He’s still wrong because he’s gone over to the government side. He thought the Feds would recapitalize the banks, too. They didn’t, for precisely the reason I said: the stock market would tank, it would send the signal that economic activity in the U.S. is dead.By the way, economic activity in the U.S. is dead. In case you are in another country, the U.S. is now a zombiconomy. That is a situation in which nothing can be valued but transactions still take place as if something COULD be valued.It’s something like a meta-economy–call it Godel’s revenge.Anyway, it’s complete fascist corporate crapola, and now Nouriel’s a part of it.No, the losses will be far about $3 trillion. What’s the negative value of a dead economy? I dunno, ask God.And home prices? 15%? What planet is he living on. I have always said on this site that home prices would plunge 60-80%. Now I can confirm–it’s 80%.By the way, if you’re in the Bay Area like I am, you know what kind of junk, Bonnie and Clyde bungalow is selling for $825000. It’s utterly ridiculous. All we’re waiting for here is for tech to utterly collapse (which it started to do about 3 months ago). Then this particular housing nonsense will be SO over.Also by the way, check out commercial vacancies in SF, a supposedly prosperous city. No one will say how bad it is here. You can’t see the billboards for the “for lease” signs. They’re on every prestige building in town.So just ignore Roubini. My guess is that he wants a position in Obama administration, but he better watch out for Rezko, because Obama’s close to being indicted under 18 USC 1346 for his role in the 2003 board legislation.Want to get a full report on the pay to play crimes of this tiny pimp Obama? Just read Evelyn Pringle’s excellent “Curtain Time” series at opednews.

Why just a further 15 percent decline in real estate, if your forecast is as bad as this is? I would think a 30-50 percent decline would be more in order. You have areas of the United States where people are still refusing to sell at lower prices, but as the economy tanks, they are going to be forced into sales at real fire-sale prices. I note some areas of Washington, D.C. (Arlington, D.C. itself and Bethesda) have barely felt a ripple from the real estate declines. These areas are prime now for horrific price declines and I think we have the prospect of a death spiral in real estate before this is over.

Here come the 2:00 magic buying bunnies!!!!!!! Time for another miraculous 900 point move North…

repost and updateSantelli just now on CNBC – Viewers, I’m disappointed about the thaw in the credit markets. With all the money that has been poured into the system and all of the guarantees provided, the three and six months are yielding 0.5 and 1.1 respectively but Freddie Fannie are at 1.95 and 2.70″

UNBELIEVABLE!! Is there no shame with the PPT?

They are going to rally this pig green!

GOING GREEN BABY!

On Roubini: “U.S. stocks staged the biggest rally in seven decades yesterday on the government plan to buy stakes in banks and a Federal Reserve-led push to flood the global financial system with dollars.”Ah. Grand signs of great economic strength, n’est–ce pas? Or, a welfare-based stock market? This is a failure of government, and another step downward. Bailing out the perpetrators with welfare checks to spend in the market and flooding the globe with paper won’t restore America’s wealth. Beware the low-volume bull based on insiders and big institutional investors getting an early whiff of taxpayer dough being thrown to the winds.

S&P green! Man-O-Man you gotta love thivery, er, I mean, volatility!

Sickness Unto DebtThe Treasury bailout will only exacerbate red ink and inflation.By Ron PaulOctober 13, 2008 — One of the burning questions regarding the recently passed bailout, and the one that almost no one has bothered to answer, is how the government intends to pay for it. Governments have three main methods by which they can raise funds: taxation, printing new money, and debt. As our $10 trillion national debt shows, the federal government has always enjoyed raising money by issuing new debt. Money is gained upfront, while the cost of repaying that debt is pushed onto future generations.This method is especially favored today, since imposing $700 billion worth of taxes would lead to widespread public dissatisfaction. When the cost of all the recent bailouts plus the cost of all the new lending facilities the Federal Reserve has initiated are added together, we quickly reach a figure in the trillions of dollars. Even with the debt ceiling being raised to $11.3 trillion, the issuance of debt alone cannot begin to cover the cost of all the bailouts in which the government is engaged. Every indication is that the government will use both debt and inflation in its attempt to keep the economy running at full speed.Debt financing has begun in earnest, as the national debt has increased $600 billion over the past three weeks, and most of that increase came even before the $700 billion bailout bill was passed. I fully expect that trend to continue in the near future and would not be surprised if we see another debt-limit increase slipped into another economic stimulus package that might be passed before the new year. Now that our foreign creditors are less willing to purchase our debt, what debt we cannot sell to foreigners will be monetized through the Federal Reserve, resulting in increased inflation.In fact, money supply data for the narrowest measure, the adjusted monetary base, show an unprecedented increase, far higher than when Chairman Alan Greenspan attempted to reflate us out of trouble after the dot-com stock bubble burst. That intervention on Greenspan’s part, pumping in liquidity and driving interest rates down, led to the real estate bubble, and Chairman Ben Bernanke unfortunately seems to be following the same script as his predecessor in resorting to credit creation and low interest rates. Even were this effort to succeed, it would only delay the inevitable. In order for the economy to return to normal, the Federal Reserve must cease the creation of new credit, overvalued assets must be allowed to fall in price, and malinvested resources must be allowed to liquidate and be put to use in more productive sectors…If our policymakers fail to come to their senses, there is a real danger that we could end up in a hyperinflationary crisis such as the ones that beset Germany in the 1920s and Argentina and Zimbabwe in more recent decades…http://www.thebigmoney.com/articles/judgments/2008/10/13/sickness-unto-debt

The real news should be the bond market.The TNT (10-year bond) is above 4% up 16 bps.Talk about flight to safety.

Roubini’s solution to the crises is 1. 300 bn in public works spending handled by the states. This is the same solution that Japan used in the 1990′s with little or no effect. Graft was widespread and many “bridges to nowhere” were built. 2. Tax cuts for the poor. Hello, most of the poor do not pay taxes, so it is just welfare. Besides didn’t we try this last summer? Rebate checks that is. Roubini is running for BHO treasury sec.

I thought you were banned from this site. I see you are back again with full vengeance. You should take your personal attacks to your own blog (if you have one).

I suggested a similar move last week and repost here again for your consideration.It may be prudent to close the banks and the markets for an extended period starting now. This is not an elegant choice, but who are we kidding now. It’s not like we can hide the problem under a rock any longer. The reality is that we are not at a low or a bottom. There is much grief to come. Let’s try to keep from throwing the baby out with the bath water.The first thing is to allow something like ATM access to accounts during this period. This would provide limited source of funds for sustenance. Decree that ALL bills will currently due or come due before the end of the year will be granted a 60 day grace period on top of the due date. Take this timeout to render the commercial banks back into a Glass-Steagall arrangement and purge them of the crap. Put the crap into a new entity for the time being. Combine the banks such that each surviving entity is strong in it’s own right and that each entity comprises less than 1% of all the assets in the commercial sector. Set a ceiling of 2% that limits the bank’s future growth. Gradually bring the banks back online in a 1-2 week time frame.Next cull the corporations to those that can function and survive and slowly allow their shares to trade. Limit Corporations to 0.5% of GDP in terms of gross profit with a 1% ceiling for future growth. Allow investors/entrepreneurs to bid on the assets of the culled companies.There are gapping holes in this short layout that would need to be fleshed out, but the end ideal is to separate out the crap and get the real economy back on its feet in a sound manner. The value of the crap can then be worked out by the CRAP Commission at a more leisurely pace.Please be kind this is back of the envelope stuff.Hide replies Reply to this comment By 2cents on 2008-10-09 21:53:50In fact, I would be sympathetic with your recommendations. They do make some practical sense, provided they would be a base/timeout to implement the real and most drastic solutions (like a public hanging of Paulson in some Manhattan plaza, preferably in front of the national debt clock)Reply to this comment By AfA on 2008-10-09 22:27:18There is an unsubstantiated rumor on the net that the Fed has warned of a coming one week shut down of the financial system. Maybe it’s true and they actually plan to do something worthwhile. Happy talk, keep talking happy talk…Reply to this comment By K in TX on 2008-10-09 22:41:51

Yes, I know, that was an ironic comment.

Relax Anonymous, it is just an opinion about a fundamental economic issue that NR continually dismisses with out explanation. And I can say with confidence that NR would not take the comment as an attack. In fact, given his history, he will continue to ignore or minimize inflation in his analysis. Time will tell if I’m off track and, if so, I will admit he was correct.

Sorry, sarcasm is tough to detect in the written word.

What Next, Knee Jerks? by HellasiousOctober 13, 2008 — Well, well… Talk about knee-jerk reactions by ignorant, panicky politicians guided solely by pleading, nearly destitute financiers..In what may go down in history as the fastest ever ideological volte-face, the entire West is rapidly nationalizing its banks. After the US and Great Britain, eurozone members agreed yesterday to throw away public money by the hundred-billion bucketful. They will re-capitalize their own rickety financial institutions, vowing to prevent the closing of even a single bank.What they are doing is the wholesale commitment of heretofore unthinkable sums of public money – that’s your money, in case you didn’t realize – for the bailout of institutions that completely and hubristically scorned their obligations to the public trust; obligations that were placed upon them by regulators who, admittedly, fell asleep at the wheel. And politicians are asking us, the average Tom, Dick and Henri, to fund them anew so that they can… what? Start the whole process once more?Unfortunately, most people don’t in fact realize that the torrents of “government ” money that is so casually being thrown about is their very own; that it is they who are financing this Knee Jerk Boondoggle. What’s worse, their scheme has a snowball’s chance in Hell of working out. No matter how many newly borrowed (i.e. taxed) dollars, euros, rubles or kronor are thrown at it, this problem will persist for a very simple reason: a debt crisis cannot be resolved by incurring more debt.The “establishment” is desperately trying to avoid the inevitable: deflation. With deeply ingrained institutional memories of the Great Depression guiding them, mental-lemming leaders cannot see past their cartoonish understanding of financial history. Note to George, Gordon, Nicola and Angela: watching black and white documentaries from the 1930′s and listening to Bernanke does NOT constitute financial education. Grow up and read a few books (some even appear on the sidebar of this blog). Today’s situation bears no resemblance to the 1930′s and therefore dealing with it requires a completely different course of action.Let me put it this way: it is you elected (at best) ladies and gentlemen that have previously set and/or allowed the financial Navy Seals to wreak havoc upon the population at large. And now you ask us to scrimp and save to make matters right, while allowing the demolition goons to keep their toys? In the immortal words of Brigadier General McAuliffe during the Battle of Bastogne: “NUTS”.Or, if you prefer a more Continental reference, from Waterloo: “MERDE”.http://suddendebt.blogspot.com/.

U R smarter but just ass dumb ass right-wing talk radio.

The Treasury & FED are building a bridge from here to there. The problem is there is not where we need to go. Furthermore, there is somewhat amorphous and mobile. As any good engineer can attest, it is inherently difficult to succeed when your supply lines at the beginning of the bridge are burning and the other end can’t be anchored to anything solid.We are now on the ultimate and most expensive bridge to nowhere! Unfortunately, it appears to be the only choice over the abyss.

Professor,When you talk about home prices dropping 15%, is that an average across the U.S.?Here in MN where I live house prices have dropped by about 7% – not as much asCalifornia, Nevada, or Florida. My daughter lives in Chicago, near Wigley Field,and it’s much worse there. So when you site percentages, what are you basing it on -averages or something else? Thanks!

He is talking about ANOTHER 15%, for probably a cumulative 30% or more. Of course this number represents a national average (as in Case-Shiller). The same that not all areas participated equally in the way up, not all will fall by the same percentage.When you think about it, this, of itself, shows that the correction is due to excessive speculation and not to economic difficulties (that are underway too) – a supply side rather than a demand side shock.

I still maintain that globalization is an object rather than a subject. And like any object, it’s utility is dependent on the subject. Even debt is an object. There is nothing inherently bad or wrong with both, or more appropriately should I say, they both have great points and limitations (just like virtually anything else).The whole story is like a drug administered to a sick person. The side effects and other hazards should be clearly and firstly mentioned. One cannot blame a drug. People are to blame. Either the patient, the doctor, the pharmacist or the drug maker.Usually, responsibility is shared among all of these.

the horror of it all.

Talking about being careful what you wish for:From Mish”One Does Not Take Over Free Markets To Save Them.It was and still is government intervention in the first place that is destroying the free markets.The root cause of the mess we are in is fractional reserve lending, an unsound currency, and interest rate micro-mismanagement by the Fed.In a free market, there would not be a Fed, nor would there be fractional reserve lending, nor would there be unsound currencies.And instead of attacking the root cause of the mess, Bush, Paulson, Bernanke, and others are responding with measures that lead one further down the path of fascism, supposedly to “preserve the system”.Also sad is the fact that highly respected economic professors like Krugman and Roubini openly cheer such nonsense.”The missing factors are competence, common sense and phenomenal understanding.Mish says it simply; absolutely correct.Ho hum

Since first facing down this cheap carpetbagger opportunist, Krugman made it clear to the reading public of Asia that he didn’t even know what elementary economics was /is and when challenged, ran back to his tenure to hide his sham.Totally agree and this award is as insane as Koffi Annan receiving the Nobel Peace Prize.Krugman is a reject.

all of you are smarter than me. i sold my equities. i have 100000 in cash and i am scared to keep dollars. gold is high priced. silver is high priced. empty farmland is high priced. houses are high priced. everything seems to be bubbled.i want to put my money into something with real intrinsic value. help me. where should i put my money? i don’t want to lose 50 percent like i could with holding the dollars or some paper investment.i thought about buying 100000 in can food, but that just sounds silly. is it?thank you, will, from iowa.

Where does the money come from for the debt reduction, my dear professor? Robbing the savers, robbing the Chinese, invading oil producing countries.There is plain and simple issue here : you can’t have a strong economy via selling each other goods, you can’t create money out of thin air. You keep forgetting that, professor. I’m an engineer, and I honestly look down up the economists profession, most of the economists can’t even figure out the basic stuff. Fortunately you at least know that twin deficits are bad.

Actually, as anyone who reads his columns should be able to tell you, Krugman is a very big CLINTON backer and made his case against Obama through the entire primary season.Apparently a drive-by familiarity is enough to know who he is and what he stands for.Consider yourself corrected.

ask giraf for guidance – One of the more bearish analysts, Marc Faber, is mostly in cash, though I have heard him say gold is the safest – not certificates or shares but actual bullion and coins. Dennis Gartman who is somewhat inconsistent in his perspective (Cramer without the schtick) took delivery of gold a few weeks ago.I put a fair amount into a gold bullion certificate a couple of weeks ago – and it promptly went down – I got out with a minimal loss but last Friday as the world was ending and gold surging, I had some regrets – but its so frigging volatile. So I have cash in safety deposit boxes and my “investments” are sitting in cash, and my bank accounts are sitting in cash within the insured limits. I took most of my investments I had with an insurance company out and placed them with a broker/bank.Inflation is my concern more than a systemic meltdown at this point in time — but on the other hand deflation is a concern. I missed last Friday’s shorterm buying opportunity, so other than a most excellent trade I did 3 weeks ago on an EFA proxy – I am frustrated.

I concur and add that silver is also cheap. If you are that nervous, you can look into more stable currencies like the Swiss Franc. Everbank allows you to hold CD’s in the currency so that damage to the USD will not necessarily harm you.Caviat: Free advice is usually worth what you pay for it.

I sit here at my desk at work—for now—and gawk wide-eyed in utter amazement at the depths to which human beings will go in order to satiate their lust for power and their Midasian greed. Paulson, Bush, Bernanke: soucndrels, one and all. Scumbags of the highest order. Liars who would sell their souls to the devil, who would swear on the lives of their families, that they are telling the truth. But no amount of dissembling or obfuscation can change the laws of nature: reality, in the end, always wins out.Toxic “assets” in the tens of TRILLIONS of dollars fill the casks and vaults and safes and basements of the world’s major financial institutions. Worthless pieces of paper that, when exposed to the light of day, will bring the global economy as we know it to its knees. There is no escaping this reality. None. The laws of nature will eventually pull the curtain back on the Oz-like charade that is being played out in Washington and Paris and London and Berlin, and the global economy will shatter.And so in the intervening days/weeks/months, Paulson and Bush and all of their minions pump trillions of dollars of “money” into these so-called “healthy” institutions in order to loosen the credit market so that, at least for the time being, things regain the appearance of a recovery. And an election takes place next month, and the DOW “rebounds” to about 10,400 give or take, and a few of the largest banks begin easing credit restrictions and reluctance to take on risk, and all seems to be moving in the direction of eventual better times. And yes, recession exists, and the economy is tight, and jobs are lost, but the new President goes on TV and tells the people that, while times are tough, we are a strong people, and we will recover. (Meanwhile Bush and Paulson and their minions have moved to a small island off of the coats of Costa Rica and hired Blackwater to protect them from the rest of the world.)But soon thereafter, at some unknown moment in time, all of the fake money, the supposed assets and capital that the Bushies have pumped into the system—all of the trillions of dollars in guarantees promised by the countries of the EU to their financial institutions—all of these monies become exposed for what they really are—MORE DEBT. More lies, falsehoods, specters. Trillions of dollars THAT DO NOT IN FACT EXIST, loaned to banks and insurance companies and auto makers in “hopes” that they, somehow, will be able to make some money and build capital that, at this point, is simply a wraith in the night. But of course this plan fails. It must fail. It is just another layer of the grand ponzy scheme of the millennium, perpetrated on the people of the Earth by a handful of greed-mongering bastards and sons-of-bitches.By way of metaphor, this situation is akin to building a tower on unsteady ground, and instead of deconstructing the tower and starting again, you simply make the tower taller and claim to the people that this truly is the most wonderous tower in the world, a monument to the strength and resolve of the people. But it must fall. The laws of physics demand it. And the same is true of our current economic joke.And so I sit here and watch economist after economist, legislator after legislator, president after prime minister after finance minister, claim that the plan “will” work. And they are all lying.It cannot work. It cannot. The laws of nature will win out…because they always do. Always.

What he’s saying is either you have voluntary debt reduction or you have forced debt reduction ie. foreclosure/bankruptcy one way or another we are going to see massive amounts of debt forgiveness. I guess forced debt reduction wasn’t an option because it threatened the very essence of capitalism as our GDP would have shrank to 1/16th over night and you would no longer have a job as a engineer. We’re way past the point of moral hazard that argument should have come up in 1913.

I saw another analyst who also called for 40%. According to said analyst, whose name I can’t recall; half of U.S. homeowners have mortgages, half of those with mortgages will be upside down in their mortgage, half of those who are upside down will default.That comes to 1 in 6 homes entering foreclosure if his forecast comes true.

hmmm…reminds me of:War is PeaceFreedom is SlaveryIgnorance is Strength

Exactly.Capitalism failed long ago. The Western public was happy to accept its inhuman injustices as long as it “worked”. Now it is being shown that it doesn’t work, but still we accept it.

William L. Anderson, Ph.D. teaches economics at Frostburg State University in Maryland, and is a consultant with American Economic Services. (from LewRockwell.com)I assume this nut job is a Hayek fan, despite the fact that Sraffa destroyed everything Hayek had to say. This sounds like one crummy old bird.

contradiction?Nouriel: the Govt prints and borrows trillions = $ into banks + $ into consumer hands =two year recession instead of 10 year a la Japan recessionUS Debt shoots up…who is going to buy it?and if they do, and are willing to take low rates of interest,will the dollar stay strong?so many of these consumer dollars go overseas to buy our debt…which builds higher and higher… while overseas recovers ahead of USto expand their internal consumption and trade among themselves…since the US produces so very little to sell to themif we borrow twice as much as we borrow now,rebuild our infrastructure,but not our industrial basethe world super-over-abundance of US Debtas BRIC needs trade with us less and lesshow can we ever come up our of Recessionfrom furiously printing dollars?American/foreign business will invest overseasrather than an unstable democracy which has fallenon hard times like an Argentina

The asinine bailout is just an attempt to get through election day without a complete collapse. It is inevitable that within 90 days afetr the election we will have a complete collapse of our entire system. There are a minimum of 3.2 trillion in Credit Defsult Swap losses hidden in financial institutions and hedge funds. This is an inescapable black hole. It will not magically disappear. The “winners” have phony assets on their books because the “losers” can’t possibly pay. It is a complete nightmare. The short covering ralye may be over already, and the next leg down will be brutal.

What about Japan?

There is no contra, only addiction.Really, the only way to break this vicious cycles is through debt evaporation, destruction or default, one way or another. Although many argue that running inflation is a polite way to spell a long-lasting default, inflation still increases the outstanding debt along the way, so the final outcome is not much different, for an USD insider, that is.

Either you’re completly joking or deserve to lose it.

Mish is interesting to read sometimes, but I’ll stick with Dr. Krugman and Dr. Roubini, whose explanations and proposals tend to make more sense to me.SWK

yeah same here, im in Asia sorry if i “spooked” you (no, im not a spec agent monitoring you), i was just making an educated guess, and i was right..

It is the difference between the bad and the ugly. I was surprised that Paulson changed his position, but after a second, it seemed that he didn’t.I would bet that the reason why Paulson was not agreeing with a direct liquidity/capital injections into financial firms is his fear to see what happened to F&F, AIG … happen to all wall-street. Those previous deals came with enough punitive clauses, such that common, preferreds and even unsecured bondholders were subject to a serious hair cuts.In a the language of Gentlemen, Paulson, the King of the streets, in fact just decided to throw some billion dollar bills on banks stripping for cash with no stings attached. This is the main reason why the DOW was erecting Monday, and why wouldn’t it? It was shareholders of these banks who where actually bailed out … err, I mean they have been offered a wig, from Paulson on behalf of taxpayers.

Nice try :~}

Watching the BBC-SG business report, there continues to be a pall of gloom hanging over the global economy/markets even with the coordinated actions of central banks these past several days.I would respectfully suggest that if there is not a meaningful reduction in the setting of the three month LIBOR rate less than ten hours from now, there will be cause for concern that the combined efforts of the world’s central banks have failed.This is the nightmare scenario that could ignite a cascading collapse referred to as economic Armageddon.I am hopeful and confident that all resources are being brought to bear to ensure that such a scenario will be prevented, even if it means modifying the Libor rate in an artificial manner.

Sorry, I was referring to taxpayers.

For the deep thinkers: what happens when the amount of interest on your credit card becomes so great that you cannot pay it back or put another way: when the interest on the national debt becomes so great that it cannot be paid back? That number is…. $20 trillion and by the time this bailout is finished as well as all of the wars we keep fighting, moving from 12 to 20 will happen no later than 2020! Of course, during that crisis we will be forced to switch to a new currency, perhaps the Amero and a New World Order will have been established! God Bless America!

You can short TLT(Lehman 20+Treasury ETF) or buy TBT(ultra short Lehman 20+ Treasury ETF.) Keep in mind that you pay a dividend for the TLT. I’m still investigating TBT. Good luck!!

Thanks Ann,I was hoping to find something outside the ETF array, but if that is my only option…

you do like jim rodgers a get the h l out of dodge and dont look back

John Ryskamp, well well, you’re back after over one year. Haven’t learnt very much during this time have you? Houses in the Bay Area may go down by 60% from peak to trough. National averages is something quite different. Sorry you only look at your neighbour and miss the big picture. I don’t think Nouriel needs a job in any kind of administration. He’s got a good life and doesn’t need to beg for a government job. If you ever attend a party at his loft in NY you’d know what I mean. Great contemporary art too. As for prestige he’s earned it years ago. Guest speaker at the annual meetings of the IMF, the World Economic Forum in Davos, Switzerland, and so many others it would make this comment more boring than it already is. He does what he likes and gets paid for it. What can he ask for from any new administration. Many years ago he served in the White House council of economic advisors. I’m afraid John you got it all wrong as usual, but one thing I have to say in your favour, you are consistent.Ernst

If anyone is looking for a conspiracy theory … check this idea. I’m not saying it’s real. Just thought that maybe someone could look.Over the last day or so, Paulson began buying preferred stock in nine “favored” US banks, right? And naturally the stock prices of these banks rocketed upwards.But did anyone check if the stock prices on these favored banks actually started rising BEFORE the news came out? Any chance that a few people took LONG positions with the quiet comfort that they would soon make a lot of money? How about at the end of last week … were there any surprising gains in these particular 9 stock values (compared to other banks)?I’m just wondering. Not pointing fingers.These days you have to.PeteCA—————————

There are some good quotes in this article by James Quinn. Worth reading:http://seekingalpha.com/article/99637-economic-outlook-is-it-safePeteCA

During the Great Depression what stocks made money?

Eventually … gold mining stocks.PeteCA

Keep the inflated home prices high and inflate the dollar. The bank failure may be averted and real estate owners benefits. The cash and equalites owners get hammered by inflation. Wages are the last to go up on the inflation journey and are always lagging behind and at a lower rate than cpi and actual living expenses.I don’t see any incentive in the bailout to stop excessive lending on homes.

The difference this time is the collapse of the Ponzi financial system, and all the debt inflated assets and industries (housing, convenience/cosmetic, tourism, etc.) that were subsidised by the Ponzi scheme. Sadly this is most of the US and UK economies, and so presents our leadership with more of a challenge than previous recessions.There is indeed something different this time, Pete.I suspect that relatively soon we will see a reaction to Bush’s attempts to get a US/UK/EU debtors’ club by a movement to create a Japanese/Chinese/Russian/Gulf creditors’ club. We will then learn the truth of which has the greater problem – the debtors or the creditors.Should the creditors’ club decide that they don’t care for more debt, and prefer to trade their valuable resources with each other for valuable products and future investment returns, the debtors would quickly find their fragile, import-dependent economies collapsing at every level.

Taxpayers haven’t balanced the budget in years. It’s all hot off the press.Why not just eliminate taxes and print money forever – the only reason for taxation is to control government – that was lost years ago.

You paint a rather harrowing picture there, LB. Although it is easy to see why creditors may be fed up with debtors at this point!

But the creditor nations need our markets to sell the tat they manufacture, and as there seems to be no other takers, they need us just as desperately as we need them – to prevent the inevitable collapse.This desperate need means that a solution will be found to postpone the inevitable for another few years.This unfortunately will allow the banks, media and politicians to disguise the true disastrous nature of the US/US economies.

Guest, mortgages are like a love relationship. Once a lover’s heart is broken, it is difficult to get backward and start over, even with all good intentions and pretensions possible.It is not injected liquidity that would get things fixed. Only time can heel the wounds of a broken heart.

I am sick of this argument, although it is partlty true. How long will it work? Soon enough, these countries combined would have a domestic market that dwarfs that of industrialized nations. You imagine that, a pure and virgin market with enough income and a found affluence to buy. Besides, there are two major trends that are made clear during this financial crisis. First, creditor nations are getting aware of the dangers of pegging their currencies to the USD and are taking active steps to remedy to that in the medium terms. Second, in the case of a sustainable stress, all that is standing between us and a currency crisis is one medium sized creditor country to dump its dollars first (out of necessity or out of malice) to start a generalized run on the USD.

If they print sufficiently fast it may even benefit people before it affects inflation

I would highly recommend before writing a comment to acutally listen to what Nouriel said. In his recent Bloomberg interview he highlighted the fact that we have invested too much human capital into the finacial system and have not invested enough into engineers. He calls for a clear switch of priorities to invest more into technology of the future (i.e. green energy) and less into undproductive things like housing. So it is obvious that he gets the basic things right. It is a mistake to look down on others if one doesn’t even care to listen to their arguments.

Çook guzel

You’re lucky they didn’t confiscate the lot and charge you for the transaction.

You seem to think of the EU as one monolithic block. There are vast differences between the EU members. Germany for example is the lagest exporter of goods worldwide, while in contrast Greece’s imports have about three times the value of their export. To me it looks like we have the same problem within the EU that we have worldwide.

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Russian oil production is already decreasing, gas will peak soon as well. Russian population is decreasing dramatically, large parts in the East are unpopulated. Russian East will be taken over by China soon. Actually it is already happening, the Chinese take out commodities in large quantities, paying small bribes to local tax authorities. The future currency in Sibiria is the Yuan.

bernankegive me a 1000 points surgepleaaassee babypleeaassee

美國幾時陷家剷?

= “Yankees Wubi money to eat and told not to bring bags of chicken” [tinyurl.com/4krl5c]

Paulson can invest hundreds of billions into the country’s largest banks, but he can’t tell them what to do with the money. They can sit on it as long as it is in the best interests of the shareholders to do so. They can keep the money as long as there is the slightest risk involved in lending it out. There is only the profit motive as incentive to get them to lend. If they see the slightest risk, they can sit on the money indefinitely.

Do you think they will take refuges that Sing-A-Poor song there ?

Great analysis Roubini. At least someone sees things clearly. It seems you have a lot of insight. Your arguments are based on numbers and analysis not as many of the comments here and on other TV channels based on light rumors and feelings.

Libor (3 month) is remaining stubbornly high, at 4.55 (it was 4.64 Tuesday) – The talking heads will not discuss other than to assure their viewers that these things take time should the subject comes up. I suspect this will start to weigh heavier and heavier on the markets and call into question the efficacy of the various rescue programs. LIBOR TED Spread

We have a long hard road ahead of us. Thankfully, British Prime Minister Gordon Brown has shown Hank “King Henry” Paulson a better path, yet far from the best path, through the valley of tears we face.Without the political pressure of our Presidential Election and the Canadian’s recent election, we might have faced the bursting of a credit bubble that took decades to build, better.We now all know that this was a worldwide bubble, that is, the bad behavior of Wall Street was copied in the City of London, Hong Kong, Mumbai, Beijing, Berlin, Rome, Madrid, Dublin, and every other financial center in the world.This is one reason why the dollar is rising, that is, we were not the only bad player in this global fractional reserve banking mountain of debt.We have already put well over $3 Trillion on the line and may well have to pony up as much as $7 Trillion (in taxpayer indebtedness) before we are done, while having a $14 Trillion economy (GDP).Ireland put a larger percentage of its GDP at risk when it guaranteed all deposits in its six largest banks. This is the move that caused the G7 to act so decisively. (As $20 billion flowed from British banks to Irish banks overnight.)The best route would have been to nationalize all of the banks as Sweden did (as they all were insolvent) and wipe out the shareholders, preferred holders, bond holders, executives, and directors. Then we could recapitalize, start fresh, and be on a new growth path. Hank Paulson tried to rescue his buddies by buying the toxic waste on their balance sheets with taxpayer dollars. He got half-way there, but not all the way. We now are diluting the shareholders but not wiping them out. And of course, Hank’s buddies are not in jail and get to keep their ill-gotten gains.Finding the best path out of the three decade hole we have dug, will be challenging. And doing it in less that a decade, we must.I say we, because we always get the government we deserve – - “The finest government money can buy.”As Deep Throat said: “Follow the money.”

The factual truth about ACORN is quite nearly the polar opposite of what the media blitz is telling you. You are being propagandized and mis-informed…and it’s working, sadly so sadly.Don’t drink the poison kool-aid being served up to you about ACORN! ACORN is NOT your enemy. The enemies of ACORN are your enemy. Investigate the FACTS.

Россия является реальным лидером

You have a good sense of humor, I like that.

Loan me a little bit of money and I got a problem, loan me a lot of money and you have the problem.

Just nationalize the banks and wipe out all equity holders.

Terrific post, Guest. Who you gonna complain to when there’s one world government, eh, kiddies????????????????The question is never “what form is the government?”The question is always WHO is the government!FURTHER CONCENTRATION OF POWER IS FATAL TO HUMAN HAPPINESS AND SURVIVAL. E=mc2!The sovereignty of the USA and other countries is being incrementally murdered by enemies within and without for a reason! Do you think it is working people whose interests will be protected under concentrated power in the hands of the fraction few wealthpowerful giants? Do you think the best interests of wealthpower giants are not diametrically opposed to your own best interests?????OVERPAY HAS NOWHERE TO COME FROM BUT FROM UNDERPAY. WEALTHPOWER GIANTS KNOW THIS.

Socialism is inevitable Marx predicted capitalism was a predecessor and encouraged the most unregulated free level of capitalism. But even without the help of capitalism gone wild we we’re heading there anyway, technology and automation is slowly but surely taking away the need for human capital. There is no stopping the unavoidable this collapse is just expediting the process. Besides capitalism is very inhumane if we can have socialism with pay scales tied to educational levels and maintain elected officials with civil right freedoms for society then socialism could work quite well. We have never seen socialism without a dictator because we’ve never really seen socialism only facism called socialism, therfore it gets a bad rap. I know what the cry babies what about the lack of incentive and the lack of engenuity etc. well people should serve one another not for thier own selfish needs but for the bennifit of society and that’s exactly why capitalism isn’t working now, too much self interest and less 360 degree view.

But think about it. Right now – what is Paulson doing? He is buying preferred stock in certain banks. The TARP has not yet made any significant purchases of bad assets. So they remain, and banks can’t buy from each other. It’s ironic actually, because they specifically told Congress they were doing the TARP to get money flows between banks working again. Instead, they’re just picking which banks will survive the knock-down fight, and making sure they retain all the power connections and control with these banks.PeteCA

I don’t think so. The path is nowhere nearly as easy as you imagine. I can give you a sound argument why Paulson’s plan will fail. Ask yourself one simple question … if you were an overseas investor, why on earth would you put ANY money into American banks? Many of them are going to fail. Even the so-called “strong” ones are only on life-support from Paulson’s plan. Go back to basics. A banking system is supposed to be a place where your money is safe. Not a place where you wake up wondering each day if your money even still exists. What you’re seeing is the death of American banking – from an intl. perspective.PeteCA

Not over by a long shot. Major economic fallout. Corporate profits will be ravaged in 4Q of 2008.PeteCA

what’s the korans real money policies like? I am curious.

ok Stratonovich calculus, what does this say:袋帶唔雞, 叫錢比唔嘢食佬國美(I just reversed the order of the symbols in the original post)

that sounds good. I think it is best we agree with the Chinese, as they have the money.

U.S. Oct. Empire State index falls to record low -24.6By Greg RobbLast update: 8:35 a.m. EDT Oct. 15, 2008WASHINGTON (MarketWatch) — Manufacturing activity in the New York area deteriorated sharply in October, the New York Federal Reserve Bank said Wednesday. The bank’s Empire State Manufacturing index fell to a record negative 24.6 in October from negative 7.4 in September. The new orders index also fell to a record low, and the indexes for shipments, unfilled orders, and inventories all declined sharply. The Empire State index is of interest to investors and economists primarily because it’s seen as an early indicator of what the Institute for Supply Management’s October national factory survey due out in two weeks may show. In September, the ISM manufacturing fell from 49.9 to 43.5, a seven-year low.

can anyone tell me why S&P doesnt down grade the USA?

Yes, Chicken Little, the sky really is fallingNOURIEL ROUBINIFrom Wednesday’s Globe and MailOctober 14, 2008 at 8:11 PM EDThttp://www.theglobeandmail.com/servlet/story/RTGAM.20081014.wcoecon1015/BNStory/specialComment/home

Looks like Dow 9000 is the do/die line in the sand-lots of bidders lined up at those relative levels in various ETF’s

Let us be frank. We’ve generally noticed that these ratings companies are useless. There is some speculation that they are not making completely independent evaluations. By the time they annouce a change in the ratings – the news is useless. It’s a foregone conclusion. The same thing will probably happen with the credit rating for the USA. By the time they annouce that it has dropped, people will have already fled from US bonds and treasuries.PeteCA

Russia is a real leader

Collapsible shovel at home when the United States?

China to sell to the worldU.S. bank to maintain.Bank of eating chicken.China’s loose money.China to sell to the worldChina to spend U.S. dollars to help the Chinese peopleChina happy. To buy from all over the world.We eat chicken.

10:46 a.m.Hungary’s stocks, currency tumble

This is his friday opinion, Roubini has already changed his mind.

Yup, its true…http://www.nytimes.com/2008/10/15/business/economy/15bailout.html?ref=business

There are not lines in the sand right now. All this technical analysis barely works under normal market conditions, and it is total mumbo jumbo in the current situation.

I didn’t say I look down upon the professor. I actually followed the good professor since 2006, so I know every position he stands. I’m not saying he is all wrong, I’m saying what he proposed to lower interest rate, to bail out the greedy and irresponsible, to increase the twin deficits is exactly what got us into this mess. You can’t solve the mess with the same old mess, the professor predicted this mess with those arguments, but he is trying to solve it with the same old stuff. It does not make sense, folks! Maybe because I’m in a scientific profession so I have different logic than economists, but hay, even layman knows he/she can not live plentifully forever with borrowing ever more money, why 99.9% of the economists can’t even understand that? This is beyond me. My conclusion is we really don’t need that many so called “economists” to mess around with invalid presumptions to draw fantasy conclusions and win Nobel prizes. Economists were part of this mess problem, weren’t they?

Why should they buy unprofitable Banks.They create the almighty american bank.

I don’t think you need to blame Pancho the gardener for the trillion you just blew on the Wall Street gang.

If that is not the case it will be after November 4.

that is a 50% retrace of the rally around 9,000 8,950. a 62.5% retrace would be around 8,600 next level if this one does not stick…

ومن كل شيء عن ليبور

PAULSON ANTICIPATED CRISIS AT LEAST TWO YEARS AGOBack to an item I posted last weekend.At that time I stated that Hank Paulson was the leader of a special crisis time in Washington DC that had been convened quite some time ago – in anticipation of a global economic crisis.Some people apparently took this as complete rumor mongering, or a conspiracy theory.Not true.Here is the link to the news article from October, 2006.I remembered it … it just took some time to find.http://www.nypost.com/seven/10262006/business/treasurys_paulson_plays_with_the_plunge_protectors_business_john_crudele.htmThis particular reference is to an article by Mr. Crudele at the New York Post. Some people may like Mr Crudele … others may not. But please understand that he picked up the story from an original report in the Wall Street Journal (WSJ). I don’t have a subscription to the WSJ, so I can’t track the original source. Anyone who wants to – can easily figure out how to do it after reading Mr Crudele’s article.Here are the main points …1) Hank Paulson re-activated the Crisis Team (PPT) on a regular basis some time around mid-2006, definitely no later than October 2006. That team was activated to plan for the possibility of a global economic crisis. Just in case. Guess what folks – that was two years ago – almost to the same week as where we are now! This means that Paulson was already anticipating the possibility of things falling apart, or that he had suspicions that things could go badly wrong.2. Back in mid-2006, NOBODY believed anything was wrong. Wall Street was going gangbusters selling MBS securities and CDS contracts. Making outrageous profits! Nouriel Roubini was an absolute paraih at that time. But … Paulson was thinking ahead.3. So you see, Paulson and the PPT are following a plan. At least to some degree. I don’t believe at all that they’ve got everything figured out on a play-by-play basis. That’s impossible. But they probably do have various steps laid out, and various options defined.Something to think about.PeteCA

The S&P500 bottomed at 768 after the tech bubble, but our financial systemwas in better shape then. Will 768 hold now?

I didn’t know Cheney had a heart

GetFactsPleaseStop mindlessly freaking out and go investigate the FACTS about immigration, PLEASE. Immigrants are BENEFICIAL, indeed VITAL, to America’s economy!Curses upon the mainstream media for the vast lies they tell gullible Americans!!

Cheney has been suffering from acute hypoxia for at least 8 years.

market working on a double bottom here-get ready for a roaring rally!

NEW YORK, NEW YORK — Malaysia has unveiled additional information about its ponderous Islamic dinar project, setting a date of 2003 to commence bilateral trade in the gold-backed currency. Nor Mohamed Yakcop, economic adviser to Malaysia’s semi-permanent Prime Minister, Mahathir Mohamad, gave the news at a trade conference in Kuala Lumpur.Malaysia has had a bee in its bonnet about Western complicity for the Asian meltdown of 1997-8. Thailand was the first domino to fall when the value of the baht was shattered and contagion spread throughout the region, inflamed by high risk lending practises.Mahathir has since sought to lock up Malaysia’s capital markets and insulate the country from the globalisation process – even as it seeks to ramp up the exports that drive the economy. The gold dinar is seen as a way to further reduce dependence on the Western finance-treasury complex after the ringgit was pegged at 3.8 to the dollar in September 1998 and the government tried to force hedge funds to be more transparent.Nor Mohamed told reporters that Malaysia was proposing to use the gold dinar to settle bilateral trade with other Islamic states, hoping to build it into a multilateral arrangement in time. A quarterly exchange of bullion would settle trade balances, with day-to-day trade denominated in an electronic form of the dinar.The dinar project has taken on added significance since 9/11 with some Islamic countries seeing it as a firewall against “an inherently unstable and ultimately unjust global monetary system”, according to Nor Mohamed. The Koran has explicit injunctions against usury of any form and prohibits “infidels” managing “Muslim” money. Similarly partnerships with non-Muslims outside Islamic judicial areas is discouraged.These prescriptions and prohibitions collapsed completely once petrodollar wealth flooded into Islamic states, where the beneficiaries soon repatriated it to the Western metropoles in order to earn a return.

For a long time my only fear in life has been that Henry Kissinger might die a peaceful death.These days I have 2 fears. Cheney might die a peaceful death, too.

Bankers telling Paulson they don’t need capital and Paulson begging them to take it as a patriotic duty. What theater, how absurd. Reminds me if Br’ar rabbit begging br’ar bear not to throw him in the briar patch.Whatever stigma attaches to selling toxic assets to the government (a serious concern in a period of bank runs), who can resist taking free money as a patriotic duty?

Tis the only way to make any serious money. Actually, it’s not mumbo jumbo, it’s really divining the tea leaves.

Pete, I really don’t understand all this dumping on the U.S.$. Unless I am blind, the dollar is strong. It’s also likely to get stronger as the deleveraging continues and the credit markets remain locked up. The carry trade used the Yen and the US$ as funding vehicles. The players 1) can’t roll over their $ loans and/or 2) have delevered and sold their high yielding/aggressive assets and want to repay their US$ loans. Either way, they are BUYERS of US$. This move has got many more weeks, maybe months, to run.I may have the blinkers on and all hell will break loose 6 months from now but for the movement the US$ trade is to the upside.G.

Hedgies still liquidating – might explain the market — any technical types out there today?

Dear Professor:Infectious Greed has a short description of the Luigi Zingales Foreign Policy discussion of solving the foreclosure debt overhang. It seems that Stanford University designed a plan to finance houses for theirfaculty where the university had a 50% of profit appreciation in exchange for favorable financing.He thinks it is a good model! I know you know about this!Can some of the deep thinkers in this blog critique theidea.HERE IT IS!Congress should pass a law that makes a recontracting option available to all homeowners living in a ZIP code where house prices dropped by more than 20 percent since the time they bought their property. Why? Because there is no reason to give a break to inhabitants of Charlotte, North Carolina, where house prices have risen 4 percent in the last two years.How do we implement this? We have reliable measures of house price changes at the ZIP code level, thanks to two brilliant economists, Chip Case and Robert Shiller. By using the Case-Shiller real estate index, the recontracting option will reduce the face value of a mortgage (and the corresponding interest payments) by the same percentage by which house prices have declined since the homeowner bought (or refinanced) his property—exactly like in my hypothetical example above.In exchange, however, the mortgage holder gets some of the equity value of the house at the time it is sold. Here’s how it works: At the time of sale, the owner pays 50 percent of the difference between the selling price and the new value of the mortgage back to the mortgage holder. Stanford University successfully implemented a similar arrangement for its faculty, financing part of the house purchase in exchange for a fraction of the appreciation value at the time of sale.The reason for this sharing of the benefits is twofold. First, it makes the renegotiation less appealing to homeowners, making it unattractive to those who don’t need it. For example, homeowners with a very large equity in their house (who do not need any restructuring because they are not at risk of default) will find it very costly to use this option because they will have to give up half the value of their equity. Second, it reduces the cost of renegotiation for the lending institutions, which minimizes the problems in the financial system.The great benefit of this program is that it provides relief to distressed homeowners at no cost to the federal government and at the minimum possible cost for the mortgage holders. It will stop defaults on mortgages, eliminating the flood of houses on the market and thus reducing the downside pressure on real estate prices. By stabilizing the real estate market, this plan can help prevent further deterioration of financial institutions’ balance sheets.

Down the drain?

And relinquished.Dow 8,983.16 -327.83 (-3.52%)Nasdaq 1,716.71 -62.30 (-3.50%)S&P 500 955.31 -42.70 (-4.28%)

Guest: “I would highly recommend before writing a comment to acutally listen to what Nouriel said. In his recent Bloomberg interview he highlighted the fact that we have invested too much human capital into the finacial system and have not invested enough into engineers. He calls for a clear switch of priorities to invest more into technology of the future (i.e. green energy) and less into undproductive things like housing. So it is obvious that he gets the basic things right. It is a mistake to look down on others if one doesn’t even care to listen to their arguments.”Whoever the goon is who wrote the above, should read the following book:1. How Green Were the Nazis?: Nature, Environment, and Nation in the Third Reich (Ecology & History) by Franz-Josef Bruggemeier, Mark Cioc, and Thomas Zeller (Paperback – Dec 30, 2005)Buy new: $22.95 $20.6516 Used & new from $13.75Usually ships in 7 to 12 daysEligible for FREE Super Saver Shipping.(1)

I have a question. Gas is way down from what it had been, both on a per-barrel basis and per-gallon ($2.99 now, from $4.49). Is this because the price of gas was being propped up by speculator/investors who are now leaving the market?

How bad is it? Says Ron Paul this week:The common measure of inflation, the consumer price index, has been so manipulated over the years that it cannot be trusted to be an accurate indicator of the true effect of inflation on people’s pocketbooks. This is especially true of “core inflation,” which eliminates food and energy prices, the two staples that are most important to every American. When the CPI figure is computed using the original method of calculation, it comes out to more than 10 percent per year, which is a more accurate indicator of the inflation being felt by middle-class Americans.For years, I pointed to the now-discontinued M3 money supply figure, the broadest measure of the total money supply, and remarked how its rate of growth far outpaced the officially reported rate of inflation. Since inflation is chronically underreported, I continue to view money supply figures as a more accurate indicator of the true direction of prices. Now that the monetary base has spiked so dramatically, the result will be seen over the next few months as this new credit works its way through the system, resulting in significantly higher inflation. Unfortunately, because M3 is no longer reported, the full effect of this inflation on the U.S. economy will go unreported in official statistics.

CDS is good enough.Let’s see IRS.

Such is the result of government and banking cartel intervention in markets.The question is should each member of society plan for himself, or “The issue is not automatism versus conscious action; it is autonomous action of each individual versus the exclusive action of the government. It is freedom versus government omnipotence.”Laissez faire does not mean: Let soulless mechanical forces operate. It means: Let each individual choose how he wants to cooperate in the social division of labor; let the consumers determine what the entrepreneurs should produce. Planning means: Let the government alone choose and enforce its rulings by the apparatus of coercion and compulsion.”

i think it is time to store some water and food.This winter is dead cold.

Here is the exact inflation data for the last two years from: http://www.shadowstats.com/alternate_data(Sorry about the all the dashes, but <pre> tags are not allowed.)———————–Index———————————————————-where—-CPI-U—————BLS’———————–1982/4—yr/yr%—1980—1980Year—-Month–=100—–change—Index—-CPI==============================================2007—-Jan—-202.4—-2.08%—-511.8—-9.90%2007—-Feb—-203.5—-2.42%—-522.0—-10.04%2007—-Mar—-205.4—-2.78%—-528.2—-10.24%2007—-Apr—-206.7—-2.57%—-532.1—-10.18%2007—-May—-207.9—-2.69%—-536.2—-10.29%2007—-Jun—-208.4—-2.69%—-543.9—-10.29%2007—-Jul—-208.3—-2.36%—-545.0—-10.09%2007—-Aug—-207.9—-1.97%—-545.4—-9.95%2007—-Sep—-208.5—-2.76%—-548.5—-10.40%2007—-Oct—-208.9—-3.54%—-551.9—-11.07%2007—-Nov—-210.2—-4.31%—-556.3—-11.75%2007—-Dec—-210.0—-4.08%—-564.5—-11.73%2008—-Jan—-211.1—-4.28%—-572.2—-11.80%2008—-Feb—-211.7—-4.03%—-582.4—-11.56%2008—-Mar—-213.5—-3.98%—-589.3—-11.58%2008—-Apr—-214.8—-3.94%—-593.5—-11.53%2008—-May—-216.6—-4.18%—-599.6—-11.82%2008—-Jun—-218.8—-5.02%—-612.3—-12.59%2008—-Jul—-220.0—-5.60%—-617.8—-13.36%2008—-Aug—-219.1—-5.37%—-617.5—-13.22%So, even before all the new money hits the street, we are banging over 13% simple inflation. Next year I would not be surprised to see 20% inflation.

it’s:50% of 100 = 50 have mortgages50% of 50 = 25 are upside down50% of 25 = 12.5out of 100 homes 12.5 or 12.5% will default

1:40 p.m. Brazil’s Bovespa trading halted after 10% drop

Here is a follow up in Aug of 2007 by John Crudelehttp://www.nypost.com/seven/08092007/business/hey__hank__lets_sit_down_and_chat_about_things_business_john_crudele.htmAlso Wikipedia has more sources…http://en.wikipedia.org/wiki/Plunge_Protection_Team

Oh, so that’s what makes you a neo-con?

1:57 p.m. Hungarian assets tumble as investor fears intensifyGlobal panic is spreading….

WASHINGTON (MarketWatch) A broad slowdown in economic activity was underway by the end of September, according to the latest report on economic activity, known as the Beige Book, released by the Federal Reserve on Wednesday. Consumer spending was down in most regions. Factory activity was also slow. Even more worrisome was the downturn in “nonfinancial services,” which has been the backbone of economic activity. At the same time, credit was scarce as banks tightened standards due the financial market stress. Inflation pressures did ease a bit. Labor market conditions also deteriorated. The agricultural sector was one bright spot, the report said. The Fed will meet on October 28-29 to set monetary policy. The financial market is expecting another interest rate cut.

I still don’t know what to expect from this, will the dollar really fail ? Will we have a new world order, the empire will fall ? What are your thoughts about the future ? IMO, i’m still waiting for something big, like a crash on dollar, or a total change of global economics to the east…

It must be getting close to 2:30

Her comes the first attempt to regain 9000…

Heeerrrrreeesss Johnny!

Sellers wore out finally?

http://www.federalreserve.gov/fomc/beigebook/2008/20081015/fullreport20081015.pdfHere is the beige book released today.. .interesting reading

2:34 p.m. [HIG] Hartford cuts quarterly dividend to 32c

HERE COME DA CALVERY!!!!! LOLOL1:40 must be close enough!

Little by little the powers that be are doing what Nouriel has ben advocating right along. There is still no talk of triage for insolvent banks. That’s a tough one because it flys in the face of “Good Old Boy” affiliations. I think it will take complete nationalization of our banking system to make triage happen.

THEY ARE GOING TO RALLY THIS PIG GREEN!! BOOOMMMMMMM!!!!!

Just got rid of my muni-bond funds this afternoon. My broker said she’s never seen them swing so wildly before, acting like common stock!

Low holds!

We are within spitting distance of the S&P Friday Oct 10 close. I know lows get tested but isn’t their a 72 hour rule.

15 points from Friday’s close – order imbalances in New York we will fall to the close

Think DOW 7200 at min.

What lesson should I learn from you posting a book title in response to the comment?Is your point along the lines of ‘nazis cared about the environment and so does Roubini, therefore he is nazi’?If that is your point you’re a complete fucking eejit.

THEY ARE GOING TO RALLY THIS PIG GREEN!! BOOOMMMMMMM!!!!!Has this imp blown his brains out?

Biggest % decline of S&P since 1987

Ya know, John, you’re the one sounding like a fascist here. I for one am getting pretty sick of your stupid attacks on the good Dr. since all you offer in his stead is rightwing drivel. I doubt whether you’re impressing anyone here more than Sarah Palin’s thoughts would, which is to say not at all.

You will sway no one with your opinions when they are laced with bitterness and petty insults.

He may be right on both accounts. Fat lot of good that does us!

Ouch, oil down

I think the Wells news was the deathnell today. If they circumvent the plan, and others join, now money will reach its intended target, being lent out! It will go right back to Uncle Sam. Key day today.

I believe that countries in crisis will evnetually have to consider the option of internal and foreign debt restructring. That’s the last option. No bank goes into crisis without any external reason since the entire system makes money without producing anything. That is, banking system transfers wealth to themselves from the rest of the system as long as the borrowers are able to pay the loans. With this crisis we see that borrowers arrived to a point where they cannot pay their loans anymore. This is completely related to the income level. In fractional reserve system banks creates leverage out of fiat money (the real amount of money backed with the resources in an economy). The problem with the developped nations is that this money is gone away. That’s why; no matter what the monetary authorities do, they will not be able to save the system. So, we see that the functioning of an economy is not simply related to the quantity of money. It is also related to the distribution of the money (monetary circulation) and resources that back this distribution.In sum, with the fall of the markets today, and the news here below, it seems that not only the confidence is eroded, but also some portion of the rescue money will be gone away.S&P Reviews $280.1 Billion of Alt-A Mortgage Debthttp://www.bloomberg.com/apps/news?pid=20601087&sid=aC8iPTs8ui4s&refer=home”…”There has been a persistent rise in the level of delinquencies among the Alt-A mortgage loans supporting these transactions,” S&P analysts Scott Davey and Ernestine Warner said in the statement.Alt-A home loans, considered between prime and subprime in credit quality, were made to borrowers who wanted atypical terms such as proof-of-income waivers, delayed principal repayment or investment-property collateral, without having to offer sufficient compensating attributes. … “

“Don’t you think you’re being a bit over the top here?”@ SWKJust so my position is clear: No, not at all.I’ve been there with both these guys… Annan has always been a boot-lick and never did anything that he was not told to do… while Krugman, is nought but a cheap opportunist who has always used the MSM to build his credentials. Nothing there but I admit he is dangerous.

Obviously not.Damn comments.

I hear that Switzerland may soon face a crisis, as UBS and Credit Suisse are bigger than the rest of the Swiss economy. What is the mood in Switzerland?

Gloomy, do you see inflation or deflation?TIA

We are currently experiencing deflation. However, inflation will soon rear its ugly head, as treasury issuance will exceed demand. Also, an abrupt devaluation of the currency is possible in an attempt to prop up asset prices.

We’ve done so much as a nation. This land brought forth mighty peoples centuries before Christopher Columbus, It grew as a beacon for all people who strive for freedom, and liberty.But now a dark underbelly appears. Was it always there? If it is a recent phenomena, who’s responsible? Is that dark underbelly necessary for our existence?(Yin and Yang)We have come to a crossroad, and we are driving the car of humanity. Things done at this moment in time will have impacts for our future greater than we could ever know. Ask yourself this question. Can you live your life absent of the financial world? Would you want to?We have arrived ladies and gentlemen. We, the people of the world, must now act in the best interest of ourselves, our family, our neighbors, our community, our country, our planet. It is very simple to do the right thing. We all have a voice in our head, we all know what we now must do. If we all try to stand up, we will all stand together.p.s.- if these spreads don’t come down, it’s game over. Every man for himself! Head for the hills! AHHHHHHHHH!

Roubini is more right that any of us want to admit. The end of consumer addiction to debt supported lifestyles is just beginning. When and if the USA government halts its debt addiction then we might see a real financial turnaround based upon wealth creation rather than four decades of excess debt creation. Serving up morphine to a heroin addict might make him feel better, but he still will be an addict. The governments debt driven solutions to a debt driven global economic crisis is just morphine that delays the cure.

Since the weekend, a lot has changed. I mentioned before that all that Govt’s have done is buy into insolvent banks. Now while that might help bank capital ratios temporarily, NOT KNOWING what toxic waste sits on their balance sheets, what makes anyone think that $250 bill, Euro 300 Bill or 50 odd bill GBP will be near enough??Of course it is NOT.Which explains why all borrowing costs are going through the roof, further adding to the enormous costs of coming out of this godawful mess.Also,it is now abundantly clear that the US and Europe are tanking with Asia slowing dramatically.Govts will be forced to SPEND yet more to support their economies.Govt funding costs are set to skyrocket.AND, lets not forget that now this is taxpayers money getting vaporized on the stock markets and being chewn up in bond yields?The Govts are already committed, still markets are selling off big time. And, that was the last card. What now? CLOSE the markets? I suspect that motivates a portion of the sellers these days.I believe a massive flight to cash is underway. Thereafter, with Gov’ts throwing money at their populations and offerring a never ending stream of debt fueled bailouts,share markets distrusted and despised due to overt manipulation and tinkering, a good portion of that cash hoard will head towards “things”. Real things, essentials that nations need to function.Watch food and energy. PM’s will be in big demand when it is revealed the morass that Govt’s have now flung themselves into.

The pundits were shouting from the roof tops Monday into Tuesday that the bottom was in, that we had our crash and notwithstanding some rough patches in the coming months, it was now safe systemically speaking. I would add that the good Prof. had also declared that it was safe (please correct me on that final point if I am wrong).Tomorrow, October 16 will tell the tale in my opinion, it would appear that all confidence has been drained from the economy like blood from a corpse. I had posted 24 hours ago the following:I would respectfully suggest that if there is not a meaningful reduction in the setting of the three month LIBOR rate less than ten hours from now (Oct 15), there will be cause for concern that the combined efforts of the world’s central banks have failed.This is the nightmare scenario that could ignite a cascading collapse referred to as economic Armageddon.

He and others are trying to solve it with the same old tricks because there are no other options available…yes, reality is depressing.

Ryskamp, a neocon? I don’t think so.

Re: KrugmanThe Nobel was clearly a travesty, but we clearly need more focus on SOCIOECONOMICS these days as opposed solely to the trumped up computer models which have got us in to an awful mess these last few years.

Buy farmland — it’s the best investment you’ll ever make. Put a really good well on it too, and dig some good ponds (in case you want to keep some livestock on it) on your land too.With even a few acres of decent farmland you can grow enough food to feed a very large family plus MANY more — with the surplus produce you’ll make a killing selling it on a roadside stand or at the farmer’s market.You cannot eat gold, or silver, or oil, and all of that canned food will eventually run out — so you better invest in some land where food can be continually grown on it every year.And invest in some good guns/ammo while you are at it — you might need to fight off the starved urban hordes when they come knockin’ when things get really bad…

Gee, thanks.SWK

Why are you bringing Berlin/Germany in to this? Unlike most all other Western nations, the Germans SAVE LOTS OF MONEY and don’t take many risks with their money, nor are the Germans excessive consumers (they are net exporters by a large margin) — the Germans have consistently been criticized over the years for not buying enough plastic junk from China, cars and electronics from Japan, and military equipment from America…THE GERMANS HAVE BEEN SHAMED FOR NOT TAKING ON MORE AND MORE AND MORE DEBT LIKE EVERYONE ELSE WAS DOING, and that is a sad fact – if anything is hurting Germany right now it’s all of the worthless/toxic assets from America that has been sold to gullible German financial institutions who were duped by greedy-bloodsucking American parasite swindlers…ooops, I mean American businesspeople.

“Look for the appearance of the Four Horsemen, for Hitler’s revenge.”Sad fact: anti-Jewish sentiment is already increasing quickly in America and worldwide because of this crisis due to the fact that so many Jews are involved in finance and economics, and work on Wall Street/NYC, governmental economic entities, and other financial powerhouses around the world. It doesn’t mean they are entirely to blame for all this, just that they are disproportionately found in fields related to business and economics.

I had to go to http://www.stockcharts.com today and plot the Dow Jones ($INDU).Just to stare at the amazing formation this week.That new up-and-down peak on the declining Dow line is … well franklypretty amazing. Sure, sharp bull reversals do occur within the scopeof bear markets. But this one takes the cake – in terms of sharpnessand steepness.To be honest, it doesn’t really look like any normal sort of bull reversal at all.It looks a lot more like some sort of weird “high volatility” spike.I don’t get a warm, fuzzy feeling from this at all.PeteCA

A warning from the US bond markets By Dominic Frisbyhttp://www.moneyweek.com/investments/a-warning-from-the-us-bond-markets-13833.aspxIf the bond markets collapse, the wider consequences will dwarf those of the US property market. A collapse could even mean a run on the dollar, which really would be run-for-the-hills-with-canned-goods time. Then you’ll really need your gold. Real inflation is frightening stuff. Anyone who thinks it isn’t a big deal might want to look at Jens O. Parsson’s Dying of Money: Lessons of the Great German & American Inflations , (Wellspring Press, 1974). Here’s a quote to get you thinking:hlowe

Oh please…while immkgrants might cause a short term boost in GDP due to increased consumption and production, immigrants stunt wages in the long run.Plus, if the tide is not slowed down soon the USA will soon find itself looking and acting like Brazil with every passing year — America is not being filled with educated or well adjusted immigrants but rather the lower-class dregs from many nations. America will become another Brazil: a polluted cesspool with no environmental regulation, overcrowded cities with massive slums, crime-filled, corruption riddled, MASSIVE inequalities between the classes, etc…oh wait, ever since millions of immigrants started pouring in during the 1980s this has already happened to America. Nevermind…

its a slow death, almost like torture and our eleceted officials don’t have the guts to tell us the severity, instead they let out subliminal sound bites to prepare us…. like today when Bernanke referenced FDR shutting down the banks…. they are trying to make it to the election so as not to disrupt that corrupt process, but even if they do, Nov 5th thru end of January will be unlike anything we could’ve imagined…

Folks,Just my thoughts. I think finally, balance sheet logic is prevailing. And that’s first light at the end of this tunnel (not of a speeding train). Other bottom ‘signals’ encourage me.Fact #1: A friend who talked me into selling my home in 2004 has now bought one in California; rents are increasing there; his purchase decision was purely on the fact that he was paying more rent that his monthly home payment. Kaching!Fact #2 : The TED Spread has come down from its high. The losses in the senior tranches of the balance sheet are giving way to equity losses (first loss tranch). As the equity losses take place in the entire economy, TARP is going infusing equity to save the banks. The equity markets are finally taking the pain off the debt markets. Since the equity markets are a goner, I like Obama’s plan to allow tax free withdrawals of 401(k)’s since the banks are really hungry for deposits. There’s no point in 401(k) now; in the long run we’re all dead. Inflation is the least of our problems.First the CP market has to heal to give blood transfusions to firms like GE, etc. Then dollars will be repatriated to the US. That means non-US equity markets are a bigger goner. With equity sucked out of other equity markets, those nation’s debt may be at risk leading to even more repatriation of dollars.Point to note is that nations other than the US are making offers to providing an unlimited amount of dollars!!!The light has been sighted and I’ve found my Snowball. If you’re interested in finding the real equity market bottom, good luck to you! I’m tip-toeing into equity.Above all, enjoy the ride! And a snowflake with a cigar butt now and then …P1AQL.

I am interested in thoughts on the following:1. Is anyone else convinced that a Bank Holiday is going to happen? They have to (I’ll steal Nouriel’s line) TRIAGE the banks. No one knows who is worth what – the recent change in the mark to market rules and the level III assets that get to be whatever the banks say they are is just incomprehensible.2. I am very concerned and remain convinced that insurance companies have much farther to fall and more losses than anyone is talking about. Their exposure to the many traps out there is not talked about much – but if they fail – Healthcare will also need to be rescued. 78 million Boomers will not accept a failing healthcare system as they are about to need it most.

It wreaks of arrogance, the license and justification for unabated greed, survival of the fitest b.s., And SHALLOW works pretty good too.

That is beautiful and true.

Asian markets are down again…Japan down 9.55.

By the way Medic. My wife was just down at the local doctor in California getting some medicine. He said to her … “Here’s some meds for 7 days. But I’ll give you 10 days just to be sure. There’s a new trend. Everybody’s hoarding medicines. So I’m giving you a couple of extra days so you don’t need to re-fill.”Have you noticed anything like that?PeteCA

Kwe all know the outcome to thiswe know its inevitable (flood the world with money or declare insolvent, nations/banks.. etc etc)both are not palatable to the taste budremember taleb’s blackswan, I’ll give one for youFrance, yes Viva le France, just cancelled their F1 race for next year!!!yes cancelleddo you know how many people watch the race.. a lotits slowly creeping in into people’s mind,well we are ahead of the race, i’ll like to keep it that waymay the prepping be with you

just watch the vix and that is a bit wacko, too.

Has anyone considered what happens once Uncle Sam cleans up this mess in goodness knows how many years. Then he stares down the abyss at what will be not fully funded entitlements owed the baby boomers: Social Security and Medicare. And by then, what percentage of the federal budget will be tied up in interest payments to bond holders because no one wanted to tell the public it was living beyond its means and no one wanted to tell corporate lobbyists their clients had to pay more taxes or hedge fund billionaires that their tax rates weren’t high enough?And on this topic, let us not forget the states and localities who have made generous pension and medical benefits promises to their employees that are generally guaranteed by state constitutions. Where will that money come from, in particular now that those pension funds have been hammered by the stock market collapse?In the near-term, though, once Obama gets elected, let us prepare for the beeline to the White House that the automakers, Democrats from Michigan and union leaders will make to demand that Uncle Sam pony up some big dough to save their asses the same way it bailed out the speculators on Wall Street, most of whom don’t produce much of anything of tangible value. (By the way, weren’t bankers supposed to be dull, prudent types who left work at 3 pm to play golf? I guess those old-fashioned bankers hadn’t learned the finer points of modern finance taught at the MBA prorgams at Harvard, Northwestern, et. al.).The nation at all levels has lived it up for decades now and the chickens have come home to roost. Stock market wealth was phantom wealth, housing wealth was phantom wealth, purchasing power was fueled by borrowing, and now everyone’s in debt up to their eyeballs and not feeling so secure any longer.The rot set into the America in the 1960s with a self-indulgent and immature youth culture that masqueraded as concerned politics, its metasticized in the 1980s as corporate America continued the process of destroying the old social contract with its employees (maintaining employment and paying traditional pensions, costs that are ultimately dumped on the government). A Thatcherite/Reagan free-market ideology helped break the bonds of decency in the business world, in particular allowing Wall Street and corporate baby boomers to gloss over their greed as long as they supported the right causes (gay rights, the environment and so on) and this greed ultimatelty infected the entire body politic up and down the line, so that we all wanted Hummers and larger houses and more toys.Of course, not everyone desired or could gather the toys. Some people still volunteered to join the military and serve what remains of their country for virutally no pay. Perhaps they should take the free-market ethos to a new level and invite super sports agent Scott Boras to represent them while they work out the terms of a lucrative contract under which they will be willing to give their lives so Americans can continue to live in Disneyland, or better put now, so that they can continue to imagine that they are still living in Disneyland.

Ohh and sorry. Last post should have said …That would bring the 2009 deficit to around $2.3 trillion.PeteCA

Prepare for the economic collapseWithout a fast change in government, Republicans and Democrats alike are going to cause millions of deaths.First, let me preface this by addressing skeptics. Read my archived commentaries on this site. Read my archived commentaries on other sites that I have written for.I don’t like being right about the things that I have said for years. I don’t like seeing what I have predicted unfold before my very eyes. In March, I wrote that our economic problems transcend “sub-prime” mortgages. I said that the banking system is fundamentally unsound, and I told people that there would be bank runs. I was laughed at. Like every other Austrian School economist, I have been cursed with “Cassandra’s Complex.”The economic “experts” have been wrong month-after-month. Yet somehow, we are to believe that they know how to fix the economy. Whether it is George W. Bush, John McCain, Henry Paulson, Ben Bernanke, or Barack Obama, all I am hearing is that Americans are going to die in large numbers.Most people do not comprehend the severity of the situation we are in. I am not talking about the recession, but the government’s response to the recession.To understand how to get out of this mess, we must first recognize what got us into the mess. The culprit: inflation (i.e., the creation of money not redeemable in a fixed amount of specie). The inflationary policies of the Federal Reserve artificially lowered interest rates, sending misleading signals to the loan market and investors. Nominal rates of return looked good on paper, but real rates of return were negative. Malinvestment took place. We burned through capital and savings. Thus the contraction.Another way to explain it: cheaper money made us believe that we were wealthier than we really were, and we burned through capital and savings. We are now broke, bankrupt, insolvent. I hate to break the news to you, but the government creates no wealth. The government, too, is insolvent. We can’t spend our way out of insolvency.What is the solution to our problem? Politicians everywhere and anywhere need to cut spending and stop inflating. Americans need to start saving again. The problem, however, is the politicians won’t allow this, because they do not want to relinquish power. That, and the government’s debt is $10.5 trillion, making it the biggest sub-prime borrower of all. The government’s bias is towards more inflation and more of the same.If the politicians did the right thing by allowing the market to cleanse itself of malinvestment, we would see a wealth transfer from the unproductive and politically-connected back into the hands of the true, hard-working savers and producers. Government power would be curtailed. Nominal income would fall, but so, too, would prices, thus creating positive real rates of return. What is left of productive and profitable enterprise would lead us into a recovery, creating employment for the unemployed. In short: the solution is for the government to do nothing except get out of the way.Politicians, not wanting to relinquish power, have opted for more spending and more government meddling in the market – i.e., more of the same poison. The Federal Reserve is inflating even more rapidly, trying to hold interest rates artificially low.Somehow, Americans have been tricked into believing that the government can not only live beyond its means, but also beyond the means of the entire country; debase the currency; hold interest rates artificially low; AND PROTECT YOUR RETIREMENT AT THE SAME TIME. We have bought into the gospel of salvation-by-printing press.The government’s response of more spending, more inflation, and more suppression of interest rates is not allowing the market to function. Scarce and diminishing resources are being siphoned away from what remains of the productive economy. Capital isn’t being replenished. Do you know what this means? We are still burning through what remains of the real pool-of-savings.As of this hour, complete economic disaster is imminent unless we have a radical change in Washington. We are living through a slow motion run on real wealth. Thus, if we don’t do something about the out-of-control government fast, it is not a matter of if there will be food shortages, but when. Millions of people died of starvation during the Great Depression. The difference between then and now is that, today, the government is bigger, we have even more socialism, less freedom, more indoctrinated idiots, less morality, less of an agricultural base, and we are huddled into urban reservations.Thank God the loan market hasn’t been “stimulated” into lending again. If central planners get their way with the loan market, disaster will befall us much sooner. As of right now, you have time to prepare. People’s ignorance will give you some time to prepare by stocking up before the runs on grocery stores begin. Do what you can to stock up on food, water, toiletries, ammunition, blankets, tents (in case you need to head for the hills), and other essential items. The day is coming.Sadly, this could be prevented if politicians would just quit. Republicans and Democrats are morphing what only the unhampered free market can fix into a humanitarian crisis. I hope I’m wrong about this one.Mark Anderson

PROTOCOL OF ELDERS OF ZIONhttp://www.youtube.com/watch?v=7XrRyqses5U&feature=related

Yeah, I have considered it. It’s been obvious where the unfunded entitlements are headed since I was a little kid, watching Reagan defeat the Soviets by scaring them with deficit spending for imaginary x-ray lasers.The country will collapse under the weight of shortsighted government, which is the inevitable result of choosing leaders through Survivor style popularity contests.

a horny man

Asians markets tanking.

Disgusting.In this environment $300B ain’t shit either.

this song sums it all..http://video.google.com/videoplay?docid=3531764642354695182&ei=1r32SLiaA4GcwgOnteyxDg&q=secondhand+serenade%2Bits+not+overSecondhand Serenade – It’s Not OverMy tears run down like razorbladesAnd no, I’m not the one to blameIt’s you ‘ or is it me?And all the words we never sayCome out and now we’re all ashamedAnd there’s no sense in playing gamesWhen you’ve done all you can doBut now it’s over, it’s over, why is it over?We had the chance to make itNow it’s over, it’s over, it can’t be overI wish that I could take it backBut it’s overI lose myself in all these fightsI lose my sense of wrong and rightI cry, I cryIt’s shaking from the pain that’s in my headI just wanna crawl into my bedAnd throw away the life I ledBut I won’t let it die, but I won’t let it dieBut now it’s over, it’s over, why is it over?We had the chance to make itNow it’s over, it’s over, it can’t be overI wish that I could take it backI’m falling apart, I’m falling apartDon’t say this won’t last foreverYou’re breaking my heart, you’re breaking my heartDon’t tell me that we will never be togetherWe could be, over and overWe could be, foreverI’m falling apart, I’m falling apartFrom http://6lyrics.comDon't say this won’t last foreverYou’re breaking my heart, you’re breaking my heartDon’t tell me that we will never be togetherWe could be, over and overWe could be, foreverIt’s not over, it’s not over, it’s never overUnless you let it take youIt’s not over, it’s not over, it’s not overUnless you let it break youIt’s not over

Please, fear and rumor cause bank runs. I would caution you against predicting bank holidays.

Do you think after the Gore award that the Krugman award can possibly subtract any more value from Nobel prizes ???

Are you actually proud of your willful ignorance, illogic, and refusal to consult the facts that prove you wrong, Guest?

The Nobel Prize’ establishment has clearly been compromised; its time is over as a social value..Annan, Gore and Krugman: can’t get any worse,c an it?Ho hum

Even this board hates egalitarianism, so the world will go kaboom without fail.

Social Security will not exist in its current form unless there is a massive redistribution of wealth. Eitherway the outlook is less than positive.

There’s a Rorschach element to hard times. People project even more than usual, and (surprise, surprise) they see their own personal boogeymen lurking in the uncertainty:Some quotes from comments above:”…where the UN of course has to act further using its new powers…”"…We can thank the baby boomers for squandering this nation…”"…The rot set into the America in the 1960s…”This is very dangerous. It’s what McCarthy did. When our fellow citizens start pointing to scapegoats, those who keep their wits must slap some sense into them. Persecuting scapegoats does absolutely nothing to make the situation better. I believe Freud and Jung referred to those kinds of situations as “psychic epidemics.” It’s during psychic epidemics that the most dangerous kind of mischief gets done. For example, the U.S. invaded Iraq during a horrible psychic epidemic of war fever that was intentionally spread by the Bush administration, its propaganda machinery, and the dogpack media.

The following post is by Octavio Richetta:Greetings from Argentina! We have been here for almost a week now. I am at an Internet café now and it will be at least another week before I get ADSL at home so I will continue to post sporadically. I prepared this post at home on Wednesday evening, following the 9% drop in the S&P 500. I have not posted significantly for a while so I will try to make this one worthwhile reading.Despite all the talk about the odds being in Benny’s favor in regards to avoiding a depression-like episode, it looks like his efforts are failing. He may have learnt a lot from studying the depression but the beast he is dealing with is more complex by several orders of magnitude: Much bigger bubbles, much higher leverage (i.e., debt) at all levels, and greater involvement of economies worldwide. Professor Roubini provides great analysis on this front in this blog so I will not elaborate on this point here.In this post, I will focus on the “talking heads” assertion (which even Hussman has joined in his latest weekly piece: http://hussmanfunds.com/wmc/wmc081013.htm ) that stocks are now undervalued. Even though the downside risk for stocks is clearly lower that last October, I will show why, IMO, it is not clear at all that stocks are undervalued. I will present via some simple “back of the envelope” calculations why this may not be the case, and that, in fact, stocks may just be fairly valued and if, as market usually do with a big chunk of the recession tape still to be played, overshooting to the downside may be the next step meaning that a bottom may not be in place just yet.It is always amusing to see how the bulls fiercely cling to the efficient market hypothesis when markets are bubbly, but quickly embrace market inefficiency when markets plunge. When prices are high, bulls systematically argue prices must be right on the basis of market efficiency; but somehow, to them, markets are always inefficient when prices come down. When markets come down significantly as they recently have, perma bulls always blame it on fear and panic. This is a quite contradictory as it implies bulls believe market participants know what they are doing when markets are up but they don’t have a clue when markets go down!Corporate Finance 101 courses present simple equity valuation models that can be applied to individual stocks and market indices. The simple model we will present here is based on discounted cash flow. Basically the model says that a share of stock (or for instance a market index) is worth the present value (i.e., time discounted value) of the expected future cash flows discounted using a rate of return that is appropriate for the level of risk taken. Finance professors have written plenty of papers showing that models based on expected economic earnings (as opposed to dressed-up accounting earnings) or even expected dividends are equivalent so we will focus on earnings here. I will start by presenting the model and then will “play around” with it to make my point.Discounting has to do with the time value of money: A dollar received today is worth more than a dollar received one year from now. For example, at 5% compound interest, a dollar today grows to $1.05 in one year, 1×1.05×1.05=$1.1025 in two years, etc. So in general we see that in n years one dollar invested at a rate r grows to a Future value (FV) of:FV=1*(1+r)^nThe “^” operator means “to the power of”; i.e., (1+r) times itself n times. I use this notation instead of the superscript notation you studied at school to avoid using html. Just write the formula out on paper with the n as an exponent and you will understand better.In general, for E dollars invested at a rate r the future value in n years is:FV=E*(1+r)^nSimilarly, if the appropriate rate of return is r, we can “bring back” to the present, the value of one dollar received n years into the future, by using the present value (PV) formula:PV= 1/(1+r)^nTo understand this formula just note that this is the amount of money one would have to invest at a rate r today so that it grows to one dollar in n years. To see this, just calculate the future value of 1/(1+n)^r dollars using the FV formula:FV=[1/(1+r)^n]*(1+r)^n = 1 since the (1+r)^n in the numerator and the denominator cancel each other out.So if the earnings per share forecast (i.e. expected earnings) for a stock are E1, E2, …, En; for years 1, 2, … n respectively, and then the risk adjusted rate of return investors demand is r; then, the present value (i.e., the share price in an efficient market) is the sum of the discounted value of future earnings:Share Price=PV= E1/(1+r) + E2/(1+r)^2 + E3/(1+r)^3 + … + En/(1+r)^nWe see that the higher the rate of return, r, investors demand the lower the share price. So even if earnings expectations do not change, prices may fall when investors become more risk averse; i.e., ask for a higher r. We also note that share prices may change due to changes in the Es and that the effect of changes in the Es is more pronounced for Es that are closer to the present since these carry a higher present value multiplier. So if we are and will stay in recession for a couple of years during which earnings will shrink significantly and then recover slowly, this will have a significant impact on the share price even if earnings go back to normal in later years.The model above can be applied to the S&P 500 index. You can load up the model above into excel and have fun running “what if” scenarios. However, Here I will stick to a simplification of the model above.The historical r for the US market, i.e., the rate of return investors demand from stocks has been around 11% nominal or 8% real (i.e., adjusted for inflation). Instead of using Es for individual years, it is customary to focus on the analysts’ average earnings forecast for the S&P 500 in the coming year, E, and then assume a constant earnings grow rate g for the following years (i.e., years 2, 3, …n. The present value of E dollars in annual earnings that grow at a rate g discounted at a rate of return r as n gets large can be shown to be a neat simple formula:PV=E/(r-g)We can use this formula to calculate the value of the S&P 500 or we can divide by E to get the price-earnings ratio (PE) for the index. Dividing the above by E we get:PE=1/(r-g)As you may have read somewhere else, in steady state, i.e., in the long run, earnings cannot grow above the rate of growth in GDP. Thus in the formula above it is appropriate to use 3% for the real growth rate in earnings. Also, it seems appropriate to use 7% for the real* rate of return investors demand from stocks instead of 8% to reflect the fact that until recently investors were willing to take higher risks than the historical norm. Thus, we see from the formula above:PE=1/(0.07-0.03)=1/0.04=25* Note that if we use a real GDP growth rate we have to use a real rate of return.So the model yields a PE of 25, well above the historical PE of 14, but a number that is close enough to the PE multiples above 20 that you have seen pop up in the press a zillion times. Let’s not argue about this and assume that before the subprime mess showed up the market was fairly priced at a PE of 25.The subprime news has brought down significantly the growth prospects for the US economy in the coming years; to the point of the g perhaps being negative for the next couple of years and then, “a la Japan”, settling at a level of around below the historical norm: i.e., a number closer to 2% (see, for example, El-rian’s latest book which argues for slower growth in developed economies in the future). With g in the next few years negative and then settling around 2%, we see that the weighted average g we should use in the formula above is clearly under 2%. If we use, for example, 1.5% for g and 8% to reflect historical investor risk aversion to stocks, we see that the “new” PE becomes:PErecession=1/(0.08-0.015)=1/0.065=15.38The fall in PE from 25 to 15.38 implies a S&P decline of 38.5%; i.e., (1-15.38/25)*100.So if investors have gone back to the historical rate of return they demand from stocks and adjusted the average rate of growth to half what it used to be during the borrow and spend party times of the last 20 years; then, we see that a 40% decline in stocks is to be expected and that stocks are now fairly priced. The future rate of growth in earnings for US equities may be well below the historical norm, even when one looks at the next 10 years. I hope Dr. I Hussman reads this post.So what does this mean for you as an investor? You may start dipping into stocks slowly but there is no rush to jump in because you will miss the train big time. In fact, since the recession has just started stocks may drop further. The people at ECRI have done excellent work on this. They conclude that it is foolish to hold/buy stocks when we are in the middle of a recession. The time to buy is when ECRI’s WLI (weekly leading indicator) shows that the business cycle has turned around, indicating a recovery has started. This is closer to the point at which markets make a bottom. Do yourself a favor: buy ECRI’s little book on the business cycle and read it! The book should be around 20 bucks including delivery at your favorite online bookstore.

A note to the post above, if you read Hussman´s work on historical S&P 500 earnings growth rate you will see a 6% number. This is a nominal rate. I use a real rate of 3%. SInce nominal rates are roughly equal to real rates plus average inflation of 3%, our calculations are in agreement. Where strongly differ with Hussman´s work, is that the future will differ from the past: I believe US GDP may no longer be able to move along at a 3% growth rate. IMO, in the future (i.e., the next 10 years) this rate will be at most 2%.In the last 15-20 years, 3% real growth was achieved via higher debt instead of higher income. It was all a mirage. The US and the rest of the world selling to it the junkj they manufacture were living in borrowed time. Reality has now hit the fan.

How much has TED declined in relation to how much it has increased for example from 7 days ago or 1 month ago or even a year ago?That was acutally a rhetorical question the answers are on this graph:http://www.bloomberg.com/apps/cbuilder?ticker1=.TEDSP%3AINDMost experts are suggesting that housing has not hit bottom and may have another 10-20% decline ahead of it.Finally with the high probability of a Democratic trifecta this November, higher taxes and increased trade barriers (protectionism) are a sure bet.

wait till the job losses start to really sink in then we’ll see about your optimism. Our nation has been living off of credit and the credit is gone and so are real paying jobs, people who think this thing is comming back are completly out of touch.

NEW THREAD

Would you have “stumbled” onto NR’s blog if you had not taken that econ joke-of-science course?

those heads in the ocotbox?

Thanks OR. How’s the weather in Argentina?

Today we are navigating through the greatest test of the world’s financial and trade system in over a century. We have collectively created a crisis greater than that which culminated in the Panic 0f 1907, the German Hyperinflation of 1923, or the worldwide Great Depression of the 1930’s.On the plus side, the G-7 has acted swiftly, pushed into action by Ireland. And the U.S. is listening to cooler heads such as British Prime Minister Gordon Brown (who was Chancellor of the Exchequer under Tony Blair). In comparing Gordon Brown to Hank Paulson, I trust Gordon and fear Hank. The Great Depression was accelerated by the lack of coordinated action and the attempt by every nation to save itself at the expense of others. The lesson was learned, but politicians keep talking about a lack of liquidity.There is no lack of liquidity. This is a debt crisis and not a liquidity crisis. There is an abundance of liquidity, but a lack of confidence and a realization that debt destruction is the path ahead (deflation). The only question is how fast.Central Banks have injected trillions of liquidity into this crisis, but deflation will happen as leverage is too large and the velocity of money is slowing. The U.S. Investment Banks levered 30 to 1; the U.S. banks levered 12 to 1, and some German banks levered 50 to 1. We are now targeting 10 to 1 as an acceptable leverage ratio. But, if we go back 50 years we see banks with a 5 to 1 leverage. We have created too much debt across the board.This is why the U.S. dollar is rising against the Euro, the Pound, the Australian Dollar, and the Canadian Loonie. The Yen is rising and falling by the day but 100 yen to the dollar is where it trades around.The Baltic Dry Index is crashing because we have more ships than we need to transport coal, iron ore, corn, steel, fertilizer, etc.We also have too many oil tankers, too many war ships, too many cruise ships, but not too many deep water drill ships.Once stability occurs after these debts are defaulted on, we will face the hyperinflation fed by the misguided efforts of politicians to fix things.Thus, for the short term gold, oil, and other commodities should fall, but latter rise.Stocks should drop till P/E ratios go below 10.00 and then rise to where they are 15.00. The stock market is a forward looking discounting mechanism, however its path is not smooth. Today future P/Es are lower than trailing P/Es, but these predictions are wrong! Future P/Es will be less than trailing P/Es when 2009 earnings estimates are released.Are we entering the next Great Depression? No, as we know more.Are we entering a long recession? Yes, and it is a lot better than having Great Depression 2.Will the Dow hit 7,000? Who cares! It is only 30 stocks! We should look to the S&P 500 and stop looking at the Dow!The DJIA is easily manipulated. Even small traders can move it buy placing buy or sell orders just before the close. It is only 30 stocks! Look to the S&P 500, Nasdaq, and the Russell 2000.

A debt based economy is doomed to failure. You can’t “re-capitalize” by going deeper into debt. Capitalization comes from real savings. Again I ask, based on NR’s solutions, why can’t the FED give every household $250,000 digi-dollars to pay off their debt, and if anything is left over go out buy stuff to stimulate our “consumer economy”? Giving all this fiat money to the banks in hopes that they will “lend” to consumers seems like “trickle down economics.” Lets try it the other way around. Give fiat money directly to consumers to eliminate debt and buy stuff. This economics stuff is easy!

No.The amendment was to give back money withheld from illegals when they get deported. Only fair, as they probably weren’t responsible for signing themselves up (illegally) for SS (it was cheap-ass employers, usually republican types, the same ones that stir the illegal immigration pot!).THE issue has to do with legal immigrants, this country has set the limits way to high such that the influx of immigrants is swamping our system. But this is a legislative (induced) issue, nothing to do with illegals, or even the legals themselves! For more see: http://www.youtube.com/watch?v=n7WJeqxuOfQ

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