 | Dow to 6500by cuervoslaugh on October 13th, 2008 at 9:16 am |
(6 votes, average: 4.5 out of 5)
Loading ...Here are six reasons i think that Wall Street is toast for a very long time.
1. The failure of the $700bln dollar bailout the first time out is still in the back of a lot of investors minds. Regardless of whatever passed afterwards - there is a recognised risk that Main Street really does not understand nor wish to help Wall Street. That is until commercial paper remains coagulated and they lose their jobs will Main Street “get it”.
Whatever list of arrangements made over the weekend - they are all a matter of restoring “confidence” in appearance but will probably not fix the interbank lending. That is disrupted long term and until banks are willing to trust each other and the consumer - well things are going to remain ugly.
2. The USD will soon no longer be the “reserve currency of choice” because the FED continues to crush it’s value to keep the US out of the recession it should have really had in 2000.
All this trouble has prompted China (who remember holds warehouses of US pesos) to start talking about reconstructing the international financial system and remove the contagion of risk that the US brings.
The “man in the street” in China (you know they made probably 90% of the things that are in your home) really believes that the US led the Chinese central bank into buying USD as an act of economic war.
Europe now is not too happy:
Typically at World Bank meetings, officials grouse about the misguided protesters. This year, things are a little different. “There’s no question the Washington consensus is dead,” one senior World Bank official said, requesting anonymity because he was not authorized to speak publicly to a reporter. He said he was referring to “the free-market consensus,” adding that at the World Bank, the push toward deregulation and unfettered free markets “died at the time of the $700 billion bailout.”
Letting Lehman Brothers fail was a stupid move of the first order as well and points to a distracted and wrongly pointed Treasury and central bank in the US.
3. The surge in investments to Wall Street via 401ks is about to drop off in a significant way as baby boomers retire and the market stumbles. The smart ones have already gone to cash or are in the process of redeeming their mutual fund investments in a mad dash to protect what little money they have to spend in their golden years.
Generation X is already more cautious.
Investors have withdrawn more than $81 billion from stock mutual funds since the beginning of the year, with nearly 40 percent of that coming in the last six weeks, according to AMG Data Services, an industry research firm.
4. If you thought the sub prime and Alt-A markets were bad - just you wait until the credit card market implodes.
5. If the side effect of the devauled USD was a rise in the Dow - what happens when the dollar goes on a rampage?
6. The overarching theme of debt in the US is transforming it from an economic super power of wealth creation to the largest debtor nation since the Roman Empire:
“One thing seems probable to me,” Peer Steinbrück, the German finance minister, said recently. “The U.S. will lose its status as the superpower of the global financial system.”
At another time, that remark might have sounded like mere nationalist bluster. Right now, it does not seem so ridiculous to ask whether 2008 will come to be seen as the first year of a distinctly non-American century.
At the heart of the troubles, both short term and long term, is debt.
Furthermore all the money being thrown in is at the wrong things:
“If you told me we were spending like crazy to build schools and send everyone to college, that would have infinitely different implications than borrowing like crazy to finance current consumption,” said Christina Romer, an economist at the University of California at Berkeley.
Schools, roads, airports and the medical system, as well as the country’s energy policy, all appear to need significant fixing, and yet there will be less money to fix them than there was 5 or 10 years ago. With the coming explosion in Medicare costs, the U.S. budget deficit could eventually get so large that foreign investors would get spooked. They might then decide that other economies were safer bets and shift more of their lending there. Were that to happen, and the United States struggled to attract financing, the country would face a whole new crisis.
The Takeaway
Fade the coming rally. It’s a headfake of the first order. Once the market realises that the central banks can’t backstop everything it’ll be another leg down and a brutal one at that. When I started writing this post the futures were up 410 - now they’re down to 350.
I don’t care if this rally lasts six months - it’s a head fake. I feel that optimistically we are perhaps 1/3 to 1/2 way through this mess. And no one has really talked about the derivatives market in a meaningful way yet. I saw a figure last week that mentioned that $7trln dollars had evaporated last week. That money isn’t going to be easily replaced even with deficit spending.
I still like shiny metals [[GLD]] and Japanese currency [[FXY]]
Theme Song
9200 is the highest realistic rally that can happen this week.
http://www.ibankcoin.com/peanut_gallery/index.php/2008/10/12/double-back-to-the-ema20-scan/#comment-16516
October 13th, 2008 at 10:32 amdeflation : GLD
October 13th, 2008 at 10:34 amHmmm. interesting combination.
Everyone is bending over backwards to reinflate something - anything.
I think the current tumble in commodities will make the coming race back up palatable. That’s the only reason they’re falling this far this fast.
Up 478 as I write this = lunacy
October 13th, 2008 at 11:07 amThe Block is hot!
I agree with you that the dollar will no longer be the world reserve currency.
I will enjoy this rally while it lasts.
October 13th, 2008 at 11:12 amThis is not lunacy…
October 13th, 2008 at 11:31 amIf our gov guarentees overnight lending then fear of the worst depression is over for short the term…use support as your guide
8920, 9450, 10.2k, 10.8k, 11.3k, DOW etc to determine your trading stance.
If this European guarentee is adopted here then the market will have an extended rally.
The real question is how much damage did we suffer by way of unemployment from the credit freeze…
If your going to buy gold then it should be physical at this point due too worwide currency crashes.
Longterm cuervoslaugh’s points are valid.
We will suffer deep recession, but the dollar will not go any higher, and LEH going out may have been stupid, but is is economic warfare against Chavez who lost a ton of $.
This was all planned…if you can not see that then get out of the game.
This is about control of international banking. We will take control or you can expect world wide fighting over basic resources.
“One thing seems probable to me,” Peer Steinbrück, the German finance minister, said recently. “The U.S. will lose its status as the superpower of the global financial system.”
This douchebag came out with this pronouncement about 24 hours before the European banking system started to self-implode.
Listen to me carefully, this global meltdown is better for the dollar than almost any other currency, save perhaps Swiss francs. Even Japan has a massive demography problem, despite it’s huge account surpluses.
The Euro is fucked, sideways.
Remember the old saying — “In a world of armless credit grenade victims, the one armed man is King.”
_____
October 13th, 2008 at 11:35 amGW could you explain more these comments:
but is is economic warfare against Chavez who lost a ton of $
This is about control of international banking.
I’d like to find out more about that thesis of yours.
October 13th, 2008 at 11:35 amJake - this is a tell for you, the clock that lists the US national debt just overflowed when it added another digit.
http://www.cnn.com/2008/US/10/12/national.debt.clock.ap/index.html
October 13th, 2008 at 11:44 amMay a bull dance on your face until our eyebrow’s pop off.
October 13th, 2008 at 11:55 amcuervoslaugh,
Research Project for a New American Century…
The world is growing at an enourmous rate and the U.S. is losing its status.
Also there is conjecture that this growth is threatening available natural resources.
The Asian contagion, Ruble crisis, and other debacles going back to the crash of 1907 is a “contrived event…like a mathematical equation…” (not my words) to condense power and business sector dominance.
As we loose economic superiority, these debacles are a way to shovel bad assets and investment upon others you know bag holders…then as the crisis unfolds we and larger corporations swoop in to be the hero saving the day while collecting whole corporations for pennies on the dollar.
Look at WM…the FDIC makes $1.9 billion and JPM pays $2 billion for $49 billion in assets and deposits. That is a robbery!
Look at WB. Its bid by WFC was alomost blocked by C and the FDIC…it could not come to pass…otherwise there really is no meaning to the word Capitalism.
As far as LEH is concerned American business and gov interests are enourmously pissed that we could not remove him from power and that he began as retaliation to nationalize American interests. It has been said that Chavez had a boat load of investment via LEH and they were allowed to blow up in order to hurt Chavez.
http://www.youtube.com/watch?v=wKP4sE1NbLk&feature=related
The goal is chattel slavery through the control of money, credit, and resources in foreign countries….
http://www.financialsense.com/editorials/engdahl/2008/1009.html
What used to be thought of as conspiracy theories is now generally excepted by a much wider swath of intellectuals as a movement for power and control over whole economies.
As a country we have little resources other than natty and coal. So we have no choice, now that manufacturing has been blind sided by greedy corporations utilizing cheap labor. So we must find other areas of dominance and this is the technology and banking sectors.
Do you really think that the smartest people in the world did not know this was coming? Were talking about Wall st. and gov hiring mathemeticians, physicists, and genoius minds to create various trading alogorithims and such. Everyone knew this would occur. Only those paying attention knew this might occur.
I owned SOV at $19 many years ago and even though earnings was good the stock was being liquidated. I did not know why and stopped out @ $16….it was then I discovered the whole debacle about to unfold. Of course I was 3 years early to the debacle party.
If you do the research you will find many dots to connect in order to see where we are headed.
I painstakenly verified all the info in Zeitgeist. Plus the addendum.
So watch that and you’ll get a great summation of all this I talk about.
http://www.zeitgeistmovie.com/
Peace
October 13th, 2008 at 1:07 pm[...] October 13, 2008 I wrote Dow to 6500 thinking that the 6 reasons for my thesis were amply pointed to deal with the next six to twelve [...]
November 20th, 2008 at 11:39 pmCuervos Laugh said…
Well, the unemployment rate in November 2008 was the highest in 14 years so a *drop* that was the biggest in 16 years is not so much good news as kind of cosi-cosa news.
http://www.cbc.ca/money/story/2008/11/07/usjoblessrate.html?ref=rss
January 1, 2009 10:07 AM
GNE said…
Cuervos,
Thanks for reading the GNE. As I’ve analyzed this drop a bit more what has been happening through most of December is a significant drop in NEW claims for unemployment each week. That doesn’t mean that claims are not still happening, just that the total number that are filing each week is declining. This past week was the largest decline in 16 years.
When you look at the unemployment chart in this post:
http://mast-economy.blogspot.com/2008/12/new-years-week-safe-harbor-statement.html
You’ll see an inflection point in the actual rate of unemployment, and this week’s reported drop in initial claims is a very positive indicator that unemployment will begin to drop again very soon.
It’s 2009…
GNE
January 1st, 2009 at 4:06 pmhttp://mast-economy.blogspot.com/