I do not expect a plunge (> 5%) in equities in the next two weeks. Perhaps, we will have new highs.

http://online.barrons.com/article/SB124474397599607023.html?page=1#mod=BOL_hpp_highlight

In the long term, see these graphs:

http://pragcap.com/small-investors-are-piling-into-stocks
http://pragcap.com/mutual-funds-inflows-surge

Regarding socialism and Europe, I still agree with Paul.

When companies are subsidized with 0% loans (and even free money, no payback “loans”) it is easy to turn a profit, particularly when you are just copying an existing business model.

Speaking as a US Citizen, I am averse to all forms of socialism because it essentially means the destruction of the USA as we know it and either completely disregarding or rewriting the US Constitution. My aversion is driven more by principals of life, liberty and pursuit of happiness (i.e fundamental principals of government) rather than economic success. I think it is also very difficult to argue that system X (any other economic system) produces more prosperity than free market capitalism, but there is far more to life than profits.

I would much rather see state governments take action on some of these issues than the feds. State governments are far closer to the people and thus more accountable. I don’t see any Constitutional authorization for federal government interference with health care, but that certainly hasn’t restrained congress in the past.

Yes, I forgot utilities. France generates something like 80% of its electricity from a very safe nuclear grid–far more efficient and economical management of its resources and capital than anything the US does. The federal paradigm is partly to blame for that, as decision-making is distributed and leads to serious gaps between states–education is the best example…

“The problem with socialism is that eventually you run out of other people’s money.” - Margaret Thatcher

There is no question that most of Europe has seemingly created more economically homogeneous societies than the USA, but at what cost? It is difficult to see how the USA could end up with anything similar to European style services, given the nature of the federalist system, the sheer size and geography of the US, and the seeming incompetence of elected representatives. Having socialized services at the state level is a different story though and some states have started doing so (Massachusetts public health care).

“Efficient economies of scale” in relation to the US federal government is almost laughable, but I admit they have managed to get a few things right such as basic utilities.

Only a retest of lows when it appears that only 1/2 of all mortgage loan losses have been written down at this point? The mortgage rate reset problem doesn’t end until late 2011, in fact this so called “green shoots” recovery has occurred at at a lull in the mortgage rate reset cycle. What about all of the European banks which seem to be slow in acknowledging losses? I don’t see it. I think the markets are in for much more pain over the next one to two years.

What do you mean exactly about France in the 18th century? Do you mean that they had high levels of debt. That is true–along with a poorly managed, inefficient government. And so? All your fearmongering about collectivism and socialism, however, fails to take into account what the Europeans have achieved: greatly efficient economies of scale in large parts of their economy that allows their economy to function: This is true for transportation and health care above all, but also in education, which, though imperfect, still produces more competitiveness and social cohesion per dollar than the US does by far.

I agree with you that inflation is not yet a true danger, and that there are powerful deflationary forces still coursing through all asset classes. That said, the question still remains: where on the spectrum are we? You can look at the long-term charts and say, well, in the 80s, the markets were 50% below where they are now. That doesn’t, however, take into account the fact that we are living in a fundamentally different market and economy.

My best bet: We retest lows within 5-12 months, but don’t go much below S&P600.

See the first chart.

I agree with Graphite here. If the welfare statists have been losing power since the ’60s, how come none of their programs have been repealed? Why does 2/3 of the federal budget still go to entitlements, the total discounted cost of which is now approaching 100 trillion dollars?

Also, western Europe is hardly ethnically homogeneous anymore. Muslims are a huge and growing demographic there. In many nations, they are the only people with a birth rate above replacement levels. Even Sweden and Denmark now have large slums and growing violent crime rates.

One wonders, then, why government spending as a share of GDP continues to climb, and massive new entitlements like Medicare prescription drug coverage were added, while welfare benefits have been only moderately pared at the edges. Health care nationalization (somewhat corrupted by corporate interests as it predictably must be in the U.S.) looks to be proceeding with little opposition. Today’s welfare recipients may lean more toward defense contractors, bank bondholders, and mass market home buyers, but the state’s roster of dependent clients continues to grow without apparent limit.

I see this argument made over and over again that, if you’re not as socialist as Europe, you’re not socialist at all. But in this regard the Continent ought to be viewed as more of a high water mark than a minimum hurdle.

I do not know what this means specifically. What do you mean a “great civilization?” Do you mean a specific nation state, or “Western Civilization” in general? “Fields and forests of Europe” refers to the events of WWI and WWII, right? I assume “collectivism” could refer to “social democracy, fascism, or socialism” although none of those were specifically singled out.

I do not think the US can embrace the social democracy form of collectivism because successful social democracies require an ethnically homogenous population. I do agree with your earlier blog posts that fascism is a feasible outcome. I do not blame collectivism or the “welfare statists” that Alan Greenspan railed on in “Gold and Economic Freedom” for what happened now (one could legitimately do that for what happen in Sweden in 1992) because the “welfare statists” held little political power in the US after the 1980s. The Great Society was the high water mark of the “welfare statists” in the US.

Regarding my views, I think ethnically homogenous European social democracies (e.g. Germany, Sweden, Norway, Denmark, and Finland) would do relatively well during this deflationary regime. I do not see the current Anglo-Saxon model doing well, and Great Britain and the US will be under significant stress.

I do agree with the market commentary though. It seems that traders are irrational, believing that the Federal Funds Rate would hiked 25-50 basis points because of a “good” jobs report which allegedly signals inflationary fears.