DOOM: the markets dead as we know it

[Cuzzin E]

Well,

As I've said before, it is all going to come tumbling down, wars, peak oil, bogus terror and the collapse of the west as we know it.

The main thing to take out of all this is that it’s not going to come around ever. The markets are dead. The printing presses have been rolling non stop. The only reason we haven’t seen rampant inflation is that the banks are sitting on the cash to bolster their balance sheets to remain solvent. If or when they start lending this cash or there is a slight recovery, savings destruction will destroy any holdings you have. Every dollar printed in this crisis destroys the value of the dollars in your pay check.

These banks bailouts are the big criminals cashing out before the ponzi scheme is up. Look at the Madoff case, big time Jews with trillions more cash and accountants we all got screwed. Everybody is getting screwed even if they think they aren’t. Only way not to get done over is to own the casino and nobody here does.

So please, don’t profess to be doing alright and safe…. by design we’re all being taken down and there’s no exceptions.

The sooner you realize this, the less nasty surprises there will be for you and start making contingencyplans.

Seriously, if the trucks stopped rolling into your local supermarket, how long would it take for the masses to clean it out in a panic? Can you safely say you can feed yourself for a month if you had to stay put right now?

Not many can.

All this will come to pass.

[M.Dancer]

TMX is in it what? 8th week of gains?

[Vancouver King]

TMX is in it what? 8th week of gains?

A suckers rally if there ever was one. America's GDP contracts 6% and equities surge, the same day Chrysler Canada idles all plants the TSX rises 172 points. Lunacy.

If your investments are in anything but cash and bonds you are asking for trouble.

[August1991]

As I've said before, it is all going to come tumbling down, wars, peak oil, bogus terror and the collapse of the west as we know it.

You forgot Swine Influenza and the metric system.

A suckers rally if there ever was one. America's GDP contracts 6% and equities surge, the same day Chrysler Canada idles all plants the TSX rises 172 points. Lunacy.

My viewpoint too, but I've been wrong before.

I'm amazed how bad news (IMHO) is twisted and leads to market rises. For the moment, I put this down to the 'Obama Effect'. Many ordinary Americans are in denial.

[bush_cheney2004]

....I'm amazed how bad news (IMHO) is twisted and leads to market rises. For the moment, I put this down to the 'Obama Effect'. Many ordinary Americans are in denial.

Nope...they are in America. We can always panic later.

[M.Dancer]

A suckers rally if there ever was one. America's GDP contracts 6% and equities surge, the same day Chrysler Canada idles all plants the TSX rises 172 points. Lunacy.

If your investments are in anything but cash and bonds you are asking for trouble.

If you think an 8 week gain is a rally, I know where to find a sucker....

[Moonbox]

The markets aren't dead. There have been doomsayers like you pretty much every decade and we've always recovered. A lot of balogna assets have been written off and we may see some rough inflation over the next few years but it won't be like the 1970's and we'll keep trucking along fine.

Markets are CYCLICAL, but every time we're on an up-swing everyone is convinced they're going to become millionaires and every time it's on a down-turn that means the western world is going bankrupt.

[sharkman]

The markets aren't dead. There have been doomsayers like you pretty much every decade and we've always recovered. A lot of balogna assets have been written off and we may see some rough inflation over the next few years but it won't be like the 1970's and we'll keep trucking along fine.

Markets are CYCLICAL, but every time we're on an up-swing everyone is convinced they're going to become millionaires and every time it's on a down-turn that means the western world is going bankrupt.

Yeah, but a down-turn of over 50% isn't exactly normal cycle activity. If oil spikes again this summer it could take the wind out of the 'sales'.

[Moonbox]

Yeah, but a down-turn of over 50% isn't exactly normal cycle activity. If oil spikes again this summer it could take the wind out of the 'sales'.

Yes it is. We lost about 29% on the DOW in 2000-2001, 37% in 1988, 25% in 1982, 26% in i think 1978, 45% from 1973 to the end of 1974 and so on and so on. EVERY time we have people saying the markets are done capitalism has failed etc etc and EVERY time we bounce back stronger than ever.

The short term sucks. I'm not worried moving forward.

[sharkman]

I am aware of the normal business cycle. None of those numbers approached 50%. I don't happen to think the market is dead, only that this is more serious than the ones you mentioned.

But I still believe that if oil spikes, it could cancel a fledgling recovery.

Edited May 5, 2009 by sharkman

[Moonbox]

I am aware of the normal business cycle. None of those numbers approached 50%. I don't happen to think the market is dead, only that this is more serious than the ones you mentioned.

But I still believe that if oil spikes, it could cancel a fledgling recovery.

The market went down about 45% around 77/78. I'd say that's approaching 50%. We recovered and did fine.

I think the fledgling recovery is VERY premature I'll agree with you on that.

All I'm saying is that this is cyclical economics with a new twist. This time arrogant western governments are paying HUGE for the lack of oversight for their financial industries and the taxpayers will pay for it down the road.

The reason the markets went down 50% was because of panic induced by poorly managed and ancient household corporate names like GM, Chrysler, AIG etc.

The value of the economy didn't go down 50%, but the stock market indicated as such.

[sharkman]

That sounds like a pretty good analysis. How about including the high amount of mortgage bankruptcies in your twist? To me, the recovery may hinge on how many more are coming down the pike, even if oil doesn't spike. So I guess I'm a little more pessimistic than you.

[Moonbox]

That sounds like a pretty good analysis. How about including the high amount of mortgage bankruptcies in your twist? To me, the recovery may hinge on how many more are coming down the pike, even if oil doesn't spike. So I guess I'm a little more pessimistic than you.

The mortgages were implied. When AIG was underwriting mortgages for people who couldn't afford them and couldn't prove their income, that follows under "Poorly Managed". Poorly managed is actually a huge understatement. Criminal negiligence is even too soft. What failed the economy in this cycle was DELIBERATE criminal actions of wealthy and well-informed investors and executives whom our governments ALWAYS go soft on.

Like I said, the recovery at this point is VERY premature. The TSX is almost back to where it was in the summer already. That doesn't even make sense to me . I've made a KILLING on financials in the last few months but I'm certainly not going to hang on to them if they're trading anywhere where they were a year ago lol.

Edited May 7, 2009 by Moonbox

[geoffrey]

Yeah, but a down-turn of over 50% isn't exactly normal cycle activity. If oil spikes again this summer it could take the wind out of the 'sales'.

Or rising interest rates force everyone to default on their massive, huge, unsecured (their houses are worthless) debt. The next cycle is looking far far worse than this one. Next time, under high inflation, rising rates, etc., the Fed cannot possibly print money like now.

The future of the economy 3 or 4 years out is far uglier than now.

The market went down about 45% around 77/78. I'd say that's approaching 50%. We recovered and did fine.

77/78 didn't have a massive crash in real estate or Bear Sterns failing. The only reason the market hasn't gone lower is because the US increased it's national debt by 10%. Easy. You can sustain an economy for awhile by printing money and borrowing from the Saudi's. But not forever.

The reason the markets went down 50% was because of panic induced by poorly managed and ancient household corporate names like GM, Chrysler, AIG etc.

No, it wasn't panic. There is no solvent bank in the United States today. That's not panic. That's an actual crisis.

The value of the economy didn't go down 50%, but the stock market indicated as such.

The value of the economy declined far more than that. If US banks leverage 10:1 (Canadian style) versus 40:1 or 50:1, that represents a decline of 80-90% of the capitalization in the United States. This isn't reflected in today's market, but will be a necessity as loan losses grow. These stress tests were a joke and understated the problem, and even then are recommending capitalization in the 20:1 range. If Goldman Sachs calls in $300b in loans to reduce leverage, that's going to destroy alot of economic power. Compound that across at least 10-20 major players in the US and UK.

Now banks don't hold all the leverage, but are a key source. If banks are deleveraging, so too will companies that can no longer get debt financing from banks that aren't lending.

That sounds like a pretty good analysis. How about including the high amount of mortgage bankruptcies in your twist? To me, the recovery may hinge on how many more are coming down the pike, even if oil doesn't spike. So I guess I'm a little more pessimistic than you.

Mortgage bankruptices are huge right now, but banks don't have to write them off under the new accounting standards, so long as they are securitized in some weird way that makes them 'hard to value.'

The underlying value of the houses to be foreclosed is also going to be substantially less than what the banks expect. Once the banks start selling these foreclosures, the housing market will tumble again.

There are no sources of potential optimism in the US housing market.

What failed the economy in this cycle was DELIBERATE criminal actions of wealthy and well-informed investors and executives whom our governments ALWAYS go soft on.

During the Savings and Loans crisis, many executives went to jail for exactly what these big bank guys have done now. This probably deserves another post. It's absurd that no one has been jailed for the fraudulent activities that some of this was founded upon.

[Moonbox]

Or rising interest rates force everyone to default on their massive, huge, unsecured (their houses are worthless) debt. The next cycle is looking far far worse than this one. Next time, under high inflation, rising rates, etc., the Fed cannot possibly print money like now.

Rising interest rates don't generally all of the sudden raise loan/mortgage payments by themselves. The interest rates have to go so high that the monthly payments no longer even cover the interest, and that's only on variable products. Everyone is going for fixed rates right now. On top of that the banks have generally raised the spreads on their lending since last summer in anticipation of the low interest rates today being temporary (which they most certainly are). Unless prime goes up to like 10+% all of the sudden it's not going to be nearly as bad as you say it is.

The future of the economy 3 or 4 years out is far uglier than now.

Remember you said that in 3-4 years and laugh at yourself then.

77/78 didn't have a massive crash in real estate or Bear Sterns failing. The only reason the market hasn't gone lower is because the US increased it's national debt by 10%. Easy. You can sustain an economy for awhile by printing money and borrowing from the Saudi's. But not forever.

It was a different sort of crash, you're right. Back then you had extremely high oil prices holding the economy back and this time we have the opposite. No kidding you can sustain the economy with national borrowing. It's just going to mean that the taxes for the rich in the USA are going to have to go up to fix the disaster they created. That doesn't spell disaster. It's long overdue anyways.

No, it wasn't panic. There is no solvent bank in the United States today. That's not panic. That's an actual crisis.

It was still panic. Obviously the US government wasn't going to let the entire banking system fail. They backstopped the crisis and a LOT of savvy investors have made a fortune in the last few months KNOWING the markets were not "Dead as we know it".

There will be inflationary pressure caused by money printing but that's going to be significantly curbed in the near term because a lot of the money being printed is ending hoarded by the banks who are trying/being forced to re-capitalize themselves. Printing money only causes inflation if the money is flowing in and out of consumer's hands.

The value of the economy declined far more than that. If US banks leverage 10:1 (Canadian style) versus 40:1 or 50:1, that represents a decline of 80-90% of the capitalization in the United States. This isn't reflected in today's market, but will be a necessity as loan losses grow.

I'm going to stop taking you seriously right there. You know the expression "a little bit of knowledge is dangerous thing."?

The banks' leveraging ratios do NOT do NOT do NOT reflect the value of the US economy as a whole. I'm not going to explain why. I'll let you ponder on that. I don't have the time to teach pre-101 level economics, sorry.

[geoffrey]

I'm going to stop taking you seriously right there. You know the expression "a little bit of knowledge is dangerous thing."?

The banks' leveraging ratios do NOT do NOT do NOT reflect the value of the US economy as a whole. I'm not going to explain why. I'll let you ponder on that. I don't have the time to teach pre-101 level economics, sorry.

Ya, you think AIG went bellyup because of mortgage underwriting. Unfortunately, your clueless on the topic. I don't have time to teach basic financial system knowledge, sorry.

Anyways, bank leverage ratios in general have a massive impact on the value of any economy in which the banks participate. I refer you to Schmukler and Vesperoni... as well as Salvadori. Both of these pieces devote extensive thought to this, as both a cause and effect. Might be beyond your level, or below your absolutely Godlike understanding of things beyond all existing economic theory! Who knows.

(By the way, unless your a professor somewhere, I'm far more educated than you in Economics. And I know your not.)

[Moonbox]

I think the banks went belly-up for over leveraging bad mortgages. I think AIG went belly-up for overextending with credit-default swaps. They are inter-related anyways so maybe I over-simplified. Sorry.

I apologize for assuming you know nothing of economics and I was obviously wrong, but the value of the economy is nonetheless NOT going down 90%. We saw US household wealth drop like 18%, which is equal to 85+% of the value of the NYSE, and we are probably seeing a full year's worth of GDP wiped off the balance sheets, but the economy is not going to be worth 50% less in the end and especially not 80-90%.

I think 1970's level inflation is a possibility over upcoming years but the doom and gloom scenario the opening post presented is just silly.

[geoffrey]

I think the banks went belly-up for over leveraging bad mortgages. I think AIG went belly-up for overextending with credit-default swaps. They are inter-related anyways so maybe I over-simplified. Sorry.

Fair.

I apologize for assuming you know nothing of economics and I was obviously wrong, but the value of the economy is nonetheless NOT going down 90%. We saw US household wealth drop like 18%, which is equal to 85+% of the value of the NYSE, and we are probably seeing a full year's worth of GDP wiped off the balance sheets, but the economy is not going to be worth 50% less in the end and especially not 80-90%.

No, but even a 20% drop in the REAL economy is substantial in a leveraged-to-the-tits economy like in the US. Everyone down there is so overextended. It's going to be a mess. We are just seeing the tip of the iceberg when it comes to defaults. Nothing has changed. All the bad mortgages still exist. Nothing at all has changed! Just some fancy accounting and printing of money.

I think 1970's level inflation is a possibility over upcoming years but the doom and gloom scenario the opening post presented is just silly.

Are we going to be running in animal skin undies hunting meat? Probably not. But the way of life we have now will be forever changed. You can't finance your future forever.

[Moonbox]

No, but even a 20% drop in the REAL economy is substantial in a leveraged-to-the-tits economy like in the US. Everyone down there is so overextended. It's going to be a mess. We are just seeing the tip of the iceberg when it comes to defaults. Nothing has changed. All the bad mortgages still exist. Nothing at all has changed! Just some fancy accounting and printing of money.

I'll agree again on that. US households lost something like $11 trillion on paper over the last year. That's pretty much the value of the NYSE. It's HUGE, it's ugly, and hasn't been fixed. I wonder how much of the recent rally is price manipulation.

Are we going to be running in animal skin undies hunting meat? Probably not. But the way of life we have now will be forever changed. You can't finance your future forever.

In the LONG run, things have probably changed for the better.

[Oleg Bach]

It's not doom - it's a fresh start - economy is a personal thing - you create it - you adjust - and you never use the term "doom" - because mankind has made it though a thousand dooms - and survived quite well - it's about attitude - think of yourself as poor and you will be.

[bush_cheney2004]

It's not doom - it's a fresh start - economy is a personal thing - you create it - you adjust - and you never use the term "doom" - because mankind has made it though a thousand dooms - and survived quite well - it's about attitude - think of yourself as poor and you will be.

Preach...brutha...preach. Poverty is a state of mind.

[sharkman]

I don't know fellas, I've been hearing some pretty nasty scenarios recently that say the recovery is a false one and we are in uncharted waters over our heads.

When did we ever see a state going completely broke. California is falling like a chain sawed tree and Obama is doing nothing about it! Which state will be next, they are actually discussing the release of prisoners because they can no longer pay to keep certain prisons open.

Edited May 29, 2009 by sharkman

[geoffrey]

California delayed tax refunds because they didn't have the cash to pay them as well. Rough stuff.

[Oleg Bach]

California delayed tax refunds because they didn't have the cash to pay them as well. Rough stuff.

Things change and people adapt - It's about letting go of that past and understanding there is no future - that the future is made here in the present - cheer up - we've been around for thousands of years and this is just a passing blip - besides the sky is blue and you are in love with life.

[sharkman]

I don't know, Oleg, try telling that to Californians. People are actually fleeing the state. I'm not saying the world is ending. But some kind of foundational changes are occurring and it's wise to acknowledge this so we can be prepared for them. For instance, now may be a bad time to take on debt. Now may be a bad time for a career change. Now may be a bad time to invest in unsecured vehicles. It's part of adapting.