Nouriela tsunami of a huge and rapidly growing US Debt has a huge force in it-it’s as if we’re in that still moment before it hitsas we see a huge swell building up and upno wonder you’re worried

first– fed reserve is worse than a pawn shop

Thank you Dr. Roubini.Have a Happy Thanksgiving!

Ah, yes. Joseph Kennedy. How easy it is for the insiders to make money because of their superior ability and wisdom, to gain crucial appointments because they “know where the bodies are buried,” who “know what they hell they are doing.” How lucky they: how lucky we.Joseph Kennedy? His name was one of those on the list of men who were notified in advance of the coming October 1929 crash in the stock market. On February 6, the Federal Reserve issued an advisory to its member banks to liquidate their holdings in the stock market, says G. Edward Griffin in his description of “The Great Duck Dinner” as he takes a “Second Look at the Federal Reserve,”Paul Warburg gave the same advice in the annual report to the stockholders of his International Acceptance Bank, the advice reprinted in the “Commercial and Financial Chronicle” on March 9, 1929.Warburg as a partner with Kuhn, Loeb & Co. maintained a list of preferred customers, as did J.P. Morgan Co. “It was customary to give these men advance notice on important stock issues and an opportunity to purchase them at two to fifteen points below their price to the public,” said Griffin. “That was one of the means by which investment bankers maintained influence over the affairs of the world.” How wise.“John D. Rockefeller, J.P. Morgan, Joseph P. Kennedy, Bernard Baruch, Henry Morganthau, Douglas Dillion – the biographies of all the Wall Street giants at that time boast that these men were “wise” enough to get out of the stock market just before the Crash. And it is true. Virtually all of the inner club was rescued. There is no record of any member of the interlocking directorate between the Federal Reserve, the major New York banks, and their prime customers having been caught by surprise. Wisdom, apparently, was greatly affected by whose list one was on

Re: Long TreasuriesThere is probably not much more blood to squeeze out of those turnips. I just moved my wife’s 401Ks out of long-term T funds into MMFs today.I agree with Dr. Roubini; I think the worm is going to turn and we will see higher long-rates eventually (soon?).Happy Thanksgiving to all!

“will eventually lead to much higher real interest rates on the public debt and weaken the US dollar”I weep for my children.

Personally, and I have no real empirical data to back this up, I think this was the make everyone feel good week, make them go shopping and then next week the hammer falls again, on the other hand it could be they find a way to keep this up till after Christmas. But either way I would feel very comfortable staking everything I have on this not being a a true bottom.

A question to the esteemed professor Roubini.In previous article you talked about the stock market future.Given the highly varied opinion on the future performance of gold, could you tell us what you think? Like:1) Will do well/stable/go nowhere because of deflationary environment. And why?2) Gold is more influenced by other factors (jewelry, central banks decision to hold, etc)?3) Gold is totally unpredictable?etc.I would be delighted to know your opinion because I truly am really puzzled about this assets given the conficting opinion about it which I am exposed toMany thanks.

I personally find it odd that the market tanked after the Obama victory, but now it is rallying furiously after the section of Obama’s economic team.The Street simply knows that the new economic team is the same good ol’ boys club who will maintain the status quo: crash the dollar and increase the public debt at the expense of the U.S. tax payer. The market is rallying despite today’s horrible news: they know that Ben will eventually intervene through buying equities (with Obama’s blessing) to support the market. Obama also outspent McCain 3-1 in many states–in no way did this money come from regular campaign contributions.I do agree with the professor however that a bond market dislocation will eventually end it all for the U.S. Once the dollar is shunned, we simply can’t pay back our debt in our own currency (unless Ben has a plan to print Euros and Yens as well).

what will you convert your dollars to, my friend. there is no other paper here on earth, on a relative basis, worth more. i hope you plan on buying farm land, seeds, guns, generators, gas, food dehydrators and all that kind of stuff or you aren’t putting your money where your mouth will need to be.p.s. nobody cares about gold either – i wont trade you any of the above mentioned stuff for it.

Maybe the better place to put the money is on “a very depressed too big to fail stock”. (they will save it anyway). 65% in a day as Citigroup is not bad.Concerning gold if nobody cares about it, why central banks store gold?Also, although all fiat paper currencies are subject to manipulation, the transient in the dollar seems to be very dangerous now because of the chain reaction it can trigger if US Dollar Index plunges.So that, on a relative basis…

A post by Octavio Richetta:My Internet connection at home is having the hiccups again so I am hitting a coffee shop with wifi once a day about an hour before the close until they fix it (they take their time here).On the Professor’s latest post, notice that he uses the work crazy and desperate but he very careful not criticize the measures as Da strong bear lobbying that goes on in this blog would kill him if he does:-).IMO, the FED/treasury have finally gotten their act together, more in this later. They have put a floor on financial markets. We had a situation in which ALL asset classes were deflating and now we have the opposite. If you check my posts in the last few threads, I try to be as honest as I can. One thing that I have tried to be careful about is to keep my eyes open to what is going on and make sure that after 11 years of hibernating I do not get trapped in the comfort of being a permabear.The citi bailout dictates the new bailout rules. In BS, LEH, and AIG the FED/Treasury (perhaps in part due to all the noise people like us made about moral hazard), equity holders were wiped out and in the case of LEH even debt holders. That was the wrong strategy. The mess financial outfits got in was also the fault of regulators so even though we the taxpayer pay the price, they had to start protecting equity holders (and thus, bond holders) as the financial markets were getting in a downward spiral that was going to hurt the economy and the US capability of raising private capital in the equity and debt markets.You know I had made a hesitant move into equities i mid-October a couple of days after Buffy’s remarks and got out the day after the election. Then, last TH and Friday I went heavily into equities (from 0% to around 25%). IMHO, last week’s lows may be close to the bottom despite the hard recession that is coming. So even if I don’t get the stellar returns of the 90s, may downside risk on this move is low; and given the valuations I got when I jumped in I stand to probably get an average 7% compounded in the next 10 years. So limited downside risk and the possibility of attractive upside risk.Note that I am not as aggressively into equities as most talking heads recommend at least 50%, but I am close to my limit as the strong up move particularly in the financials has me with over 30% equity exposure) but if my assessment of the landscape has not changed significantly, you can be sure that if I see a plunge again at or lower the previous lows I will load up the truck again.The market is a discounting mechanism and the stuff that is being done as described by the Professor above (New bailout model plus purchase of MBS, all the FED facilities, etc.) plus the new administration plans of making people productive by creating jobs will help us avoid a depression. It is highly likely that the markets will continue to rally despite the bad news as the markets see beyond the recession and as I say above, the FED/Treasury put a floor in the financial markets so investors see lower risk – moral hazard all over again?:-)Another step that may be coming (read Hussman) is the reverse engineering of all the securitized sub-prime and Alt-A stuff. This is a super hard step but it has to be done. Those vehicles must be ripped apart then mortgage by mortgage either take the hit of default or re-negotiate the mortgage. The resulting losses will be absorbed by the holders of the instruments but, IMO, they will get a lot more than 20 cents on the dollar.So in this posts I try to make several important points and like all my other posts it will be gone with the wind in a couple of days but putting my thoughts down on paper help me get anchored strategically. We are in a big mess we will have a hard recession but the FED, Treasury, and the Executive branch are now taking the right steps so that this does not become a depression and the US comes out as strong or even stronger than it has been in the past.The deficit will be large but the power of the US economy when kicking on all cylinders will generate enough tax revenue to start reversing the trend. The value of the USD is based on the productivity of US economy backing it. As Shilling writes in his latest letter:U.S. Dollar (favorable) Despite the buck’s slide in recent years, especially vs. the euro, we continue to believe that fundamental forces favor the dollar (see “Deleveraging’s Long-Term Drags,” p.1, “Inflation Feared, Deflation Likely,” May2008 Insight, “After the Bear Bust, What’s Next?,” April 2008 Insight and “2008 Investment Outlook,” Jan. 2008 Insight). The dollar’s fortunes appear to be improving at present.In the near term, global recession is unfolding. Most foreign countries depend, directly or indirectly, on exports to the U.S. to fuel their economic growth, and the American economy is in recession as the housing bubble collapses, financial crises multiply and consumers retrench. The U.S. and the dollar are proving to be the best of a bad lot as the recession becomes global (see “More Bailouts Will Follow,” Oct. 2008 Insight, “Forget Decoupling,” April 2008 Insight, “Recession—How Deep? How Broad?,” Feb. 2008 Insight, “2008 Investment Outlook,” Jan. 2008 Insight, “The Chinese Middle Class: 110 Million Is Not Enough,” Nov. 2007 Insight). Despite pressure on China to revalue her yuan faster, Asian countries want a stronger buck to aid their exports, most of which go directly or indirectly to the U.S. Foreigners are also happy to recycle their current account deficit dollars (see “2008 Investment Outlook,” Jan. 2008 Insight).Intermediate term, the structure of the American economy shines in comparison with Europe’s socialist tendencies, language barriers, labor immobility and labor’s high costs and rigidity. Japan is still recovering from her 15-year deflationary depression, and appears to be slipping back into recession. Her economy remains vulnerable due to dependence on exports while consumer spending languishes (see “Europe’s Monetary Mess,” April 2008 Insight, “Recession—How Deep? How Broad?,” Feb. 2008 Insight and “2008 Investment Outlook,” Jan. 2008 Insight). China also has myriad problems related to her shift from a command to a market economy (see “The Chinese Middle Class: 110 Million Is Not Enough,” Nov. 2007 Insight). Canada and Australia are commodity producers and they face a deflationary world of surpluses (see “Forget Decoupling,” April 2008 Insight, “Vulnerable Commodity Prices,” Nov. 2006 Insight). Lesser countries in Asia and Latin America. have enough problems to keep their currencies subdued against the greenback, especially with their export dependence on the U.S. and prospects for an American recession (see “More Bailouts Will Follow,” Oct. 2008 Insight, “Recession—How Deep? How Broad?,” Feb. 2008 Insight, “2008 Investment Outlook,” Jan. 2008 Insight and “Argentina—No Muerto,” June 2006 Insight).In the long run, history shows that the country with the most rapid productivity growth has the strongest currency. This means that the dollar should reign for the next decade at least, since America’s commanding lead in productivity-soaked new tech is unlikely to be challenged anytime soon.

But even more desperate or “crazier” monetary actions are needed What if none of these crazier actions work. Reading N.R. seems like we are in much more trouble then gathered from regular citizens. What are the percentages of failure ?Is it a 50% chance the economy collapses as of now ? If the policies get even crazier would it be a 25 % of collapse ?Or are they just throwing everything they can think of to avoid an economic depression ???????I am a poor man with a family, I have used credit cards to buy 2 months worth of food and have paid off all utilities. I figure not paying credit card bills is better then not having food. I mention to others that they may want to store food. They look at me as if i’v lost my mind. Cars are popping up all over the place here on eastern long island with for sale signs. We went to wall mart to get a toaster oven and there were no lines, even a few cashiers just standing there, maybe because its the day before thanksgiving. ???????????

So Joseph Kennedy “was one of those on the list of men who were otified in advance of the coming October 1929 crash in the stock market? Readers of Dr. Roubini’s blog are all insiders, then, with respect to the current downturn!The ideas of G. Edward Griffin are little more than manufactured conspiratorial fantasies of far-right libertarianism that can’t stand up to rational scrutiny. The guy has not only been a member, but an OFFICER in the John Birch Society and an editor of its magazine, The New American, for God’s sake, so he’s hardly representative of mainstream American views.It is delusional in the extreme to suggest that some “inner club” controls the United States government. Men like John D. Rockefeller, J.P. Morgan, Joseph P. Kennedy, Bernard Baruch, Henry Morganthau, and Douglas Dillion rise to and retain elite positions of influence during their lifetimes because they are intelligent leaders of men who are driven to succeed, and not simply because of some undue advantage garnered illicitly through collective, clandestine skullduggery to which the rest of society is not privy.Conspiracy theories, in general, are nothing but a haven for those who would make excuses for their own failings, ignorance, and feelings of powerlessness by the unjustified condemnation of others and their accomplishments, weaving from innocuous facts and circumstances a tapestry that suggests wrongdoing in every good leader and social institution. Frankly, it’s just pathetic.SWK

BTW, ALL asset classes went up today and today the explanation is not as simple as the economist’s cartoon (which I liked and agreed with given the conditions at the time) the Professor showed recently.

Right on. Look at the real news about where the real economy stands and that should give anyone a clue as to where the market it headed in the coming months. It took from 1929 to 1932, over a protracted period of high volatility similar to what we’re seeing now, for the market to hit bottom. We’re only about a year or a year and a half, at best, into the worst of this mess (the actual beginning of which arguably could be pegged to the beginning of the housing downturn with the peak of the Case-Schiller Index around 2006 or so).For all the extraordinary efforts of governments throughout the world that are now being taken to stem the current economic crisis — but which were unavailable or unexercised during the early years of the Great Depression — we still don’t know whether such interventions ultimately will serve to abate or mitigate successfully the adverse effects of outgoing economic tide. As the old aphorism repeatedly cited by posters on this blog goes, the markets can remain irrational longer than an investor can remain solvent.SWK

The market is the irrational movement of the herd. I wouldn’t read too much into how it APPEARS to react to any given news event.SWK

“Behind every great fortune lies a great crime”.

No one, not even the esteemed Professor, knows for certain how effective any of the actions now being taken to address the crisis will be. I tend to agree with Benoit Mandelbrot and Nassim Taleb that the global economy simply may have become so interconnected and complex that it really may be beyond our control to cope with the sort of “perfect storm” that appears to be unfolding before us now. For my part, I find some comfort in re-reading the Sermon on the Mount regarding the lilies in the field, and trying my best to keep faith that everything will work out for us all in the end.SWK

Octavio, your thinking mirrors mine. Last week’s low was a good time to pick up some equities, and I’m looking forward to further dips over the next 6 months. I was thinking about subscribing to Shilling’s letter too. He was right months ago about shorting copper and about the dollar gaining strength.I disagree about Citi as I believe there is no valid reason for the bondholders and equity holders to be rescued by taxpayers.Peter Schiff is saying invest only in non-US markets, kind of opposite of Shilling, isn’t it?

The citi bailout may not be fair to all but it did the trick. It had to be done. Citi’s WW banking franchise is too important to the US and we don’t want citi to be a government bank. Have all the work of so many people and years (not all are/were crooks) gone. Just get it over with and try to make the best you can out of it for yourself and family. The net effect is that this bailout marks the beginning of a set of actions that will save the world economy from collapse.

Peter Schiff has been right in many things he may even do well overseas but IMO you have got to be a fool to short the US the way many are including clown Jim Rogers. Did you watch the pathetic Bloomberg interview the nite before last? He just kept saying: “I will get out of the USD, maybe tomorrow, maybe next week, next year, Hell I don’t know I am a terrible market timer as if to imply that he is a great long term investor.”

the Center is broken, but phrs someone working overtime to constantly stir up trouble on the periphery to keep the aura of Center as “safe haven” alive? if that aura goes so does the “center”Obama has his work cut out for a dramatic change to repair the fundamenals of that aurazero-sums never work in the long run / win-wins do

Coud this be possible?http://www.telegraph.co.uk/news/worldnews/northamerica/usa/3521671/US-will-collapse-and-break-up-Russian-analyst-predicts.html

My strategy and experience [hibernation and mind to keyboard] is almost identical! Damn! A good read.

Question: Why do you care so much about gold, and why should anyone else? Especially when considering all of the different investment strategies and asset classes that exist today.It seems you libertarian one trick pony’s can’t stop riding gold’s cock.

You misunderstood my words. I do have gold.However, almost all Governments do not like gold and they will do all they can to limit its price. Some advisors say that you need to sell gold now. (they associate gold underperformance with Volcker and conclude that Obama will practice a stable dollar policy). I ask: How??So that I think gold is a difficult market to trade. It is better to invest and forget 15-20% of your assets.

No, they aren’t. The FED and treasury are trying to save the ssytem, though I disagree with the Paulson looking out more for bank shareholders than the taxpayer.

The real question is to what extent Japan and China can continue to sop up excess dollars (and subsidize Treasury debt). Right now Japan is thinking about (probably already in action) hoarding yet more dollars to devalue the Yen; they do this whenever it gets too high for comfort. If the credit bubble and subsequent contraction are just a “blip” in an otherwise-continual process of excess dollars and Treasuries being printed and foreigners taking them off our hands, then the “Great Moderation” will return and we have nothing to worry about. But, if the “Great Moderation” is just a synonym for the credit bubble dependent on foreign currency/debt subsidy, and if that bubble has truly popped, the relative weakness of the non-dollar currencies is irrelevant (it’s both intentional and reversible). The playing out over a period of years of the post-bubble chaos will eventually determine what currencies or assets take the central role in the devaluation of the dollar – no predictions one way or the other at this point have any meaning. In fact, it is precisely fear of this impending chaos that will keep every government on earth with a stake in the status quo propping up the dollar as long as possible; those efforts, of course, are no guarantee of success.

Professor Roubini,I’ve read a lot about the actions of both the US and UK Governments being inflationary in the long term. Do you disagree with this? I’m asking because you seem to be predicting deflation.Congratulations on your insightful analysis.thanks in advance.

If you look at the type of books this Russian Professor writes, they are about information warfare. He could be right nevertheless in his predictions on the level of trouble US faceThere is a view growing among ordinary ppl outside us that US cannot go around in the world policing all and drving was on its own agenda across the world – using outright lies to motivate invasions and war (Iraq) – disregarding its own ppl in funding all this empire-building-behaviour through a debth balooning – and now with the finacial meltdown there is a ‘privatize the profits and scocialise the risks’ agenda that further put the strains on the ppl and the debth.The outcome from this, besides a downhill slope in US voice / role in the world community, could equally well be ‘consolidate to get strenth’ (as a move from governement to build a stronger ‘balance sheet of tax payers’ as well as ‘fall apart in smaller pieces’ (like Sovjet Union did’

g, if you know almost nothing about the retail market, like myself, you do know one thing. christmas or the holiday season is where the money is for the whole year. anyone who disturbs that is a communist, socialist for poverty, atheist, anti american pig and i for one will not be associated with it. think guantanamo.

Money was invented to facilitate exchange of goods.Now it is a complete mess in a control system with several interwined feedback loops.And it is difficult to make sense of all aggregates M0, M1, M2, M3 (publication halted – “expensive to compute”(FED)), MZM and TMS.What aggregate is better to predict price inflation?——————However the dollar reflation is being tried. Curious is that Irving Fisher said in his paper that reflation would be relatively easy to accomplish. Really?

Payam,You seem very uninformed and lacking in knowledge about the economy. Maybe there is a “rants against the world” website you can join where you can spew your anger and spare all of us your mindless dribble.

The US economy kicking on all cylinders…what is the US economy? When you remove the financial sector (dead) and all of the other fluff, you have little left. The ‘US economy’ has been based on debt and consumption for the past 20 years.Have you considered there is no real engine in the US economy to ‘kick start’ here? Where does that leave your analysis?Long term, I do think America’s ability to adjust will make its prospects the brightest, but I fear the depths we must go through first.

Actually I want to see useful conversations, not bs by mass libertarians talking about useless and pointless conversations about gold and other dumb crap.So spare me the headache and stop posting.

Gold should be the center piece for stable currencies and economy. Gold-backed currency is only way to prevent risky and greedy human behaviors of Wall Street and other financial institutions. Otherwise governments will steal hard-work earned people’s money by fiat currency inflation and taxation.

Ron Paul apparently likes Austrian Economics (I know you hate them). But Hayek himself, many years ago, did not proposed a return to “gold standard” but a rigid controlled money supply, not this mess. (Today Ben is apparently trying to follow Friedman’s constant expansion).Economists in general are not clear.Besides they do not agree. And they have several “schools”that oppose one another, at least in their prescriptions.What economist is right?Roubini, Greenspan, Bernanke,Adam Smith, Mill, Ricardo, Malthus, Marshall, Cournot,Walras, Keynes, Samuelson, Mises, Rothbard, Marx???or Payam?Imagine if the mathematicians or engineers had so many “schools of thought”.We would not know what to do with 2+2.So that the fact the he is not an economist is not a serious problem if he understand some fundamental facts.

When I was a child, I heard a lot of talk about man “conquering” nature. Today, we have a bit more humility (I hope, though it’s probably transitory) about that, and the talk is instead about harnessing nature, or in some circles, simply surviving it. I suspect we’re all about to get a little humility about our ability to control the economy, too, and we’ll be doing well to come out of it feeling as if we’re lucky to have survived.SWK

It amazes me, too, how long East Asia has kept up this juggling act. It’s going to have to change, and soon. China is not going to waste its current income propping up the dollar. I think dollar depreciation is more of a political problem than an economic one. Chinese are eager shoppers and consumers and a stronger yuan can mean many more export jobs in the USA. The PRC government yesterday reduced the rate on savings deposits to about 1% – providing an incentive to spend. Chinese banks are extending credit to people right and left. I don’t know about Japan, but the argument that Asians are savers by nature is going to be exposed as a myth.

Shall we buy euros?

Coming from another obvious libertarian, I can only laugh.

Payam 11/25If nobody was willing to buy, rates on the treasury’s would go up. So why are long term treasury’s at ~3.5% and short term securities at close to 0%? There is no fear whatsoever about our government…in fact, the US government is the most trusted institution in the world, which is why treasury securities are the ultimate safe haven during any crisis.The dollar won’t get “hammered”They go so far as to tell NR he’s wrongNR 11/26These policies – however partially necessary – will eventually leads to much higher real interest rates on the public debt and weaken the US dollarPayam, are you saying that NR is wrong?

No, he is right. My statement does not contradict his, we’re talking about different time periods.

how can an American worker making 30x, 50x 100x more than a worker overseas be competitive?Peter Schiff jumped the gun on the Dollar and he’s pushing his “book” (foreign stocks whichcannot be purchased on an Am. exchangeJim Rogers was good enough for George Soroshis timing may be way off – but so what?

Actually, gold has become a currency. As more people become aware of that quantitative easing has started, they will flee first to the JPY then to gold. When central banks no longer have preservation of value as a key objective of monetary policy, its time to revert back to the historically accepted mode of transaction: precious metals. Gold, silver will benefit from this. If you do not believe it, check out anecdotal evidence. Globally, there is a dramatic shortage of solid gold bullion. Physical gold now trades at a substation premium to paper gold. I would love to see what happens in COMEX when all the long futures investors decide to ask for physical delivery.

@ SWK : So Joseph Kennedy “was one of those on the list of men who were otified in advance of the coming October 1929 crash in the stock market? … Men like John D. Rockefeller, J.P. Morgan, Joseph P. Kennedy, Bernard Baruch, Henry Morganthau, and Douglas Dillion rise to and retain elite positions of influence during their lifetimes because they are intelligent leaders of men who are driven to succeed, and not simply because of some undue advantage garnered illicitly through collective, clandestine skullduggery to which the rest of society is not privy.Conspiracy theories, in general, are nothing but a haven for those who would make excuses for their own failings, ignorance, and feelings of powerlessness by the unjustified condemnation of others and their accomplishments, weaving from innocuous facts and circumstances a tapestry that suggests wrongdoing in every good leader and social institution. Frankly, it’s just pathetic.”“The Judith Exner Story, The Life of the Mistress of John F. Kennedy” bySam Sloan ( ISBN 0-923891-90-0) excerpt:What Judith Immoor Campbell Exner almost certainly did not know wasthat Joseph Kennedy, the father of John F. Kennedy, had connectionswith the Chicago mob dating back to the Roaring Twenties. It wasJoseph Kennedy, not John F. Kennedy, who frequently met with SamGiancana during the 1960 election campaign. The Kennedy family isnowadays often thought of as one of the old-line Blue Blood families.Not true. It is now well established that the Kennedy wealth comesfrom a bootlegging operation in the 1920s. The grandfather of JosephKennedy had been Patrick Kennedy, who had died at an early age leavinghis wife, Bridget Murphy, destitute with four small children. She hadsurvived by working as a domestic servant. Her son, Patrick JosephKennedy (1858-1929), who had been less than one year old when hisfather had died, grew up in poverty. However, he and his son, JosephPatrick Kennedy (1888-1969), became rich through illegal activities,including bootlegging.Even the marriage of John F. Kennedy to Jacqueline Bouvier was part ofa long-range plan to raise the social status and wealth of the Kennedyclan. Jackie was of the upper crust. Her step-father was HughAuchincloss, a wealthy man and principal of a Wall Street securitiesfirm, who gave away the bride. His uncle was the son-in-law of SamSloan (1817-1907), the railroad tycoon, one of the richest men inAmerica, who built the railroad system that now services New YorkCity. The marriage of John F. Kennedy to Jackie had been part of aplan to gain control of the fabulous wealth of the Sloan-AuchinclossFamily. The mother of Jackie, Janet Lee, had been concerned that herdaughter was marrying into a family of low social status like theKennedys, but was unable to dissuade her daughter from taking thisstep.When President Franklin D. Roosevelt appointed Joseph Kennedy as theFirst Chairman of the Securities and Exchange Commission, and somebodyasked Roosevelt why he had chosen Kennedy, Roosevelt replied, “ItTakes a Crook to Catch a Crook!”http://groups.google.com/group/rec.games.chess.misc/msg/82ac5ae791d67d66

There’s a problem with reverse-engineering the securitized mortgages. Mortgage backed securities are aggregates of thousand of these things and their values were “hypothecated” using statistical models. In many cases I would bet that the identity of the originator has been lost or coded in a non-retrievable form. Moreover, for every primary MBS there are a number of derivatives that may have been traded hundreds of times. Even worse, many of the “mortgages” backing the MBS were notional, not actual: deals in the real world that were supposed to happen, or could happen, or were projected to happen. In other words, pure smoke.It would have been simpler in the first place for the US government to nationalize Fannie and Freddie and guarantee every mortgage in the country. Reverse engineering isn’t going to be the answer, nobody will want to do it.And so even though recent actions by the government have been broader in scope and more timely, the mess in the financial system will continue until a good long recession knocks the price level low enough for growth to resume. The banking mess will be muddled through, no solution short of radical exists.

…or maybe it was just love.

“The Dark Side of Camelot”: Joe Kennedy…when he died in 1969, was one of the richest men in the U.S. with a net worth estimated at half a billion dollars. He made his fortune in the stock market, movies, and through various illicit means including bootlegging during Prohibition and partnering with organized crime. Joe had lofty political aspirations. He made significant contributions to Franklin Delano Roosevelt’s presidential election campaigns, but FDR, who didn’t trust Joe, declined to offer him a cabinet position. Joe successfully lobbied President Roosevelt for the ambassadorship to England. The leverage he used was FDR’s son James, whose friendship he solidified by supplying James with women. Joe was openly adulterous; at times flaunting it in front of his wife and guests. (By Seymour Hersh)http://bztv.typepad.com/Winter/DarkSideSummary.pdf

U.S. economy has been running on debt for a while now. From the looks of it I guess it goes to run an economy this way too…so why worry about a lost industrial base or whether the economy is a “manufacturing” type, “service” type or something else. After all the economy will survive as long as the government has a printing press somewhere;-)In the past economical surplus was often celebrated. “Under my watch”, a President may have said, “our current account came to have a surplus of 500 billion dollars.”. From now on perhaps it will be the other way around. Perhaps red will become the new black;-)

Along those lines, I would hope folks take some time to think critically about the definition of “economy.” A useful definition is the interaction of humans, or the exchange of goods and services between individuals. Individuals are certainly the ultimate ends of production. All created fictions, corporations and governments included, are composed of real individuals. They are the ones who ultimately produce and consume.With that in mind, who would claim they are capable of controlling the economy, or the actions of all individuals? Why would they claim that, let alone attempt to act on it? Is it possible to stimulate human interaction, and how long is it sustainable? Once it has been stimulated, how does the stimulation end? With a debt based system, it can’t end. Actually, it is trying to end right now. Continuing down the same path is setting up an even larger catastrophe for future generations. The market, made up of millions of people purchasing or abstaining from purchasing, has spoken. The market has decided that the products of Lehman, Bear Stearns, the Big 3, AIG, etc. are not of a quality that is worthy of their price. Essentially, it has said that a debt based system is not sustainable. Why are we not listening to the collective wisdom of billions? The wisdom of billions has been cast aside, but the alleged brilliance of a handful of individuals is going to secure our prosperity into perpetuity? If not perpetuity, how long are the proposed actions supposed to ensure success?Paraphrasing Congressman Davey Crockett, based on their actions, I would suggest that a large number of folks in the Congress either don’t understand the principles laid out in the Constitution, or lack the courage to be guided by its principles.There could be an argument that their actions may be considered necessary – due to their previous actions, but there is no valid argument to be made that their actions are proper within the enumerated powers in their guiding federal and social compact-the Constitution. The sooner they understand those principles and find the courage to act on them, the quicker we’ll find liberty, justice, and general welfare for all, versus privileges being granted to the specifc.

Morgenthau was vindictive toward Germany which at the time was still Nazi-infested. A lot of people were, and understandably so. The most draconian parts of his plan – to deindustrialize Germany — were not adopted. If you’re going to posit conspiracy, at least get the facts straight.

“It is delusional in the extreme to suggest that some “inner club” controls the United States government. Men like John D. Rockefeller, J.P. Morgan, Joseph P. Kennedy,….”I think you’re the one who is definitely delusional. Intelligent sounding enough but still delusional. You haven’t a clue how the real world runs and who runs it nor why they run it. Naive is the best word I can come up with. But you will eventually learn someday just how naive you were, hopefully.

I am not a libertarianThe fact is given all the unsavoury behavior that goes in the markets at the corporation and intermediary level a direct ownership of something is something to definitevely consider.Yet gold has stunning volatility and many long period of truly horrible returns

The Fed is doing its best to reflate, and the Treasury will probably keep spending full throttle under the Obama administration.The effect will be to transfer debt from the broken private sector to a government which is still seen as solvent.All that is ok.But the underlying macro world imbalace will continue: The US savings rate MUST go up at some point, and Asia’s savings rate MUST go down. This rebalancing will probably take a long time, as Michael Pettis brilliantly has demonstrated, and consequently a deep and long recession seems unavoidable.The reflating process needs to be done in a concerted way, between the US, China, and the E.U. If the US shoulders too much of the effort, that will lead to a much weaker dollar and tremendous inflationnary threats, which in turn will probably lead to Volcker-era high interest rates, taking us back to recession.The problem is when?

The market is tired and is likely in a sideways trading range, but it could be volatile on low volume. There was some degree of capitulation last week, but if you think about, the small investors still left in the market probably would rather watch their stocks go to zero before selling. They are still getting up every morning and reciting the bull market mantra of “buy and hold for the long term.” There is still a chance for Professor’s move lower on complete panic, but the technicals are telling us that some consolidation and complacency needs to be brought back in to prime it for the next leg lower. Even still, just a shred of optimism could propel the market toward a 50% retracement of the decline from OCT 07. We live in interesting times for sure.

@SWK, you are absolutely correct. One of my favorite cartoons shows a blackboard. On the blackboard is written: “Tonight’s lecture, ‘Man the Master of the Universe’, is canceled due to the blizzard.” Hubris inevitably leads to nemesis. After globalism falls into the ash heap of history, I hope we are wise enough to return to a more sane and decentralized localism.

Historically, wars have been primarily fought over economics. No matter how peace loving Obama is, wouldn’t it be interesting if our own CIA were to mimic Al Qaeda attacks in Asia — setting off WWIII? Look at what’s going on in India today! Look at the piracy (this is Al Qaeda, not famine). Look at Iran and their nuclear ambitions.There would be a flight to the dollar as the world would scramble for cover.Perhaps the secret plan is: Reflate the economy by printing money and create a war in another space of the world to retain our power and dollar strength.NR is right if you’re living in a peaceful world. The problem is: We aren’t.

with the massive amount of liquidity injections and the fed doing your loaning doesn’t that just put you in the best position imaginable if the market were to expectantly and unexpectedly find a new bear bottom? you could then pay off some debts and regain some losses, if you had any. if you could only arrange something like this without “manipulating” the market?

sky, i agree with the first part but the last part just threw me. it’s sort of a place to think out loud. ask a question, offer an opinion etc. . it gives people a place to disuss things with people other than their family and friends who are absolutely sick of hearing about it. no? ok..i’ll f… off now.

@SWKJust who is delusional? All those who are being bailed out and those who will replace them have never had an “undue advantage.” You should think before you open your mouth. What you are saying is what they taught you – the Horatio Alger bullshit.

In fact there is always some sort of an “inner club” that controls the US government.This can be understood by asking following questions:1. is the U.S. government directly controlled by some people?2. if #1 is yes: are the people directly controlling the U.S. government the about 300 million U.S. citizens?3. if #2 is no: are the people directly controlling the U.S. government a small subset of the about 300 million U.S. citizens?Since #3 is true, the government is controlled by a small subset of the population.As to John D. Rockefeller, J.P. Morgan, Joseph P. Kennedy, Bernard Baruch, Henry Morganthau, and Douglas Dillion being intelligent, I doubt that. They are likely no Einsteins or Mozarts. However they do satisfy following criteria:1. known to have money2. ability to walk & talk (or at least breathe and nod when asked a question)3. in some cases, have a relative who has government contacts

Guest:FYI, I am an atheist US Army veteran. Go ahead and spend your money on plastic cr^p from a box store, but kindly leave your generalizations unsaid unless you have the credentials to back it up (i.e. praying for your Country does NOT count as service to it).King of Battle!

The US has been a (if not the) leader in new technology for more than a century.If the resources of the US can be directed into new non-carbon burning energy technology or some other new useful technology, then I see no problem in the future for the US, even if it is more expensive to actually make goods here. If the Obama administration spends to prop up failing industries, then the outcome is obvious.

I’d argue that the USD is backed by petroleum de facto – black gold.

The last part was really funny! Don’t apologize – I think we are all adults and can handle a loose bird every so often…

It seems that Fed believes that the crisis is just an optical illusion and with the passage of time everything will become normal as the illusion clears. This explains why Fed is trying rescue the economy by picking up rotten (an illusion, according to Fed) assets, directly and indirectly. If, however, Fed’s belief in illusion is itself a result of self-hallucination, then the Fed will sink under weight of its own rescue program, and along with it the dollar and the US economy and much of global economy as well.

You are incorrect in your theory regarding the US being a leader in new technology for more than a century. The US has bought new technology developed in Europe mostly, and commercialised it. Most new technology is manufactured in Asia, not the US. The one thing the US does lead the world in is in developing new weapons systems (by the way, thanks for the 30,000 tazers about to be adopted by the UK police force). The MIC makes up 80% of your manufacturing.So I guess world war is the answer to your production problems. Thanks!

octavioI would be very careful to call jim rogers a clown. His analysis is extremely sound.

Doctor Roubini,I have much respect for you and the insights you offer. I have read your books in an effort to better understand the economic crisis we are in.That said, using simple logic, these ‘crazy’ policy actions you refer to will come at a price – nothing is free in life and yet I do not hear any talk about how we will deal with the aftermath. I wonder, is the objective here to just put off the pain for another generation and burden them with an even greater deficit than we have now? During the election we kept hearing about the size of the deficit and now it seems its going to balloon at a far higher rate than ever before. Why is nobody talking about the consequences here? This is becoming like a science fiction movie where a doctor attempting to come up with a remedy for a disease ends up turning everyone into zombies – as utterly ridiculous as that sounds, this is what I am seeing unfolding before us now.

…or in other words, buy gold

Let The Big Guns Duke It OutIt’s like I said before:1. Save, save, save. Don’t buy anything you don’t really need.2. Pull all your money out of the market and go on with your life. The whole market is rigged, corrupt and immoral at this point. Support your local economies.PS Did you see the insanity that the governor of Michigan is recommending in the WSJ 24-11-2008 issue? That car loans and car buying incentives be provided by the Feds because the car industry cannot make money unless 15 million cars are sold annually. Is this a workable business model? Did she not hear that the American consumer is shopped-out, under so much debt they can’t see straight? What an economic model we follow – it is a Ponzi scheme that has reached the end of its life.

Good quote.

Happy Thanksgiving!(u.s.)Please note that very little attention is being paid to effects of the credit crisison farmers around the world. The food prices may have dropped, but farmers are caught without credit to buy fertilizer and this will set the world up for food shortages in the near future. Food shortages cause instability and war. A great example highlighted by Jared Diamond in his book “Collapse” is the real cause of the massacre in Rwanda. The massacre was as much a reaction to the reduction in food productionper acre as the animosity between the tootsis and hutus. Famine exarcebates conflict. The resource raceof the industrialized countries causes them to fundparties to conflicts to secure resources, the conflicts exarcebate famine. Global Instability willnot benefit anybody in the long run. The credit crisisincreases capital flight due to collateral instability. None of this is sustainable! The credit crisis opens up Pandora’s box! Hungry people are moreviolent and revolutionary.Read the UN FAO (United Nations Food and Agriculture Organization Report)http://www.fao.org/docrep/011/ai474e/ai474e00.htm

GDX

Rational of above statement: “The Consortium formed an oversight, which consisted of representatives of six members ( UBS, J.P.Morgan, Morgan Stanley, Goldman Sachs, Smith Barney and Merrill Lynch)” The six above were responsible for the bailout of LTCM. Notice which investment bank refused to go along ? Lehman! http://www.nytimes.com/2008/09/13/business/13rescue.html

r, the response was to the question of market drop timing. the point was retail sales, should they be further harmed or destroyed this year, at this time by a market bottom this would just cause the market participants even more losses. so if anyone can control market timing, speculation that some can, they would be costing themselves ? other market participants lots of money by letting it happen or making it happen before the holiday shopping is either done or almost done. because this country has become so consumer based any attack on the idea of consumption is seen as unamerican by some. i agree most of it is cr.p from a box and the entire association of the political system, financial system and a religious holiday with this consumption is now proving to be potentially fatal systemically and personally.bad choice of b.s. on my part but it is the kind of catch phrase garbage that many people in the media use to repress dissent. i object to the comment myself and that is why i made it. bad time for sarcasm.my apologies.i have been serving my community for many years, i don’t know if that counts as service to the country but it certainly should. found myself praying from time to time but i too am a god fearing atheist.i am an american and i love americans, all people really, especially when they stand up and speak their mind and tell the truth. especially when they confront the ruinous lies that lead to destruction.so,as you know better than most, doing your duty is not the same thing as doing what your told and no one has extra credentials when it comes to speach with the exception of those who own newspapers.thank you for your comment and service and happy thanksgiving.

What is the cost of the Louisiana Purchase in today’s dollars? Alaska?

I think that telling the truth of why we got here is the best basis for doing the best we can from here on.“The financial crisis that afflicts the country is largely a result of speculative bubbles, built on false hopes, in the housing and stock markets.”(Robert Shiller article, 11/8/2008, http://www.nytimes.com)Nouriel Roubini: In your opinion,will asset-market extreme mispricing be well-deterred,if and whenreal inflation-corrected asset-market price historiesare well-apparent to the people?Exampling such histories, which show bubbles very well, please see first and last charts here:“Real Dow & Real Homes & Personal Saving & Debt Burden” athttp://homepage.mac.com/ttsmyf/RD_RJShomes_PSav.html

Let me see – at the height of the auto market in the UK (20% size of the US in terms of population) the automakers were shifting 2 million units. So unless the USans is providing autos to their pets, then 15 million units sounds like 50% overcapacity to me. I’m sure if I could shift 50% more product than the market requires I’d be happy, but it would be folly to build a business plan around that model.And therein lies the problem for US auto makers; their business plan is unreal.

My immediately preceding comment was directed to Guest @ 20:36:22.SWK

The reason long term treasury’s are at 3.5% and short term securities are at close to 0% is because JP Morgan and Goldman are gouging the US taxpayer silly, silly! They’re selling securities and buying Treasury’s, duh!

brent:Actually, I do have some grasp of the history of the Great Depression. I appreciate what you are saying.>I mention this because of your comments, “will these interventions ultimately serve to abate… effects of outgoing economic tide”. In my opinion, you can create all of the liquidity you want but the banks are still scrambling to meet capital solvency ratios as they write down their mortgages to market valueI agree with you. As Dr. Roubini has repeatedly and emphatically pointed out, what we are facing remains fundamentally a problem of solvency, not liquitity. Pumping liquidity into banks alone will not alleviate their fears of counterparty risk to get them lending again. More is required.SWK

jomos, sometimes i look to lawsuits for fresh air though not frequently. this is that time.who created these investment tools, who used them and facilitated there use distributed them and now who has them and how much. these are the people who should bear the cost of identifying the securities, unpackage them and deflate them. or we could take the course that they have done the world a favor and we need to capitalize the crime..“It is hard for us, without being flippant, to even see a scenariowithin any kind of realm of reason that would see us losingone dollar in any of those transactions.”— Joseph J. Cassano, a former A.I.G. executive, August 2007. http://money.cnn.com/2008/08/29/news/companies/tully_jpmorgan.fortune/index.htm07.seperate source…That is largely thanks to J.P. Morgan’s decision to shun subprime CDOs – vehicles that sell bonds backed by pools of subprime mortgage-backed securities. J.P. Morgan has long ranked among the biggest buyers of auto and credit card loans, which it turned into asset-backed securities. But even in 2005, J.P. Morgan remained a small player in the hottest business on Wall Street, securitizing mortgages. Dimon wanted to build a far bigger franchise, chiefly by securitizing the loans made by the bank itself through its Chase Home Lending division. By 2006, J.P. Morgan was growing substantially in securitizing mortgages and dabbling in subprime CDOs, a business that was generating billions in fees for other Wall Street firms.But Dimon soon began to see reasons to pull back.’.”Investors around the globelost faith in American financewhen it became clear that Wall Streethad spent the boom yearsearlier this decadepeddling bad debt.”.Hempton says..”You see, derivatives are “fake money” on the way up when created with 30-1 leverage, but they are real money on the way down.” jon markman..and now we will restore that faith by peddling much more because that is theessence of fractional reserve lending and it’s abuses as it intersect withhuman nature.

ALL business plans based on infinite growth are unreal. And THIS is the problem: they’re all pretty much based on this because that’s what the system is geared for; unfortunately, we forgot to take into consideration that we’re living with finite resources. Pesky details!

I think that it’s a bit more complicated than that. Think “economies of scale.” At reduced scale prices (affordability) will be exponentially worse.

Franklin Resources Inc., manager of the Franklin and Templeton mutual funds, may seek as much as $1 billion in temporary credit to help pay off investors if withdrawal requests surge. San Francisco Chronicle 27 November 2008.http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/11/27/BUVR14D00K.DTL

If you wish to see ‘useful’ conversations why not start them yourself? Why waste time berating others as this only leads to more ‘dumb crap’ for the rest of us to wade through.What pearls of wisdom do you have to impart?

SWK, the very word conspiracy can’t be uttered without having the word theory attached to it. I have read Mullins & Griffin both on the creation of the Fed, and while they do stand on the libertarian right much of what they have in their research can easily be fact checked. I am simply an interested student of the system of my chosen country, so take it as my responsibility to read the histories of how the systems that define our time were formed and work. Are they and Aaron Russo, Ron Paul etc all nutters or are they infact onto something? Danny Estulin’s book The Secret History of the Bilderberg Club is another look behind the curtain, and a great read.No conspiracy story could be as grand as the real story of how the Rothchild’s came to be the richest and most powerful family in my country of origin, the UK.As I said to a friend the other day who said these are all tall tales of the imagination, it is very very arrogant to assume that the mighty don’t also have mighty imaginations. Ever heard of Bohemian Grove?

@SWK 10:22:59It’s not a matter of what you think, it’s what is. If you honestly believe that those who control our currency (Federal Reserve) are doing so without any self-interest or favoritism then yes I would definitely call you naive at best and at worst a bit on the dull side. I’m giving you the benefit of the doubt as to the former. But again, I know of many ‘highly intelligent sounding individuals’ who ultimately don’t know jack-sh..

I think that it’s always been that people would go until they couldn’t go any more. Some of this has been pushed by ideologies, but I think that it ultimately stems from the essence of living for today…Given that this planet regularly cycles itself through glacial and inter-glacial periods I can only think that in the final analysis it matters little. NOTE: the reason why the earth does this is in order to reestablish topsoil (which will then allow for the formation of biomass sufficient to sync the excess carbon out of the atmosphere).

This comes from a lesser section of the letter that repeats almost verbatim from month to month. But you are right; this is no excuse so this will be the the first and last time I post something from his great letter! Hopefully, he will get a few subscriptions out of it. BTW, similar views on the USD can be found in his website.

@SWK re 13:49:17″I never said individuals are never motivated by self-interest or favoritism.”Well you proved my point. These individuals are the one’s running the country. Their self-interest in many cases do NOT coincide with what is best for the country or for that matter the general masses.That’s the bottomline. Whether conspiracies exist or not in varying degrees is provable by those ferreting out the facts. Giving the word conspiracy a blanket negative connotation such as you imply is myopic and at best dangerous.You will learn, eventually one hopes.

URGENT!!!Please read the following article. This is the best solution to cure of our insurmountable debt and prevent coming depression, economic collapse and political crisis. What do you think?I would like to hear Professor’s opinion.http://www.financialsense.com/fsu/editorials/deepcaster/2008/1126.html

i have never agreed to book burnings or witch hunts but if portfolio theory is flawed shouldn’t a correction appear in the text books

aren’t they big sellers of reverse mortgages?

“The markets can remain irrational longer than an investor can remain solvent.”Now that is a wonderful quote, I am going to paste that above my own trading screen, thanks for sharing.I suspect the the real bottom in all this mess could be 7200 – 6800 in early 2009 if the team coming in can really pull a rabbit and a half out of a hat, but if not we could see it as low as 4400 in early-mid 2010. Some I’ve read even see the DOW breaking 1,000 if all test bailouts are failouts, but I pray they’re wrong, are under the influence of the lunatic tea-leaf brigade!

Independent of your preferred school of economics and its suppositions, some thing are technically logical and cannot be denied.A well-known economics wrote:”The public’s demand for cash can be affected by many factors.Loss of confidence in the banks will, of course, intensify thedemand for cash, to the extent of breaking the banks by bankruns. Despite the prestige and resources of the Central Bank, bankruns have been a powerful weapon against bank credit expansion.Only in 1933, with the establishment of the Federal DepositInsurance Corporation, was the government of the U.S. able tostop bank runs by putting the unlimited taxing and counterfeitingpower of the federal government behind every bank deposit.Since 1933, the FDIC has “insured” every bank deposit (up to ahigh and ever-increasing maximum), and behind the FDIC—implicitly but powerfully—is the ability of the Federal Reserve toprint money in unlimited amounts. The commercial banks, it istrue, are now far “safer,” but that is a dubious blessing indeed; forthe “safety” means that they have lost their major incentive not toinflate.”

I understand your concerns but it seems you are a prophet of the Armaggedon (Robert Prechter, Peter Schiff and James Turk forecasts are VERY GOOD compared to your outlook).SOS

I am thankful today for your Dr. Roubini! Thanks for letting your fans access the site for free. I have learned so much. Happy Holidays!

From the article “Meltdown far from over, new mortgage crisis looms” at:http://news.yahoo.com/s/ap/20081128/ap_on_bi_ge/meltdown_coming_soon

…The worst-case scenario goes something like this: With banks unwilling to refinance, a shopping center goes into foreclosure. Nobody can buy the mall because banks won’t write mortgages as long as investors won’t purchase them.”Credit markets have seized up,” corporate securities lawyer Michael Gambro said. “People are not willing to take risks. They’re not buying anything.”That drives down investments already on the books. Insurance companies are seeing their stock prices fall on fears they are too invested in commercial mortgages.“The system has never been tested for a deep recession,” said Ken Rosen, a real estate hedge fund manager and University of California at Berkeley professor of real estate economics.One hope was that the U.S. would use some of the $700 billion financial bailout to buy shaky investments from banks and insurance companies. That was the original plan. But Treasury Secretary Henry Paulson has issued a stunning turnabout, saying the U.S. no longer planned to buy troubled securities. For those watching the wave of commercial defaults about to crest, the announcement was poorly received.“He’s created havoc in the marketplace by changing the rules,” Rosen said. “It was the stupidest statement on Earth.”The Securities and Exchange Commission is considering another option that might ease the crisis, one that would change accounting rules so banks don’t have to declare huge losses whenever the market declines.…

Changing accounting rules…hmmmmmm…I think it is the US way of keeping the economy afloat…why not get rid of accounting altogether…

Dear all,I’m somewhat still confused. I interpreted the previous material as noting that the ratio of total debt to GDP had increased from about 150% to 350% in the last decade or so (the credit bubble), and that even with the modest deleveraging so far, writing down about $3T, there was still about $9T to be taken out of the economy to get to a $250% ratio (before the anticipated decrease in leading GDP), leading to a prolonged bear market. Now I am thinking that the current goal is to maintain the current high ratio to preserve GDP. Any ideas?

do you have thanksgiving sales figures for reference?thanks

g, i like it. if banks can’t pay their bills when they are guaranteed to receive interest on lent money, how can their obligors,customers be expected to pay back principle and interest? perhaps we could just carry off book bad credit accounts throughout life and when we die they can have the organs. the whole country would need just one accountant and he/she won’t have to do anything. the federal accountant. i’m rambling. yes, no more accounting. and no more of those silly accounting schools with tuition requirements. hell, i’m not sure we even need numbers anymore. we may not have hit the bottom yet but i think i personal can see it from here. it has been an educational last 8 years. many new lows for the survivors, with more to come.we won’t need those malls anymore anyway due to on line shopping with digital money. i’m having my credit chip installed in the palm of my left hand. how about you? i never liked money or numbers much anyway, i always suspected they would lead to something terrible like this. have a good day, i think as long as gravity doesn’t fail us we’ll still be here tomorrow.

I said I admire SOME of Obama’s economic team, not all. Everything is political to some people.

how do people get to be In-love with money as opposed to just loving money

It’s the SYSTEM! It’s based on delusions! Those that are in the vanguard automatically fail because they are a) either too stupid to grasp the fundamentals, or b) they’re working the system for their own personal advantage.To better understand possibility “a)” watch Dr. Albert Bartlett’s presentation Arithmetic, Population and Energy>And as for possibility “b),” try and limit office holders to only one term!

“If you look at history, it appears our country will come out stronger after this calamity because we will actually be producing products of quality as we head toward what appears to be more of a resource-based economy.”If you look at history, the times when that has happened we a) had a production-based infrastructure and b) did not have a mountain of personal, buciness, and government debt.We are not starting out in the gutter – we are down in the sewers. We have dismantled our production ability and shipped overseas. The only thing we truly produce is debt for our own consumption, an unsustainable ‘industry’. Our only recourse is to sell off our assets to pay our debts, or default on our debts. With the first, we will be producing for our foreign masters. With the second, we will be isolating ourselves from the global community and be forced to cannibalize ourselves until we regain equilibrium at a much lower level, way way down the road.Either way, we are screwed, and any idea that we will emerger “stronger” needs to be pegged not one or two generations down the road, but eight, nine, ten or more generations…

Does anyone really see the US attaining a higher level of economic activity than that achieved through the low energy/resource financial sector? Sure, it was a scam, but it inflated the US standard of living to levels that we’ll never see again.While the bursting of the financial bubble won’t kill us, a bursting of a bubble from a “resource-based economy” will. Refer to the Dr. Albert Bartlett presentation…

Cool post! mandarin

From the previous thread. I nailed the Week 100%. There is an element of luck here but regardless of what was going to happen this week, I had what old man BG referred to as a margin of safety. Financials on TH and FR of last week were at capitulation levels.No surprise to see NR endorse the “O Team” – You went long last week – smart – what are you doing now and for how long if I may ask. I got trapped a week or so ago and from what I hear a lot of this is short covering since credit continues frozen. ThanksI haven’t changed my views on the length and depth of the recession but believe the citi bailout was the most effective bailout (actually the first one that will be effective) to date in terms of stabilizing the financial markets. There is a guy from citi in bloomberg right now making this point (Tobias Levkovik).The citi bailout took away a big chunk of the fear as it protected the bank’s shareholders and provided insurance against the potentially very large but less likely losses in “bad” assets by having the bank cover the initial loses instead of later ones. This is the best of both worlds as it implements the bazooka approach Hanky supports, it will end up costing taxpayers less, and it will be a lot more effective in stopping a run on the bank (BTW, I have not seeing such positive take anywhere yet, but strongly believe I am right in my views).Please note I am giving you the facts on the bailout and my opinion on what the effect will be on the markets. I am not passing judgement on how good it was for taxpayers, moral hazard etc. I will leave that to others; I will not spend any more energy on that. Such exercise is a great one for people interested in policy development but a looser from an investing standpoint.So the bottom line is that, IMO, the credit crisis will improve significantly from this point on, i.e., we will FF a couple of innings. And given that the markets went down so much (we are still virtually at the October lows with S&P 500 now at 852 vs the October 10 intraday low of 839.80) stocks may rally really really hard from here. Add to that the fact that: i. there are still some stupid people short out there, ii. we are in turkey week which is in general kind to stocks, and iii. that financials are still well below the overall market YTD, and we may get a mother of a rally. Some people think tax selling season will bring the bear back, but, IMO, that may happen in the second half of December, not now.All this being said, trying to predict short term market movements is the best way to get egg in one’s face but based on the fact that my score in predicting short term moves lately has been right much better than 50% of the time I have dared to stick my neck out.Hide reply Reply to this comment By Octavio Richetta on 2008-11-25 06:48:50

Makes sense. I will get rid of my stripped Ts next week. Long term treasuries have been very tradeable in the last couple of years. Get in when the 10 year yield gets close to 4%, then sell when it gets close to 3%.

The following story make me angry, not only to Russian government but also to our government that has allowed ourselves into this story by current situation. Russia is exploiting our Wall Street terrible misdeeds and inept government and Congress policy. What can be done about it?http://www.russiatoday.com/features/news/33836

A good one from Shilling at Forbes:http://www.forbes.com/personalfinance/forbes/2008/1208/182.htmlFinancial StrategyLeverage and PainA. Gary Shilling, 12.08.08, 12:00 AM ESTConsumers are replacing a 25-year borrowing and spending binge with a saving spree.Painful financial deleveraging has given us an excruciating global recession. It may cause even deeper pain ahead. The slashing of borrowing comes after spectacular buildups in the financial and consumer sectors. The combined debt and equity of U.S. financial institutions went from 10% of gross domestic product in 1973 to 118% at the end of 2007. Over the same period household debt, including mortgages, rose from 45% of GDP to 98%. Is it any surprise that this borrowing binge ended in a credit crisis?The ending of a credit crisis entails deleveraging, which is to say, the liquidation, repayment or cancelation of debt. This process engenders pain.Consumers dropped their saving rate from 12% in the early 1980s to zero 20 years later. They did this while persuading themselves that watching a rising stock portfolio or living in an appreciating house was a form of saving. The stock market crash at the turn of the century did not bring them to their senses, because by then the house price boom was under way. Now there’s no asset left with which to play the savings fantasy game.Stocks are not much higher than they were at the 2002 bottom. Houses are en route to what I forecast will be a 37% peak-to-trough falloff. Consumers are tapped out. Their credit cards are maxed out, and home equity lending is dead. Heavy borrowing pushed their equity in autos and other durables from 60% in the early 1990s to 40% today. Their $3 trillion in 401(k) plans at the end of 2007 has taken a beating as stocks have swooned.So people are shrinking their discretionary outlays on everything from motorcycles to liquor. They’re replacing a 25-year borrowing and spending binge with a saving spree. Over the last quarter-century consumer spending grew an average of one-half a percentage point per year faster than aftertax income, adding about a third of a percentage point to GDP growth. For the next decade spending is likely to rise a percentage point slower than income each year. Consumer spending constitutes 70% of GDP, and the effect of that restraint is multiplied as it ripples through the economy. As a result real GDP growth will drop by a full percentage point from its earlier 3% rate to 2%.The saving spree will be reinforced by the fact that baby boomers desperately need to save for retirement, while those in their 20s and 30s, typically big spenders as they form households, are much fewer in number. The threat of deflation also depresses consumer spending. People are waiting for lower prices before buying houses, and they’ll wait to buy other things, too.Capital spending will also be subdued, as slowing growth makes for excess capacity. Forget exports as a source of strength. American consumer restraint will slow imports, hurting foreign lands that depend on the U.S. for export growth and depressing their own demand for American products. Hence the clamor these days for government spending as a form of stimulus.The BRIC quartet (Brazil, Russia, India and China) and other developing countries will sink like bricks as their exports drop and as commodity prices collapse, driven down by both enfeebled global demand and the end of the delusion that commodities are an asset class like stocks and bonds. China doesn’t have a big enough middle class of free spenders to offset export weakness there (see my May 19 column,”Chinese Chance”), and the end of the oil boom will slash Middle East economic growth and hobble the petroleum-addled dictators of Venezuela and Russia.Deleveraging threatens economic growth in many countries that have depended on Western bank generosity. Iceland is bust. Baltic nations, and eastern European ones like Hungary, are in for years of sluggish growth, with homeowners no longer able to borrow cheap money abroad. Argentina, already a pariah to international lenders, is setting an ugly precedent in grabbing its private pension funds to repay its debt.The demise of securitization and other derivatives and the return to basic banking–lending prudently at profitable interest rates–will reduce credit availability for years and subdue economic growth. Big firms can’t float commercial paper; little ones can’t get bank loans to meet their payrolls. The accelerating consolidation of financial institutions will eliminate many risk-taking lenders, and entrepreneurs will be inhibited by the scarcity of venture capital money.So even after the financial crisis and recession end, maybe by 2010, slow economic growth and poor profits are likely to drag on. Don’t be in a rush to buy stocks.A. Gary Shilling is president of A. Gary Shilling & Co., economic consultants and investment advisers. Visit his homepage at http://www.forbes.com/shilling.

With all options being proposed, the question I have what is the exit strategy? It appears we entering into a economic Vietnam quagmire.

Octavio,it looks like that your comment on the Citi bailout, that it is a completely new game and probably the best approach to save the bank, was one of the most clever and timely observations.Despite the hate I have toward those bankers and the wish they would pay for the mess they created, if I want to put money in the market, these tidal changes are the ones we need to recognize. Thanks for sharing.

I agree completely with Dr. Roubini that we are in a liquidity trap situation. However another interesting wrinkle is how the pigou effect is going to play into this? With deflation real asset values go up and therefore potentially bringing up aggregate demand. However with over supply in the housing market causing housing prices to fall, peoples’ main asset, their houses, will be falling in real terms. In this case the pigou effect will aggravate the situation even more. Comments?

SWKYou certainly need to get your facts straight about the history of the “inner clubs” that control the US government and Wall Street. These interlocking groups gain untold advantage through their ability to influence the direction of policy to benefit their own self-interests.Your comments inferring that Joe Kennedy was “intelligent” enough to develop an investment thesis to foresee the Crash of ’29, while fathering 11 children, lobotomizing one, holding a high-level government job and having serial affairs with Hollywood starlets, seems shockingly naive. Joe was part of the government-banking elite who accessed information before it was available to the public. Joe Kennedy was did not have intellectual credentials — no Ph.D. in economics and no Harvard degree.Hopefully the U.S. taxpayers are diligent and circumspect. Most will anticipate Henry Paulson’s “Everyday is a New Direction” TARP policy will benefit a group of select advisors much more than the taxpayers who financed it. BTW, Paulson let his friends at Goldman become a bank rather than risk bankruptcy like Lehman.The power elite in Washington and New York has had advantages of undue influence since the beginning of time. It is simply politics.Many times, the “brightest people in the room” do not make the best decisions. Case in point is McGeorge Bundy (Vietnam) and more recently Robert Rubin (Citibank). Though intelligent, their decisions can bring disasterous results. Nonetheless, they are well-compensated, keep their jobs despite their shortcomings and, in the end, their friends benefit. Read any history book…it is a repetitive theme.

Wake up!! Real CPI is plunging!! All employed consumers worldwide ust got a significant INCREASE in real wages, greatly aiding overindebted Americans, Australians, Irish & Spanish to pay down debt…

o Annual global savings on crude alone = $1.0 trilliono Real CPI is plunging, giving all employed consumers a raise, accelerating their ability to pay down debto If Baby Boomers are morphing into mad savers, why are we to believe they won’t buy stocks??o Big firms are selling commercial paper and other paper to the Fedo Meanwhile Treasury has stopped cascading collapse of financial intermediarieso Why poor profits after 2010 for surviving firms, assuming sharp recession and, therefore, significant weeding out of surplus capacity in several sectors??o Why is ruthless eradication by market of surplus bankers, home builders, et al.,a negative, if their existence predicated on basic misallocation via credit bubbleanyway?? There removal from market keeps costs lower for rest of us — why is that bad??

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