time that such a sharp correction occurred without Fed provocation? The most notable one is the stock market "Black Monday" of late 1987, under some slightly different circumstances, and with a much worse dropoff. However, the markets had run up 44 percent in just 7 months prior to that crash, and had almost doubled in the space of 2 1/2 years, between January of 1985, and mid-1987. In the year after that severe correction, markets continued to fall, until resuming upwards after a 45% total decline. It is worthwhile noting that while the markets were resetting, the rest of the economy continued to move along, and no recession resulted.
In mid-1998, the collapse of the hedge fund Long Term Capital Management (LTCM) caused a precipitous 15% decline in the stock markets. LTCM was creating its own internal "wallpaper", leveraging its investments at 25-to-1 with loans. International issues such as the Asian currency crisis and Russian debt defaults eventually raised this leverage to over 55-to-1, especially after the stock market dropped. This market correction was swift in occurrence. Due to Fed intervention to first improve general liquidity, and then specifically with a New York Fed-led bailout of LTCM, the correction was over in a matter of just four months.
Helping along at the time was the Y2K spending stimulus, and the concurrent dotcom frenzy, both causing investors to continue to pour funds into the markets for another year. ALSO, at this same time, just like now, the price of petroleum was collapsing due to overproduction, stimulating everything but the energy sector. Petroleum briefly traded below $10 a barrel in late 1998, before returning to an upward track.
So, similarities from 1987 and 1998 to now are the overseas economic issues and low energy prices. The one significant difference at the moment is that our own economy is not overheated in any major sector, interest rates are at historic lows, and then the likelihood that the Fed will be very cautious about doing any damage with significant interest rate hikes.
(NOTE: The downward revisions by the Fed we spoke about below have since been revised again, and are now out of the picture for the most part. You can see in our current home page graphic what the indicator chart looked like during this May update.)
May 2015: While the economic background appears to be little changed over the past two months, one important development has occurred and has not yet been noted in the financial press. During its most recent update of financial data, the Federal Reserve has downwardly revised its calculation of Leading Economic Indicators for the most recent five months covered. This downward revision is reflected in our chart above in the orange line. This puts us into caution territory for this one indicator, and has changed our probability of recession slightly upward. We will look for either confirmation or correction to the LEI's from the Fed and from the Conference Board before altering the status of the AP-LEI indicator downward to red or back to green. Conference Board LEIs are one month more current than the Fed values, so we can use their set to anticipate Fed values. Meanwhile, we do not expect the Fed to begin to raise rates yet, especially if they are paying attention to their own LEIs. Unemployment has taken another nice tic downward to 5.4%, on track with our year-end projection of 4.9% - 5.1%, assuming that the economy is undisturbed by any unusual events. The S&P500 remains in an upper bound tracking mode, staying about 70-100 points below the level where we would also indicate a caution in the AP-SI indicator. If the market moves above 2207 by June 1, then this indicator also will change away from green. Softer growth in equity earnings this season has pushed the PE of the S&P500 into uneasy territory, solidly above 20. We also monitor this for calculation of the AP-SI indicator.
In the subscriber area, we keep a complete ongoing record of all of our past monthly updates and projections. This allows anyone to read our entire multi-year history, and determine for themselves how accurately we have been calling the economic picture since our inception.
As a way of exposing to the general public some of the information we provide to our subscribers, we will be posting material updates from a few months in the past here in our blog area. There are two reasons for this. First, to show you the level of detail available to subscribers, and second, to provide a little demonstration about the accuracy of our information. Below, you will find our update from April, 2015, just four months ago.
Please comment along with us, and let us know if you feel that the update materials have met your own standards for reliability. And remember, if you would like to see our current updates, we would be happy to have you as a subscriber. Thank you! - AP
April 2015: The Fed has not yet published its Leading Economic Indicators for January 1 yet, and they are typically later on their last quarter of the year analysis. However, the Conference Board set of LEI's has been reported in a timely fashion, and continues to rise at a modest pace, so we don't expect there to be any negative surprises in the FED versions when they do come out later this month. The CPI rose a tiny bit in February. From February 2014 to 2015, it is dead flat, at 234.7. Money supply jumped a bit more, and is up $250B in just the past three months, still indicative of accommodation by the Fed. We maintain our views regarding the international economic and currency drivers as being cautions against Fed upward interest rate moves in the next few months, even though the current chatter is for rates to start lifting off the floor in June. There is more open discourse about this from the individual Fed governors, but a consensus among them is more likely to take place in the third quarter, in our view. Leading economic indicators and US employment levels are still encouraging, There are projections for this earnings season in the stock markets to show a year over year slight decline in earnings. There are still a few more reasons to retain current rate policies than there are to raise rates, especially with CPI inflation at zero! In terms of stock market activity, during March, the indices are pulled back from flirting with "cautionary" territory on the upward side, and then slowly climbed back up, which is just the kind of digestion that occurs before upward moves to new highs. Counterbalancing that potential, May thru July is usually the annual doldrums period, summarized in the trader's bible as "Sell in May and go away" i.e. take a vacation. That is not our approach, as we are in while the overall economic picture remains positive, and that is certainly still the case. The NASDAQ has taken 15 years and endured two recessions to return to its previous historical highs, in "5000" territory. This month, as we monitor both downside activity and upside activity for our AP-SI indicator, the markets are in historically high territory. If there are any unexpected and sudden upward moves into our caution or warning territories, they will show up in the AP-SI indicator. You can "follow along" between our April and May updates: the cautionary level by May 1 would be for the S&P500 to be holding above 2194 at the time of our next report. Right now, it is about 90 points (about 4.2%) below that level. That is enough headroom to not be terribly concerned at this time. Past experience shows the market can become seriously overbought and crash when it exceeds our warning level, which is well over 2500 for the S&P at this time. In our opinion, the stock markets, as measured by all the major indices, are in "warm" territory, but not dangerously overheated, despite what you may be reading or hearing in much of the financial media. There is still way too much fear built into the economy to consider that any bubbles have formed. The one counter-balancing fact is that margined purchases in the stock markets are once again at all-time highs. A sudden downdraft return-to-the-mean movement (S&P500 back to 1800) to clear out this kind of speculative excess can occur, but is likely to be short-lived, less than four months in duration.
I will make this comment very brief. The Federal Reserve IS audited, every year. The entire consolidated system is audited, and the individual banks are audited. The results are available to ANYONE, at this location. This page contains the most recent audit results for 2013, and using the "Archives" link on this page, you can go back each and every year. (2014 is not yet available)
So when political grandstanders, who shall for the moment remain nameless here, call for an audit of the Fed, they are counting on your ignorance of basic facts, to fan flames of discontent, in order to demonize an easy target. Beware of such tactics, the people who use them, and the resulting ill will that is generated under completely false pretenses.
An excellent article, indicating the usefullness of recent monetary policy, and its potential to succeed or fail based on the next steps - will politicians spend treasury money wisely - on useful major programs. Much of the cash that is available to be used is currently sitting in bank reserves. It needs to be put to work. The best possible use is for the government to invest in infrastructure improvements, repairs, and new facilities, much as we did in the 1940's and 50's. These were the final items needed to put the US economy back into a healthy condition after the Great Depression, and the huge government debts imposed upon us by WW2 spending.
Deflation is still our biggest enemy, and as the article indicates, we cannot export it while the whole world is facing the same issues. Our second biggest enemy is the absurd ideological wars being waged between progressives who see the need for such programs, and the conservative ideologues who want government to bow out and let the chips fall where they may.
Here's an interesting article from "The Economist" on the topic:
Without some moderate inflation of currency, the necessary economic incentives which retain essential "velocity" on money, i.e. spending and investment of current income, decline. If they decline too much, the economy spins down, people sit on their cash, and things grind to a halt. Not a good scenario. This is why, in our subscriber section, we are increasing emphasis on monitoring of the indicators not directly tied to inflation and money supply. We are increasing our watchfulness and emphasis on indicators which represent monetary velocity (spending and investment), to provide some visibility of any recession on the horizon.
One thing we can also suggest, to the Fed and other central banks which are just now getting "permission" to buy government issued securities, is that the interest payments on those securities might be temporarily (or permanently) forgiven, such that the government funds originally intended for interest payments to those central banks, could be instead spent on current projects which increase economic activity, such as infrastructure improvements, basic research, and even temporary public employment projects. There is no net effect on federal budgets, because the funds come from forgiven interest payments, so deficits do not increase, and federal borrowing does not increase. There are other ways which governments could inject those funds into the economy as well, such as via currency surrogates with limited lifetimes (i.e. vouchers) which would have to be spent by particular dates.
There is still plenty of room for creative solutions which are not harmful in the long term.
Rhodium has been moving up off of its recent lows by over $300 per ounce. This seems to us to be the beginning of the next upward cycle for this Platinum Group Metal (PGM). A couple of years of economic recovery around the world should restimulate a healthy demand for this rare precious metal.
Since 1972, the S&P index has progressed along an average rate of increase of 6.55% per year. When the current rate pushes that number over 7%, it is an indication that the market is overheated, and beginning to "bubble". Right now, the nominal value should be a bit over 1700. However, the 7% level is near 2060. Our interpretation of this is that the markets are operating optimistically, but not overly so. By the end of 2014, the nominal value would be 1760, and the 7% level would be 2160. At the current point of 1920, there is 200 points (+10%) of headroom for the market to move within, and a floor 160 points downward (-8%). As long as general business and political conditions remain stable, we would expect the S&P to end the year above where it is at this beginning of June. At the end of the third quarter, we'll review this situation once again.
We'd like to speculate about something here. The vast majority of people do not understand the concept of, or the need for, central banking functions such as those provided for by the US Federal Reserve system. When there is a huge object such as this in front of people, and which they do not understand why it is there, the usual responses range from "I don't care about it one way or the other" all the way up to "It is an unholy soulless and undemocratic institution implemented by government bent on the economic enslavement of the citizen. It must be abolished!" This latter is characteristic of many economic Libertarians and Tea Party devotees.
Here are the basic reasons to have a large central bank for the US, and in fact, any modern economy functioning within a democratic environment:
Profit-motivated interests of the Banking Industry are subjugated to the directions of the Federal Reserve, which through its policies and regulations, protect the depositors and creditors of individual banks.
Interbank transactions are underpinned by the Federal Reserve, as it acts as the "Lender of Last Resort".
The Congress has established three main goals for the Federal Reserve: Maximum Employment, Stable Prices, and moderate long-term interest rates. The latter two are achieved first, and with the establishment of that environment, then a good employment picture substantially follows.
How does the Fed achieve stable prices and moderate long-term interest rates? This is done basically through two mechanisms which essentially "defend the currency" of the US. By exercising direct control over short term interest rates, and the overall money supply, the value of the dollar (usually) changes only very slightly from year to year, in terms of its purchasing power for US-made goods and services.
Additionally, the Fed defends the dollar through management of our own faith and confidence in our banks, with which most economically active people have a great deal of activity via mortgages, savings and checking accounts, consumer loans, etc. etc. Federal Reserve regulations establish guidelines and parameters within which banks must operate, and they monitor the adherence to these regulations to varying degrees. In such instances when the Fed has not been closely watching or enforcing adherence, many banks engage in more risky loan and investment practices, and the result is always some sort of general financial crisis or collapse, just as we recently experienced.
In its most vigilant state, the Fed literally has its hand on the throttle of USA's "economic train". If the throttle is set too low, the whole train grinds to a halt, or may start sliding backwards down the hill. If the throttle is allowed to run too fast, derailment is predictable certain. And, in times such as we find ourselves in now, the throttle is wide open, and they are shoveling fuel into the boiler as fast as they dare, by way of increasing the money supply monthly, as QE3 repurchases distressed bonds at a rate of $85B per month. This is all in an effort to maintain and gradually increase the forward momentum of the economy, and get us moving back uphill and forward again.
Without the Fed, none of this would be happening, and individual random market forces would be thrashing about, without overall direction, and only with self-interested or self-protective purposes. The result would be economic disaster beyond comprehension, with destroyed banking, markets and investment systems, unemployment at levels equal to or above that of the Great Depression, and no confidence in or hope for an economic recovery.