There is Nowhere to Hide

Good evening folks

I am starting to feel like Bill Murray in the movie Ground Hog Day. Here is a shocker: The markets were down again today! I apologize for getting these posts up so late. It takes a long time to absorb all of the information out there.

What can I say folks, this is getting ridiculous. The speed of this crash has been breathtaking. We are witnessing history. We will be telling our grandchildren about the great crash of 2008. Whats scary is everything is breaking down.

There is nowhere to hide in this market. Commodities are being dragged outside and shot. Gold even dropped. I guess you can hide in stocks if you like watching your 401k drop to 0!

The big trigger today was the GM news:

"Oct. 9 (Bloomberg) -- General Motors Corp. tumbled to its lowest in New York trading in 58 years and Ford Motor Co. fell to almost a 26-year low as the U.S. auto-sales outlook worsened and Standard & Poor's said it may cut their debt deeper into junk.

Market researcher J.D. Power & Associates today estimated that car and light-truck sales will fall to 13.6 million this year and 13.2 million in 2009. The total was 16.1 million last year and hasn't been as low as the 2009 projection since 1992.

``These companies certainly wouldn't choose to file bankruptcy but they could find themselves at a point where their liquidity reached the point where they no longer could run their businesses,'' S&P analyst Robert Schulz said on Bloomberg Television. ``We think they could be pushed into that.''

Quick take:

Its very possible that GM is gone by the end of next week. If you had bought this stock in 1929 and held until today, you would be even on your investment. GM now sits at $4.76 a share. What can I say? Amazing.

Credit Crash

When they write the history books, this crash will be blamed on lack of credit. Take a look at this article from Bloomberg:

"Libor, a gauge of bank funding costs, continued to rise even after Spain and the U.K. acted to strengthen their banking systems and the U.S. Congress approved a $700 billion financial bailout. Even the Fed's decision Monday to double emergency cash auctions failed to unlock short-term lending. The European Central Bank today offered banks as much cash as they need for six days at its benchmark rate of 3.75 percent, bringing forward new measures to soothe money markets.

``You get to a situation where fear and panic take hold,'' said Peter Dixon, a London-based economist at Commerzbank AG, Germany's second-biggest bank. ``This is the eye of the storm.''

Mysterious Acronym

Still, the jargony acronym Libor mystifies most people. While U.S. presidential candidates John McCain and Barack Obama have sparred over the economy and the mortgage crisis in America, neither has braved a public discussion of Libor.

Banks aren't lending because they're worried any borrower may become the next victim and they'll be left with losses as the credit freeze deepens.

Late on Oct. 7, as U.S. stock indexes tumbled to their biggest annual declines since 1937, Axa Investment Managers, a unit of Paris-based Axa SA, sent out an updated list of acceptable counterparties to about 50 of the firm's most senior investors and traders.

The memo, obtained by Bloomberg News, barred all new trading with Royal Bank of Scotland Group Plc and ABN Amro Holding NV, even if the dealings were backed by collateral."

My Take:

Lending is all based on trust and confidence. Banks must feel confident that they will be paid back on a loan. As you can see above, trust and confidence have been shattered. The liquidity that's being thrown to them by the central banks has done nothing.

The banks are simply hoarding any funds that become available to them. Its hard to lend to anyone when you are insolvent, especially when you believe the person you are lending too may be insolvent too!

There is only one answer to this folks, and that's transparency. The smoke and mirror game must be stopped before we end up in a depression. What scares me is it might already be too late to avoid it.

If spreads on borrowing stay this expensive, companies are going to start blowing up left and right. Many corporations must have access to commercial lending in order to operate. If this credit market remains locked for another week, you are going to start hearing GM type stories on a daily basis. Millions will lose their jobs as companies are forced to shut down due to lack of financing.

Transparency!

This is the only long term solution to this crisis in confidence. We must force every bank to open up their balance sheets immediately and face the music.

I hate to say it, but I also believe that its time that we must temporarily nationalize our banking system. Things are that desperate folks. I am as capitalistic as they come, but ladies and gentleman: This is ridiculous! Drastic times call for drastic measures.

Its quite obvious that 3/4 of the banks drove themselves right out of business by doing loans that never should have. Its time to start cleaning up this mess Sweden style.

We need to take equity stakes in all of the banks and open up their balance sheets. The ones that are beyond repair need to fail immediately. The ones that are worth saving must be recapitalized, and the taxpayer should get an equity stake and share in future profits as compensation for having been forced to bail them out.

When the taxpayer is fully compensated years down the road, we can then privatize them and move on from this disaster.

I do not care for the capital injections that the Treasury is talking about doing if it doesn't create transparency. If they inject the money without taking ownership and continue to play smoke and mirrors, I don't believe it will work. I am glad to see that they are starting to head in this direction.

Any injections must include equity stakes. This will dilute the fiancials stock prices, but its better than doing nothing and watching most of them go to zero!

Lets pray Ben and Hank get it right.

Bottom Line:

Its time for the bankers to admit failure and pay the piper. Pigman Paulson must do the right thing and stop the banking shenanigans before we all end up unemployed and sitting in soup lines.

Policy mistakes are usually what sends countries into horrible depressions. So far, NOTHING Ben and Hank have done has worked. NOTHING!

We need change or this country may financially collapse! I am serious. They better retool their bailout plan. The bailout money should be spent on creating complete transparency versus buying back AAA rated pieces of garbage.

The country has lost complete faith and trust in the financial system. Don't believe me? Here is the proof:

"Oct. 9 (Bloomberg) -- Investors pulled a record $52.1 billion from U.S.-managed stock and bond mutual funds in the past week, seeking the safety of government-insured bank deposits as the financial crisis worsened.

Shareholders took $43.3 billion from stock funds and $8.8 billion from bond funds in the week ended Oct. 8, according to data compiled by TrimTabs Investment Research in Sausalito, California. The exodus followed $72.3 billion of outflows in September, the most in a single month. Investors deposited $185.5 billion into bank accounts last month through Sept. 22, TrimTabs said, citing U.S. Federal Reserve data.

``People are scared,'' Conrad Gann, TrimTabs' chief operating officer, said in an interview. ``This market is different from what we've seen before."


Many Americans have lost almost half of their life savings in less than one year! Many baby boomers are now unable to retire. Lives are being ruined! We are weeks away from a social uprising! Drastic actions must be taken immediatly!

The government needs to wake the hell up before its too late.