whoever made that comment on Dow slumping to 11000..

Let me make the next prediction for you - over the next 24 months the dollar will go back to about 1.25-1.35 $/Euro on concerns that the Euro will become fractured.

Not investment advice or anything like that.

Dow is going back to 2005 lows - 10,200

Loving the Lehman shorts

weird to see it drop below 11K; psychological mark
well, i guess Dow 9,999 would be worse

My best estimate will be Dow 8400 at the bottom. That will be a 40% correction. Normal bear markets usually hit 30% range. I'm adding an extra 10% because this is not a normal cycle downturn. However nothing would please me more then to see 14,000, but that's just not a possibility for several years. Cash is king and those who are patient will be handsomely rewarded.

i don't feel so bad - there is an asymptotic approach to 11K looking at the Bloomberg Dow graph so far today, with dives, and then rallies; i think psychologically i'm not the only one feeling that pressure

There was that thread 6 months ago where the RE bear used Dow 11k as a supposed joke.... guess that guy is in foreclosure on his Toren condo.

So far the Euro already went down from 1.59 when I made my prediction to 1.50 today. Maybe it won't even take that long :-)

The euro is already at 1.44

I'm kind of wondering about the stock market. On one hand there's a big crash and burn in the cards, on the other hand there are some people who have the interest, and the means, to cause a significant rally lasting until just around November 4th. No prediction at this time.

not investment advice.

us dollar rally is BAD for large multinationals. Look at IBM since dollar rally. It will hurt the big earnings!

unless they've learned to hedge...

1.43 and dropping...

1.42

Spain and the UK are going to have to go paulson and nationalize their housing markets. France, structurally different, will just see rural real estate values go to practically zero. I think this will cause the pressure on Sarko and his friends to demand lower euro interest rates or they're out. Of course the fact that some of the bubble economies just joined the euro isn't helping any.

1.41

zizizi where do you get that rural RE in france will go to 0? i know 0 about it, would like to know why that might happen.

There are multiple drivers. The local population is aging, and while there's a minor stream of young couples going back to the country (because Paris is so crazy expensive) it's not nearly enough to sustain many villages, certainly not in the less charming areas. There's also been artificial price inflation due to British purchasers, driven by easy mortgages (including the ultimate leveraged investment - "Buy To Let Mortgages). All this, plus an expected shift in immigration patterns, will take some typical country estates from their current prices in the $1mm area back down to around $500k. (Back in the early 90s you could buy them for $150k, but the exchange rate has changed, and many of them have been extensively renovated)

The Euro, by the way, is at 1.40.

We're about 20 points away from 11,000. Where are all the doubters now?

After burping, the Euro is back at 1.40. Thanks everyone who arranged for another round of fabulous trading.

I wonder when the ECB is going to cut rates to make this go faster...

1.39 today.

spunky, do you know what 15% leveraged 50:1 is?

Euro just got to 1.35.

Dow futures at 10,100. Ouch.

its getting very ugly out there. credit spreads are still way out of whack and clearly, nobody is lending to each other and commercial paper market is in disarray. This story continues. To see almost all indicators down and gold up big, well, tells you something; especially with dollar strength.

All of this was unnecessary - had Lehman not been allowed to go under. It caused a crisis of confidence.

I hear talk of a "global recession" yet the figures don't bear it out. GDP is flat to slightly up in the developed world. Interest-rate spreads have tripled since the day Lehman went under.

What is required is leadership. Where is it?

Today is going to be horrible. We'll see if we bounce off the bottom or finally crash and bottom out. UK down over 4% already today

"...We'll see if we bounce off the bottom or finally crash and bottom out..."

Or neither.

Maybe we're just going further down with no bottom (yet) in sight.

But malraux, you were the one who ridiculed the Dow 11,000 scenario!

Things are being done, albeit not quickly enough - because none of this had to happen.

Regardless, the Fed will start paying interest on reserve and excess deposits. There will be a centralized market for credit default swaps within 2 weeks. The Treasury will start to buy up mortgages a lot faster than it wanted to. Interest rates will be slashed around the world on Thursday.

The danger right now - which I warned about months ago - is deflation, not inflation, and that is a far worse scenario because when prices deflate, you wind up owing more than you have. Much of it stems from how the government calculates home-price inflation, using owner's equivalent rent rather than the price of the asset. Over the past 5 years home prices have been soaring yet that fact was not included in the inflation figures. Now that they are crashing, people are getting worried.

I've also said before & I'll say again, I don't see any "global recession": my business is humming along better than ever before. Of course I don't need a loan to operate it. Therein lies the problem.

Steve, you also said after the bailout, gold will lose its luster and back off. It is surging. So, what is your response there even as the dollar strengthens?

As I agreed with someone here that discussed the gold trade, most do not understand the gold trade here, and its a 2009 trade. It has disconnected from dollar trade in past few weeks, as other commodities tumbled on global growth concerns!

UD, if anyone had any absolute understanding about what was happening, we wouldn't be where we are today. This is a panic - it's irrational, it's the modern-day equivalent of a run on the bank, but it's a run on ALL banks.

"other commodities tumbled on global growth concerns"

Unfortunately, there is no problem with global growth. It's down somewhat but it had to come down to reduce inflation. This is simply panic - no one will lend money to anyone, not secured or unsecured. That can have an effect on the economy, but the truth is it hasn't yet. People are acting like it's the Great Depression, where GDP fell 25%. The truth is that GDP hasn't fallen at all, or if it has it's only been by a small amount.

Gold can lose its luster overnight. I'd be careful with it. This crisis is fleeting, though severe. Things were calming down until Paulson let Lehman go under - look at the LIBOR-Fed Funds rate spreads from September 17.

I expect it will continue for a few more days. The government can't allow it to continue for longer than that. You can't have stock markets down 10% one day, up 10% the next, then down 15% the day after that. Yet that's what we're seeing. The Dow is down about 30% from its peak a year ago. Other indices are down more. Nothing is working the way it's supposed to. There is a complete disconnect between the stock markets and the real economy. It's due to the fact that no one will lend money, and much of the problem is man-made. Bring back the uptick rule, lower interest rates, start the process of buying mortgages this week. The Treasury can't wait till next month.

This is very difficult. Unprecedented, really, because things didn't move this fast during the Great Depression. But as fast as all of this started it will stop.

Noah, we're both on the same page with regards to the Gold trade. it's definitely still got ways to ago as evidenced by some readers here not understanding it... yet.

In any event, the rise in the dollar presents an excellent opportunity as it is but a mere fleeting anomaly resulting from the massive global deleveraging as foreign investors hoard USDs to payback Issuers of these toxic packages.

Then, as we finish up this APPETIZER of a credit crunch, the MAIN COURSE arrives in the form of lack of confidence in US Treasuries and USDs as the rest of the world realizes the scale of currency debasement the US will be implementing.

Anytime Gold goes back down $800, it's time to load up more, especially if it dips under $800 temporarily. It may never do that again, as evidenced this morning by it rising to $860 thanks to the panic taking place in foreign markets.

Over the past years, i've been preaching to people on this board to:

1. NOT buy that overpriced Manhattan apartment
2. RENT instead
3. Take that downpayment money and put it into Gold.
4. Be thankful and pray for others who didn't follow you 2 years ago

Well I disagree that there isnt any problem with global growth, but I wont debate you now. Commodities and shipping rates are telling us that global growth is slowing, and fast. I agree there is panic, but honestly, I expected a bout of panic and consolidation in financial sector as part of the end game of this severe credit crisis. There will be losers and we will find out who was swimming naked when funding doesnt come easily, and as we all know now, ez money daze are over! Yes, daze.

We had an unprecedented credit boom, fueled by ultra low rates, no oversight of lending, and bad bets using very complex derivatives. As with any financial innovation, the demon eventually comes out.

Lehman simply didnt fit under the fed's umbrella as 'right' for a rescue. And besides, the fed/treasury's job is not to bail out everyone, lord knows they have done enough already and that we will pay for these actions down the road via rising taxes, major spending cuts, or much higher rates at the long end of the curve.

You keep saying the govt cant allow this to continue, and I respond, don't you see that everything they do has proven to have LITTLE effect on credit markets! We had a major bubble in credit markets, and now it collapsed and even major actions have little effects. The markets need to correct themselves at some point Steve! Even with all the interventions and bailouts. Nothing is working the way it used to because no one trusts anyone and the reason for that is the complexity of counterparty derivatives trades and BS accounting that tries to keep tons of losing bets off balance sheets. DO you blame them for not trusting? Banks are more concerned with their own financial stability now. Can you blame them? Hence LIBOR.

What is the treasury going to do? Honestly? You sound like there is a magic bullet solution. Time and pain seems to me the only solution, and we have to go through it. Ive said this for over a year now.

The uptick rule I rememebr as a trader, and it did help. But there are ways around it, we called them bullets at my firm. Buy the stock in a separate account, and long the puts. Then you could short on uptick the amount of stock you owned in other account. The puts offset the long position. I even suggested to return the uptick rule to a LEHMAN compliance attorney with SEC, I met with 3 months ago, who is working on the short issues compliance at the firm. He is now employed with Barclays and even he was in denial over the health of his firm. His wife is one of my contacts on the floor as a corporate HY debt trader at a major firm.

This era is quite different from TGD, and information moves very quickly, hence the fast nature of these moves. But stocks to me are still overvalued as the E in PE is about to be adjusted way down, reflecting the difficulties in operations from disruptions in credit markets.

GOLD IS MONEY! IT HOLDS ITS VALUE. Global CBs and even our fed are going to cut rates and print to inflate us out of this interconnected mess. Hence I view the gold trade as a 2009 trade. The US will issue massive amounts of treasuries to fund all these bailouts and in the end I view this as dollar negative. However, there will be bouts of deleveraging and margin calls/cash raising that affects gold for a while, and then I think it will get silly/parabolic. I could be wrong, but here is where I stand for now.

9800 will be just about a 30% correction. We will see 8400 (40%)before we see 11,000 again.

UD, I'll just address your three most important points: "Commodities and shipping rates are telling us that global growth is slowing, and fast."

For two reasons - first, China shut all its factories for 2 months. Second, banks won't issue the letters of credit needed to ship goods. They are stuck in warehouses. That's why that's happening, because China continues to grow at 9%, but has an overhang of commodities from when it closed its factories, and new shipments are stalled.

"The fed/treasury's job is not to bail out everyone, lord knows they have done enough already and that we will pay for these actions down the road via rising taxes, major spending cuts, or much higher rates at the long end of the curve."

Wrong. That is what caused the Great Depression. MMafia and his fiat currency theory - which is valid to a point - requires confidence in the financial system. Once the confidence is lost, no one will lend, and that leads to a deadly deflationary spiral. Which is where we are today.

"You keep saying the govt cant allow this to continue, and I respond, don't you see that everything they do has proven to have LITTLE effect on credit markets!"

Because every time they do something, something else happens. This administration has handled this incompetently - just as they've handled everything else incompetently. We CANNOT continue to live with the VIX at 50. It's too damaging. Interest rates will be slashed, if not today then during this week. The Treasury will have to start buying up bad debt a lot sooner than they thought they would - like this week. There will be a centralized market for credit default swaps by next week. Order MUST be restored to the market, because if it continues like this there will be real damage to the world's economy, that could take decades to resolve.

Someone somewhere said that it's easy to put out a fire in the first five minutes. This one's been burning for a year.

I agree this has to stop, but my point is that fed/treasury bailed out/rescued Bear, Fannie. Freddie, AIG, they initiated many new facilities, they used actions not used since TGD, they lowered FFR and discount window, and look at us now. Nothing has helped. Why would we think anything else will help? The problem is they never addressed the fundamentals, and instead, acted on impulse to as you said, put out the fire as they sprouted up. They didnt get that there was a huge propane tank (housing/derivatives) underneath about to blow.

They missed the boat. We need new leadership, I agree. But at this point, the damage is done. When I said the fed's job is to not bail everyone out, it was in response to your Lehman statement. If they saved Lehman, it would have been another firm that failed that started the fire again. When does it end? And if they do bail everyone out, good for gold.

The fed right now, has to cut. And they need to do it now. I hate to say it, and it sounds counterproductive, but we are on verge of major problems here.

"...But malraux, you were the one who ridiculed the Dow 11,000 scenario!..."

No I didn't.

I ridiculed those who made that call (along with the end of Manhattan real estate) in 2003, and then in 2004, and then in 2005, and then in 2006, and then again in 2007. I mean, if you're going to make a call, make your call, but don't come to me five years later and say "See, I TOLD you so - even if I was only five YEARS off!" It was obvious that at some point (especially with the unregulated swaps) that something was going to have to give way - EVENTUALLY - but it's really hard to invest well when your primary strategy is 'EVENTUALLY things will go down' or 'EVENTUALLY things will go up.'

To wit, again, my verbatim quote from that infamous 11,000 thread, (and this quote was made by me at the beginning of 2008) -

"...What I've taken serious exception to, and why I started this thread in the first place, are the idiots who make grand, sweeping claims in either direction about the real estate market in Manhattan based on faulty logic and feeble reasoning. Look, I don't know if even I'd buy right now, unless a very special property came up that was a rare and unique opportunity, and I was a fully informed buyer and sanguine about the current state of the market, and I was not buying to flip but to live there with a long(-ish) time horizon...Reasonable people can disagree about, and still manage to have a (very) interesting discussion on the state of the real estate market in Manhattan and its direction (up or down)...The truth for myself...is that I love my Village condo, and if it goes down in value by 0% or 5% or 10% or 15% or 20%, I really, truthfully don't care. It's my home. Whatever money I've put into my Manhattan pad (both in terms of purchase cost and redesign) I don't even count as part of my net worth - it doesn't even enter the equation. So my pad can go up another 20% in value, down 20% in value, or whatever - it truthfully doesn't matter to me. It's my HOME, and I bought it because I love it, and I could afford it, and it's not something I look at every day akin to an investmnent vehicle where I care if goes up or down in value. It doesn't matter to me..."

And I do agree with MMafia that if gold dips significantly below $800 in the short(-ish) term, I will definitely add to my position!

"Why would we think anything else will help?"

My prediction: there will be an emergency announcement from the Fed later today, lowering interest rates and guaranteeing all interbank loans. They're essentially guaranteeing them now anyway, and it's the only way to stop this. Paulson created the problem by letting Lehman go under; now it must be fixed, radically.

You can't have a stock market go up and down 10% in a day every day - that's what it's supposed to do in a year. This is dangerous in the extreme.

Someone scoffed at my Dow 5,000 prediction. We're getting close. All gains have been wiped out since 2004.

Here's my point:

"The benchmark index for U.S. stock options jumped to the highest in its 18-year history on concern that the global economic slowdown will continue on further credit-market losses.

The VIX, as the Chicago Board Options Exchange Volatility Index is known, rose 13 percent to 50.93 at 10:09 a.m. in New York. The index measures the cost of using options as insurance against declines in the Standard & Poor's 500 Index, which declined 3.6 percent to a four-year low of 1,060.15.

``It's scary the way the market is reacting,'' said Bud Haslett, director of option analytics at Miller Tabak & Co. in New York. ``The downturn in equity prices is broad-based, it has big repercussions for our economy and it's being experienced worldwide.''

But you gotta love that VIX!

"Paulson created the problem by letting Lehman go under; now it must be fixed, radically."

If one failure is all it takes to bring things down, that failure isn't the problem.

"If one failure is all it takes to bring things down, that failure isn't the problem"

If you understand banking, it is.

Housing is the problem; it's over-corrected in California already. The fix is simple, yet radical, and it has to come today: lower interest rates, guarantee all interbank loans. The patient is bleeding to death. This is not the time for band-aids. We can't wait to start buying up bad mortgages. The markets must be calmed, and that's the only way to do it.

"If you understand banking, it is."

Steve, obviously there isn't a lot of understanding going around. I don't claim to have it. I will hold my opinion that if a system is so sensitive to a single failure, it is fatally flawed, and the probability that something else would have triggered the collapse if it hadn't been Lehman is very high.

the system was actually that sensitive to a failure, and yes it is fatally flawed. And yes, chances are something other than Lehman would have been the spark. The fed had to stop it, they knew what they were doing would have a domino effect. They just came to the realization that it has to happen at some point, and Lehman wasn't the worst one to allow to fail. If they saved Lehman, and let AIG fail, it would have been much worse! Thats the point!

I say was, because that system is done. Gone. Game over. It will be a very new world for a long time.

"if a system is so sensitive to a single failure, it is fatally flawed"

No. I trade with you. I owe you $10. You trade with someone else. You owe them $9. I go bankrupt, don't pay you the $10 I owe you - how do you pay your counterparty the $9 you owe them?

You can't.

So they, then, can't pay their counterparty the $8 they owe them. And so on and so forth.

This is exacerbated by leverage. Lehman had 33x leverage. That means that for every $1 they lost in equity, they had to liquidate $33 in assets. Most banks have liquidity ratios of about 10x.

That's why bank runs are so dangerous, and why FDR declared a bank holiday in 1933. If all depositors withdraw their money, then lenders no longer have the money they owe to all depositors, because a bank with, say, $1,000 in "deposits" will only have, say $100 in cash. The rest is lent out. So if all $1,000 in deposits are withdrawn, the bank will be $900 short and will fail.

Hence the FDIC.

On another note, there seems to be some action in Europe and the US regarding what's currently going on - interim announcements have been made and meetings are being held.

I would expect a plan to be drawn up and announced before Asian markets open tomorrow, lest we see a 20% decline there, as well. Far better it would be for the Fed to announce something drastic today, at, say, 2 pm.

"liquidity ratios" = "leverage ratios"

Meeting of G7 at the Treasury on Friday. That may be too late. Finally, though, they get the message. They'd better come out of that meeting with a plan, not more bickering. I assume since it's a 4-hour meeting that the plan is already being devised, and the meeting (so short) will be to formalize it.

In the interim, some Fed action is needed today. We're up from the lows of the day, but still dismal. Everything will unwind if something isn't done soon.

Hi Steve, I'm not speaking to the details. Why did the building collapse is important. But no amount of theory will argue away that it did. The system is not a stable one, it is fundamentally flawed in that sense - a bad design. I don't speak to knowing how to fix it, but I do recognize a bad system by it's unstable behavior. Clearly by the "system" we must mean not economic theory, market theory only, but social theory as a whole that must encompass the fundamental "irrationality" of human behavior. Our models are clearly very bad ones.

The question I have is whether the downward spiral is self-sustaining at this point, such that only a complete reset of the system will stabilize. That scenario would mean near total government control of markets across many nations, I think, which will lead to its own disasters. Hopefully we won't go to that place.

"social theory as a whole that must encompass the fundamental "irrationality" of human behavior."

There are mechanisms in place for stock markets. The regulations that were in place for investment banks were removed. Hence the excess leverage.

"whether the downward spiral is self-sustaining at this point"

I don't know. Action is being taken, I do know, including an emergency meeting of the G-7 on Friday, but I don't think that's enough. Just my opinion. The market is currently down nearly 600 points. The S&P is down to 2000 levels. Tomorrow, honestly, might be too late. If I start to owe more on my co-op than it's worth, why pay the mortgage? "Here, bank, you have it." If my 401k is wiped out, who's going to pay for my retirement? If my stocks lose 60% of their value - and they have in my case - what money do I have left? Some cash?

No - this must stop now. The government has woefully underestimated the severity of the crisis. In an environment like this, there is a very good chance that tomorrow will be too late.

Deep breath.

serenity now
serenity now
serenity now

Yet again I find myself agreeing with malraux.

Cool, calm, collected.

Rome is burning.

Surprised we haven't heard anything from the Fed yet, with the stock market down 10% in 2 days. If that's not a run, I don't know what is.

Unbelievably, one Fed governor said that inflation is still a threat. OMFG.

malraux, what would sherman mccoy do?

The current economic conditions are best illustrated by the Simpsons, as opposed to Sherman and Mr. Peabody:

Lionel Hutz: "Uh oh...We've drawn Judge Snyder."
Marge: "Is that bad?"
Lionel Hutz: "Well, he's had it in for me ever since I... kinda ran over his dog."
Marge: "You did?"
Lionel Hutz: "Well, replace the word 'kinda' with the word 'repeatedly,' and the word 'dog' with 'son.'"

I've closed 75% of my short Euro position just now.

Well now let's see what's going to happen. Rate cut seems to have inspired more selling. Can it last?

It might today - who would go long when the short-selling ban is still in place? Better to sell today and go long tomorrow. But this is an entirely irrational market, one on the verge of collapse. Down 35%-40% in one year, but for what? A slight slowdown in growth? Are we really looking at earnings falling by 35%-40%?

I doubt it.

yes, earnings will go down 25% at least.