Dow 6500

Business is good.

Mine's fine, too, albeit somewhat slower than it was earlier in the year.

However, there is nothing to stop the stock market from panicking its way all the way to the bottom.

What a mess.

50.1% decline since 10/9/07. The worst percent decline since the '37 bear market - and we're close to its percentage decline.

"All the way to the bottom." Where's that?

Worse than 1933.

Impossible to believe.

Sheer panic, which is causing a self-fulfilling prophesy.

The financial industry is the root cause - major, major re-regulation.

S&P is at 1997 levels, folks.

Deep breaths, people. Stock market decline is not the problem here--the economy is the problem. The economy was a problem yesterday, and the economy will be a problem tomorrow. It will be a problem tomorrow regardless of what happens to the stock market. Markets move around. Focus on the business fundamentals.

"Where's that?"

If I only knew....

However, you will note (again) that emerging markets (except Russia) are falling less than the US markets, by a lot.

Citi now wants another ban on short-selling. I don't think it's happening under this administration, though the uptick rule would probably stop a lot of this from happening.

I don't know if we can wait 60 days for Obama. I do hope he comes out with a preinauguration plan, though.

Any plan, I don't care, as long as it's comprehensive.

"Stock market decline is not the problem here--the economy is the problem."

The stock market decline can cause further economic declines - 50% of the world's wealth has just been wiped out.

Fifty percent.

No small figure.

"Stock market decline is not the problem here--the economy is the problem."

Except there are feedback loops.

> The stock market decline can cause further economic declines - 50% of the world's wealth has just
> been wiped out.

Except that the stock market isn't 100% of the world's wealth...

It would be funny, if it wasn't so sad and dangerous, listening to certain conservative talking heads (Sean Hannity, I'm looking at you!) try to actually say that the Wall Street crisis is the result of TOO MUCH REGULATION.....no, that is not a typo....they are trying to paint this as acrisi from too much regulation!

Irresponsible to spread that, as the industry is going to have a lot more controls in place going forward and the hedge funds are going to have a whole new world of regulation as '09 starts to unwind.

"50% of the world's wealth has been wiped out." ummm, no.

Don't particularly agree with your emerging market comment, Steve. EEM is down 63% YTD and down 7% today. No place (but T-bills and mattresses) to hide.

" try to actually say that the Wall Street crisis is the result of TOO MUCH REGULATION.....no, that is not a typo....they are trying to paint this as acrisi from too much regulation!"

There are a strong argument from a certain faction to this effect (not just the clueless talking heads). I think it's selective information processing. Reminds me of Phil Gramm saying that the mortgage crisis was caused by, get this, "predatory borrowers."

Old aunt Jane really had the banks quaking in their shoes....

"emerging markets (except Russia)"

Russia was/is a bubble. It looked really sweet during the boom (because really, what moron couldn't make money during the last 7 years?) but now that times are tough, people will realize that Russia is still Russia. I've done work there and that place is completely fucked, communism will look sexy compared to where Russia is going. The entire foundation of the economy is based on the barter system. You think the cold war was bad? Russia is going to slip into the asshole of civilization.

"Except that the stock market isn't 100% of the world's wealth..."

No, but add to that property prices, the negative real return on cash deposits, and you're getting pretty close. Add in the collapsing prices in other markets, and you're getting pretty close.

"the Wall Street crisis is the result of TOO MUCH REGULATION"

LMAO.

Topper, I'm not making that comment for YTD - I'm making the comment "recently." In other words, since the Dow has fallen 2,000 points, BOVESPA has remained essentially the same. Prior to that it had fallen much faster, but still it's only down 50% from its high of last May, not unlike the S&P.

China shows the same pattern.

No - there is nothing safe but Treasuries, and they are approaching a negative yield. What is needed (and I've harped on this before) is leadership, and transparency. I think the real reason why Paulson canceled the TARP is precisely because banks don't want there to be a transparent market in these securities, because it would lead them to mark-to-market themselves into bankruptcy.

"there is nothing safe but Treasuries, and they are approaching a negative yield"

So, this begs the question: US credit rating?

"Russia was/is a bubble."

Russia was a commodities play - oil, natural gas. Never owned it. Brazil and China are industrializing / domestic market plays: entirely different fundamentals. They also have relatively institutionalized, which Russia is not.

"Russia is going to slip into the asshole of civilization."

I don't doubt it, but I've never been there. I limited myself to places I've been - Brazil, China, Turkey - and places where I've seen analogies - Eastern Europe, not unlike Spain and Portugal before joining the EU.

No India, either. I hate talking to call centers.

the world's wealth is not determined by the nominal value of assets listed in its markets, or even the cash value of assets held by individuals. it is determined by its production of goods and services in real terms. no question that the combined production of the world has declined this quarter--that's what a global recession is. But it has not declined by 50%, or even 5% or even 2%--yet. I'm not predicting the future, I can't read crystal balls, but let's stick to the facts. deep breaths, people. during a bull market things are never as good as they seem, and likewise in a bear market they aren't as bad as they seem.

what's the stat... 65,000 factories in China just shut down...

type3 - "predatory borrowers"...that is very, very funny.

"during a bull market things are never as good as they seem, and likewise in a bear market they aren't as bad as they seem."

Except that during a bull, the wealth created can be converted into tangibles: homes, cars, fancy food. In a depression style bear, where the market wreckage has dramatic effects on the economy, loss of wealth converts to loss of homes, loss cars, less food. The shanty towns in the 1930's were very real. I agree, this is not that. Yet.

But remember, the wealth isn't actually "created". If you have the bubble, only those who transact at the high price actually see a wealth shift...

Its only those who have to sell at depressed prices that will suffer directly from those market shifts.

Of course, if the entire economy suffers because of the market, then everyone suffers.

"Of course, if the entire economy suffers because of the market, then everyone suffers."

That's what I was trying to imply.

But the shanty towns in NYC will be worth much more money than the shanty towns in Chicago. NYC is different. There are only so many shanty towns that they can build here.

Sorry...long day...needed a snarky comment to break the tension.

"65,000 factories in China just shut down..."

each employing 3 people, with a population of over 1 billion.

You must be familiar with the economy before drawing conclusions.

"the wealth isn't actually "created"

The wealth is actually created, just not realized. Invest it in anything else you want - right now there's nothing to invest in.

> That's what I was trying to imply.

My bad, I see that you said "economy" first.

The paper wealth changes are just paper... initially. But when folks HAVE to sell at loss, and stop buying things out of fear, paper losses just start the fire.

"Sorry...long day...needed a snarky comment to break the tension."

Then snark away!

"Russia was a commodities play - oil, natural gas. Never owned it. Brazil and China are industrializing / domestic market plays: entirely different fundamentals."

Couldn't agree more steve. The problem is Russia has been sold for the last 7 years as an industrializing / consumer play. No freeking way.

"My bad, I see that you said "economy" first."

These days, I'm not even sure what I mean!

The 30-Year Treasury is up over 8% in after-hours trading at a yield of 3.47%. The 10-Year Treasury yields 3.01%.

Meanwhile, Baa yield spreads are their highest since the Great Depression.

Just mind-boggling.

Don't say "Chicago": it will bring back Rufus.

"The problem is Russia has been sold for the last 7 years as an industrializing / consumer play."

I never believed that either, without having ever been there. You need institutions for that to happen, and credit markets. Brazil and China have both, though China's institutions aren't what I would hope, they do work.

I only own China now & though I'm down from when I bought I'm not down by much. Sold most of it in February & repurchased. Otherwise, cash and 0% credit card balances.

>>> "0% credit card balances"

Cash is good. 0% credit card balances are meaningless - it'll be zero percent of $1,000 limits soon, even if you have stellar credit. Companies are reigning in people's credit now.

"You need institutions for that to happen, and credit markets."

Yes, and contracts with teeth would be a good idea as well.

HR - "Focus on the business fundamentals."

Those have been deteriorating very rapidly! The consumer is toast, tapped out, losing jobs, losing wealth, debt-ridden, and for many living in negative equity homes. This is deflation driving a consumer led recession. Business fundamentals are deteriorating. Wont you agree?

I am really liking all the talk on this board. Everybody seems very depressed...very unlike the bravado of 4 weeks ago. This is very encouraging. the volume was very high today...I'm feeling capitulation.

By the way...in case you didn't know it this board is a great contrary indicator. I would like to thanks all of you

UD,
Clearly, business fundamentals have deteriorated and are deteriorating.

The questions an intelligent investor should ask include the following: is the system itself at risk? how far are earnings likely to decline, and when will they recover? what goods and services are less likely to be impacted by an economic decline? are there high quality companies being sucked down with the junk companies?

The questions an intelligent investor should NOT ask include: will the Dow decline to 6500?

I am not a bull, that's not my point. My point is that people are getting hysterical about the stock market. When equities collapsed in 1987, it was neither in response to, nor a cause of, a bad economy. Stocks go up and down, and unless there is a particular stock you want to buy or sell it really shouldn't matter to you at all.

flmd,
"this board is a great contrary indicator." please. this board has nothing on CNBC. in a bear market all the talk is about how bad everything is. that's when you know it's a good time to buy. not just this board. everywhere.

but you are right. when everyone thinks the sky is falling, that's when you buy.

"Everybody seems very depressed"

I'm not, quite chipper actually.

FWIW, I am hearing more and more chatter about BofA people losing their spots in private banking in favor of the ML people.

well the reason people are getting hysterical, is because they look to the stars (the stock market) for guidance on the health of the economy. The stock market is where most average everyday joes invest their hard earned money. If the stock market has it wrong, like it did in late 2007, and parts of 2008, people FEEL like all is OK. When stocks fall hard and reflect the severity of the REAL problems out there minus the fluff BS you hear from eternal optimists like Kudlow/Luskin, people get nervous and it hits home for them that things are bad out there!

Its amazing this false dynamic that the stock market produces. is the system at risk, yes I hate to say it is. Goods/services impacted by deflation? Almost everything. how far will earnings decline? Better yet, what forces are out there that will actually help earnings accelerate? None for now that I can see besides tumbling energy costs, and maybe other costs.

High quality companies being sucked down? Of course, yet those high quality companies may not be so high quality if they had finance divisions that most investors didnt think they were involved in; i.e. GE. People cant believe what is going on at GE. Why? GE had a huge finance division? They are also global, which is good and bad. They are exposed to many sectors that are being hurt bad.

This is a once in a lifetime confluence of forces, and most people STIL dont know whats about to hit them

Ony 6 months ago, they were talking 2nh Half 2008 recovery and inflation! Now they are talking deflation and a possible depression. That is how out of sync the experts are!

UD - I am not so sure any credible statements were made about a 2nd half '08 recovery or about how much people are seriously talking about a depression right now.

UD,

This is the sort of hysteria that leads people to make insane investment decisions. For instance, all this dumb talk about deflation. Let me put it very simply: there is nothing wrong with deflation, the problem is lack of economic growth. Since the economy is shrinking, we should be GLAD prices are falling. When the economy shrinks and prices rise you have a highly dangerous situation. That is called stagflation. I would be much more concerned if prices were rising.

As for GE, yes, they have a large finance division. They did not load up on crap securities, however. It's like what happened to Berkshire Hathaway today--compelte idiocy. People read that Buffett has a derivative issue (which he does, albeit a very small one and one that is likely to end up earning him money). They instantly think "derivatives are dangerous! AIG got into trouble with derivatives! I have to dump BRK." It's totally foolish. GE has a finance division, yes, but take the time to see what it actually does before you assume that it is going to be a huge problem. It isn't earning money now, that's for sure, and that is a drag on earnings. But is it going to blow up? No.

And look at companies like Phillip Morris International. This company literally prints money, grows rapidly, owns the most valuable brand in the world--it is a legalized drug dealer in a business that has essentially no economic risk, and yet it is selling cheaply.

juiceman: I"m glad to hear you're doing well. We should all realize that this too shall pass. We had an unprecedented expansion of credit in the past 30 years. We had to pay for it. If it means the market has to go back to the 1997 levels, I say we got off easy.

I imagine if most of you look to your net worth in 1997 it is still significantly higher even with the current market crash.

Looking to blame the govt or certain policies is ridiculous...it was destined to happen.

We are nation that used money they didn't have to purchase things they didn't need.

I for one am thrilled at the dramatic change I'm seeing in people's attitudes toward "things"

Focus on the good things in your life like your family, friends and great co-workers.

The sun will come up tomorrow

waverly - from JAN-APRIl 2008 there were tons of calls for a 2nd half recovery! Tons. Everyone was so sure that the fed removed systemic risk when they arranged the Bear marriage with JPM. We rallied to 13,000 as a result of the 'saved economy/financial system'. Stocks were so wrong. Thing is, people dont remember after going through this mess. Does anyone else remember these 2nd half recovery calls in the first 4 months of 2008? I certainly do.

Did you see Merkel's post today? This is one guy who has been pretty spot on, along with Mish and CR, abnout this crisis from the very beginning.

http://alephblog.com/2008/11/20/its-called-a-depression/

"As it is now, many things are happening that are depression-like. Here we go:

* Record high levels of total debt to GDP
* Many go hat in hand to the government.
* The spreads of the bond market are at record levels since the last depression, and maybe comparable.
* There is policy paralysis and confusion. No one knows what to do (or leave alone), they act blindly or cower in fear.
* Ultrasafe investments have record low yields.
* Banks don’t trust each other.
* GDP is shrinking, and unemployment is increasing at a rapid rate.
* Financial businesses are failing and shrinking at high rates.
* The government comes in to “help” the markets, and ends up replacing the markets.
* The security of banks and other financial entities is open to question."

dont get me wrong, it wont be a 30s style depression! It will be a new age style severe,prolonged recession. Unlike anything most of has have seen, including myself. But its pretty clear things are bad. i wish it werent so, i really do

"looking to blame the government or certain policies is ridiculous"

FLMD you must be a Republican, because that is the dumbest thing I have heard in a long time. Why do you think we had this huge expansion of credit? government policy. why did the banks get out of control? lack of government regulation. why are the credit markets still so frozen? completely incompetent financial management on the part of the government.

Can the government completely control the business cycle? obviously not. Is George Bush personally responsible for every aspect of the economic downturn? No. But should we blame the government for gross incompetence? absolutely.

UD,

How do you know we won't have a depression? None of us knows that. Economic activity is in severe contraction right now. I hope you are right, but we should all get out of the tea-leaf-reading business.

>>> "For instance, all this dumb talk about deflation. Let me put it very simply: there is nothing wrong with deflation, the problem is lack of economic growth. Since the economy is shrinking, we should be GLAD prices are falling. When the economy shrinks and prices rise you have a highly dangerous situation."

Deflation sounds good in theory - things are cheaper! yay! - but its effects are devastating. It creates a downward spiral. I own a business and I am forced to lower prices; I either have to lay off people or lower wages to do this. These people have less money to spend, so demand drops even further, causing more downward pressure on prices. The worse the spiral gets, the more people delay purchases of things, making the spiral even worse. There has not been serious deflation since the Depression. It is very, very bad. I am not saying this is going to happen but it's not good.

Also - on GE - not an expert. But they are in firesale mode; most of my friends who manage large pools of private equity money have gotten calls from them trying to sell assets.

>>> "Looking to blame the govt or certain policies is ridiculous...it was destined to happen.
We are nation that used money they didn't have to purchase things they didn't need.

I completely agree.

kspeak,

what you are talking about has nothing to do with deflating prices--it has to do with lack of economic activity and growth, which LEADS to lower prices. that is my point. deflation in and of itself does not cause a cycle in the way inflation does--at least, there is no historical evidence for deflationary cycle. it is lack of economic growth that we should fear.

and quite frankly, the decrease in prices we have seen is almost entirely caused by the decline in energy prices. so here's a hint: short real estate in dubai.

UD - I am willing to give the 2nd half part, but the depression talk is not accurate. Calling it depression-like, well, that is a recession. A depression is significantly worse and we are not there and will hopefully not get there and anyone who is saying that we WILL be there is beating a drum they have no business beating.

A depression is a really, really serious thing and I don't think people should throw that around like they do with a lot of other predictions. There need to be limits on how far we all go to show how knowledgeable we are and saying we are going into a depression is not responsible.

Just my opinion....

HR - I agree with some points and disagree with others. I used GE as a hypothetical example for people buying in when it was at 25, down from 38, and wondering why its down another 50%! Yes, its that bad.

And I disagree heavily with your dumb talk about inflation. respectfully of course. I define deflation as a contraction of credit/wages. The fed is expanding the money supply as aggressively as they can, but the shadow banking system is seeing wealth destroyed at even faster levels. credit is contracting and there is no risk of wage inflation. Commodity inflation doesnt count because the fed wont raise rates because oil rose to 145. We already proven that.

How do you define deflation and what are your reasons to support your argument against deflation? In deflation, pretty much everything bu treasuries fall, and that has been the case.

also, dollar strength is another example of deflation. Did you read Fishers debt/deflation theory? If not, browse through it after he studied the 30s

http://www.urbandigs.com/2008/10/fishers_debtdeflation_theory.html

compare the events

ps: Im down 2% now, mainly because of pst/tbt trades went very much against me and Im out now, and started nibbling way too early at Dow 8400 or so. Figure I owe at least this disclosure. Sold some longs, and holding the rest through this for now.

"I think the real reason why Paulson canceled the TARP is precisely because banks don't want there to be a transparent market in these securities, because it would lead them to mark-to-market themselves into bankruptcy."

Don't banks have to eventually mark-to-market in order for us to get out of this? Doesn't mark-to-market mean clearing all the crap from their books so that we can face the music & start afresh? So, would banks really go bankrupt if there was mark-to-market?

"65,000 factories in China just shut down..."

Seriously? I had not heard that. Listen everyone, tomorrow is another day, and we can all think about it tomorrow. I intend to get Tara back, no matter what I have to do.

I have a small business in New York and Florida...florida hasn't done well for two years now New York is also slow...It appears clients are just frozen they don't want to make decisions. I have no idea where this is going.

> "65,000 factories in China just shut down..."
> Seriously?

Yup, saw in 2 different news sources. CNN has some coverage. Apparently rioting is starting in china by workers. China also like double taxi drivers, so the old ones are complaining that they can't make $$$$.

The stock market going down is one thing... but what about everyone selling into every rally from here out...

so julia - you are a real estate agent?

"Companies are reigning in people's credit now."

Actually, that's not true. They are DYING to give credit - to anybody they think can pay it back. I've got 3 credit card offers and a HELOC offer recently. The HELOC offer was just for $50k instead of the former $75k (and I'm not taking it out anyway), but the offers are there.

Credit cards are good - if we go into Depression II. Bankruptcy.

"contracts with teeth would be a good idea as well."

That means institutions - the judiciary.

"Everybody seems very depressed"

I'm not depressed at all.

"I'm feeling capitulation."

You're feeling confused, I think.

"The questions an intelligent investor should NOT ask include: will the Dow decline to 6500?"

What?

"I am hearing more and more chatter about BofA people losing their spots in private banking in favor of the ML people."

Unlikely. Private banking at BAC is US Trust. Perhaps you mean wealth management. Perhaps. But they are not necessarily in NYC. They are where the wealth is.

"Now they are talking deflation."

I've been talking about deflation for nearly a year.

"Don't banks have to eventually mark-to-market in order for us to get out of this?"

Yes. That is precisely why they don't want a market.

"deflation in and of itself does not cause a cycle in the way inflation does--at least, there is no historical evidence for deflationary cycle."

Wanna bet? The Great Depression. That's why economists are so afraid of it. It's easy to control inflation - increase interest rates, and they can go to infinite.

But deflation? Except by paying people to borrow money, there is a limit as to what can be done: 0%.

Stevejhx,
What are the implications if banks refuse to mark-to-market?

stevehjx: sorry to burst your bubble but I am feeling anything but confused...you're the genius who lost a crapload on your BRIC investments...I am quite flush thank you

you are depressed...you started this thread with DOW 6500...LOL...

when Steve says something is "unlikely" he has a 50/50 chance of being right

From Paul Krugman's blog:

Don’t panic about the stock market

Panic about the credit markets instead. Interest rate on 3-month Treasuries at 0.02%; interest rate on high-yield (junk) bonds over 20%.

This is an economic emergency.

Paul Krugman's NYT column said we were in a "Roadrunner Moment" at some point in the past 12 months too. That seems like a good description.

>What are the implications if banks refuse to mark-to-market?<

Then their financial statements will not be reported in accordance will with GAAP. Will not receive an "unqualified" opinion from the independent external auditors and their form 10K/annual report. Not a good thing.

"What are the implications if banks refuse to mark-to-market?"

It's not a "refusal" - it's the law. Actually, they'd get a note in their financial statements (as a former bank auditor I assure you).

However, mark-to-market does not make sense for long-term assets that you plan to hold to maturity. Imagine you bought a house for $100,000, that today is worth $80,000. Did you have a $20,000 loss? Not unless you sell it, which you have no plans on doing.

That is the problem with that method of accounting. It works for a trading portfolio, not for an investment portfolio (which is what the rule used to be).

flmd: "you're the genius who lost a crapload on your BRIC investments...I am quite flush thank you"

I still have plenty of cash, thanks. I was not invested in BRIC. I was invested in BC, both fundamentally sound. I bought the investments years ago, bailed on China mostly in February, bailed on Brazil in September, 50% ago, I have tax losses, but not significant real losses. My mistake is that I followed normal investment strategy: invest long-term on fundamentals, don't sell in a panic. Who knew that no one would be interested in fundamentals, and everyone else was selling in a panic?

Not me. Mea culpa. I did not foresee the unforeseeable, which was that Paulson would be so inept, wipe out Freddie & Fannie preferred shareholders, let Lehman go bankrupt, beg to have a $700 billion rescue program be approved and then only use $300 billion of it, and then claim it was for "troubled assets" but instead use it to recapitalize banks.

Who would have guessed we would be faced with such ineptitude? Not me. That's why, when the economy wasn't all that bad to be honest, we wound up in a situation worse than 1933. Ineptitude.

I used to vote Republican now and again. Never again.

I love Paul Krugman.

look at the spreads of corporate bonds to treasuries! Stocks are the lowest of the todem pole!

http://www.bloomberg.com/apps/cbuilder?ticker1=WHYI:IND

type in IEF:US to this chart and hit GO to see the spread.

This is how distressed the corporate bond market is right now.

stevejhx: actually you should have predicted the ineptitude...NO ONE KNOWS WHAT TO DO in this environment...They are all grasping at straws...who is this fabled govt official who would have known what to do?

if you think Paul Krugman is going to know what to do, I recommend you purchase swiss francs instead

stevejhx: I assume you are now a fan of Roubini's...you remember him along with others you ridiculed just a few weeks ago for being too negative...its a shame, had you listened to them earlier you wouldn't have gotten torched.

"actually you should have predicted the ineptitude"

If only I were that good. My psychic died.

"They are all grasping at straws"

Therein lies the problem. Bring back Paul Volcker.

"I assume you are now a fan of Roubini's"

No, I am not a fan of Roubini's. He good at getting headlines, however.

looks like Stevejhx was right all along