I wonder what will happen to the value of these assets next year when there will be record foreclosures and significant declines in U.S. house prices.
I wonder why you think UBS will take a markdown in the same year as the loss occurs? IMO we are seeing these markdowns based on the impacts of 2006 events that couldn't be carried forward any longer. I'm hearing stories of people going 8 months of nonpayment and still no NOD.
can someone provide any insight into how the broker bankraptcies are handled?
If my broker were to go belly up, which is the standard cleanup procedure:
1. would SIPC simply reimburses me at current valuation of my account?
2. would SIPC ask broker to sell all my assets and reimburse me at sale prices?
3. would Fed allow me to transfer all assets to another brokarage?
4. would all assets be simply lost?
5. something else?
it's ridiculous... one of my predictions is that in 2008 there will be a shift towards conservatism (and the cynics out there will call it big bath) but i think the writedowns will hit hard hard hard and that's it. And if auditors feel that it's too "big bath", the IBs will specifically disclose "although we have not yet written down x, we feel there's a good chance that future writedowns will occur for as much as... y". This will be the year of IB conservatism.
I'm going through all our 401Ks and rebalancing. Any fund with the acronyms "MBS" or "CDO" in the prospectus is toast. I'm reallocating the money into foreign stocks or boring funds with pure US treasury bonds/notes.
For those feeling powerless against our reckless monetary policy, this is one way to protest and protect yourself at the same time. Assuming that Heliben and the gang continue on the road to a 1% Fed Funds rate, current treasury bonds/notes should do quite well over the next few years.
And as an added bonus, you can play a small part in helping to return the country to traditional lending standards with no more idiotic "innovations" like option arms for deadbeats and the 600K MacMansions for the Target checkout gal. Stepping on their airhose tends to get attention.
"I wonder what will happen to the value of these assets next year when there will be record foreclosures and significant declines in U.S. house prices."
Wonder not, CR. Bankrupters and Fraudsters of New York City (BFNYC) have had a plan with one goal in mind -- to bankrupt most of the American middle-class and reduce it from 60% to 20%. From the first world to a third world society.
There is a price to be paid for allowing known Crooks, raised in a culture of fraud, to take full control of the economic and political system. Evildoers occur in many forms, including the financial form. And we gotem!
MER (or more likely their accountants) opened the floodgates . . . anybody that gets too cute trying to hide this stuff is going to be facing some serious Sarbox problems.
Nobody wants to get fired or lose money . . . but nobody wants to do serious jail time either. Counsel that try to help a over up will also be charged.
I'm reallocating the money into foreign stocks or boring funds with pure US treasury bonds/notes.
I've got my 401k pretty much in money market and short-term bond accounts. I have a personal portfolio that I use to gamble in the global casinos that pass as "financial markets" these days.
Normally I'd think of foreign stocks as a hedge, but stock markets in general have become so correlated across countries that I no longer believe this to be the case. Plus you now have emerging economies that have seen their markets up on the order of 1000% in the past few years, but I'm hard pressed to find economies that have grown by that much.
I buy Jeremy Grantham's assertion that "everything everywhere is in a bubble" with the exception of cash and equivalents.
If you're going to play with the foreign stocks at least use an ETF that you can put stops under.
u guys might want to consider MERKX which invests in hard currencies. i also moved money mkt money into a UST fund. i also have alot of gold also which i'm thrilled with obviously over this last month.
BTW, CNB the other Florida bank to BKUNA is getting toasted too. Florida is essentially in a recession.
My favorite hedge other than gold for a number of years is the Rydex inverse funds, like RYWBX weakening dollar.
I called the guys at ProShares again and asked them what kind of money market accounts they hold their fund asset in -- the short funds engage in contracts instead of buying actual securities, as I understand it, so they have to keep their "cash" somewhere else.
I was grilling the guy about the quality of their money market holdings and his voice actually started to shake and he said he couldn't give me any more specifics. It actually made me a bit nervous.
He asked me if I wanted to create a block of their new international short ETFs. I said I would think about it. I need to see if I can borrow more money on my business credit account before I file for bankruptcy and leave the bank holding a giant portfolio of dodgy securities.
i also have alot of gold also which i'm thrilled with obviously over this last month.
I do too but if Benny really wanted to play poker he could just pass on a rate cut this week and gold and oil would get creamed short term. I don't know if he's that smart but that's what I would do. Gold is over bought and the commercial traders have a large short interest. Gold would fall to 690 in a heartbeat and put them in good shape to cut in December. Bond yields would also probably fall in a hissy fit but of course the equity market would come unglued which may be the only thing that would keep them from doing it. Gotta keep the wealth illusion going.
Did John Robbins pick the wrong year to chair the Mortgage Bankers Association? He doesn't think so. As far as the San Diego mortgage banker is concerned, 2007 was a "terrific year."
"I could look [legislators and regulators] in the eye," he said, and tell them that the overwhelming majority of subprime loans were performing as expected..."
"I do too but if Benny really wanted to play poker he could just pass on a rate cut this week and gold and oil would get creamed short term. I don't know if he's that smart but that's what I would do. Gold is over bought and the commercial traders have a large short interest."
I agree, there's likely a drop in store for gold short-term, with or without Ben's interference. Long-term; well, as long as the dollar keeps sinking, gold remains desirable on some level. And how long do you think the dollar will keep sinking?
The Fed is cutting rates. Its almost guaranteed. The consensus is that it will be up to 50 or more basis points. Some say up to 100 basis points. Will this spur REFIs for most ARM holders into affordable home mortgages and thus the real estate value decline will ease and housing prices still continue to climb and become un-affordable?
Will spendthrifts and speculators party like it's 1999 again?
What if the Fed continues "project: dollar destruction" and lower rates back to 1%? What happens then? Will they party like it's 1999 then? Will it go back to the days of big, ugly, overpriced $700k, beautiful farmland destroying, energy consuming, slave to mortgage making, two-job, ugly tract house McMansions with crushing debt and savings destroying, $15000 taxes to the township?
ole Dougie Kass, who has largely been right on direction but early - sometimes way early - on price moves, is calling for a writedown similar to what MER unleashed with AIG. I hope he's right. That would really get the equities markets rattled. I think something along these lines could happen, but in '08, long after the margin calls shake him out of his position...
I understand you propose "significant declines" in US house prices "next year". Do you actually expect an accelleration or moderation in house price declines 2007-2008 from 2006-2007?
He asked me if I wanted to create a block of their new international short ETFs. I said I would think about it. I need to see if I can borrow more money on my business credit account before I file for bankruptcy and leave the bank holding a giant portfolio of dodgy securities.
Hee hee, yes, some reciprocity seems to be in order, but my gut says the big boys will get away with the ponzi scheme easier than us small fry.
Ultimately it seems that the severity of the monetary unwind will dictate the availability of personal savings kept outside one's own safe. While I can imagine a very hard and rapid transition, slow and painful seems more likely.
"I started by asking the Calcutta-born Australian whether the credit crisis was in what Americans would call the "third inning." This was pretty amusing, it seemed, judging from the laughter. So I tried again. "Second inning?" More laughter. "First?"
Still too optimistic. Das, who knows as much about global money flows as anyone in the world, stopped chuckling long enough to suggest that we're actually still in the middle of the national anthem before a game destined to go into extra innings. And it won't end well for the global economy.
An epic bear market
Das is pretty droll for a math whiz, but his message is dead serious. He thinks we're on the verge of a bear market of epic proportions.
The cause: Massive levels of debt underlying the world economy system are about to unwind in a profound and persistent way.
* Talk back: Do you think a bear market is just around the corner?
He's not sure if it will play out like the 13-year decline of 90% in Japan from 1990 to 2003 that followed the bursting of a credit bubble there, or like the 15-year flat spot in the U.S. market from 1960 to 1975. But either way, he foresees hard times as an optimistic era of too much liquidity, too much leverage and too much financial engineering slowly and inevitably deflates. "
And how long do you think the dollar will keep sinking?
In the short run the dollar could get so weak that a foreign speculator could buy US assets 'discounted' for all the bad news and still expect to flip it for a profit later (say with in a year).
How far is that? Pretty far.
But I think the problem isn't the dollar vi-a-vis the euro - its the RMB/yuan peg thats holding up a more rapid equilibration. If that were let go we'd see this thing bottom pretty fast. JMHO.
We'd also see real inflation as imports went up & a cutting back of consumption. It would be painful but I for one don't see 'consumption' as a holy cow worth saving at all cost. At some time we Americans will have to reign in our appetites.
Can it Be?
(with apologies to John, Paul, George and Ringo, and inspiration from Tanta)
When I find myself with loads of bad loans, Mother Merrill comes to me
For Stan a hundred million, let it be
And in our hour of darkness, Jeffrey Edwards says "looks good to me"
We're in super senior, we're home free
Can it be? Can it be?
Can it be? Can it be?
Eight Bil gone last quarter, Can it be?
And when the subprime loans all reset,
They'll end up in bankruptcy
Paulson has the answer, you will see
For though the SIVs were started
To pay Citi all those yummy fees
Bailout is the answer, you will see
Can it be? Can it be?
Can it be? Can it be?
Bailout is the answer, you will see
Can it be? Can it be?
Can it be? Can it be?
Whisper M-LEC softly, let it be
Can it be? Can it be?
Can it be? Can it be?
Whisper M-LEC softly, let it be
And when the loans are shoddy,
Opaque structures are the place to be
Slice them into tranches, earn a fee\t
The ratings are a thing of beauty,
Triple A - just like GE
Guess who built the model? S & P
Can it be? Can it be?
Can it be? Oh, can it be?
A bailout is the answer, you will see
Can it be? Can it be?
Can it be? Oh, can it be?
Whisper M-LEC softly, let it be
Another bag holder found.
I wonder how many international bag holders will be found. Will there be more international or US bag holders?
As far as your 401Ks, don't just look at your fund's countries but also the companies. Just because the fund is in a country that you like, it does not mean that it is holding companies that you will like.
Also, rumors aside about a .75 to 1 % cut, the Fed holds on 31st to support the dollar IMHO. If they don't hold, they will kill the dollar which will kill bonds and raise long term interest rates.
Will spendthrifts and speculators party like it's 1999 again?
They already are. A 50-100 bps rate cut will merely fuel the insanity.
It's looking more like S&P 500 earnings will be negative this quarter, yet the index is up something like 11% during that time.
Some of the gains in the international stock markets are making the late 90s NASDAQ gains look miniscule.
This is simply what speculators do, and it should be expected. The real problem IMO is a "crisis of incompentence" at central banks around the world (perhaps created more by political pressures).
They can't stop screwing up in the same way over and over again.
Let's see if Ben can salvage the situation. I don't hold up much hope, though.
The rally in oil is the only thing that gives me a bit of hope - it, in effect, acts like a rate hike by reducing the amount of money available for discretionary spending and debt servicing.
My understanding is that the SIPC merely agrees to replace your securities. If they have fallen in value from the time of the bankruptcy, it would not guarantee their value. Say your account lost 100 shares of GM. It would merely restore the 100 shares to your account. (This is my belief; it may not be exactly correct; you can go to the SIPC website for more info).
It's looking more like S&P 500 earnings will be negative this quarter, yet the index is up something like 11% during that time.
BTW what I meant to say here is from Q3 2006 to Q3 2007 - we may have flat or negative S&P 500 earnings with +10% gain in the actual index over that time period.
You can't even make arguments vs. the 10-year rate here - at least you get positive "earnings" with treasuries that can be recycled into even more "earnings".
This may no longer be the case with the earnings underlying the S&P 500.
"We'd also see real inflation as imports went up & a cutting back of consumption. It would be painful but I for one don't see 'consumption' as a holy cow worth saving at all cost. At some time we Americans will have to reign in our appetites."
Consumption has to fall for any number of reasons. Unrestrained consumerism isn't a wise, or even sustainable, basis for a society's economic structure. Yes, consumerism has been our economic emphasis for 100 years or more, and we haven't hit the wall yet. But the wall is beginning to loom in the distance.
Push comes to shove, I think people will trade two SUVs and a 3000-square-foot house for affordable health care for all, a good education for their children, and a secure and comfortable old age -- all the things that we sweat over saving for now, or go into debt for now, or just do without now.
Guys, that private cartel of bankers called the fed is about to screw the middle class again. This week, they will most likely cut rates to 4.5 or 4.25%. They will trash the dollar to save themselves and their freinds that made bad bets on housing. And oil will go to 125, gold to 850 and silver to 18. Folks, prepare to defend yourselves against the legacy of Bush and his banker buddies -- hyperinflation. You thought the S&L was bad? This is 10 to 100 times worse. If you are poor, please, buy some 40% junk silver. It could save your families life.
Optimistic Joe, I think the worst price drops will happen in '08 and probably '09, followed by maybe another 2 years of modest price declines in the more bubbly areas.
In typical housing busts, prices fall slowly at first, and then accelerate for a couple of years (this has started in some areas) - and then prices fall slowly for a couple more years. I expect next year to be UGLY.
BTW, some areas might see a 2nd major price decline in 2010 or so depending on what happens with the Options ARMs.
Franz wrote:
"Another bag holder found.
I wonder how many international bag holders will be found. Will there be more international or US bag holders?
As far as your 401Ks, don't just look at your fund's countries but also the companies. Just because the fund is in a country that you like, it does not mean that it is holding companies that you will like.
Also, rumors aside about a .75 to 1 % cut, the Fed holds on 31st to support the dollar IMHO. If they don't hold, they will kill the dollar which will kill bonds and raise long term interest rates."
Mishkin gave all a warning during the most recent conference in Jackson Hole. Bernanke was most certainly listening. I doubt it'll do little good but he's being forced by the train wreck in the housing market to slash rates.
Thanks for your advice. I am not so familiar with the typical price decline profile in a RE bear phase.
From what I hear in the Phoenix market it looks like a ~5-10% y-o-y decline in existing home prices, depending on the area. I would like to see more until next year as we want to buy then.
Many times before the last 50bpts FF rate cut Larry Kumblow said enthusiastically, with a straight face, that it would be boost to the dollar, strengthening it, which was his counter-intuitive call. This earned him a bewildered look from his guests, bulls and bears alike, but he kept insisting.
--
"What on earth is the point of investing with the cautious Swiss if they then invest in the, ahem, innovative, aggressive American markets?"
It is called infection, or a plague, that has spread worldwide. Thanks to globalization, if you don't participate you lose out. The source? BFNYC. Some call them parasites. I wonder what it would take to rid the world of this group of parasites. It would be bloody. Blood will conquer money!
The worlds financial system came precariously close to seizing up recently.
In fact, as far as some big banks and financial institutions were concerned, for a moment in time, the system was in a full-blown cardiac arrest. Liquidity, the flow of moneythe lifeblood of todays economic structurecame uncomfortably close to clotting up in August this year.
Defibrillators sizzling and money flowing, central banks around the world acted in concert to jump-start financial markets, slashing lending rates and injecting nearly a half trillion in dollar steroids into the economic pulmonary system.
But contrary to what the big media outlets may have reported, it is actually inconsequential whether or not central bankers succeeded in temporarily stabilizing markets.
Irrevocable damage to Americas economic system has taken place.
And because the worlds largest economies are so closely intertwined, the effects will not be limited to the United States. Confidence in the worlds financial systema system based on the dollar as the reserve currencyis failing, not because of a liquidity crunch, a popping housing bubble, or the myriad of other commonly cited economic causes, but because of broken faith. The result in the end will be a new world financial orderone without America at the head.
Here is what happened and why you need to know about it.
Erosion of Faith
The worlds economic system is built on trust. Money is no longer backed with tangible assets. The only thing giving the dollar in your wallet purchasing power is the perception that it will be able to buy a similar batch of goods tomorrow as it can today. But here is the catch. There is no standard that determines what a dollar is worthultimately its all relative. Its value could disappear overnight.
The same is true for every currency, whether yen, ruble or peso. Each is backed by confidenceconfidence that the national government will act responsibly, confidence that the government will honestly pay its debts (not just print more money), and confidence that the currency will remain a store of wealth.
When that confidence is broken, faith-based economic systems go into meltdown. Investors and international banks flee, currency values plummet, inflation runs rampant and economies are destroyed.
In August, when fallout from Americas popping housing bubble began to hit the market, trust in America crackedand with it, so too did confidence in the global economic system.
Hamid Varzi, writing for the International Herald Tribune, summarized world opinion this way: The U.S. economy, once the envy of the world, is now viewed across the globe with suspicion (August 17).
He continued: The ongoing subprime mortgage crisis presages far deeper problems in a U.S. economy that is begi
By that time hopefully Paulson will have had Bush's blessing for creating a wonderful bailout plan. No losses ever!!!
I wonder what will happen to the value of these assets next year when there will be record foreclosures and significant declines in U.S. house prices.
They'll be fully discounted by then.
I wonder what will happen to the value of these assets next year when there will be record foreclosures and significant declines in U.S. house prices.
I wonder why you think UBS will take a markdown in the same year as the loss occurs? IMO we are seeing these markdowns based on the impacts of 2006 events that couldn't be carried forward any longer. I'm hearing stories of people going 8 months of nonpayment and still no NOD.
Hey shove it all into 2009 and let the Democrats take the heat.
can someone provide any insight into how the broker bankraptcies are handled?
If my broker were to go belly up, which is the standard cleanup procedure:
1. would SIPC simply reimburses me at current valuation of my account?
2. would SIPC ask broker to sell all my assets and reimburse me at sale prices?
3. would Fed allow me to transfer all assets to another brokarage?
4. would all assets be simply lost?
5. something else?
it's ridiculous... one of my predictions is that in 2008 there will be a shift towards conservatism (and the cynics out there will call it big bath) but i think the writedowns will hit hard hard hard and that's it. And if auditors feel that it's too "big bath", the IBs will specifically disclose "although we have not yet written down x, we feel there's a good chance that future writedowns will occur for as much as... y". This will be the year of IB conservatism.
I'm going through all our 401Ks and rebalancing. Any fund with the acronyms "MBS" or "CDO" in the prospectus is toast. I'm reallocating the money into foreign stocks or boring funds with pure US treasury bonds/notes.
For those feeling powerless against our reckless monetary policy, this is one way to protest and protect yourself at the same time. Assuming that Heliben and the gang continue on the road to a 1% Fed Funds rate, current treasury bonds/notes should do quite well over the next few years.
And as an added bonus, you can play a small part in helping to return the country to traditional lending standards with no more idiotic "innovations" like option arms for deadbeats and the 600K MacMansions for the Target checkout gal. Stepping on their airhose tends to get attention.
What's in your 401K?
I'm reallocating the money into boring funds with pure US treasury bonds/notes this is one way to protest and protect yourself
Those bonds pay out in what currency? I don't think so.
"I wonder what will happen to the value of these assets next year when there will be record foreclosures and significant declines in U.S. house prices."
Wonder not, CR. Bankrupters and Fraudsters of New York City (BFNYC) have had a plan with one goal in mind -- to bankrupt most of the American middle-class and reduce it from 60% to 20%. From the first world to a third world society.
There is a price to be paid for allowing known Crooks, raised in a culture of fraud, to take full control of the economic and political system. Evildoers occur in many forms, including the financial form. And we gotem!
Jas
What on earth is the point of investing with the cautious Swiss if they then invest in the, ahem, innovative, aggressive American markets?
MER (or more likely their accountants) opened the floodgates . . . anybody that gets too cute trying to hide this stuff is going to be facing some serious Sarbox problems.
Nobody wants to get fired or lose money . . . but nobody wants to do serious jail time either. Counsel that try to help a over up will also be charged.
I'm surprised it has held up this long.
I'm reallocating the money into boring funds with pure US treasury bonds/notes this is one way to protest and protect yourself
I shifted my former Fidelity Money market funds over to short term treasuries after discovering their involvement with CDO's, etc.
My favorite hedge other than gold for a number of years is the Rydex inverse funds, like RYWBX weakening dollar.
Gary,
I don't think Sarbox penalties as a behavior-modifier come into play until the once-a-year attestations to 4th quarter earnings.
Bag holders will propose pushing as much damage into '08 to see if their accountants will object.
I'm reallocating the money into foreign stocks or boring funds with pure US treasury bonds/notes.
I've got my 401k pretty much in money market and short-term bond accounts. I have a personal portfolio that I use to gamble in the global casinos that pass as "financial markets" these days.
Normally I'd think of foreign stocks as a hedge, but stock markets in general have become so correlated across countries that I no longer believe this to be the case. Plus you now have emerging economies that have seen their markets up on the order of 1000% in the past few years, but I'm hard pressed to find economies that have grown by that much.
I buy Jeremy Grantham's assertion that "everything everywhere is in a bubble" with the exception of cash and equivalents.
If you're going to play with the foreign stocks at least use an ETF that you can put stops under.
I have a personal portfolio that I use to gamble in the global casinos that pass as "financial markets" these days.
Me too, and I don't hold anything longer then a day or two. Funny money on a global scale.
u guys might want to consider MERKX which invests in hard currencies. i also moved money mkt money into a UST fund. i also have alot of gold also which i'm thrilled with obviously over this last month.
BTW, CNB the other Florida bank to BKUNA is getting toasted too. Florida is essentially in a recession.
My favorite hedge other than gold for a number of years is the Rydex inverse funds, like RYWBX weakening dollar.
I called the guys at ProShares again and asked them what kind of money market accounts they hold their fund asset in -- the short funds engage in contracts instead of buying actual securities, as I understand it, so they have to keep their "cash" somewhere else.
I was grilling the guy about the quality of their money market holdings and his voice actually started to shake and he said he couldn't give me any more specifics. It actually made me a bit nervous.
He asked me if I wanted to create a block of their new international short ETFs. I said I would think about it. I need to see if I can borrow more money on my business credit account before I file for bankruptcy and leave the bank holding a giant portfolio of dodgy securities.
i also have alot of gold also which i'm thrilled with obviously over this last month.
I do too but if Benny really wanted to play poker he could just pass on a rate cut this week and gold and oil would get creamed short term. I don't know if he's that smart but that's what I would do. Gold is over bought and the commercial traders have a large short interest. Gold would fall to 690 in a heartbeat and put them in good shape to cut in December. Bond yields would also probably fall in a hissy fit but of course the equity market would come unglued which may be the only thing that would keep them from doing it. Gotta keep the wealth illusion going.
Did John Robbins pick the wrong year to chair the Mortgage Bankers Association? He doesn't think so. As far as the San Diego mortgage banker is concerned, 2007 was a "terrific year."
"I could look [legislators and regulators] in the eye," he said, and tell them that the overwhelming majority of subprime loans were performing as expected..."
"I do too but if Benny really wanted to play poker he could just pass on a rate cut this week and gold and oil would get creamed short term. I don't know if he's that smart but that's what I would do. Gold is over bought and the commercial traders have a large short interest."
I agree, there's likely a drop in store for gold short-term, with or without Ben's interference. Long-term; well, as long as the dollar keeps sinking, gold remains desirable on some level. And how long do you think the dollar will keep sinking?
The Fed is cutting rates. Its almost guaranteed. The consensus is that it will be up to 50 or more basis points. Some say up to 100 basis points. Will this spur REFIs for most ARM holders into affordable home mortgages and thus the real estate value decline will ease and housing prices still continue to climb and become un-affordable?
Will spendthrifts and speculators party like it's 1999 again?
What if the Fed continues "project: dollar destruction" and lower rates back to 1%? What happens then? Will they party like it's 1999 then? Will it go back to the days of big, ugly, overpriced $700k, beautiful farmland destroying, energy consuming, slave to mortgage making, two-job, ugly tract house McMansions with crushing debt and savings destroying, $15000 taxes to the township?
Any ideas?
ole Dougie Kass, who has largely been right on direction but early - sometimes way early - on price moves, is calling for a writedown similar to what MER unleashed with AIG. I hope he's right. That would really get the equities markets rattled. I think something along these lines could happen, but in '08, long after the margin calls shake him out of his position...
CR,
I understand you propose "significant declines" in US house prices "next year". Do you actually expect an accelleration or moderation in house price declines 2007-2008 from 2006-2007?
Thanks, O-Joe
He asked me if I wanted to create a block of their new international short ETFs. I said I would think about it. I need to see if I can borrow more money on my business credit account before I file for bankruptcy and leave the bank holding a giant portfolio of dodgy securities.
Hee hee, yes, some reciprocity seems to be in order, but my gut says the big boys will get away with the ponzi scheme easier than us small fry.
Ultimately it seems that the severity of the monetary unwind will dictate the availability of personal savings kept outside one's own safe. While I can imagine a very hard and rapid transition, slow and painful seems more likely.
This week at least.
"I started by asking the Calcutta-born Australian whether the credit crisis was in what Americans would call the "third inning." This was pretty amusing, it seemed, judging from the laughter. So I tried again. "Second inning?" More laughter. "First?"
Still too optimistic. Das, who knows as much about global money flows as anyone in the world, stopped chuckling long enough to suggest that we're actually still in the middle of the national anthem before a game destined to go into extra innings. And it won't end well for the global economy.
An epic bear market
Das is pretty droll for a math whiz, but his message is dead serious. He thinks we're on the verge of a bear market of epic proportions.
The cause: Massive levels of debt underlying the world economy system are about to unwind in a profound and persistent way.
* Talk back: Do you think a bear market is just around the corner?
He's not sure if it will play out like the 13-year decline of 90% in Japan from 1990 to 2003 that followed the bursting of a credit bubble there, or like the 15-year flat spot in the U.S. market from 1960 to 1975. But either way, he foresees hard times as an optimistic era of too much liquidity, too much leverage and too much financial engineering slowly and inevitably deflates. "
Are we headed for an epic bear market? - MSN Money
And how long do you think the dollar will keep sinking?
In the short run the dollar could get so weak that a foreign speculator could buy US assets 'discounted' for all the bad news and still expect to flip it for a profit later (say with in a year).
How far is that? Pretty far.
But I think the problem isn't the dollar vi-a-vis the euro - its the RMB/yuan peg thats holding up a more rapid equilibration. If that were let go we'd see this thing bottom pretty fast. JMHO.
We'd also see real inflation as imports went up & a cutting back of consumption. It would be painful but I for one don't see 'consumption' as a holy cow worth saving at all cost. At some time we Americans will have to reign in our appetites.
Tanta,
Your Mother Merrill MMI inspired me:
Can it Be?
(with apologies to John, Paul, George and Ringo, and inspiration from Tanta)
When I find myself with loads of bad loans, Mother Merrill comes to me
For Stan a hundred million, let it be
And in our hour of darkness, Jeffrey Edwards says "looks good to me"
We're in super senior, we're home free
Can it be? Can it be?
Can it be? Can it be?
Eight Bil gone last quarter, Can it be?
And when the subprime loans all reset,
They'll end up in bankruptcy
Paulson has the answer, you will see
For though the SIVs were started
To pay Citi all those yummy fees
Bailout is the answer, you will see
Can it be? Can it be?
Can it be? Can it be?
Bailout is the answer, you will see
Can it be? Can it be?
Can it be? Can it be?
Whisper M-LEC softly, let it be
Can it be? Can it be?
Can it be? Can it be?
Whisper M-LEC softly, let it be
And when the loans are shoddy,
Opaque structures are the place to be
Slice them into tranches, earn a fee\t
The ratings are a thing of beauty,
Triple A - just like GE
Guess who built the model? S & P
Can it be? Can it be?
Can it be? Oh, can it be?
A bailout is the answer, you will see
Can it be? Can it be?
Can it be? Oh, can it be?
Whisper M-LEC softly, let it be
Another bag holder found.
I wonder how many international bag holders will be found. Will there be more international or US bag holders?
As far as your 401Ks, don't just look at your fund's countries but also the companies. Just because the fund is in a country that you like, it does not mean that it is holding companies that you will like.
Also, rumors aside about a .75 to 1 % cut, the Fed holds on 31st to support the dollar IMHO. If they don't hold, they will kill the dollar which will kill bonds and raise long term interest rates.
Will spendthrifts and speculators party like it's 1999 again?
They already are. A 50-100 bps rate cut will merely fuel the insanity.
It's looking more like S&P 500 earnings will be negative this quarter, yet the index is up something like 11% during that time.
Some of the gains in the international stock markets are making the late 90s NASDAQ gains look miniscule.
This is simply what speculators do, and it should be expected. The real problem IMO is a "crisis of incompentence" at central banks around the world (perhaps created more by political pressures).
They can't stop screwing up in the same way over and over again.
Let's see if Ben can salvage the situation. I don't hold up much hope, though.
The rally in oil is the only thing that gives me a bit of hope - it, in effect, acts like a rate hike by reducing the amount of money available for discretionary spending and debt servicing.
re: Can't It Be
roflmao
what's next....?
Every Brokerage's Got Something To Hide, 'Cept For Me and My Mortgage
Missed Info:
My understanding is that the SIPC merely agrees to replace your securities. If they have fallen in value from the time of the bankruptcy, it would not guarantee their value. Say your account lost 100 shares of GM. It would merely restore the 100 shares to your account. (This is my belief; it may not be exactly correct; you can go to the SIPC website for more info).
It's looking more like S&P 500 earnings will be negative this quarter, yet the index is up something like 11% during that time.
BTW what I meant to say here is from Q3 2006 to Q3 2007 - we may have flat or negative S&P 500 earnings with +10% gain in the actual index over that time period.
You can't even make arguments vs. the 10-year rate here - at least you get positive "earnings" with treasuries that can be recycled into even more "earnings".
This may no longer be the case with the earnings underlying the S&P 500.
Happy times.
"We'd also see real inflation as imports went up & a cutting back of consumption. It would be painful but I for one don't see 'consumption' as a holy cow worth saving at all cost. At some time we Americans will have to reign in our appetites."
Consumption has to fall for any number of reasons. Unrestrained consumerism isn't a wise, or even sustainable, basis for a society's economic structure. Yes, consumerism has been our economic emphasis for 100 years or more, and we haven't hit the wall yet. But the wall is beginning to loom in the distance.
Push comes to shove, I think people will trade two SUVs and a 3000-square-foot house for affordable health care for all, a good education for their children, and a secure and comfortable old age -- all the things that we sweat over saving for now, or go into debt for now, or just do without now.
Guys, that private cartel of bankers called the fed is about to screw the middle class again. This week, they will most likely cut rates to 4.5 or 4.25%. They will trash the dollar to save themselves and their freinds that made bad bets on housing. And oil will go to 125, gold to 850 and silver to 18. Folks, prepare to defend yourselves against the legacy of Bush and his banker buddies -- hyperinflation. You thought the S&L was bad? This is 10 to 100 times worse. If you are poor, please, buy some 40% junk silver. It could save your families life.
Tin-Foil hat ..maybe...reality..absolutely.
If everyone is so concerned about hyperinflation and the dollar value why are the long term treasury rates still low?
I just don't get it, isn't the 10 year suppose to reflect projected inflation?
Optimistic Joe, I think the worst price drops will happen in '08 and probably '09, followed by maybe another 2 years of modest price declines in the more bubbly areas.
In typical housing busts, prices fall slowly at first, and then accelerate for a couple of years (this has started in some areas) - and then prices fall slowly for a couple more years. I expect next year to be UGLY.
BTW, some areas might see a 2nd major price decline in 2010 or so depending on what happens with the Options ARMs.
Best to all.
Franz wrote:
"Another bag holder found.
I wonder how many international bag holders will be found. Will there be more international or US bag holders?
As far as your 401Ks, don't just look at your fund's countries but also the companies. Just because the fund is in a country that you like, it does not mean that it is holding companies that you will like.
Also, rumors aside about a .75 to 1 % cut, the Fed holds on 31st to support the dollar IMHO. If they don't hold, they will kill the dollar which will kill bonds and raise long term interest rates."
Mishkin gave all a warning during the most recent conference in Jackson Hole. Bernanke was most certainly listening. I doubt it'll do little good but he's being forced by the train wreck in the housing market to slash rates.
"....why are the long term treasury rates still low?"
My understanding is that Chinese buying has something to do with it.
CR,
Thanks for your advice. I am not so familiar with the typical price decline profile in a RE bear phase.
From what I hear in the Phoenix market it looks like a ~5-10% y-o-y decline in existing home prices, depending on the area. I would like to see more until next year as we want to buy then.
O-Joe
Many times before the last 50bpts FF rate cut Larry Kumblow said enthusiastically, with a straight face, that it would be boost to the dollar, strengthening it, which was his counter-intuitive call. This earned him a bewildered look from his guests, bulls and bears alike, but he kept insisting.
He hasn't repeated it since. I wonder why.
--
"What on earth is the point of investing with the cautious Swiss if they then invest in the, ahem, innovative, aggressive American markets?"
It is called infection, or a plague, that has spread worldwide. Thanks to globalization, if you don't participate you lose out. The source? BFNYC. Some call them parasites. I wonder what it would take to rid the world of this group of parasites. It would be bloody. Blood will conquer money!
Jas
Saw this on patrick.net:
(url = The Con That Turned the World Against America | theTrumpet.com by the Philadelphia Church of God
"The Con That Turned the World Against America"
(First few paragraphs)
The worlds financial system came precariously close to seizing up recently.
In fact, as far as some big banks and financial institutions were concerned, for a moment in time, the system was in a full-blown cardiac arrest. Liquidity, the flow of moneythe lifeblood of todays economic structurecame uncomfortably close to clotting up in August this year.
Defibrillators sizzling and money flowing, central banks around the world acted in concert to jump-start financial markets, slashing lending rates and injecting nearly a half trillion in dollar steroids into the economic pulmonary system.
But contrary to what the big media outlets may have reported, it is actually inconsequential whether or not central bankers succeeded in temporarily stabilizing markets.
Irrevocable damage to Americas economic system has taken place.
And because the worlds largest economies are so closely intertwined, the effects will not be limited to the United States. Confidence in the worlds financial systema system based on the dollar as the reserve currencyis failing, not because of a liquidity crunch, a popping housing bubble, or the myriad of other commonly cited economic causes, but because of broken faith. The result in the end will be a new world financial orderone without America at the head.
Here is what happened and why you need to know about it.
Erosion of Faith
The worlds economic system is built on trust. Money is no longer backed with tangible assets. The only thing giving the dollar in your wallet purchasing power is the perception that it will be able to buy a similar batch of goods tomorrow as it can today. But here is the catch. There is no standard that determines what a dollar is worthultimately its all relative. Its value could disappear overnight.
The same is true for every currency, whether yen, ruble or peso. Each is backed by confidenceconfidence that the national government will act responsibly, confidence that the government will honestly pay its debts (not just print more money), and confidence that the currency will remain a store of wealth.
When that confidence is broken, faith-based economic systems go into meltdown. Investors and international banks flee, currency values plummet, inflation runs rampant and economies are destroyed.
In August, when fallout from Americas popping housing bubble began to hit the market, trust in America crackedand with it, so too did confidence in the global economic system.
Hamid Varzi, writing for the International Herald Tribune, summarized world opinion this way: The U.S. economy, once the envy of the world, is now viewed across the globe with suspicion (August 17).
He continued: The ongoing subprime mortgage crisis presages far deeper problems in a U.S. economy that is begi