ScotDuck, arrive loosely at bankruptcy figures
here is my topview on the current liquidation underway
the liquidation didnt even begin until late 2000
the stock market burst bubble in early 2000 set the stage
late in 2000 we saw the complete decimation of internets, joined by the telecoms
then in early 2001 the fiberoptics and more telecoms, joined by a large slice of technologies
later in 2001 we saw the continuation into the general sector with the likes of KMart, but not without a little climax in telecom with Global Crossing
then in autumn 2001 the colossus Enron came down
many believe Enron was the climax.... HARDLY !!!
Enron is the screaming loud signal, since they represent the "CANARY IN THE FINANCIAL COALMINE"
Enron typifies the entire accounting system of charade, deception, fraud, deceit, and dishonesty that is prevalent throughout the entire public reporting scheme
the problem is that we have a huge disparity between earnings reported to the IRS (kept low to minimize taxes) versus earnings reported to the SEC (kept high to maximize shareholder value)
the gulf between the two has never been greater and should be a long time in closing the gap as long as senior mgmt stock options are a significant portion of the compensation packages
we are seeing similar deceptions with Tyco, IBM, GE
in fact, I believe the burden of proof is now on the reporting companies to demonstrate that they are not lying
Anderson is a fallguy now, but it will likely spread
now today, yet another claim of fraud with Computer Associates
their CEO has that much ballyhooed multi-$M reward incentive if only CA would report umteen $M sales and umteen % growth
well, they did, he got his $M's
but now the SEC is all over them for fraudulent sales claims
no, Enron is the beginning
enter Spitzer and possible legal action against Merrill Lynch
his efforts to expose and fix the conflict of interest between brokerage and investment banking has only begun
what I am getting at, DuckTail, is that the entire system is progressing through a long liquidation period that I expect will last about 5-7 years
personal bankruptcies rose to their highest level last month
I dont have the link or the figures, only the impression
corporate bankruptcies also surged
I expect the liquidation to take a long time, with fits & starts
but what is happening in my view is the transformation from paper financial assets to resource assets
and to fully complete this transformation, a great deal of liquidation of excess debt must be undertaken and resolved
unfortunately, that means the entire economy must proceed thru a painful debt resolution
and most households are nowhere near ready for it
THE ECONOMY CANNOT RECOVER UNTIL DEBT RESOLUTION IS COMPLETE
personal debt is monstrous and crippling
it will inhibit further economic growth from consumer spending for sure
I dont expect the personal 20% BK rate to hit until real estate is clobbered
which I believe will happen before 2005
then the equity lines of credit will totally shut down, refis will be out of the question
but for RE to be clobbered, both interest rates and jobless rates must rise
I believe they will as the liquidation period progresses further
but for a few more quarters perhaps, real estate will hang on
RE is the primary focus of Greenschism now, far more imporant to the economy than the stock market
there ought to be some kind of Liquidation Progress Index to measure how far along the process is
I expect FannyMae, SallyMae, FreddyMac all to face severe trials and at least one BKcy among them
what few seem to realize is that our entire economy is debt driven, debt overloaded, and we fix debt problems with more debt
that is like giving a shot of Jack Daniels to a man in a alcoholism detox clinic
the problem cannot be treated by giving more of what caused the illness
the Asian Meltdown in 1997 circled the globe and resulted in the Russian default and LTCM default in 1998
but few seem to admit that the same Meltdown is linked to the Naz Bubble bursting, and the widespread USA debt collapse, followed by Argentina collapse and more to come
I believe it is fully connected, but delayed due to the imminent Y2K phenomenon that was a mere 16 months away when Russia/LTCM hit
this is the Post-Boom Liquidation Period
it will not end until it has fullen run its course
I see no indication that if has lessened
if anything, it has accelerated
as the economy has slowed markedly, so has cash flow revenue to service the debt commitments
Moody's is having a field day (year) with downgrades
every 6-9 months, expect a high-profile bankruptcy or bigtime scandal
I think JPMorganChase is next up
maybe Ford Motor, perhaps Xerox
the rally we are seeing now is based largely on additional debt spending
the critical factor I see overlooked now is that the US-wide debt is accelerating, now near $32 trillion counting federal, state, municipal, corporate, personal
but the economy is not keeping pace
the debt machine is running over the cliff
and our federal govt is lying thru its teeth about the debt
it was $500 billion in 2001 if you allow the Social Security Fund to be set aside, as is required by law
a totally dismissed extremely large factor is the ongoing endless war on terrorism now
this war is adding strain to the financial system
federal deficits are growing rapidly
and attention is drawn AWAY from maintaining the system
the system needs bigtime controls
e.g. managing the USdollar and GOLD suppression
low rates and high debts will kill the dollar and allow cracks to develop further inside the economy
no, Scott and you too Clappy, the debt resolution and liquidation has only begun
just as the 1990 expansion took years, the 2000 contraction and liquidation will take years also
when home property values come down 15%, more strain will appear
when they come down 25%, then a deep recession will be underway
the most naive claims I hear out there involve perceived immunity of real estate to the cycle of expansion and contraction
wait until interest rates rise
wait until jobless rates rise again
layoffs will be resuming, if not already
we are still running a moving average of 400,000 claims/week
that is never a sign of economic recovery
when housing and automobiles have had their recession, we can talk about economic recovery
and bankruptcies will continue until those two have occurred
with a climax when the dollar finds its true uninhibited value as a debt instrument
whether personal BK rate tops out at 5% or 10% or 20%
who knows?
but it will be like nothing we have ever seen before
then in 2008-2011, we will begin an economic recovery
/ jim |
