Filterring the Non-Linearities: Sorting the Risk Factors
A few posts back we jokingly referred to the various reactive posts that went up last week because of the flood of important news stories. Those included real retail sales, Buffett's buyout offer for the bond insurers, GM's really terrible earnings and more. In trying to make sense of that swirl we referred to all the "non-linearities" where one thing was linked to another. We thought it might be helpful to have a single point-of-view where all that discombubulation was brought together in one place so here it is. The chart below looks at the major problem categories and then briefly summarizes their status thru several stages. First stage is the basic situation, second is the next level of concern and impact and so on. Each cell here probably deserves its' own post, and in fact has already gotten several. But then we'd back to multiple inter-twining issues and seeing the whole picture where everything's linked to everything else would be difficult. Maybe even impossible. Let's see if this helps. Click on the graphic for a larger picture of course.
Give some thought to each cell, what evidence you have to agree or dispute it but also take them all together. This is the information set, so-to-speak, that lies behind yesterday's post on what the cycle might really look like. In particularly start in the upper left-hand corner for the key initial question. And then look at the lower right-hand corner for the bookend question:
- Is the economy at a slipping point, not immediately apparant in the data but visible by looking at trends and structural patterns, where consumer spending will "tip over" ? And rattle the rest of the house of cards. We don't think it's guaranteed but the risk factors are climbing exponentially.
- Will the retreat of these tides expose deep fault lines in consumer, bank/finance industry and businesses that could crack and make things much worse, even ? We're pretty sure that all these faults exist in what many thought was bedrock but whether they can be prevented from cracking is the real question. We're not only going to find out who was swimming naked but who was swimming just above the sharp rocks and coral reefs. And there will be a lot of sharks (problems) that'll be attracted by blood in the water.