In a blog where I do not get paid for my opinions and have no risk in being wrong about the future, I will make a bold prediction based on current and past events.
First, look at the link below to see how the first Great Depression (we're in the second one now) showed how the 1929 crash led to a 60 percent increase in an optimistic recovery and then seriously crashed again by nearly 80 percent in 1932.
http://www.marketoracle.co.uk/images/1929-stock-market-crash-dow-chart-image005.png
The link shows the reason for the first crash, the reason for passing Glass-Steagall. This, also, was the reason fro Great Depression II--the current Great Depression hidden by food stamps, food banks, unemployment insurance, social security, medicare, medicaid, etc.
The second crash is based on sovereign debt default in Europe, one of the reasons a small party like Adolph Hitler's Nazi party was able to rise to power in Germany in the early 1930s.
Not to be a "gloom and doomer" but the same sovereign wealth default contagion is spreading, with Spain's ratings recently cut by Fitch. Look for another hit on the stock market this week. In the end, my prediction is another crash at nearly 80 percent of the peak. That would put the Dow below 2,000 at its lowest point. Many suggest below 6,000 and that might be optimistic.
However, don't expect this to happen anytime soon. As you see in the chart from Great Depression I, the decline is gradual. The question will be how this society and others react to the stock market decline. Can you say "Tea Party"? Knew you could. Let's hope more sensible heads prevail.
Remember folks, it's only money and those wide-screen TVs, blue-ray players and high-def DVD collections should keep us happy during a tumultuous economic decade. Also, alot of people went to the movies during the Great Depression I to alleviate their spirits.
I leave this blog post with a quote from Hal Holbrook's character in the movie WALL STREET (look for Wall Street 2 in theaters this fall).
"Man falls into an abyss--sees nothing staring back at him. That's when man finds his true character and it keeps him from falling into the abyss."--Lou Mannheim in Wall Street.
That goes for men and women.
Until next time....this is Robert Michaels.
Sunday, May 30, 2010
Tuesday, May 11, 2010
The Contagion Effect
We've seen this before. A group that thought a crisis in one sector would never have an impact on their sector. But a crisis in one place can seep to another. It's called "contagion," and we are seeing it today in Greece, spreading to Portugal, Ireland, Italy and, of course, Spain.
Wall Street jeered when it looked like Greece would fall into default and knocked out of the Eurozone in the middle of civil unrest. Then, Wall Street cheered when the Eurozone agreed with the IMF to provide $1 trillion to bail them out. Wall Street likes bail outs...doesn't it?
The market dropped precipitously in October 2008 when it looked like the government was not going to bail out the big banks. Then, it picked up when it saw $700 billion in taxpayer money going to the big banks.
The moral of this story (in George H.W. speak): bail outs--good, no bail outs--bad.
So, the market is doing well again after a sudden drop off last week.
Let me pause now for a moment to discuss that 1,000 point drop, which I believe was Asian money taken out suddenly since the Japan's Nikkei and China's Mizhuo had significant drops the night before. However, was it more than that? I view two possibilities:
One, that a computer glitch messed up Government Sachs' flow of funds from the Fed, which showed what the market would actually look like all things being even. In a moment, it was fixed and back to its usual "smoke and mirrors" market reflection. Or, someone with some ethics tried to show the public what is really going on in a stock market with price and earnings completely out-of-whack. That's one possibility.
Here's the other--a much more terrifying possibility. China had enough of U.S. debt that will never be paid. Japan still remembers how WWII ended. Perhaps at that moment, someone in Asia knew something we didn't know. That a bomb was about to head this way and, at that moment, markets collapsed. Perhaps, there was a very real possibility that an Asian country was going to send a missile/bomb to the U.S. because that country knew they would not receive their loan payments and it was collection time.
True, the latter is a far-fetched scenario, but may become a realistic one in the near future.
Let's get back, however, to the contagion effect.
In Summer 2007, the residential mortgage-backed securities market shut down. Liquidity, for the most part, stopped and made it nearly impossible from potential borrowers to receive home loans. On the commercial real estate side, things were different. Fundamentals were good--rents and values continued to hold up. However, like residential, commercial mortgage-backed securities started to freeze up. Why? Because investors are not stupid. They realized a collapse in residential would eventually move to commercial real estate.
Analysts thought CMBS spreads were out-of-whack because of "headlines." No. Headlines do not affect investors--at least not good investors who do their homework. Just because a headline emphasizes increasing delinquencies does not mean the market is falling apart. Good investors read through the headlines, just like they are doing today when headlines say a "recovery continues."
Now, commercial real estate represents the results from residential real estate's collapse--a contagion effect that spread because of the natural connection between residential real estate and commercial. The connection is: homeowner is house poor, spends less (retail hit), meaning less inventory (industrial hit) meaning less worker necessary for business (office hit), less spending money (hotels hit) and--in the case of many youngsters, moving back home (apartments/condos hit). Without liquidity, commercial construction was hit.
So, why does this have anything to do with Greece? Simple. Greece received $1 trillion from bankrupt European countries and the IMF. Yippeee for Greece. But what about the PIIS leaning further downward from insolvency. When they need to be bailed out, it's France, Germany and the UK to the rescue...with the little funds IMF can use.
European insolvency leads only to one more land mass with any money--the U.S. But, the U.S. is already insolvent. Schools, hospitals and other public facilities are closing down, laying off workers due to state and local budget deficits. The federal government deficit is just plain scary. We're almost in as bad shape as Greece from a debt perspective with one exception--we are the United States of America. We are the standard. We are the most developed country in the world. We don't fall like Iceland or Greece or any of those other countries--right?
Well, truth is, we have no manufacturing force--it's all been outsourced; we have no oil--except the barrels floating in the water right now; we have no other energy outlets like windmill or solar power; and, our people have no energy. So many layoffs depleted resources, making current workers exhausted and burned out.
This needs to turn around--and now. We cannot afford to have a burned-out wasteland country with a few large banks standing tall like Donald Trump towers in Atlantic City. THIS BEHAVIOR MUST CHANGE. It is time for a new philosophy for people and corporations.
Live and function within your means. Begin with ideas and create. Live for the sake of living, not for the sake of the dollar. Do what you enjoy, accept responsibility for decisions and do what this country does best--compete. Try to win within the rules but, if you lose, do it with dignity.
In other words, let's get some pride back in the USA.
Otherwise, there will not be much to be proud of...other than more economic uncertainty and, perhaps, hate-filled riots like the ones we currently see in Greece.
Wall Street jeered when it looked like Greece would fall into default and knocked out of the Eurozone in the middle of civil unrest. Then, Wall Street cheered when the Eurozone agreed with the IMF to provide $1 trillion to bail them out. Wall Street likes bail outs...doesn't it?
The market dropped precipitously in October 2008 when it looked like the government was not going to bail out the big banks. Then, it picked up when it saw $700 billion in taxpayer money going to the big banks.
The moral of this story (in George H.W. speak): bail outs--good, no bail outs--bad.
So, the market is doing well again after a sudden drop off last week.
Let me pause now for a moment to discuss that 1,000 point drop, which I believe was Asian money taken out suddenly since the Japan's Nikkei and China's Mizhuo had significant drops the night before. However, was it more than that? I view two possibilities:
One, that a computer glitch messed up Government Sachs' flow of funds from the Fed, which showed what the market would actually look like all things being even. In a moment, it was fixed and back to its usual "smoke and mirrors" market reflection. Or, someone with some ethics tried to show the public what is really going on in a stock market with price and earnings completely out-of-whack. That's one possibility.
Here's the other--a much more terrifying possibility. China had enough of U.S. debt that will never be paid. Japan still remembers how WWII ended. Perhaps at that moment, someone in Asia knew something we didn't know. That a bomb was about to head this way and, at that moment, markets collapsed. Perhaps, there was a very real possibility that an Asian country was going to send a missile/bomb to the U.S. because that country knew they would not receive their loan payments and it was collection time.
True, the latter is a far-fetched scenario, but may become a realistic one in the near future.
Let's get back, however, to the contagion effect.
In Summer 2007, the residential mortgage-backed securities market shut down. Liquidity, for the most part, stopped and made it nearly impossible from potential borrowers to receive home loans. On the commercial real estate side, things were different. Fundamentals were good--rents and values continued to hold up. However, like residential, commercial mortgage-backed securities started to freeze up. Why? Because investors are not stupid. They realized a collapse in residential would eventually move to commercial real estate.
Analysts thought CMBS spreads were out-of-whack because of "headlines." No. Headlines do not affect investors--at least not good investors who do their homework. Just because a headline emphasizes increasing delinquencies does not mean the market is falling apart. Good investors read through the headlines, just like they are doing today when headlines say a "recovery continues."
Now, commercial real estate represents the results from residential real estate's collapse--a contagion effect that spread because of the natural connection between residential real estate and commercial. The connection is: homeowner is house poor, spends less (retail hit), meaning less inventory (industrial hit) meaning less worker necessary for business (office hit), less spending money (hotels hit) and--in the case of many youngsters, moving back home (apartments/condos hit). Without liquidity, commercial construction was hit.
So, why does this have anything to do with Greece? Simple. Greece received $1 trillion from bankrupt European countries and the IMF. Yippeee for Greece. But what about the PIIS leaning further downward from insolvency. When they need to be bailed out, it's France, Germany and the UK to the rescue...with the little funds IMF can use.
European insolvency leads only to one more land mass with any money--the U.S. But, the U.S. is already insolvent. Schools, hospitals and other public facilities are closing down, laying off workers due to state and local budget deficits. The federal government deficit is just plain scary. We're almost in as bad shape as Greece from a debt perspective with one exception--we are the United States of America. We are the standard. We are the most developed country in the world. We don't fall like Iceland or Greece or any of those other countries--right?
Well, truth is, we have no manufacturing force--it's all been outsourced; we have no oil--except the barrels floating in the water right now; we have no other energy outlets like windmill or solar power; and, our people have no energy. So many layoffs depleted resources, making current workers exhausted and burned out.
This needs to turn around--and now. We cannot afford to have a burned-out wasteland country with a few large banks standing tall like Donald Trump towers in Atlantic City. THIS BEHAVIOR MUST CHANGE. It is time for a new philosophy for people and corporations.
Live and function within your means. Begin with ideas and create. Live for the sake of living, not for the sake of the dollar. Do what you enjoy, accept responsibility for decisions and do what this country does best--compete. Try to win within the rules but, if you lose, do it with dignity.
In other words, let's get some pride back in the USA.
Otherwise, there will not be much to be proud of...other than more economic uncertainty and, perhaps, hate-filled riots like the ones we currently see in Greece.
Friday, May 7, 2010
Squeaky Wheels Get Greece
If you've been "vocal" about how bad this "economic recovery" has been, then you get Greece.
People are now getting killed in violent protests that we will soon see here in the United States if something is not done soon.
We have manipulated accounting rules to "extend and pretend" mortgages, alter bank earnings and increase debt and more debt. We have seen a stock market "recovery" to above 11,000 in an unprecedented manner with price/earnings so out-of-whack--believe me--it is not even funny. Yesterday, they dipped by 1,000 in a moment. And, we've seen Government Sachs funneled money to manipulate markets.
Here's just another example from "Zero Hedge" on Congress bought by Wall Street.
http://www.zerohedge.com/article/senate-rejects-brown-kaufman-proposal-break-largest-banks
We've seen Ben Bernanke et al. put $1.25 trillion into Fannie/Freddie MBS...putting the U.S. even more into debt...without any transparency...and still...here we are...two hours before the Labor Department releases an unemployment number that may be staggering...or...did someone find out what it was yesterday? What will it be that bad?
It will still be nearly 17 percent from a U-6 perspective--maybe more like 20 percent. People are hurting, real people are in pain....and we can no longer avoid it.
Greece is the word...and it's spreading to Portugal, Spain, Ireland and Italy. The EU bailout, still not enough for Greece, siphens even more money from stronger European nations, including Germany, France and, of course, the United Kingdom.
And, the U.S. is just like Greece. In Iran, Afghanistan, China--they watch it unfold. An economic World War we are losing. When the smoke clears, we may not like what we see.
Call it "doom and gloom" but "extend and pretend" is and was a mistake. In a deflationary spiral, a proper revaluation needs to occur. It is a correction that includes immediate pain but eventual gain in the end to prosper future generations--not at fault for this fiasco.
Who's to blame for this crisis? Ronald Reagan, George H.W. Bush, Bill Clinton (who said on ABC he should not have listened to Larry Summers), George W. Bush and, yes, Barack Obama who kept Reagan Democrats in his oval office to help "fix" this financial crisis.
Obama can change that right now and begin to deliver on some of his campaign promises.
He needs to get Elizabeth Warren, Paul Volcker, Nouriel Roubini and people who care more for common good than political prestige and a Wall Street party. Wall Street's demise is the U.S. demise, but it doesn't have to be that way.
IF the tipping point has not already occurred, there may be time to stop it.
My economics mentor sent this email to me yesterday:
Robert,
Remember what I mentioned to you about the ‘Crash of 1932’? Should we feel good about being able to say, "I told you so"?
whereas, I replied:
I know. They're "congratulating" me here in the office.
This is Great Depression II, and the optimists from pre-September 2008 are the same ones with mouths hanging open yesterday. What? How can this be happening?
Martin Weiss said trillions and trillions of dollars in debt need to be recovered. Even a fraction of that amount unrecovered means insolvency.
Are you beginning to get the picture that banks are, indeed, insolvent? That the U.S. Government propped them up, saved them, so that an extreme wealth gap persists in this Nation? Money, as they say, is the root of all evils. Just look at the evil manifesting itself from Greece, and its globle tie-in to other countries, including the United States.
And, unlike Great Depression I, this is truly global. Our shrinking world via Internet technology, speed of communication and an our persistent outsourcing has left the U.S. vulnerable for economic disaster of which we have no controls.
However, extreme problems call for extreme solutions. My opinion is that the future will hold and East-West currency and a realignment of economic goals in the best interests of Western democracies. This new currency may help allieve economic tensions and, indeed, revalue assets in the U.S. Fact is, increasing capital reserves on deposit assets--something the U.S. Senate voted 98-0 to do, only keeps credit constrained.
Without credit, there will be no recovery.
It is time, as Steely Dan's "Kid Charlamagne" says, to "cross a diamond with a pearl, turn it on the world and turn the world around." Get along.
And, as for the "squeaky wheels" who get Greece, I will post a few of the best blog sites I have been reading in the past couple of years that absolutely forecast this disaster. That's how I found out about it and educated myself to the problems of this world.
http://globaleconomicanalysis.blogspot.com/
http://market-ticker.denninger.net/
http://www.zerohedge.com/
These bloggers, much smarter than I, are also educators if you motivate yourself to learn the financial truths.
And then we, the American people, can all begin to understand Greece and the potential that the U.S. has of looking just like it down the road.
Stay tuned.
People are now getting killed in violent protests that we will soon see here in the United States if something is not done soon.
We have manipulated accounting rules to "extend and pretend" mortgages, alter bank earnings and increase debt and more debt. We have seen a stock market "recovery" to above 11,000 in an unprecedented manner with price/earnings so out-of-whack--believe me--it is not even funny. Yesterday, they dipped by 1,000 in a moment. And, we've seen Government Sachs funneled money to manipulate markets.
Here's just another example from "Zero Hedge" on Congress bought by Wall Street.
http://www.zerohedge.com/article/senate-rejects-brown-kaufman-proposal-break-largest-banks
We've seen Ben Bernanke et al. put $1.25 trillion into Fannie/Freddie MBS...putting the U.S. even more into debt...without any transparency...and still...here we are...two hours before the Labor Department releases an unemployment number that may be staggering...or...did someone find out what it was yesterday? What will it be that bad?
It will still be nearly 17 percent from a U-6 perspective--maybe more like 20 percent. People are hurting, real people are in pain....and we can no longer avoid it.
Greece is the word...and it's spreading to Portugal, Spain, Ireland and Italy. The EU bailout, still not enough for Greece, siphens even more money from stronger European nations, including Germany, France and, of course, the United Kingdom.
And, the U.S. is just like Greece. In Iran, Afghanistan, China--they watch it unfold. An economic World War we are losing. When the smoke clears, we may not like what we see.
Call it "doom and gloom" but "extend and pretend" is and was a mistake. In a deflationary spiral, a proper revaluation needs to occur. It is a correction that includes immediate pain but eventual gain in the end to prosper future generations--not at fault for this fiasco.
Who's to blame for this crisis? Ronald Reagan, George H.W. Bush, Bill Clinton (who said on ABC he should not have listened to Larry Summers), George W. Bush and, yes, Barack Obama who kept Reagan Democrats in his oval office to help "fix" this financial crisis.
Obama can change that right now and begin to deliver on some of his campaign promises.
He needs to get Elizabeth Warren, Paul Volcker, Nouriel Roubini and people who care more for common good than political prestige and a Wall Street party. Wall Street's demise is the U.S. demise, but it doesn't have to be that way.
IF the tipping point has not already occurred, there may be time to stop it.
My economics mentor sent this email to me yesterday:
Robert,
Remember what I mentioned to you about the ‘Crash of 1932’? Should we feel good about being able to say, "I told you so"?
whereas, I replied:
I know. They're "congratulating" me here in the office.
This is Great Depression II, and the optimists from pre-September 2008 are the same ones with mouths hanging open yesterday. What? How can this be happening?
Martin Weiss said trillions and trillions of dollars in debt need to be recovered. Even a fraction of that amount unrecovered means insolvency.
Are you beginning to get the picture that banks are, indeed, insolvent? That the U.S. Government propped them up, saved them, so that an extreme wealth gap persists in this Nation? Money, as they say, is the root of all evils. Just look at the evil manifesting itself from Greece, and its globle tie-in to other countries, including the United States.
And, unlike Great Depression I, this is truly global. Our shrinking world via Internet technology, speed of communication and an our persistent outsourcing has left the U.S. vulnerable for economic disaster of which we have no controls.
However, extreme problems call for extreme solutions. My opinion is that the future will hold and East-West currency and a realignment of economic goals in the best interests of Western democracies. This new currency may help allieve economic tensions and, indeed, revalue assets in the U.S. Fact is, increasing capital reserves on deposit assets--something the U.S. Senate voted 98-0 to do, only keeps credit constrained.
Without credit, there will be no recovery.
It is time, as Steely Dan's "Kid Charlamagne" says, to "cross a diamond with a pearl, turn it on the world and turn the world around." Get along.
And, as for the "squeaky wheels" who get Greece, I will post a few of the best blog sites I have been reading in the past couple of years that absolutely forecast this disaster. That's how I found out about it and educated myself to the problems of this world.
http://globaleconomicanalysis.blogspot.com/
http://market-ticker.denninger.net/
http://www.zerohedge.com/
These bloggers, much smarter than I, are also educators if you motivate yourself to learn the financial truths.
And then we, the American people, can all begin to understand Greece and the potential that the U.S. has of looking just like it down the road.
Stay tuned.
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