Thursday, October 9, 2008

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.

21 comments:

johndaniels said...

This is all simply a repeat of 1913, and the Great Depression that followed. They commandeered our currency system. Their plot now is to acquire unregulated legislative powers via panicked political force... much like the Bailout was "forced" on us through threats of consequence if it was not passed. Their long term goal is the eventual consolidation of all banks into a "one world" financial system. This allows them to instill a "one world" currency.. and to further entrench their own positions of power. Just more ways of transferring wealth from the middle and poor classes to the super elites. wtf can we do to stop these bastards?
psbyowner (2 minutes ago)
We saw the headline today that said in effect the Government is considering taking ownership interests in banks. This is a harbinger to the end of the world, and our constitutional rights! With the government watching over every banking transaction, we will have absolutely no privacy from "Big Brother". It will be end of our free society as we know it, if the government suceeds in controlling our financial institutions.

Fact is, it's just gambling to buy stocks or any other paper assets right now. We simply have no means of incoming capital to support any bottom...just exiting international capital, as the global crisis hits. Remember, in 2003 we were at +/- 7500, and at 1995 we were at 4000! I think we need to get back to before the "money=debt" credit system started. Averaged, that's about DOW 5950 to 6250 to start looking again.

Jeff said...

JD

Your 6k target may be right. If we get there expect complete chaos.

I actually shorted the hole today and I never do that. I still haven't seen capitulation! Today may have been the beginning of it.

I would guess the waterfall continues tomorrow. Who wants to hold stocks heading into a a long weekend. Banks are closed Monday.

I kinda think at this point the government must prop up our banks. No one else has the capital to do it, and we all lose if the financial system fails.

Conditions are deteriorating rapidly and I am afraid a complete social panic is about to begin.

I hope I'm wrong.

Jeff said...

Just read Roubini. OMG

"At this point severe damage is done and one cannot rule out a systemic collapse and a global depression. It will take a significant change in leadership of economic policy and very radical, coordinated policy actions among all advanced and emerging market economies to avoid this economic and financial disaster. Urgent and immediate necessary actions that need to be done globally (with some variants across countries depending on the severity of the problem and the overall resources available to the sovereigns) include:"

http://www.rgemonitor.com/redir.php?sid=1&tgid=10000&cid=293819

Jeff said...

10 year futures up 1 point: CNBC breaking news.

Nikkei opens down 11%.

US futures down 150 on DOW
20 points on S&P

Potential crash setrting up for tomorrow.

Avl Guy said...

The Financial Times had a different take on what caused today's late-day plunge:

Paulson "ruled out a 'grand plan' for an international bail-out of the financial system,"

But maybe this nugget from Paulie was the real cardiac-causer:

"warned that the [$700B EESA] scheme and the half percentage point interest rate cuts in countries including the UK and the US would not be enough to prevent more financial institutions from imploding.
"One thing we must recognise: even with the new Treasury authorities, some financial institutions will fail," he said. "The EESA doesn't exist to save every financial institution for its own sake."
Neither should investors expect a quick recovery in the markets, he added."

The FT's by-line: "More banks will fail in the weeks ahead despite dramatic moves by policymakers across the world to tackle the financial crisis, the US Treasury Secretary admitted last night."
-end

It makes sense that would snatch the rug from under The Street cuz the 'confidence-seekers' were looking for more soothing words and pacifying actions.
This could set the stage for capitulation on the Street and, more importantly, for fessing up to America that 'Roubini-think' is right, let’s dismiss our false hopes & get to work on bunkering down and planning a recovery down the road.

I still dont see why Paulson's comments weren’t carried domestically on Bloomberg, WSJ or NYT, or by the CNBC jabbering heads.
-Avl

Financial Crisis: Hank Paulson Warns of More Bank Failures.
By Edmund Conway in Washington BST 09 Oct 2008
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/3162002/Financial-Crisis-Hank-Paulson-warns-of-more-bank-failures.html

johndaniels said...

EYE OF THE STORM?

we are in the eye of the storm, alright...of a MAJOR precious metals rally; specifically platinum and silver. Why?

these metals are being held at lows while the public consumes the spupply at these prices. mining companies, due to the low prices, are probably contemplating reduced or curtailed operations. If yo recall, silver appreciated during the hyperinflationaary trend, and is now at multi year lows with an increasing supply shortage issue. The loss of consumption in industrial uses is being rplaced by the increase in investment, yet the price is kept down through digital price manipulation, and is clearly not reflective of a true supply demand marketplace. same with platinum, exact. Both are industrial metals, once industrial demand returns, there will be a 3 tiered upward pressure on the silver/platinum prices. 1. continued hoarding by investors, banks, and dealers (these guys are sold out, or retailing very high over spot) as currency issues persist. 2. mining operations projected lower output due to lower expected prices 3. industrial use discoveries wilth lower metal prices.

Jeff said...

avl

Wow. That is big news. CNBC mentioned that briefly but did not focus on it.

It appears the world wants us to bail them out when we can't even bailout ourselves.

Asia is gettign CRUSHED tonight. Mayba flush out tomorrow?

Anonymous said...

We need an army of govt auditors to start with the biggest banks, scour their books, decide which ones can survive with capital injections and if they can't shut them down and chop them up. Then these auditors move to the next tier of banks and work down to the smaller banks. I guarantee that investors would be lining up to put money in a bank that has been recapitalized and had its books completely combed through, reworked and determined to be solvent. It's the only way I can see any confidence in banks being restored.

Jeff said...

JD

Did you see that the some of the arab countries in the Middle East announced today that they plan on buying large amounts of gold?

That should be very bullish for metals. I am thinking of picking up some myself after watching the market this week.

A crash appears imminent. The Futures look horrific.

Jeff said...

anon

Well said. Couldn't agree more. I would buy financials if I knew what I ws getting! This "hide the sausage" is getting risiculous.

If this crap continues I may start stashing cash under the mattress. I am seriously worried about a bank run.

I think they need to do the same thing with these toxic CDO's. Break them apart and pool the good mortgages together, securatize them and throw away the garbage Alt-A loans.

Jeff said...

Oh boy

This is going to leave a mark.

MS and Goldman cut by Moody's. Wow..Bye bye Goldman? I expect these two to get taken out and shot tomorrow.

"Oct. 10 (Bloomberg) -- Morgan Stanley's credit rating may be cut by Moody's Investors Service, which said the financial market slump may hurt profit at the U.S. securities firm next year.

Moody's put Morgan Stanley's A1 long-term credit rating on review for a possible downgrade, according to an e-mailed statement. The ratings assessor also said it cut its outlook for Goldman Sachs Group Inc.'s Aa3 long-term rating to negative."

http://bloomberg.com/apps/news?pid=20601087&sid=aHFmX.IY.nJk&refer=home

Anonymous said...

Jeff,

Could executives and board members for ridiculously over leveraged banks be held liable? If it could be proven that they broke SEC rules could they be liable? I would love to see class action suits filed against executives and board members by all the equity holders that get wiped out.

Jeff said...

anon

Oh yeah.

The focus right now is to try and save the financial system.

When the smoke clears I expect many executives to go down from this nightmare.

This was the greatest fraud in American history in my opinion.

Remember all of the Enron trials? Think that times 100.

The public will demand blood from this fiasco and the lawyers will be more than happy to get it for them.

Avl Guy said...

Being in a state of pain does not mean one will act rationally and also find a brilliant solution to solve it. Though vengeance against Wall Street villains is justified, neither it nor more badly needed regulation of markets will create jobs, and job losses will be the big story every week from here on out...and job markets take 2 years to recover after a major downturn ends. There are no job creation solutions on the dems or GOP or the publics’ horizon, though many great ideas emerged in blogdom this year.

I doubt anyone will have sustainable opportunities to make $ on the market as long as markets are befuddled by wholesale asset deflation, credit contraction, debt unwind and a global ‘L’ or fat ‘U’-shaped recession. Still, once major joblessness hits its 2-year anniversary, I expect desperate and brazen plans & their supporters to take the reins. There will be no political stability during economic upheaval. 2010 & 2012 are elections destined for political reversals and upheavals as people flail for 'solutions' b4 accepting we must wait for a long recovery, perhaps a repeat of 9 years time before economic ‘normalcy’ returns. If before then we take a desperate re-embrace of credit bubbles or an experiment w/ hyperinflation, then we'll have to wait that much longer. I have no faith in voters, CEOs, dems, GOP, internationally coordinated solutions, or the current crop of MBAs. This 25-year secular bull market was embedded w/ 4 bubbles and its now ended. A 25-year Bear =2008+25=2033. I prefer a 9-year wait.

The Log Chopper said...

Jeff,

I must say, your post, and all the other posts on financial blogs tells me one thing: capitulation and the corresponding turn-around is near.

Fear is thick. Panic is prevalent. People swear the world is ending. The rate of the market's decline is almost vertical.

I think a drastic bottom/rebound is imminent in the markets. Just look at a historical chart of the Dow. This happens over and over... a steep final decline, a sharp reversal, and an equally violent rebound.

Right now, we are in the steep, final decline. A reversal must be imminent... at least using history as a guideline.

Would you agree?

Jeff said...

avl

Yup. This well definately end up be a decade or more recovery. J6P has no clue how long it takes to recover from something like this.

I am just thankful I got my portfolio moved out at aroud DOW 14,000. That's saved me a lot of money.

HOwever, I won't be putting it back work long for a long time because it will take years of regulation and transparency before I trust it again.

I am looking forward to going long in 2034 based on your predictions avl!

Jeff said...

Log

I totally agreed. I got out of some shorts I put on yesterday shortly after the open.

A bounce was imminent. We went from -680 to -300 in a matter of a few monutes.

It sucked because I couldn't get out of one trade this morning because everyone ran for the exits at once. I lost 300 points waiting to close the one position out.

Still got out at a decent profit though:)

ZMonet said...

Log Chopper --

I would tend to agree we are near a bottom, but if looking to history I think you omitted the step of testing a new bottom after the rebound. In '29 the market went to almost 400, then down to 200, then up to 300 and then down to 41 -- a 90% loss. If we followed, that would mean the around 14,200 high we hit would be knocked down to 7100, before going back above 10,000...and then down to around 1500.

Jeff said...

zmon

Yeah thats how 1929 went. Lets hope we don't rinse and repeat

If we see 1500 on the DOW, there may be no market to trade!

I expect a nice bounce here. The G7 is critical over the weekend. If they come out of that with a global coordinated effort to try and stabilize things, we could go higher next week.

I am just about flat as a board from a trading perspective. Too much risk out there right now.

ZMonet said...

I know I said I thought it was just gambling to trade (BET) on this market right now, but it REALLY is now. I see the wild rides and, for those of you who know what it is like to sports gamble, say, "Yeah, I was going to trade (BET) that way -- Damn, I should have done it." No fundamentals and nothing more than the sniff of an idea. Anyway, you'd be better off betting on football this Sunday than betting on the market.

Jeff said...

Zmon

Totally agree! I am working on a post right now and I only briefly touch on the stock market today.

I am doing something on the history of the DOW.

There is really no reason to discuss the market too much now because its being dominated by fear, panic, and intervention.

Many are liquidating their 401k's which puts even more pressure on the market.

The short term movement is almost impossible to predict right now.

I would rather go to Vegas like you said and play some craps!