Financial mayhem

[Michael Stuart Kelly]

Brant,

I am no fan of fractional reserves as protected by the government. I wouldn't mind this system if the government were not involved, since competent companies would stay in business and the owners of the bad companies would go to jail for embezzlement or Ponzi schemes.

But that's not what happens (with a few exceptions for show). Instead, we get the present mess.

Michael

[Michael Stuart Kelly]

Are you trying to say MBS are not really a part of the cause?

Merlin,

No. I am saying they are a drop in the bucket. They are toilet paper used to generate gobs of future loans (which have all kinds of cool sounding names). The idiots who issued the sub-prime based MBS tried to use them to generate the very loans they are built on, the very loans they themselves provided to individual homeowners. They weren't content with oceans of greed. They wanted to lick the sand on the shoreline dry.

There's a limit to what raw greed + government can produce. What they did was the equivalent of eating all the seeds before planting, then wondering why the full harvests of years gone by didn't come. Just a few weeds.

Michael

[algernonsidney]

I just thought of one enormous difference between now and what happened back in 1929. It's a big difference in banking and the nature of banking. I imagine it has a lot to do with our current situation. Banks used to be community-based banks. Now, many of them are part of enormous conglomerates.

I'm sure people older than I am can remember. The city bank was an independent company in your town. It may have been called the Smithville National Bank. I can still remember these types of banks and savings and loans in my lifetime. It was owned and run by people in your town, and you probably knew most of the people who worked there.

Slowly but surely, the community banks were bought out. Back in 1982 or so, I had my savings account with Colonial Federal Savings and Loan. Later it became Magnet Bank. Then it was Atlantic Financial. Then it was One Valley and moved to a bank where I had been before I went there. Now it's BB&T.

Needless to say, the community bank isn't lobbying in DC. It never has been. And since it's actually part of the community, it understands that its success actually depends on the success of the community. I bet they haven't given out many sub-prime loans either. The community banks are also less likely to nickel and dime you with service charges for things that used to be free.

I'm so happy to be part of a credit union. They actually give a crap.

[Michael Stuart Kelly]

Chris,

Well, I give you one thing. Small banks usually don't have offshore assets management divisions registered in tax havens.

There is another thing I became acutely aware of living abroad. Banking done in the USA follows different rules than the rest of the world. People who live here think it's the same everywhere. It isn't.

Gigantic American financial institutions are aware of this, though. You should see how aware they are.

Michael

[algernonsidney]

Well, I give you one thing. Small banks usually don't have offshore assets management divisions registered in tax havens.

There is another thing I became acutely aware of living abroad. Banking done in the USA follows different rules than the rest of the world. People who live here think it's the same everywhere. It isn't.

All you have to do is travel abroad. The last time I went to Canada, it was easy to change my money in Canada. When I came back to the USA, I stopped at three banks. The first one claimed that they didn't do enough exchanges of money. The second one asked me if I had an account and said that there was a service charge. The third one finally did it, and this was after I had gotten pretty far from the border.

[Brant Gaede]

Bailout: When I said "short term it's for the best" I meant for equity prices and a functioning financial system. Objectively this givaway-bailout should not pass. The country should take it's medicine and economically get on with it. The bailout will be absorbed by the banks and essentially disappear. Stock prices are going to end up going south regardless of any temporary blip up.

--Brant

[Brant Gaede]

It looks like the rescue/bailout monster will be birthed. I hope there will be a great big rally I can sell because there won't be another rally for a long time to come. Unfortunately I think the smart money is too smart and will sell it too soon to dress up end-of-the-month performance and I doubt if we will see more than 700 Dow points up. Pop up or not it's still a sell. Only gold is a buy, still using dollar-cost averaging even if it goes up tomorrow as I think it will. Remember, dollar-cost averaging is mechanical, regular purchasing of something regardless of the price using a fixed amount of dollars.

This bailout will turn out to be a horrible mistake that will ruin real estate and the economy for a decade. The economy will only be relieved if there is massive armaments spending which will make the accelerating inflation even worse. I think a big war in the Middle East is coming. I think Israel will use nukes against Iran, but I don't know if it will be before or after Tel Aviv is destroyed. If after, Israel will use most of its nukes and obliterate Iran. It might also obliterate Pakistan's nuclear capability. But there will be no more Israel after that. No Tel Aviv, no Israel.

If the Feds were to wait a year and home prices to go down another 20-30% as they will regardless, they would be able to make more effective use of this money. However, they are rightly terrified of a 3000 point crash in the Dow just before the election. They may get that bad crash anyway. If not, almost certainly the Dow will be at 8-9000 at the best a year from now. So: a crash in October with or without a bailout or just a pop-up then grind down for a year with gold going higher. No bailout, no pop-up. After October stock prices will be determined by the increasing perception of a bottomless recession and the continuing unavailability of dollars to bolster equity prices. All that Federal money is going into the financial system where it will duck and cover, not flow out into the general economy. All the banks want to do is survive or grab the carcasses or other banks that can't or won't make it which is what JP Morgan just did with WaMu. The three stongest banks in the country now are JP Morgan/Chase, Bank of America and Wells Fargo. The first is the strongest.

One might say that stock price recovery will precede the end of a recession so invest now or soon. One will be too soon. After the bust in 2000 there was no new bull market for 2 1/2 years. This is going to be much, much worse. The new bull market may not appear for a decade.

--Brant

Edited September 28, 2008 by Brant Gaede

[Brant Gaede]

The domestic interventionism represented by the bailout bill is similar to the foreign interventionism characteristic of American foreign policy. At any given point in time it seems something must be done and it then is and after a while things are obviously worse than before. The way to reverse the interventionism course to disaster is to have a whole range of policies that gradually pull the country back from that, not to precipitously stop intervening per se. Unfortunately that's not going to happen except out the context of the US being rendered so eviscerated by stupidity, venality, short-term political considerations, ignorance and the kitchen sink that it won't be able to intervene much anyway.

--Brant

[Brant Gaede]

It looks like any government action is being discounted as too little, too late. Equities are going down, not up then down. Futures are continuing to deteriorate and I'm going to bed.

--Brant

[Dennis Edwall]

Brant: Looks like you won't be up in time for the excitement when the market opens in the morning.

[Brant Gaede]

Brant: Looks like you won't be up in time for the excitement when the market opens in the morning.

Oh, I was awake. Like I said whether up or down the market is a sell today, which it was. And gold went up too, even though oil went down big. A lot of people must be in a state of fright. Many are taking money out of their banks.

The safe banks at this time are Wells Fargo, Bank of America, BanCorp and JP Morgan (Chase).

This unfolding disaster is likely to ruin McCain's chances of being elected. He just made another error by trying to be Presidential by reading a statement about failure of passage of the bailout bill and then walking off without taking questions. Voters like to think they choose the President and will implicitly resent anyone putting the crown on his own head. That's like walking off without taking questions.

--Brant

[Brant Gaede]

Because of the systemic nature of economic troubles linked to real estate and overvalued assets, I suspect equity markets can go down 60% from the year ago all time highs. That'd be a 5600 DOW. Since technology stocks will outperform on the downside, the DOW could hit 6500 for a low and the NASDAQ much lower comparatively. We should soon begin a cascade of business failures out of the credit freeze up.

--Brant

[Brant Gaede]

Nice snap-back rally on light trading today. It's the Jewish holliday and there is anticipation that the bailout bill will be passed anyway this week.

From my personal standpoint, I hope the bill passes so I can short a truely substantial rally. Too bad for the country. I think it will be the last big rally in a long time.

Most people including investing professionals do not properly understand that the real estate fiasco is going to get much worse (and that the government will be buying bad paper that's going to get even worse) as the second wave of foreclosures based on secondary liens on property such as home equity lines of credit go bad. And banks won't be doing much real estate or any lending next year as they use all the Federal money taking bad assets off their balance sheets to shore themselves up. It won't save most of them. Many will soon close their doors.

The government is going to take 700 billion dollars, effectively burn half of it, but be indebted for the entire amount only a small amount of which will flow back to the government in the form of recovered but grossly deteriorating assets in market value out of neglect and vandalism and prices going down in real estate generally. The government will be an even more incompetent landlord than the banks which have little competence anyway.

--Brant

Edited September 30, 2008 by Brant Gaede

[merjet]

From my personal standpoint, I hope the bill passes so I can short a truely substantial rally. Too bad for the country. I think it will be the last big rally in a long time.

Do you mean "short immediately after a substantial rally"?

[Brant Gaede]

From my personal standpoint, I hope the bill passes so I can short a truely substantial rally. Too bad for the country. I think it will be the last big rally in a long time.

Do you mean "short immediately after a substantial rally"?

Not necessarily. There are too many things to consider at any time something is happening. You are asking me a trading question. I am considering something longer-term such as shorting the QID. It goes up twice as much as the Nasdaq goes down or down twice as much as the Nasdaq goes up. Anybody who trades on anybody else's brain is likely to badly lose. Very short-term day traders just starting out are successful 4% of the time in a bull market.

This is my last post on this thread that is not a response to another post.

--Brant

[Brant Gaede]

Just keeping this thread available.

--Brant

[Brant Gaede]

Let's hear it for Wolf who started this thread!

--Brant