1. Après Gotterdammerung (Twilight of the Gods)
46th Annual Contrary Opinion Forum
David Fuller 8th October 2008

2. Governance is everything

3. Failures of governance are often due to a lack of ethics It is a top down process

4. The USA did not invent this process… “The budget should be balanced
The USA did not invent this process… “The budget should be balanced. Public debt should be reduced. The arrogance of officialdom should be tempered, and assistance to foreign lands should be curtailed, lest Rome become bankrupt.” Marcus Tillius Cicero BC …but it took it to a new level

5. Too much regulation undermines capitalism…
…but too little regulation is a recipe for anarchy…
…in which ‘creative destruction’ risks becoming total destruction

6. Securities & Exchange Commission
Removes Uptick Rule, July 2007
Ignores naked short selling

7. Leverage: the colossal problem
The idea that one can make ever greater profits with ever increasing leverage, because all the risk is theoretically passed on to someone else, is totally daft. The perpetrators knew this. They just wanted to make a quick fortune, get out before the game blew up, and let the devil take the hindmost.

8. How do we get good regulation? Fullermoney suggestion:
Ask Warren Buffett to Chair a Commission on Standards of Governance and Regulation

9. A consequence of US Credit Crisis
USA has lost credibility and moral authority in terms of democratic capitalism
What fills the void?
Authoritarian capitalism, of which China is now the leading practitioner

10. What next for the US stock market? Bull points:
Record oversold levels seen for sentiment
Climactic selling has occurred
Valuations are improving
Cash levels are high
Inflationary pressures are fading rapidly
A massive effort is underway to rescue banks and reverse the credit freeze

11. What next for the US stock market? Bear points:
Worst credit freeze since 30s Depression
The economy is deteriorating
Valuations are still well above historic lows
Deleveraging continues
Stock market indices are in downtrends
The stabilization package may not be enough, give the size of the problem

12. “You can observe a lot just by watching
“You can observe a lot just by watching.” Yogi Berra The most important chart today?
The Ted-Spread

13. 1987 Crash

15. The stock market is a discounting mechanism
“Bear markets have always been temporary.
Share prices turn upwards from one to twelve months before the bottom of the business cycle.”
Sir John Templeton

16. Trend acceleration is an ending characteristic
Current action for the US stock market is climactic

18. Bank indices are now showing relative strength!
They are a lead indicator

20. Peak Oil? At $100 to $80 – global economy can cope
At $80 to $60 – global economy prospers
At $140 to $160 – global recession
At $200 or above (as Goldman Sachs forecast for yearend 2008) global depression
However, the global economy can adjust to gradually rising oil prices over time.

22. Back to the Future? Other global concerns are in retreat
Commodity prices are falling
The US dollar has rebounded
Long-term government yields have fallen
Conclusion: other than the west’s very serious credit freeze and its implications for GDP growth, other problems have waned.

26. Fire (inflation) vs Ice (deflation)
– fear of ice over fire
– ‘Goldilocks’ talk
2007-mid-2008 – fire over ice
Current period – ice over fire
Consequently, all governments will reflate, but which economies and markets will benefit the most?

27. Massive global deleveraging Evidenced by:
Capitulating selling in stock markets
Capitulation selling in commodities and many other assets
Strength of carry currencies such as JPY
But…following the deleveraging, people will resume investing as confidence returns.

38. Fullermoney forecasts:
US and most other stock markets reach significant medium-term lows this month.
Reversion to the mean (200-day MA) rallies to follow, carrying into 1Q 2009.
Thereafter, pullbacks for base extension - some risk of new lows, pending events.
Gold will remain volatile, but continue to show relative strength versus most other asset classes.

39. Fullermoney forecasts:
Following base formation development in 2009, stock markets should experience 3 to 5 year bull markets, provided:
Prices for crude oil and agricultural commodities do not spike higher, as we saw earlier this year.
The commodity supercycle has been interrupted by recession but is not over.

40. Après le deluge - Fullermoney themes for the next up cycle:
Asian-led emerging markets
Commodities
Leading industrial and agricultural shares
Global infrastructure development themes
Asian currencies, led by Chinese renminbi
Precious metals