# Is THIS the big one?



## BradK (18 September 2008)

OK. 

Lloyds TSB have just brought HBOS. 
AIG taken back from the brink by another US government buyout
$450 BILLION dollars injected into the system just now. 

Is THIS the big one? 

Brad


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## a5e0i (18 September 2008)

This is bigger than the crash of 87 and bigger than the depression - for even then the large financial institutions held up. But not this time.


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## wayneL (18 September 2008)

None of us know whether the stock market will crash further from here as there can often (almost always?) be a disconnect between stock prices and economic reality.

But recession is a dead cert. Depression a distinct possibility.

One thing is absolutely 100% guaranteed though; that is that the world has permanently changed and the exact consequences will take a while to shake out.


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## Aussiejeff (18 September 2008)

a5e0i said:


> This is bigger than the crash of 87 and *bigger than the depression* - for even then the large financial institutions held up. But not this time.




Bigger than the depression? Maybe in purely monetary volume terms (I don't know the figures, so pure conjecture?), but surely not in the impact on daily lives! 

When I see hundreds of thousands of unemployed citizens lining up at soup kitchens in all the worlds major cities, for year after terrible year, and tens of thousands of businesses have actually gone bust - not merely been "rescued" by government funded "bail-outs" - then yes, then I might tend to agree with the sentiment.

We are still "a million miles" from that terrible scenario that my mum and dad experienced. Most major stocks still have "value". Unlike many in the depression where the scrip was worthless paper. So, gawd help us all if it *really* gets down to that point again..... I repeat... the REALITY of that time is far removed from what we who live in today's cottonwool societies might imagine a *depression* to be.


aj


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## jersey10 (18 September 2008)

wayneL said:


> None of us know whether the stock market will crash further from here as there can often (almost always?) be a disconnect between stock prices and economic reality.
> 
> But recession is a dead cert. Depression a distinct possibility.
> 
> One thing is absolutely 100% guaranteed though; that is that the world has permanently changed and the exact consequences will take a while to shake out.




what do you think those consequences may be?


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## a5e0i (18 September 2008)

I didn't mean to imply that this is as bad as the depression. Just that even during the depression the large financial institutions were able to withstand the turmoil, though with heavy losses. This time round many of the largest institutions are going belly up.


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## pistol72 (18 September 2008)

brad
have a squizz at chrismartenson.com,recomended by others on this site.some quality stuff.
P


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## wayneL (18 September 2008)

jersey10 said:


> what do you think those consequences may be?



I would only be guessing, and it will depend on the actions of a whole bunch of different participants, but a return to the type of economy we had in 2007 is impossible for a very long time. IMO


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## alwaysLearning (18 September 2008)

The problems seems to be a lack in liquidity.

I think it is just HUGE fear at the moment. There is still great value to be bought.

Having said that I sure as heck would NOT be looking to 'catch a falling knife'. I'd wait for it to bottom out and then start to recover and then jump in.

They need to create a serate entity where they can through all the crap debt in there and then sort it out later. The central banks of the world need to inject a LOT more money to get the liquidity flowing. They then may need to cut interest rates (all around the world) to stimulate growth in the global economy.

It's a hard one though because it was the excessive spending that created these problems in the first place.

I don't know what the long term answer is but they NEED to do something to give people CONFIDENCE in order to want to start investing and trading. They neeed that seperate entity and to fill it with bad debt as a matter for priority.


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## The Mint Man (18 September 2008)

There was an old guy (probably 70 odd years old) on both Seven and ABC news. He said that he had been "investing for 50 years and never seen it this bad" however when asked if he will be selling he replied "No, I've been through this several times before".

That old blokes wise words summed it up for me. If your in this market you may as well hold on and while your at it gain both experience and eventually your money back. He certainly had

Cheers


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## Trembling Hand (18 September 2008)

The Mint Man said:


> There was an old guy (probably 70 odd years old) on both Seven and ABC news. He said that he had been "investing for 50 years and never seen it this bad" however when asked if he will be selling he replied "No, I've been through this several times before".
> 
> That old blokes wise words summed it up for me. If your in this market you may as well hold on and while your at it gain both experience and eventually your money back. He certainly had
> 
> Cheers




How do you know. He could of been some old homeless pathological liar gone nuts. :


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## The Mint Man (18 September 2008)

Trembling Hand said:


> How do you know. He could of been some old homeless pathological liar gone nuts. :



Haha, true... 
He was sitting in the ASX building at the time which gives him more credibility than those other hotshot liars that you see on the TV or in the Papers everyday.
Of course I'm referring to those so called 'financial experts' who told us to invest in the first place.:

Cheers


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## wayneL (18 September 2008)

The Mint Man said:


> There was an old guy (probably 70 odd years old) on both Seven and ABC news. He said that he had been "investing for 50 years and never seen it this bad" however when asked if he will be selling he replied "No, I've been through this several times before".
> 
> That old blokes wise words summed it up for me. If your in this market you may as well hold on and while your at it gain both experience and eventually your money back. He certainly had
> 
> Cheers



Yeah but no.

Extrapolating that out to its absurd end, he is suggesting never selling HIH, PAS, LEH, BSC, etc etc etc

There is a time to sell.


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## alwaysLearning (18 September 2008)

The Mint Man said:


> There was an old guy (probably 70 odd years old) on both Seven and ABC news. He said that he had been "investing for 50 years and never seen it this bad" however when asked if he will be selling he replied "No, I've been through this several times before".
> 
> That old blokes wise words summed it up for me. If your in this market you may as well hold on and while your at it gain both experience and eventually your money back. He certainly had
> 
> Cheers




I disagree. Right from the begining people need to be thinking about capital preservation. One can always Re-enter the market when the sentiment changes.


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## skyQuake (18 September 2008)

Trembling Hand said:


> How do you know. He could of been some old homeless pathological liar gone nuts. :





I resent being called old.

:


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## The Mint Man (18 September 2008)

alwaysLearning said:


> I disagree. Right from the begining people need to be thinking about capital preservation. One can always Re-enter the market when the sentiment changes.



Well in that case you wouldn't invest to start with

Call me when you know where the bottom is and again when we reach the top

Cheers


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## wayneL (18 September 2008)

The Mint Man said:


> Well in that case you wouldn't invest to start with
> 
> Call me when you know where the bottom is and again when we reach the top
> 
> Cheers




Whiskers will let us know.


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## alwaysLearning (18 September 2008)

The Mint Man said:


> Well in that case you wouldn't invest to start with
> 
> Call me when you know where the bottom is and again when we reach the top
> 
> Cheers




You'll never know for sure (if you try to choose exact tops and bottoms) but you can sure as hell tell when sentiment like this shifts. It's negative all hell at the moment. Also best to just watch the chart and look at volatility indicators and things like that. When the volatility starts to slow down and things calm down THEN start looking at good value stocks or whatever you're looking to invest in. If you're an investor.

Personally I love spot Forex and this volatility is awesome  I'm working hard on my skills in demo trading so that I can hopefully get off to a decent start on a live account


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## cutz (18 September 2008)

alwaysLearning said:


> I disagree. Right from the begining people need to be thinking about capital preservation. One can always Re-enter the market when the sentiment changes.




by bailing out now and jumping back on board at the height of the next bull market


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## The Mint Man (18 September 2008)

wayneL said:


> Whiskers will let us know.




I don't subscribe to or eat cat food so I guess I'll miss out


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## wayneL (18 September 2008)

The Mint Man said:


> I don't subscribe to or eat cat food so I guess I'll miss out



Wise!


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## cuttlefish (18 September 2008)

Aussiejeff said:


> Bigger than the depression? Maybe in purely monetary volume terms (I don't know the figures, so pure conjecture?), but surely not in the impact on daily lives!
> 
> When I see hundreds of thousands of unemployed citizens lining up at soup kitchens in all the worlds major cities, for year after terrible year, and tens of thousands of businesses have actually gone bust - not merely been "rescued" by government funded "bail-outs" - then yes, then I might tend to agree with the sentiment.
> 
> ...





Its only early days imo.  First the financial markets melt down and then the general economy and there can be quite a delay between the two - particularly when the US government and other governments keep taking on the bad debt and pretending everythings fine. The biggest risk is if the US govt is taking on more bad debt than it can actually manage and I hate to think of what the real consequences of that will be.  It will be years before we've seen this whole event play out imo.


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## alwaysLearning (18 September 2008)

cutz said:


> by bailing out now and jumping back on board at the height of the next bull market




I never said that.


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## Trembling Hand (18 September 2008)

skyQuake said:


> I resent being called old.
> 
> :




Sorry middle aged.


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## wayneL (18 September 2008)

cuttlefish said:


> It will be years before we've seen this whole event play out imo.



Yes.

The delusion is that this will shake everything out and all will be back to normal in six months.

We won't see a 2005-2007 style economy again for a very very long time.


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## nomore4s (18 September 2008)

wayneL said:


> Yes.
> 
> The delusion is that this will shake everything out and all will be back to normal in six months.
> 
> We won't see a 2005-2007 style economy again for a very very long time.




The problem I see happening now is that while we're currently having a shakeout of all the companies who have loaded up on excessive debt and poor management, the next step could be a shakeout of people who are loaded up on debt - you know the ones - huge mortgage which has been redrawn a number of times, car loan, credit card & store card debt, little or no savings - this already appears to be happening in the US. 
Especially as this mess starts to flow through to the economy and unemployment starts to rise.


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## BradK (18 September 2008)

pistol72 said:


> brad
> have a squizz at chrismartenson.com,recomended by others on this site.some quality stuff.
> P




Thanks Pistol. Amazing stuff


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## Smurf1976 (18 September 2008)

wayneL said:


> Yes.
> 
> The delusion is that this will shake everything out and all will be back to normal in six months.
> 
> We won't see a 2005-2007 style economy again for a very very long time.



Wherever I look, from the global economy to my local area, what I've been seeing is much the same. All sorts of non-productive and wasteful "investments" and a general attitude that money is unlimited, debt doesn't matter and growth will continue uninterrupted forever. 

It's become decidedly unfashionable in recent times to be concerned about the cost of just about anything. When's the last time you heard anyone from an individual to a major corporation basing a major purchase or investment decision on cost? These days it's location, performance, style, replacing new for old for the sake of it and so on. Cost just doesn't rate a mention - a sure sign things are way out of hand with the markets and general economy.


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## BradK (18 September 2008)

Time to revisit Jim Cramer from August 2007??? 

http://www.youtube.com/watch?v=rOVXh4xM-Ww 

Brad


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## alwaysLearning (18 September 2008)

BradK said:


> Time to revisit Jim Cramer from August 2007???
> 
> http://www.youtube.com/watch?v=rOVXh4xM-Ww
> 
> Brad




It's an intersting clip to look at again after having seen what has happened recently.


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## Stan 101 (18 September 2008)

Where are the people spruicking the fundamentals in our two rising nations of India and China? I feel there will be a long period of insecurity and plenty of dead cat bounces to keep the keen and savvy happy with quick flipping of stock. People will be looking for good news soon and I feel there will be a stampede to the first commodities that show some good reports.

cheers,


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## zetor (18 September 2008)

Hi all,I am new to at all this stuff,but surely the buck stops with ALAN GREENSPAND, who created this monster in the first place,he didn't have the balls or was to lazy to get off his fat ass to regulate the markets.I really think that BUSH & GREENSPAND have a lot to answer for,first for sending the world into a reccession,but even into a depression.
And how do I explain to my kids,that if the latter should happen,then wwIII maybe just around the corner.
How sad that these 2 people have crippled the world liked this.We all know that the next wwIII will 100x the magnitude of the other to wars.
God help us


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## BradK (18 September 2008)

zetor said:


> Hi all,I am new to at all this stuff,but surely the buck stops with ALAN GREENSPAND, who created this monster in the first place,he didn't have the balls or was to lazy to get off his fat ass to regulate the markets.I really think that BUSH & GREENSPAND have a lot to answer for,first for sending the world into a reccession,but even into a depression.
> And how do I explain to my kids,that if the latter should happen,then wwIII maybe just around the corner.
> How sad that these 2 people have crippled the world liked this.We all know that the next wwIII will 100x the magnitude of the other to wars.
> God help us




Just kick back mate. Dont think WWIII is around the corner with Bush going. Perhaps Obama will be a bit of a peacenik. Although, it has emerged that McCain is firmly planted up the asses of the neo-cons now - so that is a real possiblity I suppose.  

Whatever happens... Rudd will get the blame I suppose. 

Kick back.


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## Aussiest (18 September 2008)

The Mint Man said:


> There was an old guy (probably 70 odd years old) on both Seven and ABC news. He said that he had been "investing for 50 years and never seen it this bad" however when asked if he will be selling he replied "No, I've been through this several times before".
> 
> That old blokes wise words summed it up for me. If your in this market you may as well hold on and while your at it gain both experience and eventually your money back. He certainly had
> 
> Cheers




He's one old guy in thousands of investors. He said he hadn't seen it this bad, yet he is continuing to hold. His decision, but past performance may not repeat itself this time.

The market may recover, and probably will. But, the question is, how long is it going to take? And, what if you need the money in the meantime? You will have to sell out at a loss. And, what could you have been doing with that same money in the meantime? Putting it into investment accounts, getting nearly 8% interest on it.

I hope he lives long enough to see it recover


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## Aussiest (18 September 2008)

nomore4s said:


> the next step could be a shakeout of people who are loaded up on debt - you know the ones - huge mortgage which has been redrawn a number of times, car loan, credit card & store card debt, little or no savings - this already appears to be happening in the US.
> Especially as this mess starts to flow through to the economy and unemployment starts to rise.




I'm actually wondering if this could happen in a small way in our economy. I had this conversation with my hairdressor yesterday (okay, some hairdressers do think!). He was saying that he knows loads of people who live on credit card debt.

That's when i'll swoop in and buy another house! Hehe.


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## gfresh (18 September 2008)

My guess is 5 years to reach 6800 on our index again, and 10 years until the next big boom. I'd love to be wrong however..

The danger with picking up stocks now as 'bargains' is that there could be 2 years of pain in the real economy before profits once again increase. At the moment we are still basing everything off "boom time" profits, or close to it in our rear window. If we cut profits by 50% on some major companies, we can maybe guess where it will ultimately take us in 2 years, or maybe even a few past that. 

Therefore, even if stocks may bottom somewhere in the next few months in this current bear, the profit reductions may continue to drag down many stocks for years and years. It took well untiil the mid-90s for true recovery from the last major global recession in the 1990/1991.

As we've seen with the collapse so far, everything comes down to property as the base assets for many economies. What happens with that here may decide in some ways how things go from here. If property values tip over some imaginary edge in the near future, the recovery will be a long time coming. 

Even our RBA has come out the other day saying these wild boom/bust periods is the wrong course of action (that they created). Whether they act out on that we shall have to see.


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## Julia (18 September 2008)

alwaysLearning said:


> I disagree. Right from the begining people need to be thinking about capital preservation. One can always Re-enter the market when the sentiment changes.



I agree.  But this is something that's mediated also by someone's age.
A young person with most of their investing life ahead can ride it out, but someone who is needing to draw a pension from their capital soon needs to preserve that capital.

The other factor is the 'sleep test'.   I would be getting zero slumber if I were fully invested in this market.




The Mint Man said:


> Well in that case you wouldn't invest to start with
> 
> Call me when you know where the bottom is and again when we reach the top
> 
> Cheers



Mint Man, that's not a very logical response.   Why wouldn't you invest in a rising market?   And then exit when the trend turns down?


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## Glen48 (18 September 2008)

It took until 1957 for the share market to return to 1930 levels and every 60 years there is a depression. 
Now how do I buy Gold shares?
From Money Managers.
 negative real interest rates are bearish for the dollar. And when you hold dollars, you're losing out to inflation. 

Period.

I haven't even begun to tell you the real nightmares for the U.S. dollar. I haven't even touched upon the $50 trillion in contingent liabilities in Social Security, Medicare, government pensions, money the FDIC will need, and more.

And there is no way, no how that any of these debts, liabilities, potential losses will ever be covered without a massive, ongoing devaluation of the U.S. dollar.

So why would you NOT want to own gold in this environment?


Gold is the only true form of money. 
Gold is the only true form of money there is. It is no one else's liability. It has no board of directors manipulating its value. It has preserved its purchasing power for over 5,000 years of civilization. It has outperformed every paper currency on the planet.

Given all of the above, and more, I am now officially putting out an emergency buy signal in gold.

”” If you don't own any gold, I urge you to buy some now.

”” If you do own gold, I suggest you buy more, immediately!

The precious yellow metal ”” your vehicle to survive financially in the years ahead ”” recently fell back to major support at the $735 level.

It has since rallied back to $785. I believe the pullback I've been warning you about is now over.

But even if I'm wrong, and by some crazy fluke, the price of gold falls back to major long-term support at the $600 level, it would not be that big a deal. 

Because I know that paper dollars are NOT where I want my money.
I


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## mit (18 September 2008)

The problem with the Cramer tirade is blaming the Fed and saying the Fed should bale out everybody and laying no blame on the greed of the investment banks. 
I think that the problem with the Fed is that they allowed these shysters to operate freely for so long. The problem now is that the Fed has to bail out these companies so that the entire market doesn't fold.
I mean this is a very bad situation but it is not the first time that these companies and ratings agencies have done something similar (Think Junk Bonds). You would have thought by now that the Fed would have figured that you cannot trust any of these guys.


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## MrBurns (18 September 2008)

> ”” If you don't own any gold, I urge you to buy some now.




Ok do you mean physical gold or shares of some kind ? and if the former, how ?


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## gfresh (18 September 2008)

Mit: I think you are confusing the Federal reserve with the Treasury. The fed is a private organisation that lends money to primary dealers (the investment banks), and sets monetary policy for the economy. 

The Treasury is the financial branch of the US Government. Government and the US congress is the ultimate regulator of any financial Corporations.

The unfortunate thing is that senators, and governors have many ties to the large companies themselves, and of course with them constantly whispering in the ears of Government members, there is very little incentive for them to get tough or investigate. It's only when there is a major crisis, billions get burned, and the public cries out for it, further regulation is attempted. Then of course by the time of the next crisis many years on, governments have changed, and people have forgotten why they can be so important.

The abolishment of the glass-steagall act is a prime example why we are facing this now. Created after the great depression, and abolished in 1999, it may have prevented much of the current situation from being so dire.


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## Gspot (18 September 2008)

Stan 101 said:


> Where are the people spruicking the fundamentals in our two rising nations of India and China? I feel there will be a long period of insecurity and plenty of dead cat bounces to keep the keen and savvy happy with quick flipping of stock. People will be looking for good news soon and I feel there will be a stampede to the first commodities that show some good reports.
> 
> cheers,




Maybe China and Russia will see Australian resources as a better place to invest, rather than Wall st.
Enviromental problems, declining oil and Chindia population will mean energy sector will bounce back quicker than what some are suggesting.
Not to mention some good little gold producers, going along their merry way.
Hoping I'm right.


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## Santoro (18 September 2008)

MrBurns said:


> Ok do you mean physical gold or shares of some kind ? and if the former, how ?




ZAUWBA.....gold warrants 100 units equals 1 oz held at the Perth Mint....have a look at the Perth Mint website.......it shoud explain it...you can buy physical or this way you don't need to store it securely etc


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## pepperoni (18 September 2008)

Glen48 said:


> It took until 1957 for the share market to return to 1930 levels and every 60 years there is a depression.
> Now how do I buy Gold shares?
> From Money Managers.
> negative real interest rates are bearish for the dollar. And when you hold dollars, you're losing out to inflation.
> ...




Hmmm ..... with all the loan defaults there will be some measure of reduction of money supply ... cash may very well be fine IMO.

Might explain why the US dollar is suddenly so strong?  Arguably doing better than gold.

A$ is even better given it still gives 7.8% at call with a big 4 bank!

And at least there is no risk of 20% falls overnight.


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## wayneL (19 September 2008)




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## BradK (19 September 2008)

Great post Wayne - ready to get the engine fired up to pick up me house?


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## Trembling Hand (19 September 2008)

^^^^^

That's a good one.


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## Glen48 (19 September 2008)

From Patrick.net




The worst is yet to come
'No market for old men,' TCW investment strategist warns in gloomy forecast
By Jonathan Burton, MarketWatch
Last update: 4:07 p.m. EDT Sept. 18, 2008
Comments: 384
SAN FRANCISCO (MarketWatch) -- An influential investment strategist has a dire forecast for U.S. stocks, credit markets and the continued independence of some of the nation's top financial institutions.
Jeffrey Gundlach, chief investment officer at Los Angeles-based mutual-fund company TCW Group Inc., told clients on a conference call late Wednesday that the crisis in credit and housing may not abate for several years and is actually getting worse.

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In the deteriorating climate he sees unfolding, Gundlach said, the Standard & Poor's 500 Index (SPX:
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SPX 1,206.51, +50.12, +4.3%) could fall another 30%, giant Citigroup (C:
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WB, , ) won't be able to stand alone, default rates on even prime mortgages could soar, and European banks' woes are just beginning.
"This is no market for old men," said Gundlach, who also manages TCW's flagship Total Return Bond Fund (TGLMX:
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TGLMX, , ) . "This is no market for old-school thinking."
Gundlach based his assessment on a belief that housing prices still face several more years of decline, a protracted slump, he said, not seen since the Great Depression. Moreover, Gundlach said it's possible that home prices could be sluggish until 2022.
"If it's like the Depression experience -- and it sure is shaping up that way -- it could take several years. Maybe we won't see a bottom in home prices until 2014," he said.
Write-offs could top $1 trillion
As a forecaster, Gundlach didn't just climb aboard the gloom-and-doom wagon. He was early to spot the cracks that subprime loans were making in the financial system, and among the first to warn that an era of easy money would come to a bad end.
"The subprime market is a total unmitigated disaster and it's going to get worse," Gundlach told money managers and financial advisers at an investment conference in June 2007. See full story.
And Gundlach has put his shareholders' money where his mouth is, shunning derivatives and counterparty risk in his bond fund portfolio.
That defensive posture should offer protection in the continuing credit storm that Gundlach foresees. In this bleak scenario, an unprecedented -- and growing -- number of home foreclosures, along with mortgage loans that are under water as soon as they're originated and a glaring lack of buyers for even modestly risky assets keeps the financial system under enormous stress.
Expect loan default rates to rise, Gundlach said, not just in the subprime market, but among the top-drawer prime borrowers as well. The prime default rate could approach 10% from a current 2% before the carnage is over, he said.
"The current environment is maybe a little worse that what was experienced in the Depression in terms of the housing market," Gundlach said.
More troubles ahead
Accordingly, financial institutions may suffer write-offs that could surpass $1 trillion before conditions improve, he said. As of late August, credit losses and writedowns at the world's 100-largest banks and brokerages topped $506 billion, he noted.
Among the casualties, Gundlach said, could be Citigroup. The company earlier this week made public a memo to employees from CEO Vikram Pandit highlighting Citigroup's balance sheet strength and solid cash position.
Gundlach disagreed with that assessment. He said Citigroup has balance sheet problems that he likened to that of insurer American International Group, which the U.S. bailed out this week.
"I would give a very meaningful probability to the biggest, next AIG-size debacle being Citigroup," the strategist said.
"I would definitely not be a buyer of Citigroup stock," Gundlach said.
"If I were going to buy financial market stocks," he added, "I would be a buyer of Wells Fargo (WFC:
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BAC, , ) ."
Other financial giants also won't escape the crisis unscathed, Gundlach said. "I don't see how Wachovia can make it as a stand alone," he said. He expressed the same sentiment about Morgan Stanley.
Indeed, late Wednesday the New York Times reported that Morgan Stanley was exploring a merger with Wachovia or another bank. See full story.
Europe's financial giants are in similar or even worse shape than their U.S. counterparts, Gundlach said, with "substantial exposures to assets which U.S. banks are now getting taken to the woodshed over. I would rate all European banks as not a buy."
The breakdown will take a further toll on U.S. stocks, Gundlach added. The S&P 500 will tumble below 800, he said, about 35% below its 1156 close on Wednesday.
Said Gundlach: "None of us have ever seen this, and it's no market for old men, but risk aversion is the order of the day." End of Story
Jonathan Burton is an as

sistant personal finance editor for MarketWatch, based in San FranciscoT


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## BentRod (19 September 2008)

LOL Wayne.

Great post


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