Archive for October, 2008

Rick Santelli this morning on CNBC laid it out in nice, clear succinct language – all we have been doing is for one purpose – to protect insolvent, that is bankrupt companies from having to come clean and face the music of the market.

via Oh No…. (Foreign Debt Bought by The Fed) – The Market Ticker


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We feel that fundamentally Wall Street is sound, and that for people who can afford to pay for them outright, good stocks are cheap at these prices.

via 1927-1933 Chart of Pompous Prognosticators

There’s some other good quotes in there, as well.

I particularly like #20.

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Here’s the source of the crash today – if it comes today.  It’s the requirement to post collateral on the Lehman CDS.  The players are still trying to figure out what the “netting” will amount to.  They’re throwing figures around that are as low as 6 billion, and as high as 360 billion.  That’s quite a wide range.

If the final amount is in the hundreds of billions, that’s very, very bad news for this market.  Treasuries have been selling like hotcakes this morning.  Yields are way, way down.  There will be forced liquidations this afternoon to raise the cash needed for this collateral posting.

Think of those slo-mo videos of the explosion of the “MOAB” where it looks like everything is getting sucked in at first, only to be blown to pieces immediately afterwards.  That’s what’s happening right now.

This might sting a little.


They keep coming up with these number by ‘netting’ but we think the amount is going to anywhere from $220bn to $270bn. The chain broke in the CDS market when Lehman Brothers went down. We may now see other counter-parties defaulting,” he said.

With hindsight, it is now clear the decision to let Lehman Brothers go bankrupt set off a melt-down of the world financial system, forcing North America, Britain, Europe, Australia, and now parts of Asia to rescue their banks. “A dramatic error,” said Christine Lagarde, France’s finance minister.

US Federal Reserve chair Ben Bernanke said this week that Washington lacked the legal power to take on the vast liabilties stemming from a Lehman rescue.

via Fears of Lehman’s CDS derivatives haunt markets – Telegraph

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From a technical perspective the picture is even worse. We have a confirmed double-top, a DOW theory primary trend bear market reconfirmation, and a spike bottom. From a technical perspective this implies that the entire bull market move to the first peak is going to be retraced, which puts the S&P 500 down into the 500 area, erasing twenty years worth of gains.

via Oh My, Its (Lack Of) Earnings! – The Market Ticker

Today is the day to watch.  If this analysis holds today — that is, the double top holds, then we’re headed to Dow 6500 in the next ten days.  The most likely scenario from there is a Santa Claus rally through the end of the year, one last chance for the bulls to go to cash.  Then 2009 sees the start of the c-wave, with a Dow target around 5000, or S&P at 500 or worse.

If today we reject the double top, and rocket upward, then the Santa Claus rally starts today.

And, to repeat, earnings are coming out, and they pretty much uniformly suck.

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Bet on the economy worsening, especially with Obama nearly assured election, and Nancy Pelosi and others already talking about further massive government intervention. They just can’t resist revisiting the misery of the 1930s, and you can be assured that with people in Washington DC such as Paulson, Bernanke, Pelosi and Reid you’re going to get it – in spades.

As for the stock market, my target within the next 12-24 months is now S&P 500 – yes, trading at 500. This target may not be achieved in full, but I am rapidly losing confidence that the 2003 Bear Market lows will hold, and if they do not, that is the next area of chart support, a full loss of the entire original bull market level going back to the early 1990s.

When adjusted for inflation the damage will, of course, be far worse than the nominal numbers indicate. In fact, for many investors, especially those who try to “buy the dips” here, they will be catastrophic.


via The Folly Of A Depression Thesis – The Market Ticker

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Deflation challenges many of the assumptions that work in an inflationary context: “Property is a safe investment.” and “You’ll be fine in equities in the long term.” and “Governments don’t default.” When people are forced to reconsider these cherished touchstones of their financial beliefs, they will also reconsider the cherished notions of their political beliefs. It was under similar conditions that nations in the past embraced racial hatred, ethnic divisions, discrimination against gender/sexual preference, economic imperialism and war as a means of directing public discontent away from threatened elites.

via London Banker: Snake Oil and Deflation

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After reviewing his client’s income, assets, and personal budget Tuesday, Morgan Stanley financial adviser Henry Dalton determined that Jason Hutchinson, 43, could make the best use of his portfolio by dropping dead at the age of 62. “Taking account of inflation and the rising cost of living versus the projected direction of the economy in the coming decade, I told Mr. Hutchinson that he could significantly reduce his spending by simply living less,” Dalton said. “After looking at his investments, I calculated that he really shouldn’t live a day over 62—or 59 if he wants a funeral.” In order to help his client plan for his financial future, Dalton presented Hutchinson with several of the company’s comprehensive suicide packages.

via Financial Planner Advises Shorter Life Span | The Onion – America’s Finest News Source

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