Is the Sky Falling?

october, I was a bear on housing and a bull on the economy and stock market until yesterday. It's cost me a lot of money listening to the experts. I am now a bear on both.

october,

Is the d word you referring to depression or deflation?

The only thing I'm scared about is hyper-inflation engineering by the FED

NYC is losing it's two biggest economic drivers: Real Estate and Wall Street. The problem of sorting out this mess has shifted from the private sector to the government. The brains and new talent of finance will move to D.C. where the big deals are being made and where they will continue to be made over the coming years. D.C. is America's financial center.

The days of slapping together a bunch of mortgages and credit card debt and selling it as a high yield product are over. The days of slapping together sheet rock, granite and a dishwasher and selling it as a luxury condo are over.

The sky is falling but the world is not coming to an end. Asset deflation is what is next. That is preferable to commodity inflation which is what will happen if the Fed lowers rates. In any case taxes are going up which will hurt the consumer so we're in for a rough patch. Deflation hurts but inflation is worse. The good news is we won't end up like Ziwbabwe or Argentina or Weimar Germany.

This is America. We'll let the rich go broker so the rest have a chance to make it big on the next whatever comes, which, in America, always comes. That's why the world will be patient while we fall flat on our face. Because we always come back up in a short period of time. While the world measures progress by centuries, we measure our progress by decades.

Okay, I am calling shenanigans on you 80sMan. The brains and new talent in finance is NOT moving to DC, so you can stop repeating this in all of your posts. That doesn't make it any more real. NYC is the financial capital of the world. DC? They have something here called The Stock Exchange, perhaps you've heard of it? Enough with random people who don't know their a** from their elbow making all sorts of predictions on the economy on what is going to happen in the next 12-18 months.

The financial services industry is not moving to DC and the I-banks are not dead. This need to stoke fear or predict dire outcomes is really getting out of hand. If you have read any of my posts you will know that I am pretty moderate and even-keeled. I am not suggesting we are going to have a party, but there are also not going to be breadlines in the streets. This is a difficult time and we will have to work through it. Please stop making extreme predictions that are nothing more than off-the-cuff remearks. That is not helpful and will only freak people out more than they are already freaked out. This is not the time to try to make yourself sound relevant by predicting things you just can't support with any facts.

The nation's capital was moved to out of New York specifically to split the capital of the country from the capital of finance...

waverly, exactly how many of the big deals made over the past month or so have been made by the private sector and how many have been made by the government (AIG, Bear, Lehman)? It's like 200 Billion gov't to 5 billion private. Where exactly is the "deal flow" these days? Why don't you rent "Save The Tiger" with Jack Lemmon and tell me how finance will never leave NYC? The money goes where the money is. It's like a river. If you dam it up it flows somewhere else. The first rule of Wall Street is "follow the money". The government, the Fed, the Treasury have grabbed capital and credit by the balls. The people who get excited about things like that are naturally drawn to the squeezer. You sound like a Roman saying Constantinople will never be the capital of the empire. I spent many years following the money. And yes, I made money doing so. I'm telling you now, it's leaving NYC and going to D.C. You think money is married to Manhattan? Money is married to money and will follow it wherever it goes.

A considerable amount of finance will move to Asia and the Middle East as well.

bugelrex - I was thinking of a depression. I'm hoping that the Fed is still serious about fighting inflation. By the way - I've spent some time down in DC - and I have to say its a little . . . boring.

Wall Street is no longer the prince of money. The thing that made Wall Street great has undone it. Like in a Greek tragedy. Oedipus is Wall Street (the king). Creon is the government (the 2nd in command). Last lines of "Oedipus The King"

Oedipus: let me see me children.
Crean: Go. You command now more. obey.

Greed knows no country - 80sMan

Where were credit cards invented? South Dakota
Where were options invented? Chicago

Where will the next big thing come from? ...

80sMan - you seem to have some sort of pent-up anger at Wall Street. Thanks for the movie recommendation, I am always up for a good flick, but I am not sure if that qualifies as facts supporting your theory. They are nice talking points too, but not really of substance either. NYC has handled many downturns before. Hmmm.....The Crash of 1929, Black Monday in 1987, all of the recessions and scares of the 19th and 20th century and of course 2001/2002. NYC will survive as the financial capital of the world before and it will again. Your dire prediction seems nothing more than the wishful thinking of a person who wants to seem important one last time. You say these things so people can quote you and then you can feel important...."I told everyone about this. I was the one who knew."

Give it a rest. It is inaccurate. Money follows money. Great slogan, but proof that all the talent in finance is going to go to DC? Rubbish. Be more responsible and accountable for what you say. Take a moment to ask yourself, "Will I be a horses-a** if I say this?" If the answer is yes, then maybe you should just hold off on making any predictions until you have some more facts to support your theory.

Just in case you still aren't sure, I'll help you out. On finance people going to DC in droves....you should quiet and wait to gather more data. You may find that you actually learn a lot more if you are silent and listen than always trying to tell people what you know.

waverly, Wall Street got a lot of its talent from the government in the 90's. A bunch of Bush supporters who hated Clinton jumped ship to Wall Street to do tax arbitrage. Such as the good old "constructive sale" thing where you buy a call and sell a put at the same price. Then the i-bank lends you the money on the stock you have collared. That was a strategy the ex-government boys brought with them. You are looking at this from the outside. I saw it from the inside. You're ears are closed to my words. so be it. I'm the new stevehjx.

Hey, october, one thing I like about New Yorkers is that their lives are influenced by the markets so much that they all can shed light on their nature, not only the economics PhDs, but just the long-term residents. The older they get, the more they are able to tell you about all of this having been experienced before. What is different to me about this week's bad news is that it isn't numbers on the stock market. Several people on this forum have been screaming for months that all these things were going to happen, but even so, there was no magic metric to gauge how bad things are.

We always come to certain moments of panic, sudden realizations that we are running on air, what Paul Krugman referred to in a column over a year ago as "the Road Runner moment," alluding to the Warner Bros. cartoon we grew up watching.

We have had other Road Runner moments. Some people will say this is the worst ever, or the worst since the 1930s. I think those who say things like "Oh, big deal, investment banks come and go and this is no worse than any other case" are both right and wrong.

But the world doesn't come to an end. What we are seeing is a real Road Runner moment. "Oops! I haven't got my credit cards in this wallet, I ordered an expensive bottle of champagne, and I only have $20 in cash." On a massive scale. The Russians never did take over and enforce Communism on us, we haven't all died of AIDS, many other dire predictions have not come to pass, but I have to tell you, I think I'm stoic in general about economic catastrophes. But AIG being taken over by the Fed? Huh? Where do we find this in the history books?

> NYC will survive as the financial capital of the world before and it will again.

Actually, didn't London surpass it in several regards even *before* the crisis?

I'd be cautious about wild marketing-timing swings in stocks. There has been significant mutual fund research indicating that the typical retail investor underperforms a simple, long-term buy-and-hold strategy because he buys when things feel good and sells when things feel bad.

Fascinating quote from the March 10, 2008 Barron's magazine:

"Consider this: According to a 2007 study by Dalbar's, a mutual-fund research firm, if you had invested $10,000 in the S&P 500 index over 20 years through December 2006 in a sporadic pattern that matches actual behavior of mutual-fund investors during that period, you would have ended up with a total of $33,252.

If, however, you had systematically invested the $10,000 in equal increments over 20 years through good times and bad - you would have ended up with $42,877."

Retail investors regularly sell at (or close to) bottoms. And they are doing it big time now!

I wouldn't be surprised to see further short-term market weakness - but I wouldn't be a seller today given the fact that the S&P 500 is down 20% year-to-date. And according to Bloomberg, the S&P 500 is now selling at only 11 times next year's estimated earnings. Europe is selling at only 8 times estimated earnings. Japan is selling at 14 times earnings. Europe is down more than 30% year-to-date. Japan is down over 18%. Sure the outlook is miserable - but it's largely in the price of stocks already!

(By contrast, NYC residential real estate does not reflect the worsening outlook and is still selling (when it does sell) at around 24 times rent.)

"Be fearful when others are greedy, be greedy when others are fearful." Warren Buffett

80'sMan - Thanks. You proved my point to a tee.

You have been saying all of these things not because they are true or because they could be true. You have wanted, perhaps desperately, to be seen as "The One". You want people to recognize you and talk about how you were the person who called it right. You were the one no one listened to.

This still doesn't make anything that you have said any more credible. In fact, it probably makes what you have said even less credibile, if that was possible.

BTW, you may want to see a therapist to work these issues out. It will be the best investment you ever made. You're worth it after all....

Lowery: http://media.comicvine.com/uploads/0/40/166052-47219-wile-e-coyote_large.jpg

Wall Street was started in 1792 under a Buttonwood tree. There was no implicit separation of government and finance

http://en.wikipedia.org/wiki/Buttonwood_Agreement

Should I have said I'm like Tiresias?

"Get Money" - Notorious B. I. G.

Anyone who's lived in NYC long enough to remember when people came and when they left and why they left will know this is another one of those times to wave buh-bye. Nah-na-na Hey-hey. Goodbye.

This is very bad for NYC. What wealth is lost, is lost. It will come back, but not fast, not soon. We have basically erased all wealth earned since 2001, and perhaps earlier.

Which means that that's where real estate prices have to go.

NOW the Feds are talking about accounting rule changes. Wow! Good idea! After you've had everybody write everything off. After markets have plummeted. After thousands of jobs have been lost. After storied financial institutions have failed. Great idea!

How's about putting the uptick rule back in, to stop all the shorting? Wow! Good idea! After you've had everybody write everything off. After markets have plummeted. After thousands of jobs have been lost. After storied financial institutions have failed.

Great idea!

Without question, the Bush Administration will go down as the most incompetent administration ever to be elected into office. Iraq, Katrina, worst financial crisis since the Great Depression, plummeting international stock markets. Now all we need is a good old-fashioned import tariff to really kill the economy.

West 81st - Thanks. Hilarious! I'll save the link.

stevejhx - you lost me again. But interesting....

Everybody likes to ignore me on this one, and I admit I don't know the difference between a hedge fund and a piggybank, but it seems to me that there's a big difference between now and previous major financial implosions as far as NYC is concerned: modern technology and communications allow decentralization.

So it's no longer necessary to be in NY or DC, when (or if) the next ultra-lucrative business model is found for the financial services industry.

And I'm not convinced that financial-types really prefer cities over other choices, like Virginia horsey country (for example) or a bazillion-acre ranch in Montana.

Life is not an oscilloscope, where the same line goes up and down in a regular pattern. Wall Street used to be a tiny part of the economy in NY. Partly because it was a much smaller industry, and partly because there was a robust array of other reasonably profitable industries.

Stevejhx wrote: How's about putting the uptick rule back in, to stop all the shorting? Wow! Good idea!

Hell yeah. Where would these hedge funds that are completely nihilistic regarding everything but their own accumulation of wealth be without their shorting. They don't give a shit if markets go up or down just as long as they move. It is the source of so much manipulation and malfeasance. As Thomas L. Friedman wrote in the NY Times yesterday "We need to get back to investing in our future and not just betting on it." Nobody likes the guy betting "Don't Pass" at the roulette table.

I remember when buying put options was considered un-American. Betting on a company to fail. How could you? It's a free market. Free to go up in value, that is.

Crap. I meant craps. Nobody likes the guy betting "Don't Pass" at the craps table.

I remember when buying put options was considered un-American. Betting on a company to fail. How could you? It's a free market. Free to go up in value, that is.

Yeah, you're free to not buy shares in a company 80'sMan. And that company can go up in value based on it's performance and the support it receives from shareholders as opposed to the chaos fomented by market manipulators.

kgg, the short sale rule doesn't matter because what we have now are outflows not short sales. In theory selling short is necessary to build a market neutral portfolio for risk management, alpha trades, program trading and other strategies. In practice it don't matter because tomorrow market going straight down. No upticks nohow.

In theory.

Did the Wall St fiasco begin due to giving mtgs to people who couldn't afford them?

I ask because it just seems unbelievable that this was the cause of Wall St's demise.

dwell, if the Dow only managed to make it up to 14,000 in X many years from its previous peak, I'd say that equities were not the driver of Wall Street growth during that period. But for some reason, voila, we had record bonuses year after year, and record new hires, and record starting salaries. Mind boggling. Always in downturns people say, "It was all a house of cards." But in this case, I think it was a house of pure air.

Like torched fart.

For the heck of it, I checked my 401K this morning - oy! The sky is still up there this morning - but if the stock market is down another 500 by the end of the day - you can start calling me Chicken Little.

This isn't getting better anytime soon. Most hedge funds have been quiet - half of them must be on the wrong side of the bet.

Housing was a symptom - another piece of information I found out is that last year the SEC let investment banks double their leverage. 50-100x leverage. It's a recipe for disaster. They were lending out all this money they didn't have - cheap money in exchange for expensive subprime mortgages - and it looked great. Until the mortgages collapsed.

Of course no one knew what all this exposure was since it was opaque. Until it exploded.

PIMCO was on CNBC this morning begging for government intervention into the retail housing market. They're in trouble, and it's not going to happen.

As I said, I've switched to 2x bear except for whatever China I had left - they just scrapped the stamp tax and are going to buy up bank shares. Direct intervention. Seems that the US isn't who's driving international markets anymore - it's the Chinese.

Surprise there. When their market is up 10% - 15% is when it might be safe to invest here.

Like many, I'm in capital rebuild mode. As a "sideliner," though I can still buy, I won't until I recover some of my lost equity. It will take 6 months to a year. How's this: I went from doing a $40,000 renovation on my summer place, to putting it on the market, and I don't even work on Wall Street. I'm not alone in canceling spending. It's the first time in my life I've ever had to do it. I've always been the perfect contrarian - buying when everyone was selling. This is a first for me; I've learned a painful (but good) lesson. Not wiped out like some, but severely injured.

I'm not alone.

"Did the Wall St fiasco begin due to giving mtgs to people who couldn't afford them?"

It started with Fannie & Freddie Mac acting more like giant hedge funds which were more than willing to take whatever toxic waste WS was willing to crank out. As you correctly mentioned, this included granting loans to people that had no business being approved....and this is not in any way limited to the sub-prime category.

As a result, their balance sheets grew to an enormous size ($5.3 trillion) and simultaneously, accounting and internal controls were thrown out the window. The house of cards had to collapse & now we tax payers have to live with the ugly fall out which will be with us for years to come.

Where are the best bread lines in the city?

I hear the selection at the Thompkin Square Park soup kitchen is excellent.

"Where are the best bread lines in the city? "

There is always a line @ H H Bagels. :)

petrfitz - you get my vote for comment of the day.