愚者闇于成事，知者见于未萌

"the fool does not recognize something when it has happened, the wise man sees it before it has even started". a quote by 商鞅 (shang yang), a 4th century bc chinese philosopher and statesman, from the 商君书 (book of lord shang).

i will leave it to you to decide which title should be reserved for steve forbes, publisher of forbes magazine, who on october 29, with the dow jones at 9000, claimed that "the worst is over".

i started this blog on october 12 last year, when the dow jones hit 8500, by predicting it would go to 4000. i would like to repeat that prediction today.

recent signs that this is where we are heading are straight-forward:

- company balance sheets still have tons of assets sitting around at pre-crisis valuations. none of these companies could liquidate those assets at these prices today, consequently, managers are pretending to shareholders that their companies are worth more than they are in reality. general electric cfo keith sherin appeared on tv last week defending this approach, saying that as long as the company has no intention of selling those assets, the company and not the market should decide their value. unbelievable, really. we can expect ge to be in serious trouble as investors will start dumping the stock over the next days and weeks, possibly triggering a liquidity crisis. should the most respected american corporation stumble, that will cause a major loss of confidence in the market.

it all comes back to us forgetting the concept of value. in 1993, chinese cartoonist 华君武 (hua junwu) illustrated this very well. are those paintings of peaches really worth thousands of dollars? people without a background in economics might be excused, but the cfo of ge?

- the fall in share prices and home values in the u.s. has so far destroyed usd 12 trillion （12兆美元）of household wealth, or 75% of gdp, as pointed out by harvard economics professor martin feldstein. more than a decade of high american saving rates will be needed to restore what was lost. you cannot recreate consumer spending, not even close to what consumers were spending before, when you've had a destruction of wealth of this magnitude. job insecurity can be expected to do its share - the stimulus packages should have limited effect on consumer spending - people will put the money in the bank.

- the portion of the stimulus packages not saved by consumers will be spent on infrastructure projects by governments. while this will definitely create jobs fairly quickly as roads, bridges, broadband internet connections and other projects will start building, there will also be a tremendous amount of wasted money, as shown by the experience of japan in the 1990's. that means after the projects are built, very limited sustained economic activity will result.

the only way therefore is down.