When The Chips Are Down

The financial crisis reportedly has already wiped out $6.7 trillion of value from the S&P 500 since October 2007.  Government lost the chance to tax a lot of currency in the last 12 months.  Government is powerless in this downward spiral and does not really have the assets to be loaning money.  That is the truth. 

 

Before this financial crisis was over, the Total Fiat Money System might be put at risk all because government was not ready to let those investment banks go bankrupt, to let those derivatives default.    

 

Banking Committee Chairman Chris Dodd (D-Conn) said that it looks “remote” that there will be an auto industry bailout, when something like 10% of American jobs revolve  around the auto industry.  Meanwhile, the governors of Connecticut, New York and New Jersey asked the federal government for a $48 million emergency grant that would allow the states to give each of the estimated 82,000 laid-off financial services worker in the New York City metro area who are losing their jobs  by the end $12,500 to help them find jobs, relocate, and provide other services.  

 

FROM MARKETWATCH

 

LAS VEGAS…It is the ninth straight month that key metric of visitor spending has fallen and most indications are that it is only going to get worse. Arrivals are falling by double-digit percentages, and the corresponding drops in casino and ancillary revenue have operators tightening their belts. Layoffs are rampant, many ambitious development projects have been postponed indefinitely and room prices have fallen through the floor. Visitation was off 10% in September, according to the Las Vegas Convention and Visitors Authority whiled the number of conventions was down 18%. Hotel occupancy fell 7% while the average daily room rate dropped 21% to $112 and change.

 

By Todd Harrison

 

We’ve long offered that time and price were the only true medicine for the cumulative imbalances that steadily built through the years. Much like a forest fire, the painful process of price discovery is a necessary precursor for fertile rebirthing and greener pastures.  With a conscious nod that the ultimate market bottom is likely a few years away as debt is destroyed and social moods shift, we wanted to share five vibes that could manifest into the year’s end as conventional wisdom catches up with reality.

 

As the world worried about inflation entering 2008, deflation was a central theme in Minyanville. We were early as the dollar dripped lower and commodities drifted higher into the summer.

 

Since July, the greenback has appreciated 21% vs. a basket of foreign currencies, and commodities are down an eye-popping 48%. All roads lead to deflation, we know, but the path of maximum frustration is often paved with detours.  Keep close tabs on the dollar, which recently registered several technical exhaustion signals. If it reverses lower, it’ll pave the way for commodities to enjoy a spirited counter-trend sprint.

 

We suggested in August that retail therapy — or, the need for retailers to visit their therapists — would be necessary as we edged toward the holiday season. There’s no denying that the consumer is on the ropes and spending is on sabbatical. That’s front-page news, however, and the market rarely rewards the obvious, if only for a trade.

 

Equilibrium between asset classes is askew as evidenced by insane volatility in equities, credit, commodities and currencies.  Some analysts believe that given the current state of credit, fair value on the S&P 500 Index is close to 600. In a finance-based global economy, further dislocation could conceivably lead to social unrest and geopolitical conflict. Remember, world wars are historically bred from economic hardship.  We may witness a grand scale asset-class readjustment. Potential scenarios include wiping the speculative CDS slate clean (contracts not backed by underlying collateral), massive revaluation (yuan), the introduction of a “convertible currency” or crude being denominated in something other than dollars.

 

There is widespread acceptance that we’ll continue to see forced selling by the hedge-fund community as money migrates from that once-golden goose. That may prove true, but there’s another side to the trade. In the mutual-fund universe, the conditioned mind-set is that the only thing worse than losing money is underperforming the benchmark. Given the horrid performance in the mainstay averages, that currently isn’t competing for mind share. Should the tape catch a sustainable bid, the potential for a “long squeeze” will manifest in kind. If that happens, look for the “master beta” plays such as Research In Motion Ltd., ($47) Google ($300), Apple($90), and Baidu ($129) to spring back to life and lead the speed.

 

Entering September, we shared that one of two things would happen as corporate credit came due. Either the market would suffer from cancer that chewed through the system or we would see a car crash as the wheels fell off the wagon. We’ve since experienced both. The S&P 500 is down 35% in a matter of months, credit continues to clog our systemic arteries and lame-duck politicians have thrown in the towel and passed the buck to the new administration.  The biggest potential land mine in the marketplace is widespread speculation that General Motors Corp. will file for bankruptcy before year’s end.

 

That General Motors bankruptcy could set the stage for our final surprise of 2008 — for when the auto industry is finally fitted for a toe tag, it may finally be time to close your eyes and buy the market for a trade

 

“In a speech at the Cato Institute, Kohn said that the threat posed by deflation is still small but that it has grown in recent weeks as the global economy has slowed. “   -Greg Robb of MarketWatch

 

“With stocks tied to bonds, bonds tied to housing, housing tied to the credit crisis, and everyone hitched to the government, this was all like the conga line to the poor house.”  -Craig Rappaport, wealth manager at Janney Montgomery Scott

 

 “Since 1971 Total Fiat Money has been here operating under a global currency as John Maynard Keynes, the father of our Fiat Monetary System, pressed for an international paper unit that would fluctuate through an independent fiat monetary system around the world.  In this way, the Central Banks of the world could inflate together, create a massive feudal system of peonage on a global scale and maintain both political and social controls over the various populations of the world without very much restrain or limitations. The problem, of course, is that they appear to actually believe in the system that they created for these purposes ….herding the population into neat, controllable groups for convenience, taxing and regulating to maintain their political controls.” –from a Ron Paul website, , http://www.1776solution.blogspot.com, posted by Republicae on November 5, 2008

Negative Spirals

 

They just announced on the news that the minutes of the last Fed meeting were released.  To limit the current financial turmoil, the Fed announced a reduction of interest rates to 1% on October 29, 2008.  Looking ahead, the Federal Open Market Committee said further rate cuts may be necessary.  Lower than 1%.  Minnesotans think this means that they will be giving away money and a lot of us are planning a trip to meet them.  We are optimistic that money will be available to more than just bankers soon.  Where ever their closed-door meeting will be held, I want to be there.  That bailout was just a precursor of things to come in the way of give-aways.  “Most of the risks were to the downside, according to their minutes, with some participants concerned about a ‘negative spiral’ in which financial strains lead to weaker spending, which in turn leads to high loan losses and a further deterioration in financial conditions.”  We have a quarterback here who uses negative spirals, and we all know the meaning of those kinds of downturns….Without using the word, even the FOMC is now forecasting a recession.  And they used to make fun of the way Alan Greenspan spoke. 

 

Minnesota.  Where you never really needed an icebox at this time of year.  It was where about 3 people named Anderson die per day.  And it really is pretty sad.  Especially if you were an Anderson yourself. 

  

Minnesota.  Where we have a place that calls itself the Original Mattress Factory.  But they never explain in their commercials if they are…. if they make original mattresses, or if this was just the place that was the original factory for mattresses.  And they moved back?  But what is an unoriginal mattress?   And they never explain why you needed to sleep on an original mattress, or if their mattresses are like a cocoon and turn into something else after a while.  And what if you are sleeping when it happens?  And then you need another mattress?

 

Minnesota.  Where Garrison Keillor pretty much just reports on real life.  You can’t make this stuff up.  It took a long while for Minnesotans to appreciate that Keillor was a comedienne.  People thought he seemed a lot like Eric Severoid who was from around here too.  They laughed at his stories when he first moved to New York.  Keillor.  Not Severoid.  About the time “Fargo” won an Academy Award.  Since I lived in Fargo for 3 years, I never saw the movie as funny.  It seemed like real life to me.  A lot like Sarah Palin.  In Europe, in most places on earth, they do not understand the American obsession with ice cubes, they say. 

 

Minnesota.  It is a difficult place to live.  Where most of us believed that life imprisonment was a worse sentence than the death penalty.  The death penalty has been outlawed here, by the way. 

 

Minnesota.  A place where either way, you had to vote for a comedienne for Senate.  They both were for the bailout.  Bailouts used to be what was needed if you got arrested.  A lot of those people running Wall Street should be arrested before it is over. 

 

Minnesota, where apparently the folks here don’t count here like they used to.  Those damn public schools, because recounts are in the news.  It is not that tough to count right the first time.  I am worried now about being short changed at the gas station.  But no one is asking for a “do over.”  Yet. 

 

Minnesota.  Where the last indoor college football game was going to be played this Saturday.  When the temperature will be about minus 4 degrees Celsius.  We were building an outdoor ballpark too.  For baseball.  Speaking of ice cubes.  In Minnesota we had thought that global warming would be here by next season.  We were still optimistic despite the economic forecast.  We did not expect that downturn here. 

 

Minnesota.  Where gas is so cheap, we did not expect the downturn here in prices and people are trying to find containers to keep it in. Tupperware doesn’t hold much, though the Tupperware sales ladies are suggesting it.  

 

Wow.  In the news.  Another Anderson died.  He was a former speaker of the house.  In Minnesota.  The state house.  It used to be traditional for all the Andersons to vote for another Anderson.  Even in legislative bodies.  You cannot make this stuff up.  And they say the Chinese had only 7 family names.  If you want to make a Minnesota laugh, one of our Andersons, you just say the name of Deng Xiaoping about 5 times.  Real slow.  Like we talk here.