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This is not good.
But the worst news is not in the stock market. It is in fact in some of the
other indicators in the market which were indicating potential capital
flight, along with still-extreme levels of stress.
I must caution everyone - if you are not prepared for six months to two years of
unemployment, you need to be. If you are dependent on credit to survive (that
is, if you couldn't make it without your credit cards) you need to fix that now.
Like today now.
Several times I have said "raise cash, get out of debt, be
prepared."
I must reiterate this advice and emphasize it, as we may see a bond market
dislocation and concurrent stock market crash at any time,
without warning. It could be as early as today, in fact.
No, what happened the last three days isn't a crash, although it has now hit
my full "bear market" target - 1070 - and in fact exceeded it.
Unfortunately what happened the last three days forces me to reset that
target to the 2003 lows, and perhaps as low as four hundred on the S&P 500, 4000 on the DOW.
Needless to say if that happens it will be on the back of an economic catastrophe of a
scale similar to the 1930s.
Bernanke's latest load of crap with an "SIV" for commercial paper
is just another example of "more of the same" stupidity.
Bernanke and Paulson need to be indicted and jailed for criminal negligence
(at best) and put in the stocks where the people can serve up some rotten
tomatoes.
This evening we were "treated" to both political candidates
shooting their mouths off on matters economic, but saying nothing of
substance. Neither candidate was willing to admit the truth - that this
"bailout" hadn't worked, that in fact the market had crashed by 15%
since it was voted on, and that there is a zero chance of it having any
positive impact on one American household.
But no, not even the "moderator" was willing to ask those tough
questions, nor was anyone present.
These "debates" are a sham, a fraud and a gigantic waste of time.
Never mind that McCain embarrassed himself by claiming to be a "maverick"
and "against pork", when he had just gotten done voting for over
$150 billion of it in the Bailout Bill - pork that was not present in
the original house version.
Was that claim of being "against pork" good for a "no"
vote? Nope. He voted yes, as did Obama.
To those who dismissed the six petitions (you can go over to
http://supportedthebailout.org and see the old ones) over the last year, how
do you feel about it now?
To those who said that "subprime was contained", how contained is
it now?
To those who said that deterioration in consumer credit wasn't going to be a
big deal, would you like to revisit that belief?
To those who said that "the nation would not have a recession", do
you have any regrets, apologies, or perhaps an outright retraction?
To those who told people to buy buy buy all the way down, how do you feel now
that they've lost 30% of their money?
To those politicians from both parties who voted for the ESSA on the claim
that it would "stabilize markets", can you show me where it has
been, in fact, stabilized? If this is "stable" I'm somewhat curious
as to your definition of "unstable".
There is chatter circulating, apparently, that "global equity markets
will be closed after the emergency G7 meeting this weekend." That ought
to induce confidence - just ask the Russians or Indonesians, both of whom
have tried this and it has resulted in an instantaneous crash when they
reopened (the Indonesian market was just closed AGAIN this evening, after
literally imploding - down by more than 10% - within an hour of starting to
trade.)
This is no longer a US problem, but the United States continues to refuse to
lead. We continue to "trust" the idiot savants Bernanke and
Paulson, both of whom have sung the same song since this crisis began more than
a year ago, have been wrong 100% of the time, and yet have found an ear in
Congress repeatedly willing to listen to and follow their insanity.
By allowing this action and indeed following the advice of these two each and
every one of the 535 members of that body has taken unto themselves the
responsibility for the calamity that now faces American investors and the
public, as our economic system literally "folds back" and consumes
itself. Americans will not be able to retire and have no economic security,
and now are losing their jobs in increasing numbers. This will continue.
For more than a year I have tried to get the attention of Congress with
petitions, phone calls and faxes. I have been ignored, as have others who
have been consistently right in our expectations and beliefs, including
"Mish" Shedlock, Nouriel Roubini, Charles Hugh Smith and others.
Over 200 degreed economists urged that the "Bailout Bill" not be
passed as submitted, including two Nobel Lauretes; all were ignored.
The people of this nation have sat on their hands and watched American Idol,
now turning into the NFL, while lapping up the slop from Paulson, Bernanke
and Bush about how the "economy is fundamentally strong", instead
of showing up in Washington DC to protest or flooding the fax and phone lines
demanding that Congress act to reign in the fraudsters.
Let me know how "fundamentally strong" the economy is when you're
walking the unemployment line and waiting for your turn at the soup kitchen
for something to eat.
Entitlements? Forget 'em. They're gone. Social Security? Medicare? Done. Not
today, but in the not-distant future. China, having gotten its money from the
$700 billion "bailout", will ditch our Treasuries and refuse to buy
more, as they will no more need to sterilize export dollars as our economy
collapses. We in turn will be left to twist.
We deserve it, because we could have (but didn't) stand up to their demands
that we cover a private
dispute instead of handing over $700 billion we don't have. When (not if) the
foreign flow of funds inward disappears due to the lack of need for these
nations to recycle dollars, we will suddenly find that we have a nearly $800
billion a year hole in our federal budget - a hole that can only be filled by
chopping Social Security, Medicare and the Military. Congratulations Congress
(and America in general); you didn't really
think you'd get away with that, did you?
George W. Bush will go down in history as the President who held the office
while we drove our nation's financial system off the cliff, laughing all the
while about flipping houses. And despite his protests to the contrary, the
history books will record that it was his administration that removed the
12:1 leverage limits, sued New York to prevent them from clamping down on
predatory lending, and willfully stuck its head in the sand while Bear
Stearns prepared to blow up, never mind ignoring the problem after Bear
detonated in February.
Henry Paulson will go down in history as the Treasury Secretary who sold out
our nation to the Chinese and London Bankers, then fled the country with $500
million he "earned" creating and selling the very credit
instruments that later blew up and sunk the nation.
The members of the House Financial Services Committee, the Senate Banking
Committee and the Joint Economic Committee will each have special places
reserved in the history books for refusing to deal with Ben Bernanke's raw
power grab after Bear Stearns, an act that will ultimately be judged to be
the single most important element of the crisis, as it forever put the market
in a mood to expect "rule changes" at any time, precipitously
damaging trust and liquidity.
The "no short" rule will ultimately be cited as the reason that the
market crashed, being that there were no shorts to cover and thus hundreds of
stocks, on that fateful day, went "no bid" and had their prices
collapse to zero - all at once.
Oil will collapse in price to $20/bbl. Unfortunately nobody will have any
money to buy gasoline, or a car, so it won't matter. As in The Depression
millions of automobiles will be scrapped after being abandoned by their
owners for lack of insurance and registration fee money. Cheap scooters will
become the dominant form of transportation for those with jobs, as they will
be all most people can afford.
As credit collapses distribution of food and other essentials will break
down. Unable to access credit, trucking companies will be unable to get goods
to market. The current distribution system for food requires travel of over
500 miles from production to consumption; this is untenable in a market where
stable credit is unavailable. Food distribution will be severely impacted and
in some areas may break down below critical levels.
Unemployment will reach 25% within two years. Median income will fall by 30%
nationally. Foreclosures will reach 20 million homes. The government will
step in with HOLC-style remediation but it won't matter - the unemployed
won't be able to pay irrespective of the price.
House prices will fall to well under $100,000 nationally on a median basis
but with lending all but non-existent you'll need 50% down. A few people will
make out like bandits near the bottom, being able to buy up homes for $10,000
each in blocks of 10 at a time - for cash. 60% of America will be renters;
nearly half of all homeowners will ultimately lose their homes to
foreclosure.
Civil unrest will break out in major cities when incomes fall but the cost of
food and essential services fail to come down materially, leaving millions of
Americans hungry, broke and homeless. Unlike in the 1930s America will not
quietly stand in soup lines - instead they will riot, loot and burn. The
National Guard will be called up but will find it impossible to exert
meaningful control without shutting down all commerce in the affected areas.
The decision will be made to cordon off the cities and deny entry to anyone
who does not live in that specific neighborhood, essentially shutting down
commercial activity. GDP will fall by 30%.
The S&P 500 will fall to 150 and flatline, a 90% loss. CNBC and Bloomberg
will cease broadcasting. Volume will fall to 10% of former levels.
Bleak outlook?
Yep.
Quite possible?
Yep.
Can it be stopped?
Yes, but not for much longer.
The markets are perilously close to a tipping point where they will collapse,
after which all of the above will come to pass, and Congressional action (or
inaction) will be irrelevant.
Congress will then have to face the people, as will President Bush and his
Cabinet, and may God have mercy on our Republican form of government, because
history shows that when government mismanages things to this degree and
refuses to respond to the will of the people, a "messiah" generally
appears with a "solution" - but there will be "compromises."
Like your freedom.
To fix the problem trust must be restored. To restore trust you must stop the
lying, expose the liars, prosecute and jail them all, and stop changing the
rules in the middle of the game.
This must happen now. Today. Immediately. Not tomorrow, not next week, not
after a series of hearings.
Right now.
Market participants must be able to know that when they engage in a
transaction it will be transparent, handled fairly, and their rights will be
protected.
Our politicians must stop demanding the impossible - that home prices
"levitate." House prices cannot be maintained at more than 3x
incomes - it simply can't be done. We must encourage home prices to contract
to sustainable, affordable levels quickly and efficiently.
Mortgages must return to 30 year fixed notes, 20% down, no more than 36% DTI.
No government-linked paper in any GSE may issue outside these guidelines. We
must reliquify the mortgage market, and this is the only way to do it - by
writing only sustainable
mortgages.
Strong consumer protection laws must be written that bar negative balance
auto and home loans. The practice of "rolling over" an old car loan
into a new one, producing an instant 20% or more deficiency against the
vehicles value, must end.
Usury laws must be re-imposed, limiting credit card and other consumer loan
interest to no more than a reasonable spread over funding costs. Yes, this
will limit credit to less-worthy borrowers. So be it. Unbridled credit got us
here, and we must prevent it from happening again.
The excess, unsustainable debt in the system must be defaulted. Whether held
by corporations or individuals, it must be purged from the system. Those
firms and individuals that are bankrupt must be so declared and their assets
liquidated, so they can start over and the market can clear.
People will say that what I ask is unreasonable, unable to be achieved, or
"needs study."
You're free to study all you want, but if these actions are not taken
immediately, right now, today, the above forecast will come to fruition.
You are seeing the global credit markets unravel in front of your eyes, and
it is happening precisely because the fraud, avarice and outright theft has
gone unpunished and left in place to siphon off wealth from the average
American for more than 20 years, and our President, in that environment, went
on national television and threatened the world with a global Depression
unless his Treasury Secretary got a $700 billion blank check.
The markets, correctly perceiving there was a problem, did exactly what they
did when this same gambit was run during the Fannie and Freddie debacle -
they called the bluff.
The check is now on the table and we have but two choices - either pay it or
suffer the consequences.
The above is from Karl Denninger. I would add one thing to the
prescription... REMONETIZE REAL MONEY! This will begin a cascade of good
things for everyone (except Paulson and Bernanke).
Oh, and mark to frickin' market the US Treasury's gold like the ECB does,
instead of the ridiculous Marked-to-1973 price of $42.22 per ounce you are
now using. Sheesh.
Are you frickin' kidding
me?
FOFOA
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