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January 01
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Skewz's Links

APRIL 23, 2009 8:53PM

Eye of the (Financial) Hurricane?

Rate: 6 Flag

Is it just me or do things seem far too calm the last few weeks?  I mean, we're in the midst of the worst financial and economic crisis since the Great Depression and we've got the stock market up nearly 40% since early March.  Where's the panic?  What happened to the grave concern?

My sense is there are a couple things behind the recently relative calm.  First, there is only so much of a constant stream of dire news one can take before you start to go numb.  When you've already heard about the bulk of the financial system being insolvent, entire industries going bankrupt, etc. it's easy to get jaded.

For those of us fortunate not be be directly impacted by a job loss and maybe not much effect on our circle of friends, it may be easy to dismiss the supposed severity of the crisis.  However, we shouldn't get lulled to sleep by this relative calm.  If you stay focused on what's really happening (unemployment still increasing, no fix for the banks, etc.) it's hard not to conclude that things will get much worse before they'll get better.

So don't come out of the basement just yet...


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There have been numerous stories showing the Bear Market rallies, especially during the Great Depression. This is what the smart people think is going on. My take is similar: there's all the money (a la "The Giant Pool of Money", NPR) floating around. Not that an explicit conspiracy is required, just shared interest, to motivate the holders of that pool to coax the retail investor, aka small fry, into the market. The stock market is just a legal pyramid scheme.

Despite the bull from Buffett, the way to make money in the stock market is spotting companies worth multiples of current quote to some larger company. Cash out the capital gains. Sun being slurped up by Oracle last week is just the most recent example. 40% in one day or so. Not bad wages.
When there's too much "good news" in the stocky marky, something bad is inevitably going to happen. Take for example, Eastern Europe. Latvia, Estonia, Bulgaria, Hungary, Roumania all owe scads of money to Swiss, Italian, and Austrian banks. The whole thing is unraveling slowly like a golf ball with a cut in it. Then of course, there's the death of the American automobile industry, which hardly affects anyone ;
For some reason I was rudely interrupted. The insurance companies are holding pooper scooper bags full of commercial property. I could go on, but happy days gotta be here again, and the eternal prosperity will flow forever!
The market surge is the "free-market" vampires sucking the last few drops of blood out of the corpse before discarding it. Said it before, I'll say it again, this ain't over till somebody takes a HUGE bath on over-leveraged assets of all kinds and on the cancer that is derivatives. The rumor mill says that number may be as high as $40 trillion dollars.

Pity poor China, reputedly holding $2 trillion dollars in signature loans backed only by the "full faith and credit of the United States". Aw, to hell with pity, go belly up on 'em -- serves 'em right for selling our kids toys with lead-based paint and our senior citizens poisoned heparin.

One more thing, anybody who couldn't see all this coming, either didn't look at George Bush's checkered resume or saw it and couldn't believe he was that ignorant and incompetent. He was.
Thank you for reminding me that hurricane season is about to begin. That's just about all this country needs. A natural disaster to avoid the man made (George W) one we had to endure for eight years. I'm not sure we will ever fully recover from him but another devastating hurricane will surely be the last nail in the coffin for many Floridians regardless of how well the market is "doing".
Tom is right. Fiat money has generated an absurd amount of nominal to real values that must unravel much further, although the timing of the final implosion is by its nature not predictable except in a general sense that the lags of monetary policy are up to three years, especially with all the creative financial engineering used by the central banks, so enjoy and play the dead cat bounces, but be ready to pull the trigger, or buy gold and weapons.
Someday, the facade will end. We will end up measuring our wealth by how many goats we have in the yard again. (I don't have any goats, it's just a thought.)
August isn't over yet. Then again, this entire summer has been filled with surprises...