Trick or Treat?

What evil lurks around the next corner?  What horror story scares you the most?    Halloween has come to Wall Street and instead of handing out treats, this street has only tricks.  CDO’s dressed up as top grade investments.  Financial institutions dressed up like unsinkable Titanics.  Rigged Casinos dressed up like free markets.  >From Darth Paulson “forcing” the Death Stock bailout package, to the Headless Horseman Bernake throwing flaming rate cuts, fear has gripped the world this October.  Our politicians, and their bipartisan views, are like Lenny and George, (lacking any real direction) and the US economy and the dollar are like cute little squeezable bunnies.  Our media looks like the little man from the monopoly game, and has been renamed Rupert Murdoch.

…and the only economist to get it right is named Dr Doom!

This week’s contribution will be fairly light hearted.  It is likely that you will not learn much (economically speaking) from reading this.  (I am knee deep in researching and analyzing the Alt-Energy market, but am not prepared to start giving educated opinions.  It may be a few weeks?  ….we shall see.)  Discussed below are some accountability issues, pet peeves and personal advice that I’d like to share.  Feel free to join in my chorus as I take a moment to rant.

PAST:

This crisis is arguably “THE WORST FINANCIAL CRISIS IN THE HISTORY OF MODERN CIVILIZATION!!!”  By the time the full effects are felt and the casualties totaled, we will likely have the 20/20 hindsight vision to back that statement up.

With that said…  Where were the warnings?

We the people… 

At the moment, we all want to blame our politicians.  “They failed to do this… they failed to do that…”  …but let’s face it, our politicians are just extensions of us (the public).  We need to be accountable for our shortcomings of policing our systems.  Let’s face it…  We’ve grown comfortable/complacent with the behavior of thinking someone else will do it.  We hide behind excuses of attaining tough goals because our single voice can only carry so far and the problems we face are too complex.

No!  If we wanted lobbyist and special interest groups out of DC, then we just have to demand it.  If we want to attain lofty goals and police our politicians we have to go about it the right way!   …which leads me to where the BLAME really belongs in this financial crisis.

The Media!!! 

They are the voice.  They are the public’s eyes and ears.  They are the police and they are the “experts”.  They are the teachers and informers to the public, and they are the influence and leaders of public opinion.

…and they failed us!   BIG TIME!

When the media was warned of an economic catastrophe, they scoffed and ridiculed those who warned them.  They labeled them Dr Doom or other belittling “chicken little” / “fear monger” titles or they just dismissed them all together.

So I ask the media’s top news agencies, online news providers and publications to hold themselves accountable for their part in this crisis.  The fact that you’ve finally caught up to speed does not change the fact that you failed to warn the public in advance!  Let me reiterate:  This crisis is arguably “THE WORST FINANCIAL CRISIS IN THE HISTORY OF MODERN CIVILIZATION!!!”  …and you didn’t see it coming or you chose to ignore it.  If you have “experts” on your staff that failed to see this coming, they should’ve already been fired.  If you wrote about this crisis, and your editor/producer decided to cut it… then you need to point this out and get that editor/producer held accountable.  (Use external media against them)

Now the media has a partial scapegoat.  They can claim that they were misled.  I agree with this defense to a small degree… but I feel that’s what separates reporting the news from regurgitating the news.  Reporting the news requires some degree of research and fact checking, and as evidenced by the accuracy of the “fear mongers” calculations, the media clearly failed to do its proper research.

The Mis“leaders”  (In the theater of accountability, the following 2 individuals are the most obvious and the most devious when it comes to not providing the media the proper guidance on what has taken place in the current crisis.)

Ben Bernake

It pains me to say this since I actually believe Mr Bernake is a good man, but he is the # 1 person that needs to be held accountable for the media’s inability to warn the public in advance of the current crisis.  I don’t believe Mr Bernake had malicious intentions, but none the less, he has failed us.  He inherited a bad situation.  (The government, Greenspan, etc created this mess… but it unfolded under his watch!)  As an academic whose expertise was on the great depression I am left with 3 theories on why I feel you should be held accountable for your statements such as “well contained” and should be fired immediately: You believed what you said!  If that’s the case, let me reiterate:  This crisis is arguably “THE WORST FINANCIAL CRISIS IN THE HISTORY OF MODERN CIVILIZATION!!!”  …and you didn’t see it coming or you chose to ignore it.

You understood the size and scope of the problem, and chose to mislead the public because of the fear that:  Exposing the truth would have a large negative affect on the market.

You understood the size and scope of the problem, and chose to mislead the public because you though it could be manipulated/fixed. If it’s #1, you are incompetent, and should tender your resignation or be fired.

If it’s #2, you should be fired and prosecuted.

If it’s #3, you should be fired and labeled incompetent.

Either way, you lacked competency or faith in the American people and their resilience/ability to cope with crisis and adjust.

David Lareah 

Where do I start with this cheerleader?  Public enemy #1 when it comes to helping fan the flames of the real estate bubble.  Every time the bubble tried to deflate based on negative facts he yelled out “the bottom of the housing market had been reached” and then would spin statistics to his favor.  The press gobbled up his crap and the bubble inflated some more.  (myself along with many others railed against his statistical manipulations, and easily pointed out the innaccuracy and flaws, but as head spokesman for the NAR he was always able to yell louder.  …thanks to the failed regurgitative media.)  Now, this man collects a paycheck down in DC as a real estate advisor for Wall St and beyond, by saying “we are NOT at the bottom.”

How this man has not been tarred and feathered is beyond me.  There should be some chargable crime that can be linked to his part in the current economic crisis.  His statistic manipulations mislead the public in much the same way Wall Streets CEO’s did.  He now pleads of ignorance.  Yet he was constantly badgered by economist whom he called: “chicken littles”.  You can’t have both Mr Lareah!  If you notably/publically called these people “Chicken Littles”, then that’s proof of the fact that you were warned, and your pleas of ignorance are invalid.  Instead, we all know he chose to willingly ingnore and distort the pending housing bust, for paycheck.  How this is not a crime is beyond me since his status as spokesman put him in a position to affect the worldwide markets.

If you watch the TV show “Heroes”, you might know this quote:  “Save the cheerleader, save the world.”  Well, I have muttering an alteration of that quote for quite some time now:  “jail the cheerleader, save the world”.  Kudos to the man who started the “David Lareah Watch” website in 2005, for making a stand the media should have done years ago.

PRESENT: 

I am so tired of seeing and hearing from today’s “experts” on what to expect from the market now, and what they believe the public should do with their finances.  Rarely do I hear them offer the proper “warning/risks” that need to be stated, and likewise, it is rare to hear them lay out parametors of whom their advice should apply to.  Instead their broad generalizations are misleading, especially with the confidence they exude, as they wear their monikors of “experts” like crowns, with an air of entitlement.

At a personal level, I find myself tortured by being surrounded by the “Johnny come lately’s” to the financial crisis.  (I’m talking about my immediate circle of people that I spent the last 2 years warning.)  I am glad they have finally opened their eyes to what has been allowed to take place, but anguish having to hear their takes on what “really” happened.  (“no, what really happened is people bought houses they couldn’t afford, and Wall Street helped finance it.   ….what’s a CDO?”)

It sounds silly, but I wish there was a RGE T-shirt that we could wear, that would somehow allow us to get out of those conversations.  An “expert tag” that we could wear that shows the world that we saw it coming and tried to warn the world.  How about these tag lines:

RGE subscriber since mm/dd/yyyy

Fantastic 4sight – Dr Doom fan club

Don’t belittle, chicken little, I warned you the DOW was falling

FUTURE: 

Trick or treats?  (both can be good or bad)

Oil – Trick.  Dollar strength and deflation pressure has driven the price down.  The true supply and demand pricing will be adjusted as production is slowed/manipulated to meet the corporate goals of these mega companies that spend large amounts of capitol on research, discovery and extraction.  The cost/price of every aspect of your life has been factored into the equation when pricing oil, and its fall has likely gone slightly too far.  Depreciated rate cut dollars will bump the price of oil, until the rest of the world adjusts equally.  (If foreign markets don’t deflate their currencies, oil will see modest sustained gains regardless of production)  Long and short, I see less recession pricing risk (which some say would force the price even lower) then I do demand adjustments.  Thus, I see higher equal or higher price to be most likely.  (I see $80 becoming the new mean price of the not too distant future, and prices under $70 as buying opportunities.)  This commodity remains a “trick” because of the rollercoaster is much more easily manipulated then broad markets.

Oil companies – Trick.  Many oil companies have rode the market’s rollercoaster and felt the full effects of the downside overall market.  (Even though I suspect the “experts” have probably factored in the profits from the oil run into their upside equations???)  I am left wondering why these oil companies did not buck the trend???  Something is suspicious here.  Profits and paying dividends have been tempered by some greater forces.

Gold – Treat.  As much as I HATE this commodity and its dogmatic value, I can’t help but see the “Johnny comes lately” public’s fear, spill into this arena for another run.  Likewise its overall fall has probably exceeded it technical demand.  Even if you bought at peak, your current losses would be less the overall market.  (Even I begrudgingly admit that… so at current prices, I see this being a decent hedge right now at prices under $800 with better upside then downside.)

Auto Industry – TREAT!I hate the US auto industry.  I have serious issues with their unions and general corporate vision.  They are priced where they are for a reason.  …and should be priced lower.  In fact, they shouldn’t even exist based on how poorly they have been managed…  They are at a BOTTOM with little room for downside risk that is short of extinction.  With that said…  They will be paramount to the eventual recovery of the US economy.  No place, can the Alt Energy revolution take more immediate effect on an industry.  IMO – their survival’s importance will be on par with the big banks, and restructure, R&D, and corporate welfare will create greater upside opportunities in this broken down industry.

At this moment, with all investments, I would only invest your gravy.  If you do not have money to lose, then I seriously suggest not taking any risks.  Even if I had money to burn, I would be very cautious with following my own direction/advice.  All of my opinions at this moment do not amount to much more then educated guesses.  (I believe my success and accuracy has been heavily influence by my impartial viewpoints, but my overall market knowledge is significantly short of being “expert” advice.)  With that said, I leave you with this…

Times are tough!  People will be forced to cut back on expenses.  …but please do not fail to properly evaluate financial caution against personal safety.  I say this because, on a personal level, I made a horrible mistake that could’ve cost me everything.  My wife and I recently noticed that one of our car’s tires was low.  We filled it, and days later it was low again.  (Buzzing in the back of my head was the CO$T of replacing the tires in my car against the tempering of spending money)  Well yesterday, my wife and daughter were on the highway as the tire blew out.  They went sliding across 3 lanes of traffic and wound up backwards against the guard rail.  No one was hurt, but they were shaken.  …as was I.  I like to believe that their salvation was good karma at work.  I hope sharing this will serve as a reminder to pay forward the advice of caution, safety and good health.

Be safe and be smart, and have a Happy Halloween!

Miss America – Rich Hartmann

48 Responses to "Trick or Treat?"

  1. MA   October 30, 2008 at 1:29 pm

    Edit from above that did not paste well:#1 You believed what you said! If that’s the case, let me reiterate: This crisis is arguably “THE WORST FINANCIAL CRISIS IN THE HISTORY OF MODERN CIVILIZATION!!!” …and you didn’t see it coming or you chose to ignore it.#2 You understood the size and scope of the problem, and chose to mislead the public because of the fear that: Exposing the truth would have a large negative affect on the market.#3 You understood the size and scope of the problem, and chose to mislead the public because you though it could be manipulated/fixed.If it’s #1, you are incompetent, and should tender your resignation or be fired.If it’s #2, you should be fired and prosecuted.If it’s #3, you should be fired and labeled incompetent.

  2. Medic   October 30, 2008 at 1:35 pm

    First! (If you don’t count the author) (as mandated by the member by-laws)Dude, what are you doing grabbing the first response to your own blog?

  3. Medic   October 30, 2008 at 1:44 pm

    BTW – It was nice to see you have an appreciation for that “useless” commodity GOLD.It has fallen farther than I thought it would, but I had not anticipated the massive sell off by hedge funds as they tried to raise cash.And since I read, but did not reply to the previous post, let me add my congratulations as well on your new gig.Best,Medic

  4. hazleton   October 30, 2008 at 2:36 pm

    Looking forward to reading more of your posts. May good karma stay with you !

  5. tutterfrut   October 30, 2008 at 3:06 pm

    Hey MA,Glad your family survived the tire inci-accident.Me lurker, reader, subscriber, commenter of RGE since spring 2006.Have been searching alot about alt-E since over a year now. But more with the purpose of one day to become as independent as possible of geopolitical, financial war games. I’m watching the French countryside’s housing and farm collapse and hope in the near futur to exchange my euro digits for many acres of wood, water, some stones and maybe the next generationof solar and wind. I’m going for permaculture, solarcooking, biomass/gas, compost toilet and other humanure(shit). And I hope to fill the place with likeminded people, not for a profit but just for sustainability. Maybe we’ll organize recession holidays and then all RGE subscribers are invited. We’ll make music and farm products and youtube movies so you and the rest of the world can have a laugh.Well, this dreaming made me feel much better than watching forex and stock movements and watching the sexless chickens on Bloomberg. These two and a half years, trying to protect our family savings have exhausted me. Even tough so far we didn’t lose a eurocent, it gave us zero satisfaction. This is not what old fashioned savers should feel like, imho.But enough ranting. Keep up the good work and I’ll be very interested to read what you’ve found on aternative energy.

    • bcdogs   October 30, 2008 at 7:47 pm

      Tuterfrut that sounds like a nice place to me….are you going to build there?Consider a round house…if I ever build that is the way to go in some fashion as far as energy efficiency heat/cold, also very wind resistant…I saw a beautiful one somewhere on line made of stone…http://www.deltechomes.com/ I was so taken with them ordered the catalog from them…probably have something similar in Europe…dreaming too!

      • tutterfrut   October 31, 2008 at 3:34 am

        There are so many marvelous stone farms in the south western part that I’m watching. Some have been there for centuries, that I will gladly use and preserve them as a starter. Whatever should be build when more people would join, should be made of local building materials(wood,straw,stones and chalk, wool, clay)and local human energy, combined with modern knowledge of insulation. Low maintenance would be key(house should be place to live, not to remodel every year). And I think small living entities would help to that. In winter you live small and warm. The other seasons you live mostly outside.

  6. Guest from Canada   October 30, 2008 at 3:13 pm

    Hello again from Canada. I am still thinking of how to identify myself but for now “Guest from Canada” will have to suffice.As you identify the culprits in this disaster, The Media!!! is at the top of your list. Next in line, under the heading The Mis“leaders” we find “Dr. David Lereah’s” name, who as chief spokesperson for the NAR between 2000 and 2007 was allegedly complicit with the media in helping to create the housing bubble.As an economist, Lereah worked for an organization of realtors who as a group are probably the most overtly “optimistic” people on the planet. The story of The Scorpion and the Frog comes to mind but more importantly, one must consider who employs a realtor, of course it’s the seller. Consider the media, specifically the print media where Lereah’s views had the greatest representation. One needs(ed) to look no further than the “home section” in most local newspapers to understand the significance of the real estate industry to their advertising revenue. So to blame Lereah, while justified on one level, is really just a challenge to his personal ethics vis a vis his employment status. If this were a discussion of the environment, the list of culprits would be the size of the LA white pages.However, the media is a different issue and one that should cause for great concern. It failed the public in the case of the housing boom in part because of an embedded conflict of interest but also because of what it has become in America and other regions. The expectation that journalists and their employers, collectively the media, are advocates for truth and justice may have been true at one time e.g. Deep Throat and the Washington Post, but sadly that is no longer its role. Not to be political in this politically sensitive season but everyone’s favorite “politician come pundit”, “Newt” comes to mind when he recently compared the American media to Pravda. I use this example not to suggest that there has been a grand conspiracy, rather it is an apt description of the current state of the media in America.How this has come about, whether by design or natural evolution, is a topic for a future discussion; what is important to understand is that it has come about and is having and enormous impact on the economy and the way of life of billions of people.No doubt many would challenge the idea that the media is somehow to blame; “after all isn’t the media just a reflection of the society in which it operates”, some might argue. Of course one could also argue that the media has a role in shaping and informing society, as MA appears to be suggesting. To that end and regardless of one’s politics, I think the media deserves the top billing in the list of villains responsible for this disaster.What should be of concern is that as America and the world face significant hurdles in the future e.g. Social Security, who will tell them if not the media.

    • Mark   October 31, 2008 at 11:38 pm

      Hey “Guest from Canada,” what’s your take on the state of affairs up there?I recently swapped some USD for CAD: actually nailed the bottom of the CAD! (unfortunately I’m not a big roller, so in the whole scheme of things it’s not going to do much for me, other than it’s another protective move to save what little I’ve got).BTW – Rich, great post! I’m not as upbeat about the automotive sector as you: I generally believe that transportation is finished.

  7. BR Guy   October 30, 2008 at 3:20 pm

    Hi,But what do you think will happen into the next weeks ? With the CDS blow and the day 15th reunion ?And what about the swap lines they created ? Can they confiscate the IMF gold and bring back the gold standard ? Do you think this will gonna work ? And why ?

  8. AfA   October 30, 2008 at 4:36 pm

    ‘yo’ Miss America (I’m afraid you’ll be that way for long)That was a delightful post (relatively speaking). Happy you secured a permanent spot on the RGE so that we can enjoy your posts along the ones of LB.I think that your to-be-blamed list lacks many people/organizations, but that is not important for now.Your family’s incident reminds me of a similar one I had (been between two trucks when the tire blew, had to walk 3 miles, but everybody was safe – thank goodness).Be safe.

  9. Guest   October 30, 2008 at 5:58 pm

    MA and othersIf you are interested.Peter Schiff had a good interview on Bloomberg yesterday that came to mind while reading your opinion on the auto industry and gold.http://www.europac.net/Schiff-Bloomberg-10-28-08_lg.aspAlso, Mr. Schiff will be going to Saudi Arabia soon and will talk with the King about going off the dollar peg. Here is the link if you’re interested.http://www.europac.net/radioshow.asp (click on “Click here to listen to prior broadcasts”)This combined with a comment from LB within his post “Turbulence and Trends”Without going into detail, I’ve spent part of the week with emerging market central bankers. They are forging a head on cooperative, collaborative strategies that are largely independent of the USA and Wall Street. Their plans are innovative, conscientious, and likely to be of long term strategic benefit to their peoples and their economies.The USA might think that it got away with exporting inflation and now is getting away with exporting deflation. They might be surprised that the plan doesn’t result in their reaping the profits and commodity dominance they expect.Hide reply Reply to this comment By London Banker on 2008-10-10 06:51:13MA, I will be most interested if you position on low or no inflation changes.My thoughts are deep, and grateful your family is well!Thank you,hlowe

  10. Free Tibet   October 30, 2008 at 6:03 pm

    Kiss you, Miss America.Noriel, this dude just wrote the best internet blurb I’ve read in a looong time.T-shirt, T-shirt, T-shirt. I want that red eft on mine.

  11. Free Tibet   October 30, 2008 at 6:05 pm

    Nouriel, I wish I could type. Sorry.

  12. bcdogs   October 30, 2008 at 7:38 pm

    MA/Rich,I loved every bit of your writings! Especially the Halloween bit.The media sucks, I lost hope on them a long time ago. Cspan is the only channel that is really worth a crap as far as educating yourself on the issues. Most people I know have never heard of or ever watch Cspan. They are to dam busy watching those overweight, half naked, bleached blond bounty hunters in spandex chasing people around in Hawaii, etc. Also when huge corporations own the news stations (i.e., GE NBC, MSNBC, etc) they have a huge financial interest in keeping a lid on things in my opinion, they are not going to allow the truth to be heard.As with everything/everyone I don’t know of, I googled D. Lereah, wiki has him described as “the Baghdad Bob of real estate”. I also note that his latest book is entitled “Why The Real Estate Boom Will Not Bust”, I’m sure that’s a hot seller on Amazon right now. Bet there are some real humdinger reviews on the book on Amazon. I’m sorely tempted to sprout horns and leave one for the book…something like not worth the paper it’s printed on…Refer everyone who asks you what a CDO is to Khanacademy videos, they are exceptional, free and after viewing them much of the whole meltdown becomes apparent. If I knew who here pointed me there I would thank them profusely.Funny that they call Prof Roubini Dr Doom, he seems quite optimistic to me because he thinks that this mess can be fixed…Excellent job Rich! I really enjoy your sense of humor/irony. I am so glad your family survived their mishap okay. Thank you for the reminder of what is really important in life. Happy Halloween!

  13. Guest   October 30, 2008 at 7:38 pm

    It’s easy to go after David Lereah and the National Association of Realtors. Who doesn’t hate Realtors? They insert themselves in the middle of real estate transactions, more or less by force, and take away 6 or 7%! A huge amount of money that should belong to buyer and/or seller!Lereah was just typical of the whole organization and “profession” of Realtorism. Say everything backwards and be very tough about getting some money for yourself from other peoples’ business.I hope the whole bunch of them are unemployable now. I don’t see what skills they have that another would want. Mis-analyzing? Misspeaking? Driving prospects around in an expensive leased car to other people’s houses for sale? Hiding behind disclaimers that you are not responsible for a single statement you make? Hahahaha

    • Guest   October 30, 2008 at 7:54 pm

      By the way, I found it impossible to avoid paying the Realtor fee. But I recommend working directly with the Seller’s agent, not using a Realtor on your side. Since the Seller’s agent now stands to make double commission by selling to you, whereas the seller is stuck with him, he will switch loyalty in a flash and make sure you are the successful buyer if at all possible.If they were honest they could not be bought off this way of course. But this has worked well for me. It still bothers me to flush 7% down a rat hole, but I could never avoid that.

  14. artichoke   October 30, 2008 at 7:45 pm

    Regarding your family, we’re looking out for you. We look out for each other.The auto industry — how can it still be competing? It has ruinous pension and healthcare obligations that its Japanese competitors do not, yet it’s still in there fighting! I don’t know what should happen to the pensions, they may not survive bankruptcy, and I don’t see why those pensions should be more sacred than those of others who cannot now even get defined benefit pension plans. Ch. 11 may be the answer.But they have to keep operating. It’s a matter of national security. We do need our automotive and other heavy industry. Ch. 11 yes, Ch. 7 no! If they could reduce those killing obligations and have a fighting chance, they could beat the Japanese! My Chrysler is a wonderful car, far better than what the Japanese had available at anywhere near the price. 3 years later, not a single problem to speak of, the service experience is always delightful (I don’t say this casually, I’ve never seen better), and gas mileage far better than advertised.

    • bcdogs   October 30, 2008 at 8:04 pm

      Glad you had a good experience with Chrysler, both American cars I have had have been disasters, one a Plymouth and the last a Ford. I will never own an American car again. A friend of mine is still driving his 1986 Nissan truck has put in a clutch and head gaskets last couple of years, has over 200,000 miles on it… Ford had a problem with 3.8 sl engine for YEARS, knew about it and did nothing to fix it, they didn’t even bother to reengineer the problem, allowing hundreds of thousands of consumers to buy their faulty engines in the Taurus, Windstar van, Mustang and other Ford/Mercury products with this engine. Until the Internet came along and all these Ford 3.8SL engine owners got together and started comparing notes and raising bloody hell…ditto with Ford’s crapola transmissions…!!It’s more about engineering and the reliability of that engineering than union…and with the price of gas going up (when it was) it was about MPG…around here car prices jumped on used foreign higher MPG cars about 2,000 to 3,000 a car virtually in a week’s time…supply and demand…What on earth were American manufacturers thinking not to have been working on getting higher mpg? I really do believe energy independence is an issue of national security, apparently they don’t agree with me.

      • Guest   October 31, 2008 at 7:18 pm

        Well I can only recommend the current Chrysler 300 series. Other cars had problems but that is in the past, what I am saying is RIGHT NOW they are making great cars by all accounts and if you need a car, it may be in your self interest to buy one. I understand your hesitation of course.I haven’t bought many new cars in my life, I decided to put myself thru “automotive university” by owning and fixing used cars instead, including cars that were very very expensive when new. But the new Chrysler was just too good a deal to pass up. Unlike 10 years ago, now the cars have been improving every year, so I broke down and bought a new one 3 years ago.

        • Guest   November 1, 2008 at 5:38 pm

          I thought I was being prudent buying a honda element. Gas mileage is 23. I so woulda been better off in a Tahoe. The element is just not resilient…Our Suburban is indestructable mobile. Next time I’ll buy american…

  15. Grateful Guest   October 30, 2008 at 8:32 pm

    So happy that your family is safe.That was just a wonderful post, insightful, full of practical information, entertaining, a bulls eye. You are a valuable asset to this site. Long Live Miss America

  16. London Banker   October 31, 2008 at 1:47 am

    @ Rich/MANow that I am returned from my extended travels, let me add my voice to the others congratulating you on securing a place in the blogroll here on RGE Monitor.I too am reluctantly forced to endorse gold against my longterm antipathy. My taxi driver to Heathrow the other day is buying gold and storing offshore with relatives in the Middle East and Asia. We had the best in-depth discussion of global financial prospects that I’ve had in some time. He drives a lot of bankers to and from the airport, and had remarkable bredth of knowledge of the unfolding crisis.

    • artichoke   October 31, 2008 at 7:20 pm

      Was that before or after today’s $20 drop?

      • artichoke   October 31, 2008 at 7:25 pm

        Let me expand on that unfortunately snarky comment. I just noticed you posted last night. But gold did indeed drop $20 during US trading hours today.Gold was essential in the time of the GD because currencies including the USD were backed by it. Now that is not true. I used to hear the euro was partially gold backed but have not even heard amy more about that now. Back then gold was money. Now it’s jewelry.It is a luxury good and not essential for consumption and has no particular legal status as money in the USA. If things really go to hell, people won’t barter gold, they might trade rice or gasoline.Maybe there’s central bank demand but I don’t know how substantial that is. Surely the Fed doesn’t have to acquire any gold before running the printing presses.

        • Guest   October 31, 2008 at 8:59 pm

          Why do you suppose the governments hold onto their gold? Do you acknowledge gold prices fluctuate on dollar strength? When the dollar goes down and gold goes up, what will you say about the gold investment strategy?hlowe

  17. Lord Sidcup   October 31, 2008 at 4:08 am

    You’ve nailed it, the biggest disaster in the UK and the US is the media.Toxic, dishonest, idiotic, nonsense. It nows functions to disguise the true nature of our society.

  18. Detlef Guertler   October 31, 2008 at 8:08 am

    @ All media-bashers around:Don’t bash yourself – as you are PART of the media. And concerning GD II issues you are one of the most important parts of the media. In the world.When I became crisis-conscious, in July 2007, I was looking for content providers for as much and as unbiased and as thorough information as possible. Well, you can argue about the word “unbiased”: Maybe I was as well looking for some cosy, crisis-biased place, as the rest of my world (German business media) was only a little disturbed about that far away subprime mess. All together I found 3 content sources I trust and stick to: Wolfgang Muenchau (eurointelligence.com), the “Das Kapital” column of Financial Times Deutschland and RGE.Two of these sources are German as I read and write German, and maybe in most countries and most languages you find some trustworthy sources. But whereever in the world someone was looking for unbiased information, good questions and even better answers for the world financial crisis, he must have found RGE. It’s simply best in quality.So everyone who takes part in the discussions here, at Roubini’s blog or somewhere else at RGE, is part of that cutting edge medium – even STOCKSGOINGGREEN and John Ryskamp.Before discovering RGE I was sure you couldn’t produce high quality content on a for-free-basis in the internet. Now I know it can work. The next thing I’ll have to find out is how to survive that as a journalist who makes his living being paid for what he writes…

    • OuterBeltway   October 31, 2008 at 9:42 am

      Detlef:I always look forward to your posts. Can you give us a sense of how the aware and informed Europeans (or just the Germans, if that’s what you’re most comfortable with) see the U.S.?LondonBanker’s recent post (I saw an excerpt, haven’t read the whole thing yet) implies the rest of the world is defining a future beyond and different from the consumption/debt model of the U.S. (and Western Europe, to a lesser degree).Can you comment on trends/perspectives? Has the social discontent started to morph into bottom-up entity formation / practical & economical re-casting of enterprises to meet basic human needs while permitting healthy/balanced/ecologically sound lifestyles?BTW, if you’re looking for a niche, have you ever considered the fact that U.S. has limited visibility into other cultures that may be ahead of us on the “what’s next” thinking and adaptation continuum?We don’t “get out much” if you know what I mean, and maybe having a native German speaker provide Germain-grounded insight into the U.S. intellectual marketplace has value. It certainly does (would) to me.Germany is ahead of us in some respects, and is closer to Russia and central Europe (big action there over next few years). Northern Europe is way ahead on energy and social policy, and we need information about that here. Timing may be right.Best wishes.

      • The Russian   October 31, 2008 at 2:59 pm

        Sorry for intervening. I am not so sure if Germany is really ahead in many respects but as EU countries are quite small many Europeans are working in neighboring countries. That might help for general understanding. And true, Russia is not far. Berlin-Moscow is just 2h flight distance. Climate is quite bad in Germany, winters are dark and rainy. Unfortunately, flights to LA are expensive and I still wait for a greencard, bad luck with the lottery….Happy halloween!Enjoy this, from German Der Spiegel:http://www.spiegel.de/international/

        • OuterBeltway   October 31, 2008 at 3:48 pm

          The Russian:I read the Der Spiegel foreign desk correspondent’s version of the political and economic events here in the U.S. This reinforces my assertion to Detlef that we need citizen-level reporting and not sanctioned-official reporting.Most of what I read in Der Spiegel’s piece I could likely have read on Fox News here in the U.S. (e.g. sanctioned-by-the-current-administration).I want to know what the people are thinking, not what’s OK to say on the official airwaves.

          • Detlef Guertler   October 31, 2008 at 5:06 pm

            thx for the flowers, OuterBeltway, especially because you’re one the members of the RGE family I respect the most: Your indefatigable efforts to block the 700-billion-package in Congress taught me a great lesson about the American Way of Democracy – completely different than our model, and better adapted to your society and your history.Not only our political systems are different, the same is true for economic, social and financial systems. The most striking differences:- Your social system is based on profits and stock exchange (pension funds, stock options), our social system is based on wages (pensions, health care, unimployment insurance)- Your financial system tries to maximize profit for shareholders, our economic system tries to minimize risk for creditors- Your economic system is best when pushing something completely new into the markets, our economic system is when spreading something not-so-new to all industries and all countries.But both systems are democracies, and both are market economies, and the only possible answer to the question: “Which system is better?” is “It depends.”So you shouldn’t try to become the second best Germans, try to become the best Americans.And we all together should try to learn something new, because that will be the only way to get out of Global GD II without war and dictatorship. My best guess would be a Global Sustainable Energy Investment Fund, investing global savings in global future. Maybe within one year the time is right for that.

          • Lord Sidcup   October 31, 2008 at 8:55 pm

            Exactlyuk / scandinavian media spouting the exact same shit, reporting every oscillation of the stock-markets. Total crap all the way down the line, helping the populations sleepwalk over the cliff.The worst in my opinion in the times of london, living in a separate reality.

          • The Russian   November 1, 2008 at 4:06 am

            The link was supposed to be funny, pic of W and Condi as warriors, well maybe too realistic.If you really want to know what the people are thinking then you should learn German. Thats what I did, and it helps you understand all kind of things. Might be one of the disadvantages of some Americans, not learning enough languages.My tip: Instead of German, start with Spanish, Chinese, French.

        • Detlef Guertler   October 31, 2008 at 4:49 pm

          Climate in Moscow is definitely worse than in Berlin, so it’s not Germany that has to fear the brain-drain the most…

          • artichoke   October 31, 2008 at 7:38 pm

            Re the debate about the bailout, and the American political system: that was one of the greatest exercises of people-power in this country since the Revolution over 200 years ago. We forced Congress’s hand and apparently forced a modification of a bill that was supposed to be slipped by us. Those Representatives up for election in a few days do have a fear of us.Let’s hope people remember how their Representative (and Senator, if one is up this year) voted. Anyone who voted “yes” the first time in the House should definitely be leaving office, I hope that happens. For those who voted “no” then “yes”, I don’t know what to suggest, and for those who voted “no” consistently, please return them to office.It is becoming apparent that to go around the will of the people our government is playing tricks. Giving money to banks so those banks can pay bonuses. Funding banks through the back door e.g. through disbursements from Fanny and Freddie. These things are all now clearly the fault of those who approve them, and not of the people, because we spoke clearly at the time of the bailout.This is not the end for American democracy. We are not finished yet. I don’t know how the will of the people will express itself, but mark my words, if WS banks pay substantial bonuses this year, something historic will happen. It must, or the people will have been defeated.Note that bonuses are determined and promised to recipients in mid December as I recall, but paid in January. There is time to find a lever to control these banks and stop this totally unnecessary bailout of bankers.

          • The Russian   November 1, 2008 at 3:40 am

            Look, Germans in average are already old. Germany looses 150.000 people every year. It is governed by old people who only care for old people. Thats the problem of large parts of Europe. For my part, I am still young, and I prefer to live in a country with perspectives. Americas population is still growing, that makes many things easier. They have a young president (soon). There is immigration in the US, you dont have that in Europe, at least not in Germany. German immigration policy is a mess, they treat foreigners badly. Believe me I know what I am talking about here. I have worked in Germany for several years, payed the shockingly high taxes (+/- 40pc), I have a top MBA from the UK, I speak fluent German and still I did not get permanent residency. You have to marry first and then its Einzelfallentscheidung, i.e. depending on the goodwill of a single German bureaucrat. They want foreigners to leave. Thats what I did.BTW, Living in Moscow is much more like living in London, NYC, Chicago, Big Orange. Germany/ Berlin I find quite provincial, and far too many German/ Prussian bureaucrats. Sorry, just my opinion.Nice weekend anyway!

        • OuterBeltway   November 2, 2008 at 6:44 am

          The Russian:OK, sorry I was slow on the uptake. Didn’t realize you were positing Der Spiegel as Sanctioned Pablum.Also, read your remarks below, and it’s a voice we need around here. Learning languages and thereby connecting with other cultures is an outstanding idea. I haven’t yet followed your advice, but I’ll allocate time to it over the next decade.I’d like to get your take on what’s actually going on within Russia these days, if you’re willing to offer up some insights. For example, how do you expect Russia to convert petro revenue into a sustainable post-globalization economy? Also, how do Russians see themselves now? What is the emotional equilibrium point, geopolitically, wherein Russia and its former satellites feel that their national identities are “whole”, individually and as a group? Any ideas on that?

          • The Russian   November 2, 2008 at 2:10 pm

            Sorry for my rude writing style. I have to come back to you later, just a few words for now: Currently people are extremely nervous in Moscow because of worsening economic situation. I am also stressed these days as I am looking for other places to live, for private reasons. I am losing grip on developments in Russia, trying to get updated about US developments. USA101.. My insight would be not very objective now I am afraid. Shortterm I am quite pessimistic on Russia, longterm more optimistic. Too much nationalism and ignorance around these days, IMO due to Putin. Makes me sick. I will only return to Moscow when that guy is gone, but in the worst case he will regain presidency and stay another 10yrs. Who knows.Also Moscow is not Russia. I honestly dont know much of Russia, just as many Moskovites. Eastern parts of Russia will become part of China soon, no war necessary for that IMO. Already lots of Chinese there, and hardly any Russians left…2 links on Russia are quite good:http://seansrussiablog.org/http://russiatooat.blogspot.com/PS A few hours after Obama becomes president elect, Medvedev will give an important speech on international developments and financial crisis, next wednesday. Could be interesting…Best for now!

  19. OuterBeltway   October 31, 2008 at 9:31 am

    MA:Good stuff. Glad to see you’ve got your own space here.Some suggested reading on energy, if you’re still in research mode:a. cellulosic fermentation .vs. pyrolysis. Comparative advantages? Very different approaches.b. surplus cellulose. Where is it, and how much of it is there? What impact on soil to use it? Cellulose is sugar, sugar feeds soil biology, soil biology feeds plants. Fertilizer only has indirect impact on plant, must be transformed by soil biology first. Poor soil biology means must inject much greater amounts of fertilizer to get same yields.c. Fertilizer has very high fossil-fuels inputs. Fertilizer prices track fossil fuel prices very closely.d. power transmission loses power. Either find loss-less transmission (super-conductor), or locate power gen right on top of power usee. sunlight power distribution over U.S. See this link:Sunlight distribution, Continental U.S. in Aprilf. Energy use (from all sources) in U.S. see this link:U.S. energy consumption, all sources, all usesMA, if you want to drop me a line at outerbeltway at yahoo dot com, I’ll provide you with a brief white paper that provides some interesting background on “how much energy do we use” .vs. how much energy is “out there”? How efficient/how much more advanced do we have to get technically .vs. settlement/life pattern mods?It “scales” the issue nicely, and it’ll save you a few hours of research.

  20. Sean   October 31, 2008 at 12:13 pm

    Rich, so what’s your take on the directions on the stock market? Still target DOW hitting 10K and pull out?Thanks in advance!

  21. P1AQL   October 31, 2008 at 12:31 pm

    Rich H, Congratulations on your blog!You ask: Where were the warnings?How about these.1. Roubini’s seminal posthttp://www.rgemonitor.com/roubini-monitor/201148/housing_blood_bath_abx_free_fall_cdo_market_shock_and_worries_about_systemic_risk2. The Absence of Fearhttp://www.fpafunds.com/news_070703_absense_of_fear.asp?ref=patrick.net

    We were on the March 22 call with Fitch regarding the sub-prime securitization market’s difficulties. In their talk, they were highly confident regarding their models and their ratings. My associate asked several questions. “What are the key drivers of your rating model?” They responded, FICO scores and home price appreciation (HPA) of low single digit (LSD) or mid single digit (MSD), as HPA has been for the past 50 years. My associate then asked, “What if HPA was flat for an extended period of time?” They responded that their model would start to break down. He then asked, “What if HPA were to decline 1% to 2% for an extended period of time?” They responded that their models would break down completely.

    3. Low bids on the seized Bear Fundshttp://www.ft.com/cms/s/0/67814fd0-29c7-11dc-a530-000b5df10621.html?nclick_check=1

    Vulture funds and others have been quick to bid for holdings in the two funds, but the best bid for Bear Stearns High-Grade Structured Credit Strategies Enhanced Leveraged Fund, the more geared of the two, is just 5 cents on the dollar.Private sales of stakes are the only way investors can exit the two Bear funds, after the bank suspended redemptions in May amid a wave of withdrawals.”There are buyers but they can’t agree on price,” said Jared Herman, co-founder of Bahamas-based Hedgebay.The less-geared Bear Stearns High-Grade Structured Credit Strategies Fund, which the bank has rescued with a $1.6bn loan, is being offered at about 70 cents on the dollar. The fund is only attracting bidders at about 30 cents, according to people who use the system.

    Plenty of warnings to run towards the hills rather than running towards the cliff / abyss like a lemming!Congratulations again and may the USD be with you.Best,P1AQL

  22. lance   October 31, 2008 at 11:53 pm

    Thank you Miss America and thank you all for your generous sharing of information and opinion. I’ve been reading this blog for a couple of years now in an effort to understand something of global finance. I live in a remote area of the Washington Cascades and build furniture for a living. As an interest in global finance is not a common one in this area, all of you have been a big help.I also have an interest in mushrooms. Mushrooms are the fruit of a complex, adaptive organism. This hidden organism, mycelium, has several major strategies for survival but common to all strategies is the fact that the mycelium it is a vast, adaptive interconnecting web that modifies its environment. This vast web, with its connecting nodes is similar in design to the organization of brain cells, some models of the universe and the internet.This model of organization has been called the architecture of intelligence.As our financial system is in a state of crisis, bringing with it the real, productive economy I suggest that we may be moving into a transformative era, the result of which may be that human systems of finance and production will grow into an organizing prnicipal that is another expression of this architecture of intelligence.Since first there were kings, the hierarchy of power seeks to mold the world into its own expanding image. Centralized power wielding the use of force, expands, grows corrupt at the center and collapses. Time and time again.Has this centralized power, by developing and using powerful tools of technology and communications to consolidate its power provided an opening for a new, adaptive, decentralized, communicating model of human organization that uses those very same tools, that couldn’t come into being without them?I’ve begun looking for examples of this transformation. I run into one here and there.So I ask you who are so much more knowledgable than I about systems of finance, does this seem possible?We have a world where a mother feeds her child of mud cakes in Haiti at the same time as the uber rich are poisoning themselves and the rest of the world with their insatiable greed. Surely it is time for the just recently integrated world to grow into a new form.I’ve come to believe that this form will be structured as an architecture of intelligence.

    • OuterBeltway   November 2, 2008 at 7:57 am

      Lance:This is a great post. It threw me for a second that you seemed to be comparing human intelligence to mushrooms. But then – and don’t be shocked – I began to think about what you’re saying ;)Many people are wondering what impact the Internet will actually have on human society. If you think of it in biological and organism-evolutionary terms, it makes sense to connect disparate/isolated intelligence with – at least – an efficient bi-directional communication mechanism. It’s also easy to see that with pornography being one of the dominant uses of the internet today, we still have lots of “potential” to make use of.I also agree with your assertion that top-down control models are demonstrating their weaknesses, and that it seems ridiculous for one portion of our society to waddle around from one McDonalds to another, while others waste away with nothing to eat. All the while, the Earth’s biosystems get systematically annihilated.Clearly, we’re not making good use of our intellectual resources, and the internet seems to be a means to that end.

  23. Detlef Guertler   November 1, 2008 at 5:11 am

    @The Russian:German population has grown by more than 3 million people throughout the 90s, lots of them coming from Russia. Immigration policy is still far from being open and transparent, but has improved clearly in the last two decades. Maybe we are not able to attract young and hungry people like you (sorry for that), but maybe some day you’ll think it over. Migration flees from misery or follows the money – in the long run it might be a good choice that you have learnt German.

  24. Guest-O-Rama   November 1, 2008 at 5:55 pm

    Mr Miss America,I’d love to see a follow-up to this outlining Mr Bernanke’s speeches in a little timeline. When did he say what about the economy? When did Dr Roubini say what. For example how big of Dork must he have been to suggest a database would save us from more hedge fund implosions (see http://www.federalreserve.gov/newsevents/speech/bernanke20060516a.htm) . Talk about out of touch. No we wouldn’t want to regulate those guys-god forbid moral hazard and a lack of innovation. Sure they can police themselves….It would be a public service to expose that guy for the fraud he is. I only hope whomever is president next will get someone who’s not a sheeple to run the Fed and the Treasury.

  25. OuterBeltway   November 2, 2008 at 7:47 am

    Detlef:I hear your “to thine own self be true” advice. Duly noted.Now, on to the “adapt to what other smart people are doing” theme. Here’s what I like about what Germany, Norway, Sweden seem to be doing:a. Major investments in sustainable energy generation and conservation methods. Germany recently won a competition here in the U.S. for the most technically (and aesthetically) advanced low-energy consumption dwelling. Really nice work. Makes you happy just to look at it, and appreciate the engineering and imagination that went into it. It’s a BMW of a house.b. Cooperation at the community level. N. Europeans seem to be able to conceive of and implement community-level major shifts in values and logistical delivery of basic human needs. Example: health care systems, heating and hot water from a central plant which is fired by waste-wood-chip chemical and bio decomposition. The communities are able to think and invest and cooperate at a level that is well advanced of what the U.S. communities are doing. We are still bound by our individualism, and by the success = consumption mindset.c. Europe has emotionally moved past the Empire Syndrome. Europe, and to a lesser degree the U.K. seem to define their identity based on who they are and what they do .vs. how they affect/control/rank w/respect to others. It’s a kind of societal emotional maturity, and I feel that this is an area the U.S. really needs to work on. I see humans as basically the same everywhere, and circumstances playing a big role in the delta between the two regions (Europe .vs. U.S.)…but an adaptive society ought to be able to learn from the experiences of others, right?Let me leaven this bread with some nationalism. I really like a lot about the U.S. This is a good place to live, and we are a generally good society. Lately, we’ve demonstrated some poor judgment, and we don’t understand enough about how politics and power really works, and why it works that way – or that $700B would still be in our pockets, and not in the banker-thieves’ pockets, and we would not have fought the Iraq war.So, we have some distance to go (a lot of distance). And I, just one among many Americans, want to cover that distance.Lastly, I have cut out your piece on the contrasts between our two economic societies, and put it on my white-board for subsequent consideration.I invite others to expand upon the theme of “what’s good about my society that other societies could emulate”. Not “mine’s better than yours”, but “here’s what we’re doing that you might find useful”. That is an excellent foundation for cooperation. That’s common ground.

  26. Miss Italy   November 2, 2008 at 9:44 am

    Rich H/MACongratulations for your well deserved spot on RGEmonitor. Thank you again for your past forecasts and comments, which were not just right on target, but also opened up some new ways too look at the events in the market (like the preparation for “financial war” around Aug 07).I’m sure that, despite the bipolar disorder of the market in this moment, you will be able to spot trends and systemic changes well before most. Thanks and keep up the good work.