Meltdown

[BachQ]

Peter Schiff

http://www.youtube.com/v/Mlo8uvlwQeQ

"Our entire phoney economy is collapsing around us, there's nothing the gov't can do to stop it, they should get out of the way and let it happen."

"We're going to have to rebuild a viable economy ...it won't be easy, and a lot of companies are going to go bankrupt in the process"

"Once this [dollar] rally is exhausted, the dollar is going to collapse"

"Next year gold will hit $2,000/oz, and then go higher"

[BachQ]

Quite a few commentators have been knocked off their chairs the past couple of days by the seeming ability of the S&P, DJIA, FTSE et al to just keep falling, dammit.

What's happening in the stock markets doesn't even come close to the chaos in credit though. US corporate bond markets are not just crashing, they're failing.

"Just take a look at the two graphs below, from Bank of America's credit team. On the left, spreads in the secondary market. On the right, issuance. *** What the curves are showing then is that the rules about markets and risk are changing: we are moving towards a zero interest rate environment. The nature of credit is altering."

[ezodisy]

This has to be the best one yet.

[ezodisy]

Peter Schiff

http://www.youtube.com/v/Mlo8uvlwQeQ

"Our entire phoney economy is collapsing around us, there's nothing the gov't can do to stop it, they should get out of the way and let it happen."

"We're going to have to rebuild a viable economy ...it won't be easy, and a lot of companies are going to go bankrupt in the process"

"Once this [dollar] rally is exhausted, the dollar is going to collapse"

"Next year gold will hit $2,000/oz, and then go higher"

haha this guy is amazing. Dollar should be on the wane by Christmas. I heard one of George Soros's boys say that he'll have pulled out of the dollar by then and that is a good enough sign for me.

[mn dave]

I've lost half my 401k. Yippee!!!

[BachQ]

     Concerning the possible bailout of the auto industry, it may not be a case of bailout or Chap. 11 (Chap. 7 is liquidation, which really would be a disaster). This TNR blog discusses the possibility of a restructuring with some assistance:

    As a number of analysts have noted, the biggest reason a General Motors bankruptcy is so frightening is that it might not work out like the airline bankruptcies have. Remember, if General Motors were trying to reorganize itself under bankruptcy, it would have to come up with cash in order to buy parts. Thanks to the problems on Wall Street, that could be extremely difficult. That means GM could end up filing for bankruptcy under Chapter 7, rather than Chapter 11, and going through liquidation. The ripple effects could take down the rest of the auto industry or some significant portion of it. Unemployment would spike and the eocnomy would take yet another big hit.

But government could, in principle, provide funding as a precursor to Chapter 11 rather than an alternative to it. In effect, it would be stepping up to provide the kind of credit that would be available to General Motors (and the rest of the Big Three, if necessary) if Wall Street were not melting down. This would allow the company to take advantage of bankruptcy protection without complete liquidation.

     I don't much like an auto industry bailout, mostly because I'm not sure we won't have to go back again if it doesn't work. However I recognize that the cost of not doing anything will be much higher than any bailout package contemplated now. Even Toyota is worried about this. The supply chain will not survive a Big 3 collapse, and the ripple effects will hit the other companies as well. This is a much worse outcome than anything a bailout might do.

In a related story in Bloomberg today: Nov. 21 (Bloomberg) -- President-Elect Barack Obama's transition team is exploring a swift, prepackaged bankruptcy for automakers as a possible solution to the industry's financial crisis, according to a person familiar with the matter. *** In a prepackaged bankruptcy, an automaker would go into court with financing in hand after reaching agreement with lenders, workers and suppliers on what each would give up and on the business plan to be followed. The process might take six to 12 months, compared with two to five years if the automakers followed an ordinary Chapter 11 proceeding and worked out agreements under a judge's supervision, Bane said. Automakers would have to depend on government financing to restructure in bankruptcy court and probably couldn't attract private loans until they were ready to emerge from the process, Bane said.

Congress has given the Big 3 until early December to show how the bailout funds will be spent toward enhancing their viability.  This may be their last clear shot to avoid Chapter 11.

[BachQ]

Ireland experiences its first fall in employment since 1991. Meanwhile, California's unemployment rate rose dramatically in October to 8.2%, its highest level in 14 years, the state Employment Development Department reported today. LA TIMES

[BachQ]

U.S. oil demand for the first 10 months of 2008 fell at rates not seen since the recessions of the early 1980s, the American Petroleum Institute said on Wednesday.

[BachQ]

I heard one of George Soros's boys say that he'll have pulled out of the dollar by then and that is a good enough sign for me.

Yeah, that's good enough for me, as well.

[BachQ]

I think the guy (or guys) who suggests 0 is way off the mark. BOE has never gone below 2. It ain't gonna happen now.

US deflation fears: 0% rates prediction -- This Is Money.UK says:  A senior Wall street economist predicts US interest rates will be 0% by early next year, raising the spectre of deflation that haunted the Japanese economy for a decade...

[ezodisy]

Yeah, that's good enough for me, as well.

Mostly everything rallied at the end today, really crazy movements on strong volume too. Gold shot up to over $800. Gold E&P companies probably will be the hot sector of 2009.

One of the more popular theories is that we're set to head into a strong bear market rally which should lead us into early 2009, perhaps beyond into spring even. This is when it becomes interesting: following this rally a prediction of a third (C) wave down which will send the indices well below where they are now. This will be the "capitulation" which is talked about a lot right now. I would like to think that this won't happen, that with the market's foresight it'll bottom out soon and the lows will be in. But the story is pretty convincing and wave theory has a sound technical foundation -- there's really no reason to think that the lows have to be in all at once and that this can't turn into an extended crash in mid to late 2009. The 500pt rally today is guilty until proven innocent as prices remain beneath longer trend lines and moving averages, not to mention that the bullish engulfing candle on the Dow is not matched at all by one on the S&P. I think we'll see a Christmas and presidential rally, one that may extend beyond late Jan, who knows? But I tend to think that this third wave down will happen and that it'll be fierce. It may also be around the time of a shift into commodities (again), with funds going out of the dollar and back into oil, and probably into gold too. Mining companies have taken a beating and should turn then as well.

US deflation fears: 0% rates prediction -- This Is Money.UK says:  A senior Wall street economist predicts US interest rates will be 0% by early next year, raising the spectre of deflation that haunted the Japanese economy for a decade...

In the US yeah, I wouldn't be surprised. I hope it doesn't happen in the UK though.

[drogulus]

I would like to think that this won't happen,

     Hahahahahahahahahaha!!

     No, this is just like a horror film where everyone scares themselves by imagining it will really happen, the Asteroid is coming and all us dinosaurs will buy the farm.

     Disaster could strike, and in the case of something like a Depression which happens once you have no form of statistical analysis that can tell you if/when it will happen again. There's a big difference between a very bad recession and a depression, and no way going in to tell the difference since all the signs point to both. That allows all the panickers to credibly freak out and the rest of us to enjoy the show and get nervous, which is what we're supposed to do, I guess.

[ezodisy]

     Hahahahahahahahahaha!!

     No, this is just like a horror film where everyone scares themselves by imagining it will really happen, the Asteroid is coming and all us dinosaurs will buy the farm.

     Disaster could strike, and in the case of something like a Depression which happens once you have no form of statistical analysis that can tell you if/when it will happen again. There's a big difference between a very bad recession and a depression, and no way going in to tell the difference since all the signs point to both. That allows all the panickers to credibly freak out and the rest of us to enjoy the show and get nervous, which is what we're supposed to do, I guess.

I don't really know what you're getting at there. If you're saying that it's scaremongering, I would point out that that couldn't be the case, as we are already deep in trouble and statistically unemployment and certain other figures will continue to get worse well into 2009. I'm pointing out only that there's no reason to think that a permanent bottom is in. It could be, but then people thought the same during the Great Depression too (other comparisons aside). When most of the economists are talking about things being (or getting) as bad as in the '70s, yet the indices only reach 2002 and mid-'90s levels, then you have to wonder whether the economists are wrong or whether the markets haven't yet priced it in. I think the latter.

[drogulus]

I don't really know what you're getting at there. If you're saying that it's scaremongering, I would point out that that couldn't be the case, as we are already deep in trouble and statistically unemployment and certain other figures will continue to get worse well into 2009. I'm pointing out only that there's no reason to think that a permanent bottom is in. It could be, but then people thought the same during the Great Depression too (other comparisons aside). When most of the economists are talking about things being (or getting) as bad as in the '70s, yet the indices only reach 2002 and mid-'90s levels, then you have to wonder whether the economists are wrong or whether the markets haven't yet priced it in. I think the latter.

     Of course it could be scaremongering because it is! It's still a horror movie even if a monster kills you when you leave the theater. Scarification is the permanent theme of this thread. We're supposed to take all these worrisome trends and project them in a straight line and imagine that inflation news is confirmed by deflation news.* We are headed towards 8% unemployment next year (currently 6.5%). Is every instance of 8% unemployment supposed to mean 25% is on the way, or just this one?

     I want someone to show me that this isn't just a bad recession, possibly the deepest one since the '30s. Any possibility of a real Depression will have to first show signs of the kind of recession we're having now. And in calculating the chances of going over the edge you have to consider that the governing practice of economics is totally Keynesian (look at how quickly the Bushies went crying to Momma Keynes when the shit really hit the fan!). We'll have to have a Depression in spite of government intervention. The last one happened when international trade was choked off and protectionism was sweeping the world, and the reigning theory was that when the economy contracted the government contracted, too. FDR promised to balance the budget! In the Big Government Era (~1940-present) there have been zero Depressions and zero 19th-century-style panics with mass pauperization. We've forgotten what economic cycles look like under laissez faire because even conservative governments don't practice it. For all the pissing and moaning, no welfare state has ever been abolished, just tinkered with.

     The point is not that a Depression is impossible when governments use all the tools available, it's that it hasn't happened, so everything beyond deep recession of the type that has happened is uncharted territory. I'll make a prediction: The government will try anything in the next year or so to halt the downturn and like a blind pig will turn up something, if they haven't already. I'll go with the odds, and you can go with the nightmare scenario.

    Naturally I.........I.....could be wrong!



     

     _{*What happens when both inflation and deflation are projected into the future forever? A black hole?}

[BachQ]

I've lost half my 401k. Yippee!!!

Don't feel too bad, Dave, even the savviest of investors have been burned. For example, since July, uber-investor Warren Buffet has lost 35% of his fortune.  But this 35% loss looks good in comparison to most, including the Dow and the S&P 500 (down 40%).  The NYT noted today (Saturday):

***Even mighty Berkshire Hathaway, Warren E. Buffett's Triple-A rated company whose largest business is insurance, seems to arouse doubts. The cost of insuring against a Berkshire default leaped this month, as the stock fell to a five-year low.  Since the Lehman weekend, Berkshire has lost 35 percent of its value, which means it has performed better than most. The S.& P.'s 500-stock index is down 40 percent, and the S.& P. financial index has lost more than half of its value, which was severely depressed before the fall. It is now at a 13-year low.

  A plummeting 401(k) might be the least of your worries.  (Drogulus, do not click on this link ... it's chock full of doomer porn ! ! !).   

[BachQ]

One of the more popular theories is that we're set to head into a strong bear market rally which should lead us into early 2009, perhaps beyond into spring even. This is when it becomes interesting: following this rally a prediction of a third (C) wave down which will send the indices well below where they are now. This will be the "capitulation" which is talked about a lot right now. I would like to think that this won't happen, that with the market's foresight it'll bottom out soon and the lows will be in. But the story is pretty convincing and wave theory has a sound technical foundation -- there's really no reason to think that the lows have to be in all at once and that this can't turn into an extended crash in mid to late 2009. The 500pt rally today is guilty until proven innocent as prices remain beneath longer trend lines and moving averages, not to mention that the bullish engulfing candle on the Dow is not matched at all by one on the S&P. I think we'll see a Christmas and presidential rally, one that may extend beyond late Jan, who knows? But I tend to think that this third wave down will happen and that it'll be fierce. It may also be around the time of a shift into commodities (again), with funds going out of the dollar and back into oil, and probably into gold too. Mining companies have taken a beating and should turn then as well.

Jeff De Graaf, the highest-rated technical analyst 4 years in a row according to Institutional Investor magazine's survey, believes that the S&P will fall far lower, based on his analysis of several criteria, including: declining stocks outnumbering rising ones; higher trading volume when the market is falling than when it's rising; and two- year Treasury note yields near record lows at 1.17 percent, an indication investors are seeking to avoid risk. ``The final low will be much lower than this,'' and may not occur before the fourth quarter of next year, de Graaf said. 

[BachQ]

First the subprime meltdown; now the "Alt-A" meltdown; and soon to arrive at a theatre near you: the "prime" meltdown.

Alt-A Losses Outstripping Expectations, Moody's Says
By PAUL JACKSON
November 20, 2008

Severe delinquencies on recent-vintage Alt-A RMBS are quickly getting worse than expected, Moody's Investors Service said earlier this week; the rating agency said worsening trends in Alt-A have forced it to undertake a revision of lifetime loss projections for 2006 and 2007 vintages, as a result. Moody's last revised its loss expectations for the Alt-A sector six months ago. As of Oct. 2008, serious delinquencies for Alt-A pools — including option ARMs — averaged 20.3 percent of current balance for the 2006 vintage and 17.5 percent for the 2007 vintage, up from 16.9 and 12.2 percent six months ago. At the same time, prepayment rates on these pools are at historical lows and are currently averaging in the mid to high single digits, Moody's noted. Serious delinquencies refers to mortgages more than 60 days in arrears, in this case.

More insight from Der Spiegel: The Next Subprime Crisis Looms

[drogulus]

  A plummeting 401(k) might be the least of your worries.  (Drogulus, do not click on this link ... it's chock full of doomer porn ! ! !).   

   I like that! 

[ezodisy]

I'll make a prediction: The government will try anything in the next year or so to halt the downturn and like a blind pig will turn up something, if they haven't already. I'll go with the odds, and you can go with the nightmare scenario.

Actually if you look at it differently you might see that the odds are in favour of the nightmare scenario.

I'll tell you what I expect -- this is assuming that 7500 is the low for now.

If you follow Dow Theory you'll know that we're in the midst of the major trend (yes I know this is rather obvious). What we're waiting for is the secondary, intermediate trend -- the retrace, or the bounce. I do not think that the one from 8000-9600 counts. In my opinion we will witness a huge bear market rally to the 61.8% Fibonacci level on the year-to-date chart, c.11,000. This coincides with the 50% level of the whole move. From that point--stern resistance--we will witness heavy selling--just as the media thinks it's party time--and then BAM(!), another 40 to 50% plunge to around the 6000 level. Although we remain beneath all significant trends and MAs I do not think we will go any lower for now -- it's important that 50% is not broken and this historical point will be seen as a positive to rally. I can't be anymore positive than this, not with the sheer financial crisis that funds, companies and governments around the world are experiencing -- not to mention people. Presuming we rally from here, we'll be on our way for 2 to 3 months, maybe longer, and then I think we'll reverse and continue with the main trend. Just as bull market runs can go for several years, there's no reason to think that a bear market collapse cannot, especially with the level of panic and disorder we're seeing everywhere, and with all these economists calling this the worst in 30 years, or even since the '30s. So that's my prediction -- significant retracement to a fib level and then continuation. I don't know about Elliott Wave Theory and the 5 waves so can't say anything about that.

Of course I may be well wrong and 8000-9600 may have been the secondary stage, but I don't think so. You can remind me of all this if we comfortably pass through 11,000.

Sorry I can't reply to your comments about Keynes -- don't know anything about it.

it's chock full of doomer porn ! ! !). 

Well that's certainly one way of putting it! lol!

Jeff De Graaf, the highest-rated technical analyst 4 years in a row according to Institutional Investor magazine's survey, believes that the S&P will fall far lower, based on his analysis of several criteria, including: declining stocks outnumbering rising ones; higher trading volume when the market is falling than when it's rising; and two- year Treasury note yields near record lows at 1.17 percent, an indication investors are seeking to avoid risk. ``The final low will be much lower than this,'' and may not occur before the fourth quarter of next year, de Graaf said. 

Nice one. I read about this a few days back and I think he's going to be proven right yet again with his multi-year bear market prediction (I agree, though I think we'll see it before 4th quarter). As it is I think you and I will be in the business of G&D for a long time to come -- and I will drink to that.

[Lilas Pastia]

Tony, why do you place so much importance in the Fibonacci levels? They're reputedly elusive and unreliable as tools for predicting markets. Just curious.