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[quote author="no_vaseline" date=1253785280][quote author="PANDA" date=1253784230]Novas,

Seriously, would you rather see a quick severe unthinkable pain in a span of 12 months where America starts to produce and rebuild again or would you rather see a gradual pain escalating for 15 - 20 years? I rather take option #1 any day.</blockquote>


Sure! I like food riots as much as the next guy.



The "magic turn" at 12 months is a myth. The only thing remaining after such a colapse is a smoking corpse. It's not the fall that gets you, it's the stop. I'll take walking down that building every day. Sure, it's an inconvience, sure I'll be sore for a while, but it beats the hell out of being DEAD.</blockquote>


You need to have some faith my brown brotha.



Think of America as a 50,000 lb King Kong which will fall hard, shaking the earth, but eventually will get back to its feet to become a strong producing nation once again. I truly believe this. Peter Schiff thinks that Asia will just watch us fall and do nothing, but I think that Asia will be the ones who will eventually bail us out with strong negotiating terms up front.
 
[quote author="no_vaseline" date=1253779903][quote author="Nude" date=1253778978] I think it was a horrible misallocation of resources that will cost us all dearly, but I do think he's fully aware of all that.</blockquote>


I'm sure he is. I doubt he views it that way, but he might view it like coming down from a high rise building. The elevator is broken, so you have two choices - hoof it down the stairs, or just jump.



Which do you choose?</blockquote>


Wrong analogy; there is nothing forcing you to leave the building, which means just sitting there is perfectly acceptable while you call and wait for the elevator repair man.



Bernanke is attempting a dead-stick landing, and his choices are ditch in the water, crash and burn, or *try* to glide it into an open field... on the other side of that mountain range. He chose the field, gambling that he can find enough lift to carry him over the mountain range without losing all his forward momentum and stalling. Except he's flying it by remote control, and he's using a mirror to see the monitor, his only experience in crash landing comes from a bunch of books he read about the subject, and the field where he is trying to land is marked on the map by "beyond here there be dragons". The rest of us are wondering why he's not trying to land it in the water (well, some nihilists are screaming "crash and burn, Ben!" but they're flying coach) so we can deploy life rafts and get off the damn plane. If there was a "walk down the stairs" option we'd damn well have heard about it by now.
 
Sorry, ya all got the wrong analogy.

The better analogy for a overly indebted/credit destruction crisis is a heroin addict.

America is addicted to credit the same as a addict is to heroin.

The <strong>ONLY</strong> cure is cold turkey.

Giving the addict more credit/heroin is making the problem worse.

And the conclusion will be much worse.

The choice was not Armageddon now or Armageddon later per No_Vas. They are not equal outcomes.

The choice was cold turkey and much pain or feeding the addiction and experiencing worse pain down the road.
 
[quote author="awgee" date=1253787610]Sorry, ya all got the wrong analogy.

The better analogy for a overly indebted/credit destruction crisis is a heroin addict.

America is addicted to credit the same as a addict is to heroin.

The <strong>ONLY</strong> cure is cold turkey.

Giving the addict more credit/heroin is making the problem worse.

And the conclusion will be much worse.

The choice was not Armageddon now or Armageddon later per No_Vas. They are not equal outcomes.

The choice was cold turkey and much pain or feeding the addiction and experiencing worse pain down the road.</blockquote>


Awgee, what do you think America would look like today if in 2002 Greenspan put the heroin addict in rehab and forced him into cold turkey?
 
[quote author="awgee" date=1253787610]Sorry, ya all got the wrong analogy.

The better analogy for a overly indebted/credit destruction crisis is a heroin addict.

America is addicted to credit the same as a addict is to heroin.

The <strong>ONLY</strong> cure is cold turkey.

Giving the addict more credit/heroin is making the problem worse.

And the conclusion will be much worse.

The choice was not Armageddon now or Armageddon later per No_Vas. They are not equal outcomes.

The choice was cold turkey and much pain or feeding the addiction and experiencing worse pain down the road.</blockquote>
Again, it's easier said than done. The reality is that none of us know what the economic backdrop would look like with most credit reined in. I think the choice has already been made that we should suffer a little for the next 5-10 years instead of "going cold turkey" and feel horrible short-term pain. We can all talk about wanting that max pain to clear out the system, but a lot of us would be thrown under the bus for dead.
 
[quote author="PANDA" date=1253788123][quote author="awgee" date=1253787610]Sorry, ya all got the wrong analogy.

The better analogy for a overly indebted/credit destruction crisis is a heroin addict.

America is addicted to credit the same as a addict is to heroin.

The <strong>ONLY</strong> cure is cold turkey.

Giving the addict more credit/heroin is making the problem worse.

And the conclusion will be much worse.

The choice was not Armageddon now or Armageddon later per No_Vas. They are not equal outcomes.

The choice was cold turkey and much pain or feeding the addiction and experiencing worse pain down the road.</blockquote>


Awgee, what do you think America would look like today if in 2002 Greenspan put the heroin addict in rehab and forced him into cold turkey?</blockquote>
We probably would have had sluggish growth since then because the real estate market wouldn't have exploded to the upside. You guys keep forgetting the biggest thing that lead to the mess we are trying to get out of is the regulation of the financial sector by the repel of the Glass-Stegall Act (sp?) as NoVas mentioned. It provided the access for Goldman and the rest of the greedy folks on Wall Street to try to make a quick buck anywhere they could.
 
<a href="http://www.calculatedriskblog.com/2009/09/volcker-on-financial-reform.html">Did someone mention Volcker? From CR</a>:

<em>

Former Fed Chairman Paul Volcker testifies in front of the House Financial Services Committee at 9 AM ET on Thursday about financial reform.



For those interested, here is the webcast.



Here is his prepared statement. A few excerpts:



<blockquote>However well justified in terms of dealing with the extreme threats to the financial system in the midst of crisis, the emergency actions of the Federal Reserve, the Treasury, and ultimately the Congress to protect the viability of particular institutions ? their bond holders and to some extent even their stockholders ? have inevitably left an indelible mark on attitudes and behavior patterns of market participants.



? Will not the pattern of protection for the largest banks and their holding companies tend to encourage greater risk-taking, including active participation in volatile capital markets, especially when compensation practices so greatly reward short-term success?



? Are community or regional banks to be deemed ?too small to save?, raising questions of competitive viability?



? Does not the extension of support to non-banks, and even to affiliates of commercial firms, undercut the banking/commerce divide, ultimately weakening the commercial banking system?



? Will not investors in money market mutual funds find reassurance in the fact that when push came to shove, the Treasury with an extreme interpretation of its authority, took action to preserve those funds ability to meet their declared commitment to pay their investors at par upon demand?



What all this amounts to is an unintended and unanticipated extension of the official ?safety net?, an arrangement designed decades ago to protect the stability of the commercial banking system. The obvious danger is that with the passage of time, risk-taking will be encouraged and efforts at prudential restraint will be resisted. Ultimately, the possibility of further crises ? even greater crises ? will increase.



There is no easy answer, no one-size fits all contingencies. Experience, not only here but in every country with highly developed, inter-connected financial systems and institutions bears out one point. Governments are not willing to withhold financial and other support for failing institutions when there is a clear threat to the intertwined fabric of the financial system. What can be done is to put in place arrangements to minimize the extent of emergency intervention and to damp expectations of government ?bailouts?.

</blockquote>
Volcker goes on to disagree with the Treasury plan to name banks that are ?systemically important? or "too big to fail".



<blockquote>Think of the practical difficulties of such designation. Can we really anticipate which institutions will be systemically significant amid the uncertainties in future crises and the complex inter-relationships of markets? Was Long Term Capital Management, a hedge fund, systemically significant in 1998? Was Bear Stearns, but not Lehman? How about General Electric?s huge financial affiliate, or the large affiliates of other substantial commercial firms? What about foreign institutions operating in the United States?



All hard questions. In practice the ?border problem? seems intractable. In fair financial weather, the important institutions will feel competitively hobbled by stricter standards. In times of potential crisis, it would be the institution left out of the ?too big to fail? club that will fear disadvantage.</blockquote>


Volcker argues for a more traditional approach that sounds like the return of Glass-Steagall.</em>
 
ROFLMAO! Have you all seen the latest South Park episode? Seriously. even if you are not a South Park fan... you all need to see it. I already have awgee and no_vas pegged, and awgee isn't even the nuttiest nutter in the show. LOL. I love it! Grand Theft Auto 4... ROFL! No...really you have to see it. It is like an animated version of IHB.
 
 
"I will bring back Glass-Steagall" would not be a bad platform for someone to run on in 2010 as a challenger from either side of the aisle.
 
Per my analogy, a return of Glass - Stegal would be akin to regulating what type of drug each dealer could sell. It does not address the problem, only some of the symptoms.
 
by Doug Noland









As I have written previously, the number one policy priority these days should be to ensure the course of policymaking does not bankrupt the country. The Federal Reserve must do its part first and foremost by protecting our currency. The Fed must in a timely manner exit its crisis management regime of zero interest-rates and massive monetization ? especially of MBS. To avoid ?bankruptcy,? the federal government must move aggressively to exit massive deficit spending and the accumulation of systemic mortgage risk.



Regrettably, signs read No Exit on all fronts. And it is this mortgage issue that worries me the most, as few seem to appreciate the mounting risks. Conventional thinking has it that the government can step in temporarily and stabilize the housing markets. And when home prices reflate and the economy recovers, the private Credit system will take over as the federal government gracefully exits.



The more likely scenario is that federal government market intervention further distorts the marketplace ? creating a dynamic whereby only government-guaranteed mortgages attract market demand. Any move by the government to retreat from its backing of the mortgage market would risk acute instability. And, at some point, the government?s accumulation of debt and mortgage obligations would begin to impact the market?s view of creditworthiness.



There is the appearance that government intervention throughout the mortgage marketplace provides a free lunch: Households, once again, enjoy access to plentiful cheap mortgage Credit, while there?s no impact to the cost of federal borrowings. Why would anyone in their right mind even contemplate an Exit ? especially when things remain so fragile? Why not wait a year or two or a few?



Yet I would argue that there is a huge and festering (latent) cost to Washington?s mortgage operations. At some point along the way ? and you can count on it being a rather inconvenient juncture for the markets and economy - creditworthiness will become a hot issue. The market will finally demand higher yields for Treasuries, agencies, and GSE MBS ? and will surely be less than enamored with our currency. MBS backed by today?s artificially low mortgages will come back to bite. And when the market turns against ?federal? debt obligations, you can count on the market really, really turning sour on mortgage risk. That will mark the point when years of government market interventions and distortions come home to roost.
 
<strong>Recap of last week</strong>



? The S&P 500 posted a rare 2.2% weekly decline, the largest setback since the

beginning of July.



? Despite the U.S. equity market weakness, gold lost 1.9% this past week, its

worst performance since mid-July.



? Gold was down, but so was the U.S. dollar (this is all very strange) ? breaking

below ?90 for the first time in seven months. The greenback may be oversold

but when you read Fiscal Iceberg on page 89 of the Economist and Chucking

the Buck in Buttonwood on page 86, you will see why this is one of those rare

times where the consensus likely has the correct call.



? At least the move in gold was consistent with the U.S. Treasury market. The

long bond yield fell 13 basis points last week, taking it to 4.1%, breaking

below the nearby July low. The yield curve is now flattening substantially,

potentially signalling the end of the reflation trade. The inflationists really

should take a deep breath and have a good read of page 32 of BusinessWeek

(Why Paychecks Could Shrink).



? The housing recovery took a step back with both existing and new home sales

disappointing. And, this was not lost on the S&P homebuilding group ? KB

Homes down 8.5% and this pessimism rubbed off onto its rivals at Toll Brothers

and Beazer Homes. Toll Brothers, by the way, just announced a nationwide

sales program, which include lower prices, custom tile and appliances and

2.875% financing. So the low-end of the market is getting help from the

beloved government while the high-end is on its own (fewer voters) ? but this

still begs the question as to how conditions in housing are really improving if Toll

Brothers is again resorting to gimmicks to lure in buyers.



? What did KB Homes have to say about the residential real estate

market? ?The precise timing of a housing recovery remains uncertain. We

expect the early stages of a recovery will be uneven with some inevitable

setbacks before reaching stability.? Did anyone see that California, which led

the nascent recovery earlier in the year, posted a huge 12% slide in home

sales MoM in August (Dataquick data)?



? Regulators closed Atlanta-based Georgian Bank on Friday, making it 95

failures for the year. Nice to see the credit crunch is behind us.
 
<strong>What used to be one of my favorite morning readings from Merrill Lynch (while Rosenberg was still there) , now I got daily crap like this. </strong>





Double Dip? Not our base case



One of the concerns about the US outlook that we repeatedly hear from clients is

the fear of a double-dip recession. However, in the event that the economy

shows signs of faltering, <strong>we believe that the Obama Administration, in conjunction

with the Federal Reserve, will enact additional stimulus measures to enable the

economic recovery to continue.</strong> This is one aspect that differentiates our view

from consensus. Our forecast indeed stands out, as we anticipate higher average

growth over the next several quarters...
 
[quote author="BondTrader" date=1254265494]<strong>What used to be one of my favorite morning readings from Merrill Lynch (while Rosenberg was still there) , now I got daily crap like this. </strong>





Double Dip? Not our base case



One of the concerns about the US outlook that we repeatedly hear from clients is

the fear of a double-dip recession. However, in the event that the economy

shows signs of faltering, <strong>we believe that the Obama Administration, in conjunction

with the Federal Reserve, will enact additional stimulus measures to enable the

economic recovery to continue.</strong> This is one aspect that differentiates our view

from consensus. Our forecast indeed stands out, as we anticipate higher average

growth over the next several quarters...</blockquote>


Well, I have to concur that the Obama Administration in conjunction with the Fed will enact additional stimulus measures.
 
<strong>CONSUMER CONFIDENCE TAKES A TUMBLE</strong>



Consumer confidence not only surprised to the downside in September but the

Conference Board index actually fell to 53.1 from 54.5 with both the ?present

situation? and the ?expectations? component failing to build on the August rebound.



Before we go any further on the details, let?s recall the following:



? Historically, by the time the S&P 500 rebounds 60% from the trough, the

confidence index is sitting at 92.0;



? The month recession DID ends, the index is, on both an average and median basis,

sitting at 72.0;



? During an economic expansion, the consumer confidence averages 102.0; in

a recession, it averages 72.4.



Just to put a 53.0 reading into proper perspective. It?s still recessionary. Some

pundits claim that the market is pricing in mid-cycle earnings, which means we can

look three years out. Well, all we can say is that in the third year of the recovery,

consumer confidence is typically sitting at 88.0.



The only categories who actually saw their confidence level rise in September were

the ones in the lowest income strata ? less than $25,000 (their confidence rose

two points). After all, they?re the only ones really benefitting from all the

government intervention into the economy and the markets.
 
Byron King: <i>I don?t agree with that all. It?s like at the funeral home where they put really good makeup on the corpse and people walk in and say, "Oh, he looks so good." Then you think to yourself, "Wait a minute. If he looks so good, why is he dead?" That?s where we are now, I think, with our economy. We?re still in the recession, it has been well-masked.</i>
 
?Institute for Supply Management?s manufacturing index unexpectedly dropped to 52.6, lower than the reading of 54 forecast by economists in a Bloomberg survey.



Does this mean that the stimulus funding peak is now long behind us and the manufacturing will actually have to stand on its own two legs? If so, while Q3 GDP may be sufficiently poofed up to not kill the market, Q4 will be a total disaster (see Albert Edwards piece earlier). And as for 2010, better hope a "Cash For The Economy" plan is in the works or else...



?Jobless claims rise more than expected (Bloomberg) as Americans spend more of their soon to run out unemplopyment checks.



I got a lot inquires on CIT and AIG recently due to extreme volatility on both. Fundamentally, both should go to 0 especially CIT, why it?s still above 0, speculators are basically playing the game of who is the biggest fool.



S&P is near the support of 1040, a close today below 1040 will indicate further weakness to follow, the next levels to watch is around 1000-1010, then 950-980, which I believe will the bottom for this correction.
 
[quote author="Nude" date=1253672970]Over the last 5 years, the major stock market indexes have all plunged while Mrs. Nude and I vacation in SoCal. The only exception was the year we got married, 2006. I'm not claiming a causal relationship, just a coincidence.



This year we will be in California for only a few days as we bop to Albuquerque and back, specifically Sept. 30th, Oct. 1st, 7th, 8th, 9th. Invest accordingly ;)</blockquote>


We stayed in a Holiday Inn Express in Corning, CA last night, market dives 200 today. We're staying in a Holiday Inn Express tonight, in the high desert of California... just letting you know that it appears the trend continues. ;)
 
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