somehow that wouldn't surprise me.
however, even if the dow went to 14k this year (in some strange manner), the untold number in leveraged paper going to money heaven is, by all appearances, quickly expanding, quietly and below the water.
all sorts of CDO's only a year old are seeing default rates climb right up their ladders well into classed debt above sub prime.
the firms who issued the largest bonus packs in the history of the street are now rated at junk. HOW DID THAT HAPPEN?
like i said before, there are many ways to tighten, even if the fed drops their rate or throws more paper at M3.
one: if lenders cease to exist. so far over 30 sub prime guys are out of business in the last three months... with most shutting down in the last weeks. the pace is speeding up.
two: loan qualification. let's see who will now qualify going forward. and that includes take overs and mergers. the zell property purchase may well have marked the top (90% financed).
three: bank reserve requirements are raised significantly.
four: fewer people want to be leveraged even if the money is there for the asking.
five: a re assessment of values (they drop), and until they find a bottom, who would take out a loan to buy a falling knife?
six: inflation continues and at an even faster pace if CB's act predictably. if not, we correct to the mean and beyond much faster. if so, 4% moves up in the dow are easy with a continuation of the greenspan put <g>
no doubt there are quite a few other items someone can add to the list.
but net net, when all is said and done, unless something truely remarkable takes place, net net is not going to be a positive number.... and if that's true, all those positive numbers starting with greenspan, created all sorts of other positive numbers but, currently, ad finitum. so what happens if the reverse takes place? either severe re pricing, or loaves of bread which cost 10 million dollars each. or in fact both. <g> |
