Imminent and severe market correction

[pepperoni]

Great great great thread this one.

 

[davo8]

Excerpts from an interesting article by Mike Shedlock entitled "You know the banking system is unsound when..."

Yes, I follow Mish. For a truly depressing read try Automatic Earth.

http://theautomaticearth.blogspot.com/2008/07/debt-rattle-july-23-2008-redefining-bad.html

Fannie and Freddie are casino’s, gambling dens that have been encouraged by the house, in this case the US government, to play double or nothing over the past year, and now count on the same house to cover their blackjack losses. Which the house is about to do, with your money.

And the Congressional Budget Office plays along. They are supposedly independent, but that’s nothing but a stale joke: if they really were, they would have taken their own statements to heart about uncertainties regarding Fannie and Freddie, and presented their paymasters in Congress with at least for instance an "fair estimate" range, not a fixed number .

That fair estimate would state that potential losses to the US taxpayer from the GSE bail-out would be between $25 billion and $2.5 trillion. And still add that the number could be much higher.

Because if - make that when- US home prices go down by 50% or more across the board, when banks open their books and vaults to reveal they have little else but toxic paper left, and unemployment starts hitting prime time, there will be a $5.2 trillion combined Fannie and Freddie portfolio waiting for a "fair estimate".

Today, with memories of the outrage over the $29 billion in public funds used on Bear Stearns still fresh on everyone’s mind, moral hazard will be taken not just to a whole other level, but into a different dimension, and a universe unknown to man. A small step for man, a giant leap for mankind. In hindsight, it now becomes clear that Bear Stearns was used as a test-case, and the timid response to that bail-out directly opened the doors for the biggest heist in the history of America.

Even Nouriel Roubini is not that dismal.

 

[sassa]

And...

But what interest does the public have in protecting the share prices of Fannie and Freddie stock? Don't stockholders understand they take a risk when they buy stock? In this case, the stockholders made a bad investment. They are supposed to lose their money (possibly all of it), right?

I have yet to hear any explanation from anyone as to why the government is supporting the share price. (In an NPR interview this morning, Senator Chris Dodd gave an incoherent answer that implied that supporting the share price was somehow tied to backing up the bonds. It isn't.)

In a country that can't fight a few billion dollars to provide funding for child care or children's health care, this multi-billion dollar affirmative action plan for dumb stockholders deserves a little questioning.

http://www.prospect.org/csnc/blogs/...2008&base_name=why_is_the_government_guarante

 

[kingbrown]

Well what a day makes ?

National Australia Tumbles Most Since 1987 on CDO Provisions By Stuart Kelly

July 25 (Bloomberg) -- National Australia Bank Ltd. plunged the most since the October 1987 stock market crash after the nation's biggest bank set aside A$830 million ($795 million) for credit market losses.

The provisions for collateralized debt obligations that have lost value because of the U.S. housing market slump may cut full- year profit by almost A$600 million, Chief Financial Officer Mark Joiner said in an interview today. The Melbourne-based bank said it also has a A$4.5 billion debt portfolio backed mainly by corporate loans in Europe and the U.S.

Chief Executive Officer John Stewart said soaring mortgage defaults in the U.S., where financial shares had their worst drop in eight years yesterday, forced National Australia to prepare for a ``worst case scenario.'' Shareholders Peter Vann and Angus Gluskie questioned whether Stewart will be able to avoid more losses as the credit crisis deepens and economies slow.

more here

http://www.bloomberg.com/apps/news?pid=20601081&sid=a8EqCVNvTeXc&refer=australia

 

[davo8]

Shares in Fannie Mae and Freddie Mac are toast. The government guarantee really only kicks in after the shareholders have lost everything.

Our banks here are not immune. I don't see them going bust unless the housing market tanks, but they are going to get hurt. Anyone bottom fishing for banks or other finance stocks better have really good inside information or a really long time horizon. There is bad news yet to come, and no-one really knows where from.

Repeat after me: this is NOT the bottom.

 

[Sean K]

There is bad news yet to come, and no-one really knows where from.

Um, there's bad news to come, but nobody knows where from?

Righto.

 

[wayneL]

Um, there's bad news to come, but nobody knows where from?

Righto.

There's bad news to come,
But nobody knows where from.
You know, there are those of us
To whom that really sounds quite dumb.

Surely there is good news to cheer
in the most dire of situations
If only that we will pay less for beer
Due to some new fangled machinations

If the Wall Street moguls go broke
Who are are we to think we must cry?
The value investor might be quite stoked
For many a share he might buy.

It is true that price and earnings
Are completely out of tune
Way higher than Warren's yearnings
Anyone buying now must be a loon

So for me all this bad news
and this is in common with Lao
I think bad news is good news
It's only bad news for now

The only truly bad thing
Is the poetry I write
Trying to make it all rhyme
Makes it really quite trite

So the best thing for you
my friend, is to treat this with ignore
Press the button for the trash box
Let it not enter the lore

OMG!

 

[Sean K]

OMG!

Hahahaha.

I know where bad news is coming from. Having my apartment inspected in an hour and I'm sure there's something wrong with it and the $2000 bond will be raped.

 

[Aussiejeff]

Hahahaha.

I know where bad news is coming from. Having my apartment inspected in an hour and I'm sure there's something wrong with it and the $2000 bond will be raped.

"Dear Mr Kennas,

Your have passed property inspection and your $2,000 bond is secure. However your rent will be increased 100% due to "unforeseen circumstances beyond our control".

If you have any problem with this slight adjustment, please call our office.

Sincerely,


Fanny.

:hide:

 

[Bushman]

Repeat after me: this is NOT the bottom.

Ok...

This is not the bottom, this is not the bottom, this is not rowbotham, this is not gotham, this is Gotham City....

I am off to the movies to see our Heath in the The Dark Knight. Woo hoo.

 

[Speewha]

Hello,

Abandon hope all ye who enter here . Dante

Regards

 

[Uncle Festivus]

So if a bear market meets a Kondratieff Winter do we have a polar bear market? It looks to be more like the last rays of a Kondratieff Autumn?

<debt buildup and repudiation>
<stagflation>
<deflation>

 

[Uncle Festivus]

Some charts to show the profligate ways are not sustainable? Is it a coincidence the restraints of prudent financial management were lifted in about 1971?

For Each $0.50 growth of GDP, Total debt grows by $2.5
Most of the debt growth has been funded by increases in pools of mortgage money borrowed from foreigners thru GSE's (Fannie & Freddie) and Mortgage pools and growth of home equity loans and consumer debt.
Exponential growth of debt started in early '90's fueled by growth of GSE's and consumer borrowing.
To continue current growth of GDP, debt growth must continue at current accellerated levels.

 

[motorway]

So if a bear market meets a Kondratieff Winter do we have a polar bear market? It looks to be more like the last rays of a Kondratieff Autumn?

<debt buildup and repudiation>
<stagflation>
<deflation>

When people talk about the current state of the economy they tend to do so in terms of the business cycle, a relatively short-term phenomenon covering maybe three to five years. But some economists believe a far more important type of cycle underlies our economic circumstances. It's called the Kondratiev cycle, or the Kondratiev wave and, if it does exist, we appear to be in a pretty dangerous stage of it at the moment.

Wolfgang Kasper
Professor Emeritus Economics University of New South Wales

http://www.abc.net.au/rn/counterpoint/stories/2008/2296549.htm#

Wolfgang Kasper: If you look at these waves they've always affected all the industrial countries and they are in it together sooner or later. But, and that is very important, the new industrial countries of any generation seems to be unfazed and the reason is quite clear; they don't have to destroy old social structures and old industries, that famous creative destruction of Schumpeter's.

Michael Duffy: So they've got a bit more flexibility.

Wolfgang Kasper: They are new and competitive and I think this time many parts of China et cetera will probably just beaver on unaffected.

This one is interesting too

The 1929 stock market crash

http://www.abc.net.au/rn/rearvision/stories/2008/2213492.htm#

Well you have to understand as you look at the market going up the US economy was going full blast in real terms. The automobile industry had developed into a major industry, the steel industry, electricity was spreading throughout the country. Railroads were expanding. Obviously things like coal, steel. So, well, the stock market literally doubled from let's say '27 to 1929.

The fact is, that if you looked at any of the appropriate measures of economic vitality, as late as October of 1929, all the signals were good. There was no inherent reason why the market crashed in 1929. You look at automobile production productivity, all the signs were positive, so that when the newspapers in the summer of 1929, magazines, spoke about the economic environment. They were very bullish measures.

Harold Bierman
The Nicholas H. Noyes Professor of Business Administration at Cornell University

motorway

 

[davo8]

Um, there's bad news to come, but nobody knows where from?

As it happens, I wrote that just hours before the NAB announced a $1bn provision for CDO losses, and dropped 13%, takiing the other banks with it. That's exactly the kind of bad news I had in mind, and there is more to come.

Friday: another 2 US banks failed. That makes 7 this year. The target is over 100.

If every bank in the USA made exactly the same provisions for loss that the NAB did, based on their exposure to exactly the same CDO instruments, it would wipe out over half the banks.

And don't forget, Basel II is coming on Oct 1st.

 

[Sean K]

As it happens, I wrote that just hours before the NAB announced a $1bn provision for CDO losses, and dropped 13%, takiing the other banks with it. That's exactly the kind of bad news I had in mind, and there is more to come.

Well, please let us know exactly where it's coming from next time so I can trade it. Thanks!

By the way how many banks have gone bust so far?

During the S&L crisis in the 80s and 90s I think over 700 went down. A little way to go to match it.

Of course, I think the federal gov bailed most of them using the taxpayers dollars. They'll probably do it again of course, and keep doing it, until ...... eeeek!


Congress Approves Housing Market Rescue Bill

26 Jul 2008

The Congress approved a massive housing market rescue bill on Saturday, offering emergency financing to Fannie Mae and Freddie Mac, creating a new regulator for the mortgage titans and setting up a $300 billion fund to help troubled homeowners.

 

[explod]

The Congress approved a massive housing market rescue bill on Saturday, offering emergency financing to Fannie Mae and Freddie Mac, creating a new regulator for the mortgage titans and setting up a $300 billion fund to help troubled homeowners.

I hear the bottom line is to help the banks/lenders. Taxpayers bailing out poor lending practices.

The big world is a disgusting place.

 

[Macquack]

I hear the bottom line is to help the banks/lenders. Taxpayers bailing out poor lending practices.

The big world is a disgusting place.

With the Treasury printing presses working overtime, the taxpayer takes a double hit through the inflationary effects of the bail out. Inflation is a hidden tax.

Does "Capitalism" have a "use by" date?

 

[davo8]

Well, please let us know exactly where it's coming from next time so I can trade it. Thanks!

By the way how many banks have gone bust so far?

During the S&L crisis in the 80s and 90s I think over 700 went down. A little way to go to match it.

Of course, I think the federal gov bailed most of them using the taxpayers dollars. They'll probably do it again of course, and keep doing it, until ...... eeeek!

If only! The basic principle is that the finance sector is shot to hell, so just keep betting against banks.

In the S&L there were lots more small banks, but the core was barely shaken. This time the core is rotten and the big banks will only survive because of government backing (back door nationalisation). The bill that just passed Congress is another step in the process that started with Bear Stearns.

US regional banks will start failing over the next few months as borrowers default and the collateral is worthless.

Our banks are scared stiff that property here will collapse too. Sub-prime was just a trigger -- it's the collapse of the credit bubble that is the killer, and banks are the front line.

 

[Aussiejeff]

If only! The basic principle is that the finance sector is shot to hell, so just keep betting against banks.

In the S&L there were lots more small banks, but the core was barely shaken. This time the core is rotten and the big banks will only survive because of government backing (back door nationalisation). The bill that just passed Congress is another step in the process that started with Bear Stearns.

US regional banks will start failing over the next few months as borrowers default and the collateral is worthless.

Our banks are scared stiff that property here will collapse too. Sub-prime was just a trigger -- it's the collapse of the credit bubble that is the killer, and banks are the front line.

For some silly reason, this tune just popped into my head with modified lyrics...

"The Yanks are turning Japanese, the Yanks are turning Japanese, I really think so, dah-dah-dah-dah-dah-dah-doh, turning Japanese, I think they're turning Japanese, I really think so, dah-dah-dah-dah-dah-dah-doh...."

I'm worried now. Will I have to pay royalties????