I WUZ first….geee….

Sorry.http://raphaelkahan.blogspot.com/2009/10/2010-outlook.html

“Obama team ignores Volcker at its perilThe former Fed chairman has terrific advice about reining in risky bank practices to prevent another financial meltdown. But the administration apparently isn’t listening.By Bill FleckensteinMSN Money 10/26/09The launch point for this column is an above-the-fold front-page story in last Wednesday’s New York Times: “Volcker’s voice, often heeded, fails to sell a bank strategy” by Louis Uchitelle. He writes about former Federal Reserve Chairman Paul Volcker’s views on the financial system, contrasting that with Alan Greenspan’s opinions.Bank deregulation and the credit crisisAccording to Uchitelle, the key difference is that Volcker “wants the nation’s banks to be prohibited from owning and trading risky securities, the very practice that got the biggest ones into deep trouble in 2008.” Regrettably, “the administration is saying no, it will not separate commercial banking from investment operations.”Also regrettably, even though Volcker has volunteered to help, the Obama administration doesn’t seem to be listening to him.Now, I haven’t written much about Greenspan since I wrote my book “Greenspan’s Bubbles,” which pretty much exorcised my demons. But if anyone wants to become really outraged over the predicament the economy and financial system are mired in, all you need do is pick up a copy and flip through it.Though it’s even more shocking now than it was in real time to see Greenspan’s arrogant, cavalier attitude, the most important point is that the disaster we’ve endured (and are still dealing with) did not have to happen.What Greenspan wroughtIt may seem hard to believe (if one hasn’t studied the period), but the overwhelming bulk of our problems were a result of Greenspan’s policies and the causes he championed. (Read “How Greenspan’s policies hurt you” for a sample of my views on this.)In “The Warning,” PBS’ “Frontline” last Tuesday night went into the issue of financial derivatives and cited Greenspan’s complicity in advocating essentially no oversight, which helped lead to that market’s out-of-control growth. In the history of the world, I don’t believe any one person has ever done as much financial damage to so many as Greenspan has.Video: Volcker on fixing the financial systemIn any case, the article notes that Volcker’s proposal would “roll back the nation’s commercial banks to an earlier era, when they were restricted to commercial banking and prohibited from engaging in risky Wall Street activities.” You know, the system that worked for 60-odd years before it was dismantled in 1999 in the wake of the collapse of Long-Term Capital Management. Greenspan wanted us to believe, at the time, that had the Fed not bailed out that hedge fund, it would have led to a financial calamity of disastrous proportions (I disagree).Even after the Greenspan Fed rode to the rescue in a wildly reckless and unnecessary fashion (and, as I pointed out in the book, his monetary policy during that period was particularly irresponsible), he still advocated the repeal of Glass-Steagall. This while the LTCM debacle remained fresh in everyone’s mind.More from MSN MoneyIs chip-makers’ strength an illusion?Why stocks are surging as jobs disappearYour dollars are just Monopoly moneyWall Street run amok? Blame HarvardIs tech the go-to sector (for now)?.’Banks are there to serve the public’Obviously, Volcker didn’t see the need for that unshackling of the banking system. He said: “The banks are there to serve the public, and that is what they should concentrate on. These other activities create conflicts of interest. They create risks, and if you try to control the risks with supervision, that just creates friction and difficulties (and ultimately fails).”That is a pretty succinct synopsis of what’s transpired.Volcker continued: “People say I’m old-fashioned and banks can no longer be separated from nonbank activity. . . . That argument brought us to where we are today.”Indeed it did, and Volcker is not old-fashioned. He just has a large dose of common sense, as do most people who emerged unscathed through the tech-stock and real-estate/credit bubbles, especially the latter.Don’t blame meMeanwhile, here’s how Greenspan — who still favors the dimwitted policies he always has favored — responded to a question on the subject: “No form of economic organization can fully contain bouts of destructive speculative euphoria.” Yes, that is true, but that only means he should have been even more vigilant, not less so. He is basically espousing the view that because no company or system is perfect, he can’t be held responsible for what’s happened.That’s a little like his policy during the bubble periods, when he claimed that bubbles couldn’t be spotted or headed off. Should one occur, therefore, his plan was to deal with the aftermath with his vaunted “asymmetrical” approach to monetary policy (i.e., to be easy in good times and, when those excesses lead to a train wreck, to be even easier, then repeat). As I noted earlier, if you want to get your blood boiling, re-read what he did and said during the bubble periods.In any case, the Obama administration ought to listen to Volcker. We ought to learn our lessons from the mistakes of the Greenspan period.It’s a shame that after the near-vaporization of the financial system last year, with all the attendant consequences, so little intelligent thought has been given to how we got into the mess and how to prevent us from getting there again — and I won’t even bother to touch the third-rail issue of these out-of-control banks, rescued by taxpayers, that are now handing out massive bonuses to their employees while there’s still a decent chance that their balance sheets don’t tell the truth.”Independent Contractor

Countdown to the next crisis is already under wayBy Wolfgang MünchauPublished: October 18 2009 18:42 | Last updated: October 18 2009 18:42We did not need to wait until the Dow Jones Industrial Average hit 10,000. It has been clear for some time that global equity markets are bubbling again. On the surface, this looks like 2003 and 2004 when the previous housing, credit, commodity and equity bubbles started to inflate, helped by low nominal interest rates and a lack of inflation. There is one big difference, though. This bubble will burst sooner.So how do we know this is a bubble? My two favourite metrics of stock market valuation are Cape, which stands for the cyclically adjusted price/earnings ratio, and Q. Cape was invented by Robert Shiller, professor of economics and finance at Yale University. It measures the 10-year moving average of the inflation-adjusted p/e ratio. Q is a metric of market capitalisation divided by net worth. Andrew Smithers* has collected the data on Q, a concept invented by the economist James Tobin.Cape and Q measure different things. Yet they both tend to agree on relative market mispricing most of the time. In mid-September both measures concluded that the US stock market was overvalued by some 35 to 40 per cent. The markets have since gone up a lot more than the moving average of earnings. You can do the maths.The single reason for this renewed bubble is the extremely low level of nominal interest rates, which has induced people to move into all kinds of risky assets. Even house prices are rising again. They never fell to the levels consistent with long-term price-to-rent and price-to-income ratios, which are reliable metrics of the property markets’ relative under- or over-valuation.But unlike five years ago, central banks now have the dual role of targeting monetary and financial stability. As has been pointed out time and again, those two objectives can easily come into conflict. In Europe, for example, the European Central Bank would under normal circumstances already have started to raise interest rates. The reason it sits tight is to prevent damage to Europe’s chronically under-capitalised banking system, which still depends on the ECB for life support. The same is true, more or less, elsewhere.Now, I agree there is no prospect of a significant rise in inflation over the next 12 months, but the chances rise significantly after 2010.Once perceptions of rising inflation return, central banks might be forced to switch towards a much more aggressive monetary policy relatively quickly – much quicker than during the previous cycle. A short inflationary boom could be followed by another recession, another banking crisis, and perhaps deflation. We should not see inflation and deflation as opposite scenarios, but as sequential ones. We could be in for a period of extreme price instability, in both directions, as central banks lose control.This is exactly what the economist Hyman Minsky predicted in his financial instability hypothesis.** He postulated that a world with a large financial sector and an excessive emphasis on the production of investment goods creates instability both in terms of output and prices.While, according to Minsky, these are the deep causes of instability, the mechanism through which instability comes about is the way governments and central banks respond to crises. The state has potent means to end a recession, but the policies it uses give rise to the next phase of instability. Minsky made that observation on the basis of data mostly from the 1970s and early 1980s, but his theory describes very well what has been happening to the global economy ever since, especially in the past decade. The world has witnessed a proliferation of financial bubbles and extreme economic instability that cannot be explained by any of the established macroeconomic models. Minsky is about all we have.His policy conclusions are disturbing, especially if contrasted with what is actually happening. In their crisis response, world leaders have focused on bonuses and other irrelevant side-issues. But they have failed to address the financial sector’s overall size. So if Minsky is right, instability should continue and get worse.Our present situation can give rise to two scenarios – or some combination of the two. The first is that central banks start exiting at some point in 2010, triggering another fall in the prices of risky assets. In the UK, for example, any return to a normal monetary policy will almost inevitably imply another fall in the housing market, which is currently propped up by ultra-cheap mortgages.Alternatively, central banks might prioritise financial stability over price stability and keep the monetary floodgates open for as long as possible. This, I believe, would cause the mother of all financial market crises – a bond market crash – to be followed by depression and deflation.In other words, there is danger no matter how the central banks react. Successful monetary policy could be like walking along a perilous ridge, on either side of which lies a precipice of instability.For all we know, there may not be a safe way down.

The Financo-StateAre You Ready for the Next Crisis?By PAUL CRAIG ROBERTSEvidence that the US is a failed state is piling up faster than I can record it.One conclusive hallmark of a failed state is that the crooks are inside the government, using government to protect and to advance their private interests.Another conclusive hallmark is rising income inequality as the insiders manipulate economic policy for their enrichment at the expense of everyone else.Income inequality in the US is now the most extreme of all countries. The 2008 OECD report, “Income Distribution and Poverty in OECD Countries,” concludes that the US is the country with the highest inequality and poverty rate across the OECD and that since 2000 nowhere has there been such a stark rise in income inequality as in the US. The OECD finds that in the US the distribution of wealth is even more unequal than the distribution of income.On October 21, 2009, Business Week highlighted a new report from the United Nations Development Program concluded that the US ranked third among states with the worst income inequality. As number one and number two, Hong Kong and Singapore, are both essentially city states, not countries, the US actually has the shame of being the country with the most inequality in the distribution of income….The stark increase in US income inequality in the 21st century coincides with the offshoring of US jobs, which enriched executives with “performance bonuses” while impoverishing the middle class, and with the rapid rise of unregulated OTC derivatives, which enriched Wall Street and the financial sector at the expense of everyone else.Millions of Americans have lost their homes and half of their retirement savings while being loaded up with government debt to bail out the banksters who created the derivative crisis.Frontline’s October 21 broadcast, “The Warning,” documents how Federal Reserve Chairman Alan Greenspan, Treasury Secretary Robert Rubin, Deputy Treasury Secretary Larry Summers, and Securities and Exchange Commission Chairman Arthur Levitt blocked Brooksley Born, head of the Commodity Futures Trading Commission, from performing her statutory duties and regulating OTC derivatives.After the worst crisis in US financial history struck, just as Brooksley Born said it would, a disgraced Alan Greenspan was summoned out of retirement to explain to Congress his unequivocal assurances that no regulation of derivatives was necessary. Greenspan had even told Congress that regulation of derivatives would be harmful. A pathetic Greenspan had to admit that the free market ideology on which he had relied turned out to have a flaw.Greenspan may have bet our country on his free market ideology, but does anyone believe that Rubin and Summers were doing anything other than protecting the enormous fraud-based profits that derivatives were bringing Wall Street? As Brooksley Born stressed, OTC derivatives are a “dark market.” There is no transparency. Regulators have no information on them and neither do purchasers.Even after Long Term Capital Management blew up in 1998 and had to be bailed out, Greenspan, Rubin, and Summers stuck to their guns. Greenspan, Rubin and Summers, and a roped-in gullible Arthur Levitt who now regrets that he was the banksters’ dupe, succeeded in manipulating a totally ignorant Congress into blocking the CFTC from doing its mandated job. Brooksley Born, prevented by the public’s elected representatives from protecting the public, resigned. Wall Street money simply shoved facts and honest regulators aside, guaranteeing government inaction and the financial crisis that hit in 2008 and continues to plague our economy today.The financial insiders running the Treasury, White House, and Federal Reserve shifted to taxpayers the cost of the catastrophe that they had created. When the crisis hit, Henry Paulson, appointed by President Bush as Rubin’s replacement as the Goldman Sachs representative running the US Treasury, hyped fear to obtain from “our” representatives in Congress with no questions asked hundreds of billions of taxpayers’ dollars (TARP money) to bail out Goldman Sachs and the other malefactors of unregulated derivatives.When Goldman Sachs recently announced that it was paying massive six and seven figure bonuses to every employee, public outrage erupted. In defense of banksters, saved with the public’s money, paying themselves bonuses in excess of most people’s life-time earnings, Lord Griffiths, Vice Chairman of Goldman Sachs International, said that the public must learn to “tolerate the inequality as a way to achieve greater prosperity for all.”In other words, “Let them eat cake.”According to the UN report cited above, Great Britain has the 7th most unequal income distribution in the world. After the Goldman Sachs bonuses, the British will move up in distinction, perhaps rivaling Israel for the fourth spot in the hierarchy.Despite the total insanity of unregulated derivatives, the high level of public anger, and Greenspan’s confession to Congress, still nothing has been done to regulate derivatives. One of Rubin’s Assistant Treasury Secretaries, Gary Gensler, has replaced Brooksley Born as head of the CFTC. Larry Summers is the head of President Obama’s National Economic Council. Former Federal Reserve official Timothy Geithner, a Paulson protege, runs the Obama Treasury. A Goldman Sachs vice president, Adam Storch, has been appointed the chief operating officer of the Securities and Exchange Commission. The Banksters are still in charge.Is there another country in which in full public view so few so blatantly use government for the enrichment of private interests, with a coterie of “free market” economists available to justify plunder on the grounds that “the market knows best”? A narco-state is bad enough. The US surpasses this horror with its financo-state.As Brooksley Born says, if nothing is done “it’ll happen again.”But nothing can be done. The crooks have the government…

Pete youre a man of god ,you do know about the prophecies right??

You know, it’s a lot like fearing fire. Like fire, a lot of good can come from securitization if it is used properly and treated with a healthy dose of respect. But I guess it is hard to overcome an irrational fear when you nearly burned your house down the last time around.

As Rahm said, a good crisis should not be allowed to go to waste. Problem is that this really has not been enough of a crisis, so it will undoubtedly need to get much worse before ‘they’ can make it better.BOHICA, my friends. We are doomed.

The world would not have stopped if the 10 major banks had been forced into bankruptcy to sort out their derivative entanglements. But rather than simply guarantee the depositors at a total commitment of perhaps a few trillion dollars…

And how would that have worked ? Please show me the maths…The amounts reserved in the FDIC didn’t even cover 1% of the amounts deposited in the 10 largest banks. SO how, in practical terms, would the government have guaranteed the depositors if the TBTF banks had gone into banktrupcy ?I’m exactly of the opposite view : the government was forced to intervene, but instead of bailing out the banks shareholders and bondholders, it should have temporarily nationalized them, wiping out all shareholders, liquidating all the worthless assets, breaking them up into smaller pieces and selling them to the highest bidders, exactly as the Swedes succesfully did in 1992.And in order to avoid future crisis, we do need urgently to have a tight regulation of the OTC derivatives markets, we need to reinstate glass-steagall type regulation, we need to reduce tremendously the size and scope of the financial sector, in other words, we need politicians to control the banksters, and not the other way round !

more companies are saying, we are stabilizing now!!! that is GREATEST NEWS. expect SP500 to consolidate higher. watch TREASURY market to CRASH.

What does that mean “companies are stabilizing now” ? Please explain…

http://www.calculatedriskblog.com/2009/10/sf-fed-recent-developments-in-mortgage.htmlagency taking over subprime toxic securitizatoin and originating more and more subprime loan with TAX PAYER MONEY!!!! wuaHAHAHA, and gov want to do subprime and toxic HEALTHCARE REFORM???? LOL

http://blogs.law.harvard.edu/philg/2009/10/17/how-wall-street-is-making-its-billions/.How Wall Street is making its billionsphilg – October 17, 2009 @ 6:19 pm ·.Wall Street banks have had profitable quarters. JPMorgan Chase reported $3.6 billion in profit (more than $1 billion per month). Goldman Sachs was only slightly behind, at $3.2 billion. These profits supposedly came from “trading.” I asked a friend who has worked in the money business how this was possible. “For someone to make money trading, there has to be someone on the other side of every trade who is losing money. Where does each bank find someone who can lose $1 billion every month?”He explained that “carry trade” would be a more accurate description of what they’re doing. Because of the Collapse of 2008 financial reforms, the big investment banks are able to borrow money from the U.S. government at 0 percent interest. Then they can turn around and buy short-term bonds that pay 2 or 3 percent annual interest. Now they’re making 2 percent on whatever they borrowed. They can use leverage to increase this number, by pledging some of the bonds that they’ve already bought as collateral on additional bonds.I asked if they were taking any risk in order to earn this return. “If interest rates went up to 20 percent, even though the bonds are short-term, the price of the bond could fall enough to make the trade a money-loser.” (Though since the banks are too big to fail, they would simply be bailed out with additional taxpayer funds.)What kind of bonds are they buying? Are they investing the money in American business? “No, they are mostly buying Treasuries.” So the money is just being shuffled from one Federal bank account to another, with each Wall Street bank skimming off $1 billion per month for itself? “Pretty much.”[A more old-fashioned way of making supranormal returns is insider trading, which was perfectly legal until the Crash of 1929 (history). The New York Times ran a story yesterday on Raj Rajaratnam, a hedge fund manager who invested heavily in inside information. Rolling Stone published "Wall Street's Naked Swindle" on October 14. The story is much more sensational and entertaining than anything from the Times. It covers a guy who spent $1.7 million on out-of-the-money put options on Bear Stearns on March 11, 2008. The options would become worthless on March 20, just 9 days later, unless Bear Stearns basically went bust. Bear Stearns collapsed the next day and the guy made a $270 million profit. He has never been identified by the SEC.]….comments..nonymousOctober 17, 2009 @ 10:14 pm1Essentially, we all pay the Wall Street tax through inflation so that important people in suits can buy multi-million dollar apartments and dispossess people who work for a living. Makes total sense. This country was founded on rewarding those who can invent powerful lies to convince Congress that nonsensical investment vehicles have absurd monetary value.The rhetorical end result of all this is that the economy is irrigated with liquidity. However, in reality, the true result is that non-bankers all fall into penury debt slavery and die. The irony about that is, Wall Street is trying to collateralize life insurance policies. So, even as we non-bankers all become homeless and die, hedge fund managers can still legitimize their bonuses to Congress.Because oligarchs draw incorrect conclusions about human evolution from Dawkins, “The Selfish Gene”, misunderstand mythological self-determinism fables from Ayn Rand, and don’t grok that Adam Smith’s tales about the “Invisible Hand” were allegorical, we all must suffer. And, somehow we believe our angry powerhouse of a cleptocracy is the absolute zenith of human existence. Absolute fucking madness.

What does to use securitization properly and treat it with a healthy dose of respect mean in practical terms ?

are you idiot???? you havent been to those SP500 conference call? you havent heard that they report they are stabilizing? huh? what you just stupid lunatic and moronic???

Pete,I think that subtle shift is a return to fundamentals, i.e. future revenues, economic rebound, etc. Excess liquidity has been mopped up and as I see it stocks are unable to propel higher. As you may remember, I sold half my equity position early last week and won’t buy back in until I see solid evidence that retail investors are willing to buy, and I don’t believe that will happen unless we have a 7-10% correction.

Companies Are Gaming The System To Beat Wall Street Expectations10/25/09 02:03 PM |More than 80 percent of major companies reporting third-quarter results this month have beaten Wall Street expectations. So is business that good? No. Are companies gaming the system? Yes.Corporate America has a habit of low-balling the earnings forecasts used by analysts to determine their estimates. That way, the bar is lower, and companies can easily jump over when the quarter’s results are announced – even if profits and revenues have fallen off a cliff.”Over the last decade, there’s been a distinctive tendency for companies to underpromise and overdeliver,” says Dirk van Dijk, chief equity strategist of Zacks Investment Research. “Lately companies are being even more cautious. They realize investors can very harshly punish any company that disappoints.”Beating expectations generally gives share prices a quick lift, but the news can mislead investors about the real state of the business – and just how far this economic recovery has to go. In fact, of the companies reporting third-quarter results so far, 60 percent have posted lower net income compared with a year ago.Still, the recession has, if anything, accelerated the flow of positive earnings “surprises” as companies play it safe and issue more conservative earnings forecasts. Over the past two years, 65 percent of earnings reports have beaten estimates. Even after last fall’s financial crisis, the following two quarters produced nearly twice as many beats as misses.And this quarter, 81 percent of the first 199 companies listed on the Standard & Poor’s 500 index that reported earnings came in above expectations.The expectations game works like this.Corporation X announces weeks or months ahead of time that it expects to earn, say, 55 to 60 cents per share. Analysts look at various measures of the company’s financial and operating performance while compiling forecasts, but rely heavily on guidance from management. The resulting consensus forecast might be around 57 cents a share.Story continues belowOn earnings day, the company then reports 61 cents per share. It can rightfully say it beat analyst expectations, and shares rise. Other investors jump on the bandwagon.The company has some ability to control the number since analysts and most media focus on the so-called adjusted earnings, which can leave out huge one-time charges such as write-offs for restructuring expenses that otherwise could drag down overall results.The expectations game has been played since the 1990s, when analysts’ aggregate predictions became widely available on the Internet.But the focus on expectations can distract investors from more meaningful numbers. This past summer, earnings stories trumpeted how banks did better than expected. But in stressing the surprise factor, many investors lost sight of the fact that earnings were down considerably for most banks and that troubles still shadow the sector.In the last 15 years, 61 percent of earnings reports by the nation’s largest publicly traded companies – those listed on the S&P 500 – have surpassed Wall Street’s consensus estimates. Only 21 percent fell short, while 18 percent matched estimates, according to Thomson Reuters data.There has never been a single quarter during that period when more companies have missed earnings than beat the Street.Some companies are more blatant about managing expectations than others.Apple Inc. is notorious for lowballing its outlooks. The computer maker topped analysts’ estimates on Monday for the 27th quarter in a row. It has not come up short on earnings day since the first quarter of 2001. Apple declined to comment on the trend.Then there’s Cisco Systems Inc., which once beat forecasts by exactly 1 cent per share for 13 straight quarters, from 1998-2001. Coming within a penny so many times during that period merely shows the company was “conservative and transparent in communicating quarterly business conditions to investors,” according to spokesman Terry Alberstein.Stock analysts cannot automatically be blamed for consistently erring on the low side. Until results become public, they must depend in large part on what companies disclose about their performance. A company may deliberately give low guidance so it can top expectations, but that’s hard for analysts to counter without evidence.Brian Marshall, a technology analyst for the brokerage firm Broadpoint AmTech, says Apple’s guidance is “almost absurdly low” but there’s only so much analysts can do.”The funny part is, people, including myself, try to see through it,” he says.He inputs hundreds of numbers into his forecast model each quarter, such as gross profit margin, average selling price for various products, the company’s past guidance and earnings, and data from other manufacturers and suppliers. Analysts also weigh whether a company has a history of issuing earnings results that do not include special accounting charges.Marshall’s estimates for Apple’s latest quarter were the highest on Wall Street. Yet the company topped his expectations by 16 cents per share and $200 million in sales. Its stock jumped 5 percent on the news.Analysts also may have their reasons for wanting to stay on management’s good side.Companies are required to disclose material information to all investors at the same time. But their top executives can still show up at a firm’s annual conference or talk about the industry, notes David Weild, senior adviser at accounting firm Grant Thornton.”It’s pretty widely known that the big-cap companies who are highly sought after can withhold access to get the results they’re looking for, and that includes managing down expectations,” Weild says.Carefully managed by companies or not, expectations matter.A study of stock returns from 1994-2007 concluded that analyst forecasts were the second-most influential force on price movements. Management forecasts topped the list, according to Beverly Walther, an accounting professor at Northwestern University’s Kellogg School of Management who co-authored a newly released report.Estimates by analysts carry particular impact when results do not match up. A company’s stock price tends to fall much more on a “negative surprise,” or miss, than it rises on a positive surprise. Either way, the momentum from beating or missing an estimate can affect a company’s stock price for weeks afterward, Walther said.But the market impact may be a bit more muted than it was before last year’s meltdown. Failing to meet expectations still moves the market, but “it’s not as dramatic now,” says Matt Lloyd, chief investment strategist for Advisors Asset Management, an investment advisory firm.”There’s a lot of cynicism right now toward estimates – among investors, among everybody,” Lloyd says. Because so many economists and analysts failed to see the financial crisis coming, he says, “there’s a little more paranoia and distrust.”Read more at: http://www.huffingtonpost.com/2009/10/25/companies-are-gaming-the-_n_333120.html

Let’s hope this is what the bill really does:The [Barney Frank] measure would make it easier for the government to seize control of troubled financial institutions, throw out management, wipe out the shareholders and change the terms of existing loans held by the institution.Finally taking the Resolution Trust model to the big banks.

Jeremy Grantham: Sucker’s Rally Almost OverHenry Blodget|Oct. 27, 2009, 5:08 AM | 5,105 |19Jeremy Grantham of Boston-based GMO called the crash. He also called the rally. He also called a whole bunch of stuff before that–although, as he is the first to admit, like other value folks, he does have the habit of being early.Not this time, though.Within days of the March low, Jeremy published “Reinvesting While Terrified,” in which he observed that it was time to bet the farm. He soon called for a stimulus-fueled rally that would take the S&P 500 to 1000-1100, which is where we are now. He also laid out his expectation that the market would then move sideways for 7 years.Well, we’ve hit the high of Jeremy’s sucker’s rally prediction. Stocks are now once again significantly overvalued (Jeremy puts the overvaluation at 25%, with fair value on the S&P 500 at 860). He thinks the market can go a bit higher but that it will break down next year. He’s looking for a “painful” pullback of at least 20%. A new low is not likely, but not out of the question.You can download Jeremy’s quarterly letter at GMO’s site here. It’s also embedded below. Here’s the part on the stock market:The Last Hurrah and Markets Being Silly AgainThe idea behind my forecast six months ago was thatregardless of the fundamentals, there would be a sharprally [to S&P 1000-1100]. After a very large decline and a period of somewhatblind panic, it is simply the nature of the beast. Exhibit 1shows my favorite example of a last hurrah after the firstleg of the 1929 crash.After the sharp decline in the fall of 1929, the S&P 500rallied 46% from its low in November to the rally high ofApril 12, 1930. It then, of course, fell by over 80%. Buton April 12 it was once again overpriced; it was downonly 18% from its peak and was back to the level of June1929. But what a difference there was in the outlookbetween June 1929 and April 1930! In June, the economicoutlook was a candidate for the brightest in history witheffectively no unemployment, 5% productivity, andover 16% year-over-year gain in industrial output. ByApril 1930, unemployment had doubled and industrialproduction had dropped from +16% to -9% in 5 months,which may be the world record in economic deterioration.Worse, in 1930 there was no extra liquidity fl owingaround and absolutely no moral hazard. “Liquidate thelabor, liquidate the stocks, liquidate the farmers”2 wastheir version. Yet the market rose 46%.http://www.businessinsider.com/henry-blodget-jeremy-grantham-suckers-rally-almost-over-2009-10

Increased velocity of money and unlocking of otherwise ‘lazy’ capital increased the standard of living for nearly all of the world.Yes, it was abused by some … ok, a great many. The bigger crime is that the greater many allowed the politicos to socialise the losses rather than to let the abusers to take their lumps.As for the taxpayer (I assume you mean the US taxpayer), a lot of the losses were spread well beyond the border and subsidised by the rest of the world. Be grateful for that. Even though some of it was subsequently compensated for through the AIG bailout debacle, I believe the US is on the balance still substantially better off at the expense of the rest of the world. Now that is a weapon of mass financial destruction!

If I take my Jeep up a hill and it climbs for some time while I still have gas, you can surely say that that is stabilised, but what do you call it when it runs out of gas? S&P500 is at least 25% overpriced based on projected earnings.

But I don’t consider myself to be a prophet. However, I can tell you that from what I see in the world – we are facing a pretty rough future in the next 20-30 years. According to current population estimates, the world is going to add another 2.2 billion people by the year 2040. How on earth are we going to feed, clothe, and provide homes for all those extra people? I just don’t see how it can be done equitably – if at all. So what does this really mean? It means that our world is going to be fighting very hard over resources that are getting scarcer and scarcer. Could this be consistent with prophecies … it’s certainly plausible isn’t it?

Wow, a military man with a brain, a conscious and common sense!

Ex-AIG CEO Is Back with New Insurance VentureThe New York Times reports that former AIG CEO Maurice Greenberg is quietly building up a family of insurance companies that could compete with his former company. To fill the ranks of his venture, C.V. Starr & Company, Greenberg has been hiring some people he once employed. One insurance executive said, “Basically, he’s just starting ‘A.I.G. Two’ and raiding people out of ‘A.I.G. One.‘” People who work in the industry said Greenberg may soon be siphoning off AIG’s business and, therefore, its means to repay its debt to the government. AIG was the recipient of the biggest taxpayer bailout in history.

Pete,Absolutely a CIT bk will create a demand for dollars and we have been seeing that already. Consider also the other bankruptcies announced this week, Capmark is relatively large and its bk will trigger a CDS auction.Our politicians need to get the memo that CDS, especially naked CDS, must be banned. When debtholders refuse to negotiate a reorganization because they can recover over 100% of their investment via a CDS payout AND a discounted recovery rate on their bonds, we can understand just how flawed the system really is. Don’t politicians understand that these bets against U.S. companies are driving our economy into the gutter? Any over-leveraged company has a target on its back, a seek-and-destroy missile running at full-speed loaded with an arsenal of naked shorting and CDS bets ready to strike at any moment. Reassuring..hmmm.

Equity market dirt cheap compare to Treasury market. At least Equity market is backed by earning. Treasury market is backed by printpress.

Welcome to Capitalism, Vlad. Or at least, the bastardized version of it that we practice.

It just all depends on how you look at some things…Judy Wallman, a professional genealogy researcher in southern California , was doing some personal work on her own family tree. She discovered that Congressman Harry Reid’s great-great uncle, Remus Reid, was hanged for horse stealing and train robbery in Montana in 1889. Both Judy and Harry Reid share this common ancestor.The only known photograph of Remus shows him standing on the gallows in Montana territory:On the back of the picture Judy obtained during her research is this inscription: ‘Remus Reid, horse thief, sent to Montana Territorial Prison 1885, escaped 1887, robbed the Montana Flyer six times. Caught by Pinkerton detectives, convicted and hanged in 1889.’So Judy recently e-mailed Congressman Harry Reid for information about their great-great uncle.Harry Reid:Believe it or not, Harry Reid’s staff sent back the following biographical sketch for her genealogy research:”Remus Reid was a famous cowboy in the Montana Territory . His business empire grew to include acquisition of valuable equestrian assets and intimate dealings with the Montana railroad. Beginning in 1883, he devoted several years of his life to government service, finally taking leave to resume his dealings with the railroad. In 1887, he was a key player in a vital investigation run by the renowned Pinkerton Detective Agency.. In 1889, Remus passed away during an important civic function held in his honor when the platform upon which he was standing collapsed.”NOW THAT’s how it’s done, Folks!That’s real POLITICAL SPIN

If Companies Butcher Axed Like 25% Of Their PeopleExplain to me why stabilization isn’t horrifying bad news.

Vlad:Once upon a time in America the system was created to keep everything honest. Believe it or not. Without the Fed, a government agency such as the Treasury could simply print money any time it needed extra cash (assuming that tax revenues did not cover expenses). Basically, this would make the country into a third world “banana republic” operation. The idea of having the Fed and controlling how money is borrowed by the Gov’t would essentially work IF the following things were true:1) The Gov’t maintains its level of debt to be some small number (relative to GDP) so it could easily afford to make payments (incl. interest)on money that it owes.2) The Fed really operated an independent body – with sensible monetary principles – and without any form of political interference.3) The cost of money (i.e. the Fed’s interest rate) was maintained within some reasonable range (say 4%-6%) so that credit was not “free”.As you can see, by looking at how things are now, our system has deviated from this plan in every conceivable way. Government debt has exploded, there is no political dividing line between the Wall St. banks, the Fed and the US Treasury, and the Fed is offering money at near-zero interest rates (and printing it as well!). Therefore, it is fair to say now that monetary policies within the United States have failed completely, if you use common sense as your basis for judgment.Instead … what does Bernanke’s current system do? If allows special high-level investors (i.e. banks, hedge funds) to get their hands on credit at nearly zero interest rates, invest this money with large financial leverage, deliberately create exploding asset values (asset bubbles) around the world, and milk the profits from the system. The Fed is essentially funding a global gambling casino i.e. legalized betting with minimum risks to the biggest players.PeteCA

That version of capitalism is correctly named finance-led crony capitalism.An allegedly capitalist economy in which financial companies harvest a dominant share of all profits thanks to the close relationship between their top shareholders, bondholders, executives and government officials (regulatory capture).There is nothing new : this has been the prevalent economic model in the advanced economies for the last 30 years. It originated mainly in the US and the UK (thank you Reagan, Thatcher, Milton Friedman and the Chicago boys) and gradually spread around all advanced economies.How else does one explain that the share of all profits harvested by financial companies grew from less than 10% to close to 50% in the last 3 decades ?As long as the majority of the people remain blindfolded and do not realise how finance-led crony capitalism (and not capitalism per se) is gradually destroying their way of life and their freedoms, nothing will change. It is quite remarquable that the false perception that most people have that the only alternative to the prevalent system is socialism (which they reject) helps only to maintain finance-led crony capitalism in place.There is, IMHO, no more important issue than to wake up the people and make them understand this. All other issues, Afghanistan, Iran, Iraq, Swine flu, health care reform, global warming, etc… together with the confusion between capitalsim and financed-led crony capitalism help to confuse and divert the attention of the people and to maintain finance-led crony capitalism in place.

Well, we are entitled to our beliefs.I believe the U.S. was far better off before we unlocked all theis “lazy capital”, if by that you mean all the leverage and debt. We once built what we consumed and jobs were plentiful. There was a sense of unity and purpose (other than just getting rich), too.We controlled our borders and our destiny and the financial community was but a small fraction of it’s current self.Securitization, as the below quote from Mr. Fecklestein says, is just another ponzi scheme foisted off on the rest of us by a bunch of socially worthless crooks.”The beauty of securitization is its utter simplicity: it simply transfers the authority to generate credit (money) from highly regulated banks to rogue players in the shadow banking system. By borrowing short to invest in dodgy long-term assets, fund managers and PE smarties are able to expand credit to unimaginable levels, skimming off fat bonuses and salaries for themselves while the monster bubble limps slowly towards earth.”Let’s face it, Alarmist. Federally chartered banks should be restricted to holding and loaning money – end of story. Not insurance, not credit cards, not investment banking, not any of the other “financial products”. Let others perform these functions at their own risk – and with their own insurance coverage. There is no good reason for a banker to make more money than someone who works at the Water or Power Utility. It is a simple business made complicated by crooks.Independent contractor

In France, a law was passed last week to impose a 10% additional tax on bank profits this year.This was a good start, allthough one would ask why only 10%, when those same banks would have made no profit at all if they hadn’t been bailed out by the tax payers.But the funniest thing is that the government (led by #1 crony in charge Christine Lagarde, the finance minister) forced parliament to re-vote and managed to cancel the law.Can there be a more blatant example of how the banksters are controling our politicians ?

@Michell – I am in and out of here frequent enough to know your aggressive market position over the past months, and I am glad for you that you pared back your positions recently. My guess is, your timing is correct again. On the other hand, the chances of a correction greater than 7-10% appear likely to me. Once this market starts down again, there could be a mass run for the exits. Who knows for sure? All I know is that we are in uncharted waters.When you stop and think about it, what is fundamentally different between now and March – other than a ton of liquidity (much more debt), more unemployment, tanking demand from both consumers and business, lower real estate prices, and more foreclosures on the horizon, which equals more problems for bank balance sheets?The jobs picture is worse and there is no demand. Wall Street is playing a giant game of musical chairs with itself and the average inwestor is sitting on the sidelines.Independent Contractor

Oh…..I don’t know. How’s about backstopping the banks $23T? Would that be a bit more blatant?

Let’s see. June, July & August. What does that tell you? Oh, yes, it was summer and school was out – the ideal time to move. Check with me around the end of the year and tell me about Sep, Oct, & Nov.Independent Contractor

I completely agree with Chignos here. It is impossible to know if excess liquidity has been mopped up. The situation is much more opaque today than it was in March. At least then it was clear that the anouncemnt of more than $ 1 trillion to be injected by the Fed was going to have a temporary inflating effect on all asset classes.Now, who knows ? How much of that excess liquidity has already been used ? Has anybody seen a report somewhere which tries to make an estimate ? And who knows if the Fed will not make a renewed announcement of another trillion within the next twelve months ?In the current context, I wouldn’t be surprised if equities continue to appreciate by another 30% in the next 12 months, nor would I be surprised if they drop by 50% in that same period.The same is valid for bonds and commodities.In this period of maximum opacity, the best guess is to be 100% cash (a mix of dollars and foreign currencies and a bit of gold as a necessary hedge against the inherent risk of Fiat collapse).Based on fundamentals, I thought all asset classes were already overvalued in March. None of the fundamentals have changed, as the only thing that happened was a mere transfer of credit from the private to the public, which evidently doesn’t change anything fundamentally. The rest is the same, we’ve passed the Minsky point, total credit isn’t growing anymore, and how fast will it eventually deflate will only depend on how efficient and willing governments will be at slowing down the process.We’ve now entered an era of maximum financial instability : ultra shortened business cycles (one, maybe 2 years).The evolution of the markets in the comming decade is going to look like a lightning rod. The only thing that’s certain, is that it goes tumbling DOWN from the sky to the earth). But what path it takes to get there is anybody’s guess.

Sure, but these these things are so …. overwhelming, that they are not blatant anymore

There is a discussion up in the thread which I’ll place back here, specifically when it comes to future market evolution and the influence of the wall of liquidity injected by the fed :PeteCA writes :“There seems to be a subtle shift occurring in the atmosphere of the market … a reduction in bullish optimisim and a return of creeping fear. Risk appears to be raising its ugly head – just in time for Halloween. If the Dow has to make a correction to allow for the outcome of reduced earnings ahead – then a significant loss must be factored in from current levels.”Michelle responds :“I think that subtle shift is a return to fundamentals, i.e. future revenues, economic rebound, etc. Excess liquidity has been mopped up and as I see it stocks are unable to propel higher. As you may remember, I sold half my equity position early last week and won’t buy back in until I see solid evidence that retail investors are willing to buy, and I don’t believe that will happen unless we have a 7-10% correction.”Chignos responds :“Why should anyone believe a “return to fundamentals” is in the cards at all when the Federal Reserve’s balance sheet is so opaque that no one knows if there are any fundamentals?”Independent contractor responds :“When you stop and think about it, what is fundamentally different between now and March – other than a ton of liquidity (much more debt), more unemployment, tanking demand from both consumers and business, lower real estate prices, and more foreclosures on the horizon, which equals more problems for bank balance sheets?The jobs picture is worse and there is no demand. Wall Street is playing a giant game of musical chairs with itself and the average inwestor is sitting on the sidelines.”So, I asked this question :“Now, who knows ? How much of that (more than $1 trillion) excess liquidity announced by the Fed n March, has already been used ? Has anybody seen a report somewhere which tries to make an estimate ? And who knows if the Fed will not make a renewed announcement of another trillion within the next twelve months ?”So here’s my conclusion about future market evolution and my 2 cents about where to “invest” now :In the current context, I wouldn’t be surprised if equities continue to appreciate by another 30% in the next 12 months, nor would I be surprised if they drop by 50% in that same period.The same is valid for bonds and commodities.In this period of maximum opacity, the best guess is to be 100% cash (a mix of dollars and foreign currencies and a bit of gold as a necessary hedge against the inherent risk of Fiat collapse).Based on fundamentals, I thought all asset classes were already overvalued in March. None of the fundamentals have changed, as the only thing that happened was a mere transfer of credit from the private to the public, which evidently doesn’t change anything fundamentally. The rest is the same, we’ve passed the Minsky point, total credit isn’t growing anymore, and how fast will it eventually deflate will only depend on how efficient and willing governments will be at slowing down the process.We’ve now entered an era of maximum financial instability : ultra shortened business cycles (one, maybe 2 years).The evolution of the markets in the comming decade is going to look like a lightning rod. The only thing that’s certain, is that it goes tumbling DOWN from the sky to the earth). But what path it takes to get there is anybody’s guess.

vlad,it is curious.good to hear from you.i think your use of the word “need”deserves further inquiry.

correction..”need” should have been “have to”. as in …”Why do we have to pay private banks to lend our money to ourselves?”.”Why do we have to pay private banks to lend our money to ourselves?”.”Why do we have to pay private banks to lend our money to ourselves?”…??

New thread.Independent Contractor

English is not my native language. Thank you for this correction.

Guest on 2009-10-26 16:13:15 doubts about his conditions of beeing “First”.Guest on 2009-10-26 16:14:08 figures as unappropriate, real unappropriate!Then, the “tercius” finally arrives: myself, I’m the First today!Discussions about this metter are futile!I’m the FIRST!And I’m so happy.Thanks for your cooperation