MUST READ Doug Noland

http://www.prudentbear.com/archive_comm_article.asp?category=Credit+Bubble+Bulletin&content_idx=50242

(excerpts from above)

The now global U.S. Credit Bubble will be sustained only by enormous ongoing Credit and speculative excess. And it is also the case that Credit booms turn most fragile when they appear most powerful. Seemingly endless liquidity can vanish as quickly as a speculator’s nerve.

Energy insecurity and the determination to rectify it will certainly be a major global theme going forward. As such, I fully expect the fanciful notion of the “win-win” Bretton Wood’s II (stable dollar claims recycling) monetary regime will loose sway to the “zero-sum game” proposition of excess dollar claims as purchasing power to procure increasingly constrained crude oil and industrial metals supplies. The trend toward energy investment and precious metals holdings as a preferred store of value (to inflating quantities of specious financial claims) will only gain momentum. Indeed, the dilemma posed by the volatile interplay between accelerating energy and hard commodity shortages and the Global Liquidity Glut could easily unfold as A Critical Issue of 2006.

The energy boom will continue to support economic expansion, as will the booming export sector and hurricane rebuilding. All indications are for continued Service sector expansion.

I will be surprised if there is much of a consumer pull-back in the near-term. And if financial markets cooperate, the economic surprise for 2006 could very well be the re-emergence of the technology investment boom/Bubble. It is a fundamental tenet of Macro Credit Theory that if the Financial Sphere is determined to expand Credit and sustain abundant marketplace liquidity – create purchasing power – the Economic Sphere will gladly find ways to spend it. It’s guaranteed! Barring market tumult, I see a significant probability that economic growth initially surprises on the upside.

It is the nature of economic Bubbles to advance to a fateful state of exuberance; for market Bubbles to conclude with a destabilizing terminal “blow-off” phase. Distressingly, we are today faced with the reality that the norm would consummate the worst-case scenario for both the U.S. financial system and economy. As an analyst of Bubble Processes and Dynamics – as well as a student of financial history - I fear the worst-case is anything but a low-probability proposition. I never believed the tech Bubble was The Bubble. It is now clear that it was but a harbinger of things to come – a forewarning recklessly disregarded. More importantly, the technology Bubble served as a prerequisite for the policymaking, financial and economic backdrops capable of fomenting History’s Greatest Bubble.

I hope the “optimists” are right, but they won’t be. There are too many ways things can go wrong. The Bubble economy is unstable and will likely boom until it busts.

CONCLUSION:

Euphoria, greed, confidence, and marketplace liquidity are notoriously flaky and fleeting things. You certainly would never wager the world on them. I have warned repeatedly of the great dangers associated with leveraged speculation evolving into the key source of liquidity for the financial markets and economy. Well, this dynamic has enveloped the globe – the entire world! Our policymakers have done the unthinkable; they’ve kept betting over and over - double-or-nothings - until they bet – yes – the entire world. What a stunning, extraordinary and distressing development. It’s going to be a wild, exciting and, likely, historic 2006. To my loyal readers, I promise to do my best when following, analyzing and commenting on developments. As a Macro Credit and Bubble analyst, I am a kid in a candy store and more than willing to live with stomach aches and a mouthful of cavities.

Duratek's take:

We will FLY to new heights...until we don't......and instead of a little correction, when 2nd Phase of Bear comes back it will wreck havoc WORLD WIDE!! Those f'ers at the FED have gone TOO far this time. I think we are near a BLOW OFF stage....