Imminent and severe market correction

[kransky]

If you dont mark to market then your promoting the housing bubble
and by doing that your condoning the current prices
currently joe six pack spends his whole life repaying interest to the banks to pay off his home loan. I for one would prefer if house prices were halved and we all spent less of our lives working our butts off to pay interest to banks to make their shareholders wealthier

why not let house prices fall, the weak (greedy and/or stupid) banks fail and create new banks with private cash that IS out there... and then restart the economy

right now whole suburbs in the US are becoming ghost towns because no one is buying the houses because banks cant come to grips with the reality that prices are too high.. while this saga is prolonged the houses rot..

its like playing a loosing game of poker (and your opposition knows he has a better hand), you have a loosing hand but you keep trying to bluff your way through.. you have already thrown in your car and house.. now you want to throw your wife (taxpayer) into the pot too..

 

[Bushman]

The exact some reasoning that Japan used and looked what happened to them. A recent study of numerous banking crises presented in the October Liscio Report poited out a few crucial lessons from the past, chief among them:

Good post. Exactly what I was thinking about it all - the BOJ and the Japanese governement have embarked on this exact path before and the end result was economic ruin.

As for mark-to-market, it has some flaws, the most obvious being how do you value to market when the market is illiquid and there is no transactional evidence. CDO's, property, infrastructure assets and the like all fall into this category. But is is there to protect investors from 'director's valuations' of illiquid asset classes (CDO's, property etc).

It is not causing any of this instability - the future cashflows associated with the underlying assets combined with highly leveraged structures they are held in are doing it all by themselves. Boils down to dodgy assets and miniscule equity bases - doing what investment banks do and that is doing the dodge on the regulators. And know they know that the regulator will bail them out if it all goes wrong.

Let them fall I say. The sooner the unwinding is completed, the sooner the end of the bear market.

 

[white_goodman]

they need to pinpoint the weak banks, ones that are gonna cause uncertainty and arent solvent, eliminate them thrtough mergers and acquisitions and give the rest a chance to survive and bring some confidence back in the market. Gotta take out the poison so banks dont fear lending to each other

 

[deadset]

RE : Schiff
The only problem I have with Gold is that at any moment a heap of rushing water could uncover a huge deposit that dwarfs any previous find.

RE : Banks in Japan
Something weird going on there. I got stuck in Osaka once with $5 on a Friday night, they have no ATMs at night, but they've had iPhone equivalents all along, they could have warned me when I paid cash for dinner for the whole troop after working my butt off for a week averting another disaster, which they promptly unfixed then presented the same problem to the other vendor. Then you hear about investors with 0% interest, then you hear about people there having to go thru Yakuza to get small loans. Some things you just don't want to know about regarding Japan and Asian business in general.

RE : Market correction.
Ok, I've sold off, I don't have to believe in Santa anymore.

RE : House prices.
I think they've been way overpriced for a long time. It's almost as much a financial risk as getting married to a bimbo you can't afford if you ask me.

 

[dhukka]

they need to pinpoint the weak banks, ones that are gonna cause uncertainty and arent solvent, eliminate them thrtough mergers and acquisitions and give the rest a chance to survive and bring some confidence back in the market. Gotta take out the poison so banks dont fear lending to each other

That's exactly right and one of the things that is wrong with the Paulson plan. Under the Paulson plan you don't know who is going to be solvent because you don't know what price they are going to get for the assets. If they just recapitalized the banks and made a clear distinction between the ones they are going to back and the ones that they will let go under then it would remove a degree of uncertainty that currently exists.

 

[IFocus]

RE : Schiff
The only problem I have with Gold is that at any moment a heap of rushing water could uncover a huge deposit that dwarfs any previous find.

Deadset I don't get his meaning for this?

 

[Kauri]

when I pull the chain.... there is a rush of wasser???

cheers
........................................................kauri

 

[acouch]

of interest perhaps
ac

http://www.bloomberg.com/apps/news?pid=20601103&sid=a9FDRUP3akdY&refer=news

 

[bean]

For interest - those that know Dow Theory
Mention on a forum
Both the Industrials and the Transports closed at their lows for the year today. In particular, the Transports closed below their lows from January, which had not been breached since then.

So, the simultaneous lows confirm each other, and Dow Theory would say that we are headed down to the 2002 lows. Perhaps quickly. I am sure Richard Russell's column today will feature this prominently.

2002 Low 7215

For chartists '3 peaks ' or 'doomed house pattern' does that appear on the Dow?

Whatever it doesn't look good...surprise rate cut may only produce a brief short covering rally.
Will we see a run on the Banks in the US this week or next?

 

[startrader]

Some of you may find these thoughts from Steve Keen (Associate Professor in Economics and Finance, University of Western Sydney) interesting:

"... the root problem is not the banks’ holdings of toxic bonds, but the public’s holdings of unnecessary debt. A vast proportion of the US$41 trillion debt that America’s private sector has (almost 3 times the size of the US economy) was used to finance gamblnig on shares and house prices in the biggest speculative bubble in global history. That debt, ultimately, is what is driving the US economy into Depression.

Unless that is attacked, then a Depression will follow, whether or not Wall Street is bailed out.

Tellingly, Paulson’s original plan made no provision to reduce mortgage debt. So Paulson wasn’t being a Hero for Main Street””though I expect he believed he was. He was instead attempting to save Wall Street from itself, as Greenspan did so many times when he was Fed Chairman””but each “save” only worked because it revived the frenzy of irresponsible lending that has defined Wall Street and American banking in general.

This time, nothing can save Wall Street. There is, after all, no-one to lend to below the Subprimes, apart from those who are already in gaol. But I have the feeling that some time in the future, many of Wall Street’s current lenders will indeed find themselves doing business behind bars.
....

Blind Freddy could have seen this coming–it took a special set of blinkers NOT to see that too much debt could be a problem, that subprime lending was a scam, and that the risks of default were drastically underestimated by the statistics used to concoct CDOs and the like.

That pair of blinkers was supplied by the dominant school of economic thought, Neoclassical Economics, which ingrains into its followers a belief that the economy is always in equilibrium–and coincidentally that “money doesn’t matter”, even though one of the most famous Neoclassicals, Milton Friedman, is known as a “Monetarist”.

Like most economic uses of quasi-English, that term is a misnomer. Milton’s key argument was that the rate of growth of the money supply–which he modelled entirely as “fiat” money, absent of any debt–had no long term impact on economic performance: all it could do was cause inflation.

Their model of money creation is simplistic, and clearly not in accord with the empirical data. It made them blase about the level of debt compared to income, and naive about the relationship between asset price inflation and debt.

The best indicator of this is the OECD preliminary Economic Outlook, published in May 2007, which contained the immortal wisdom “the current economic situation is in many ways better than what we have experienced in years. Our central forecast remains indeed quite benign”.

Three months later, the crisis began. Mainstream economists didn’t see it coming, not because it wasn’t obviously approaching, but because the theories they believed in made them turn a blind eye to virtually every indicator of any importance."

 

[CanOz]

And if they've seen the light recently then they haven't told the currency traders.

CanOz

 

[Aussiejeff]

For interest - those that know Dow Theory
Mention on a forum
Both the Industrials and the Transports closed at their lows for the year today. In particular, the Transports closed below their lows from January, which had not been breached since then.

So, the simultaneous lows confirm each other, and Dow Theory would say that we are headed down to the 2002 lows. Perhaps quickly. I am sure Richard Russell's column today will feature this prominently.

2002 Low 7215

[size=+1]For chartists '3 peaks ' or 'doomed house pattern' does that appear on the Dow?[/size]

Whatever it doesn't look good...surprise rate cut may only produce a brief short covering rally.
Will we see a run on the Banks in the US this week or next?

Do the last couple of "dead cat" bounces over this year to Fri 3 Sep 2008 count?

 

[bean]

DOW 2002 Low 7215

todays close breached the Dow trend line from the 2002 low.

so an interesting time as a retest of that is on the cards...a failure....well no major support till pretty close to the 2002 low.

 

[gfresh]

A friendly rundown from Nouriel Roubini (Friday):

http://www.rgemonitor.com/roubini-m...rrest_the_risk_of_the_mother_of_all_bank_runs

 

[davo8]

DOW 2002 Low 7215

todays close breached the Dow trend line from the 2002 low.

so an interesting time as a retest of that is on the cards...a failure....well no major support till pretty close to the 2002 low.

What trend is that then? Do you have a chart?

Looks to me as if there is pretty solid support between 9700 & 10000, going back to 2004. I wouldn't expect it to fall through that without at least a bit of a struggle. Might even test resistance at around 11000 first, don't you think?

 

[davo8]

A friendly rundown from Nouriel Roubini (Friday):

I've been following Nouriel for a good long time now and I think he's got it mostly right. If anything, he was a bit optimistic given how things look now.

But Steve Keen knows why: a credit bubble this big just has to end in tears when it pops. And Hank's bail-out is about keeping some air in the bubble, which never seems to work when I try it.

The dismal month of October has only just started, and there is lots more bad news to come. The credit markets are frozen tight, foreclosures are headed past 1.5 million, unemployment (U6) is 11%, the crunch in Europe may bring down the Euro and Warren Buffet says he's never seen it so bad (which for an old guy like him means something!).

So, at the risk of repeating myself: this is NOT the bottom. Please remain seated until the end of the ride. This one could be a doozy!

 

[CanOz]

What trend is that then? Do you have a chart?

Looks to me as if there is pretty solid support between 9700 & 10000, going back to 2004. I wouldn't expect it to fall through that without at least a bit of a struggle. Might even test resistance at around 11000 first, don't you think?

fwiw

 

[GreatPig]

Warren Buffet says he's never seen it so bad

Although that didn't stop him putting $3bn into GE and $5bn into Goldman Sachs.

GP

 

[mayk]

Although that didn't stop him putting $3bn into GE and $5bn into Goldman Sachs.

GP

I guess, it was charity for Wall Street

 

[wayneL]

Holy Crap!

This is the scariest article I've read yet: http://www.telegraph.co.uk/finance/...-hot-seat-as-Europe-falls-into-the-abyss.html

This is not on some gold ramping website or by a tin foil hat wearing nutter. This is Ambrose Evans-Pritchard on of the most sensible and consistently accurate economic journalists out there. (along with Jeff Randall and a couple of others) IN THE DAILY TELEGRAPH - a conservative broadsheet.

Over here people have been stocking up on baked bean and bottled water, the sports stores have sold out of baseball bats. On another thread I posted an article on a bookie running a book on the first city to riot.

There is talk of bank holidays (where the entire banking system closes down for a week or so) The Tory shadow Chancellor of the Exchequer is calling for the nationalisation of the whole banking industry... and the gu'mint is taking it seriously http://www.telegraph.co.uk/finance/...t-could-take-shares-in-high-street-banks.html

I don't know about you lot, but I'm assuming crash positions.