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Five Things: The Ever-Sensational Looming Global Economic Collapse


The most probable investment outcomes never appear in the newspaper in advance.

1. The Ever-Sensational Looming Global Economic Collapse

The word came down hard and fast late Wednesday evening, "Société Générale has advised clients to be ready for a possible 'global economic collapse' over the next two years, mapping a strategy of defensive investments to avoid wealth destruction."

The headline was a bit more direct, "Société Générale tells clients how to prepare for 'global collapse'." Later, it was revised to include the word "potential," forming a more modest warning. But really the cat was already out of the bag. From there it took little time for mainstream US media outlets to lock onto the "looming global collapse" meme.

SocGen Urges Sale of Dollar Ahead of 'Global Collapse'

Bank Warns of Global Collapse

Top Eurobank Prepares for 'Global Economic Collapse'

If this has an air of familiarity about it, it may be because I wrote about this Société Générale
report more than a month ago
in far more sanguine terms. After all, despite the sensational headline, the report was far more bullish, describing the most likely case, the "central scenario," as a modest global recovery where private debt would be transferred to public debt. So far, so good.

Comparing US and Japan with the framework of SocGen's modest recovery scenario, there's some reason to believe the US could feasibly accommodate a Japan-esque 200% of GDP debt burden, which would essentially double 2010's projected 100% of GDP debt burden. But that would collapse the dollar, right?

No, simply because there are no attractive alternatives. Government debt is a global problem, and when you look at the US government debt on a comparative basis, the figures, while high, aren't extraordinary -- at least within that context. Under this scenario, it's possible that gold and the dollar decouple.

Be that as it may, should we really be worried about a global economic collapse? Somehow, I can't help but think the probability of a global economic collapse is significantly reduced by the fact mainstream media outlets are right now warning about it. The most probable investment outcomes never appear in the newspaper in advance.

2. Mortgage Delinquency Rate at Record High

Speaking of transferring private debt to public debt, how long before Main Street begins scrambling for a piece of the public pie? Perhaps sooner than we think.

The Mortgage Bankers Association reported that the mortgage delinquency rate rose to a record high of 9.6% in the third quarter. That means nearly one in 10 homeowners with a mortgage was at least one payment behind in the third quarter, or roughly five million households.

Even more startling, when you factor in the percentage of loans that have entered the foreclosure process, one in seven households are either in foreclosure or behind on their mortgage payments.

But wait, there's more. While delinquent subprime mortgages are at a record 26.4%, prime mortgage delinquencies are running at a record high of 6.8%.
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