My Best Market Source Warned on Market Close. 
Citigroup (C) off 20%
BoF (BAC) off 29%
JPMorgan (JPM) off 21%
Goldman Sachs (GS) off 19%
Wells Fargo (WFC) off 24%
Very few countries now find room for a fiscal stimulus; debt levels are too high and fiscal capacity is hard pressed by contingent liabilities in the banking system - particularly with an increasing probability of quasi-nationalization. The idea of a 2% of GDP global fiscal stimulus seems quite far-fetched at this point. Further monetary easing is therefore in the cards, both for developed countries and emerging markets, and there may now be some catching up by central banks - in that regard, see the latest Turkish move as a foreshadowing. Fear of deflation will take hold almost everywhere, further pushing central banks towards interest rate cuts. Commodity prices will likely decline further. The worldwide reduction in credit continues, largely driven by lower demand for credit as households and firms try to strengthen their balance sheets by saving rather than spending.
This source does not exaggerate -- as a trader, the advantage is to the man with ice for blood and dilithium crystals for brains -- so when he wrote "death spiral," I looked around the
chat room at the usual Dr. Doom sources to see if there is harmonic resonance. It was President Obama's first day in office, and I was surprised to find so much gloom even while Mr. and Mrs. Obama were dancing in celebration -- and to find it so especially ghastly. Calculated Risk was not cheerful, as usual, but included a note from NYU economist Nouriel Roubini's blog that seemed especially. Roubini estimates that the debts load on US banks and brokerage holdings will peak at $3.6 trillion. Roubini declares that the total capital for US banks and brokerages is $1.4 trillion. He writes, "This is a systemic banking crisis." CR puts the issue more bluntly, estimated that the total debt will peak at $2.6, accepting the total cap assets, CR says the US banks are already "insolvent." This is a polite way of saying that the banks and brokerages have failed. And that the sell off in bank stocks now is because they are going to be nationalized sooner rather than later, those that survive. Look at the numbers today:
Citigroup (C) off 20%BoF (BAC) off 29%
JPMorgan (JPM) off 21%
Goldman Sachs (GS) off 19%
Wells Fargo (WFC) off 24%
Morgan Stanley (MS) off 16%
London Is Worse.
A lead item in the Wall Street Journal declares that the EU finance ministers have reached the limits of their ability to spend money to stimulate the economies. The debt load is
already so high, that more borrowing will just strain and breakdown the system. Now to the catastrophe at Old Blighty. The Bank of England (right) will start buying assets, such as corporate bonds. Meanwhile the second version of the bailout announced Monday by Gordon Brown and Alistair Darling has now panicked the markets and degraded the pound by an astonishing 5%. A new crisis is possible, even inevitable, since the buzz is now that the UK will nationalize the banks. This is another way of saying that the banks have failed.
Grim Commodities.
My other doom and gloom favorite, The Baseline Scenario, provides a summary of what is now unavoidable in 2009. I am specially mindful of the continuing decline of commodity prices. This is the sort of deflation that marked the collapse after 1929. In January 1933, Congress and the outgoing Hoover administration were flummoxed at the sinking farm prices. Hoover mentioned that he would sign Smoot Hawley -- the infamous protectionist bill -- just because it would help the farmer. It did not. So when I see sinking commodities, and see the projection for lower prices, I puzzle if we are condemned to groundhogdaying 1933: And what happened in February and March, 1933. The banks failed. And FDR imposed a bank holiday to stop the panic.
President Obama Bank Holiday?
I mean it to be far-fetched. But what happens if and when the major banks fail, the government nationalizes them, and there is a bank run on small and regional banks when
people transfer their deposits and assets to the protected creatures? Do we want to keep our money in a brokerage house that may fail, or a bank that may fail, when we can instead put it into the nationalized Bank of America? Off-putting speculation? Dizzy making? No good model for this, so I am guessing from the historical example -- the runs started in Detroit -- which was not anticipated when it happened. If there is to be a bank run anywhere, it will be silent. Jim McTague taught me back in October that people can run on the bank without lining up. Just clicks of the keyboard. The silent run. Watching those regional banks. Watching Detroit.
Americans wanted a “nanny state”. They don’t yet realize that they’ve had it under Bush. After 9/11, Bush went on television and promised to protect us and to push back against the people who hurt us. We were told that there would be various strategies in play, some of which would be obvious while others would not. In the meantime, we’ve forgotten his words of assurance; we began to mistake his silence for incompetence.
What we can be certain of now is that Bush’s strategies – both seen and unseen – worked. We haven’t been attacked on American soil since. Bush was far too humble a man to remind us over and over again that he was “working harder than ever before”, as his predecessor had done. He had the right to expect that the facts would speak for themselves.
In this way, he reminds me of my father who went to work each day and never once burdened us with what might have been happening at work. He would come home and ask us about our day. Sometimes we would note that he looked drawn and weary at the dinner table. But he would never have thought of involving us in his ordeals. He would hug us before sending us off to bed. In his arms we felt safely confident that all was right with the world.
Sometimes I think it would have served Bush well to have asked us for some token by way of sacrifice. In that way we could have felt we were a part of what it was that he did. We might have felt we had a personal stake in his successes and might not have been so quick to accept the flags of (contrived) failure bandied about so brazenly by his political rivals. But then I thought of the way Dad did it. My brother and I grew up to be adults. My children were my joy. I also never succumbed to the temptation of sullying their all too brief years of innocence needlessly with adult intrigue.
Thanks, Dad! Thank you, President Bush! God job, guys! You will be missed.
Don't "fear deflation," brace for it. Like any crash, it only hurts if you tense up.
Well said and very touching, Peter. W pissed me off many times in the process but then, so did my Dad. My daughters I'm sure say the same thing.
Yesterday, I watched as people from around the world were expressing unreserved optimism re America's future. What I found fascinating was that they themselves felt elevated by what they perceived as “America finally coming to its senses”, as if what happens in America would translate into better prospects for themselves. Obama himself made reference to fuel this impression in his imperfect inauguration speech. The people’s optimism, as I read it, was based on an analysis that runs no deeper than Obama’s skin color. The comments of people on the mall in Washington who had come to witness history in the making – including comments by the bubble-lipped info babes covering the event – similarly showed very little insight beyond the obvious.
Whereas I can understand the expressed warm feelings of Nicaraguans, for example (or of Indians, Brazilians, Japanese, etc.), our own swoon simply amazes me. I know that people in other countries do not have access to alternative news sources. They watch and read only regularly regurgitated Democrat talking points spewed by an uncritical main stream media press corps. They accept without question that Democrats = good, Republicans = bad; Bush = bad, Obama = good; Israel = bad, Palestinians = good; etc. It is a template now cast in stone that will, barring unforeseen circumstances, unfortunately never be broken during our lifetimes.
When I broached the subject of American politics with my Brazilian sister last year, she simply said, “We’ll talk about it again after four years,” - this, after I had voiced my concerns. She was convinced that a cosmetic make-over with regard to the American figurehead-in chief will do little to change things fundamentally. I had similar experiences in India and in Europe. The prevailing view is that America will remain as is – hostile, self-serving, and, yes, fundamentally racist - no matter who we elect. Any opinion that runs counter to this notion is immediately rejected out of hand and dismissed as ”crazy” extremist right-wing drivel.
Obama’s election is seen by the world as a baby-step forward, taken by a country that is inherently racist. This view is not just plucked out of thin air. It is pretty much the way we present ourselves to the world through our own media. What else are they supposed to think? They don’t live here; most of them have never visited. They find out about America from what Paul Krugman writes in his columns.
What concerns me is what happens next after the banks are nationalized. It's taking me awhile to fully wrap my head around our current economic crisis and the best way I can explain it is that there is a monstrous black hole of debt and that the currency feeding the mania was not even paper, it worse than that, it was credit, it was iou's, nothing basically. The black hole of debt is so vast right now that even with printing presses running at full speed it is kind of like someone trying to bail out a sinking ship with a bucket - you can't print fast enough to fill up that hole of debt. which is why the dollar is rising despite everything the feds are doing. At some point that will probably flip and massive inflation will follow the current deflation - but that is still down the road a little ways.
THe Chinese economy in the tank also, at some point, are going to stop financing our debt. What will happen when teh politicians and all of the bottom feeders that are rich off of the largesse of the public, what will happen when public money dries up. Politicians have to feed the beast. Well, you have these banks which belong to the US government which are holding everyone's deposits - California is setting this precedent btw, - confiscation of wealth. There is some history behind this - Argentina nationalized private pension funds, I think there was a time in the 1800's the the US government confiscated gold from people.
I really do forsee the day when an attempt will be made to confiscate what wealth that there is from those who have managed to save something. In any case, I guess I'm back to stuffing money into boxes of crackers and at some point buying gold coins and putting them away in a safe. It's kinda hard. I've had the same account with Citibank for 20 years. As odd as it sounds, I'm finding it kinda hard to sever the tie. THey were a good bank at one point in time - I think prior to their becoming citigroup.
Ambrose joins in the Death Spiral Blues:
http://blogs.telegraph.co.uk/ambrose_evans-pritchard/blog/2009/01/20/seriously_alarmed
SERIOUSLY ALARMED
Posted By: Ambrose Evans-Pritchard at Jan 20, 2009 at 14:17:08
The slide in sterling has turned "disorderly".
We can argue over whether or not the first phase of devaluation acted as a shock-absorber for a badly mismanaged economy, providing a cushion against debt deflation and the housing crash. But the latest dive has a very malign feel.
For the first time since this crisis began eighteen months ago, I am seriously worried that British government is losing control.
The currency has fallen five cents today to $1.39 against the dollar. It is now perched precariously on a two-decade support line -- the levels tested in 2001 and 1992. If it breaks that line, traders may send it crashing down towards dollar parity.
The danger is blindingly obvious. The $4.4 trillion of foreign liabilities accumulated by UK banks are twice the size of the British economy. UK foreign reserves are virtually nothing at $60.6bn. (on this, more later in a piece I'm writing today)
If the Government is forced to nationalise RBS and perhaps Barclays with their vast exposure in dollars, euros, and yen, it risks being submerged. It is one thing for a sovereign state to let its national debt jump in a crisis -- or a war -- perhaps even to 100pc of GDP. It is another to take on foreign debts on such a scale with no reserves. Yes, the banks have foreign assets as well to match the debts. But how much are these assets really worth?
This is the moment when the "rubber hits the road" -- to borrow from American argot -- the moment when the reckless debt experiment of our economic and political leaders comes back to haunt.
We cannot even do what Iceland did to save its skin. Reykjavik refused to honour the foreign debts of its buccaneering banks. It let them default, parking the losses in Resolution Committees. Small islands can do that. Iceland has fish instead, and lots of metals.
Britain cannot follow suit. The debts are too big. If London takes such disastrous action it will set off global panic and lead to an asset death spiral, drawing the entire world into deep depression.
What have our leaders wrought? The reckless conduct of City, the fiscal incontinence of Gordon Brown (3pc deficit at the top of the cycle), and the pitiful regulation of the UK housing boom have all combined to bring the country to the brink of disaster.
England has not defaulted since the Middle Ages. There is a real risk it may do so now.
And no -- just so there is no misuderstanding -- it would not have been any better if Britain had joined the euro ten years ago. The bubble would have been just as bad, or worse, as Ireland and Spain can attest. We have our disaster. They have their disaster. When the dust has settled in five years we can make a proper judgement on the sterling-EMU issue. Not now.
The Baby Boomers have had their moment in power. The most spoilt generation in history has handled affairs with its characteristic hedonism. The results are coming in.
The blithering idiots.
I've asked this question before and never gotten an answer to it. In fact, not sure if it was even posted. And, I'm not surprised - it sounds quite ridiculous. But I'll ask it again anyway - because I'm serious - if everyone in the world owes a quadrillion quatloos to everyone else, isn't that really the same as if the quatloo didn't exist? Aren't we at square one again?
This gets back to what to Adam Smith said about excessive government debt - after it gets past a certain critical point, there are no examples one can give in history where it didn't eventually lead to the financial failure of the government, although that failure may have been disguised as something else to one degree or another.
So we hold on to our life savings in a mattress and the "good banks" hold on to their depositors' accounts and hope that GMAC doesn't open up shop across the street, and that eventually our quatloos will be worth something again. But at what point do we say, you know what? because we as private citizens and small businesses owe so much as our share of the government's debt, it would be better to just start over at square 1 again (after summarily executing everyone responsible for this fiasco, naturally.) That's because we may have Q1,000,000 in "good" assets but here's an actuary (me) to tell you that if you have a present value of future Federal Income Taxes of Q1,500,000 to offset those assets, you'd be better off exchanging your business suit for camouflage gear and taking up with the insurgents. Your supposed "loss" of Q1,000,000 has no basis in fact - you have nothing left to lose.
I like your show a lot.
I like yor areas of concentration
(1) the troubled US economy and where it is headed.
(2) our ally Israel and its problems living in a very bad and dangerous neighborhood.
(3) science topics
Cocerning James Clerk Maxwell.
He was a great theoretical physicist.
He was also a dear friend of the elderly Michael Faraday to me one of the greatest experimental physicist of any era.
Maxwell's mathematics prove Faraday's theories for electricity and magnetism were correct.
Faraday was not only a great experimentalist but came up with theoretical concepts to explain his experimental results that astonished his peers and proved to be correct.
For One, he united the seemingly unrelated fields of electricty and magnetism.
These were indeed 2 great scientists.