yep, read about a number of years ago...hopefully we won't get more of those in the mad rush to throw money at the 'shovel ready' infrastructure initiatives
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(click on link for chart)
Posted by Karl Denninger at 07:40
So What's It Gonna Be?
Mr. President, Taxcheatin'Timmy and Bernanke?
This?
Feels like it.
Is the accelerator on the floor yet?
Seems like it.
Is the cliff here?
I dunno - you tell me what this looks like - but what I do know is that if you play Thelma and Louise, you only get to do it once.
Almost 1200 points in 10 days. That's impressive, from 8300. 14%, give or take, below all support, into the "free air" with the next reasonable expected level of decline down around 3500, give or take a few hundred, from the start of the bull run in 1994.
Why do I peg it there? Because the 61.8% retrace level from that bottom to top of the DOW has been decisively lost. The SPX has similarly lost that support level, targeting 440, give or take a bit, again, from 1994. The Nasdaq targets 350, more or less, and the Russell doesn't have a defined support level, going back on my charts only to 1997. Extrapolating, it likely bottoms around 200 or so.
Maybe.
I have to give Obama, Geithner and Ben credit - if they're trying to crash the market they're doing a damn good job. In fact, I'd say their effort to play Thelma and Louise with the American economy and stock market is going swimmingly.
Except for the kiss, of course. In that regard, I think we've been violated. Certainly your 401k (now a 201k, and soon to be a 51k at this rate) looks that way.
President Obama is directly and personally responsible for no small part of this. Playing "disaster capitalism" with his "pass my (Pelosi's) bill now even though you haven't read it or the economy will go straight to Hell and burn for eternity", which was the essence of his "sales job", had an extraordinarily destructive impact on market confidence - especially when we finally got a look inside and found a weak jobs program and a whole lot of spending that wasn't going to stimulate much except the gullet of the pigs at the federal trough.
The half-statements coming out of the administration on bank nationalization are no better. “We have a financial system that is run by private shareholders, managed by private institutions, and we’d like to do our best to preserve that system”, as Geithner said, isn't an answer to the question, and in fact is nothing different than "A strong dollar is in the nation's interest" (as we watched the dollar tank by 25% over less than two years!)
That ditty and the failure to step to the microphone and make a strong, concise, and no-wiggle-room statement that we will NOT nationalize banks has led to a loss in the banking index (BKX) of thirty percent over two weeks time. Tim Geithner is directly and personally responsible for that loss of value.
The market is not blind, deaf or dumb. Politicians are used to lying; that's how they get elected, its how the campaign, its how they raise money and ultimately its how they run things in Washington DC. Say one thing and do another - "bipartisan" means you give a bill to the other side of the aisle 10 minutes before you call for a vote with amendments disallowed - and its 1,200 pages long.
In the real world, as distinct from the Washington DC clown show, such nonsense is either ignored, or worse, seen as the meddling that it is. Until the markets have a reasonable expectation of what the rules are and will be there will be no stability; those with capital will trade on the shortest of timeframes only, and they will press their advantage in either direction whenever it presents itself.
The result will be extraordinary volatility, much lower market prices, and the continued destruction of access to credit markets as investors will apply an ever-larger discount to their valuation models. Prudence demands nothing less since the government continues to destroy value and hurt those who try to come in early in an effort to both profit and stabilize these markets with private capital.
There are plenty of people who think this is a "Wall Street" story; sadly they forget a number of inconvenient facts.
Like, for example, that CALPERS along with other pension funds - state, city, local and private, are all invested heavily in the stock market. Many of these funds have lost 40% or more of their value. Is your pension safe? Nope. Many of these funds are now critically underfunded, and while theoretically many of the "public" ones "can't fail" see how that works out when the money simply isn't there within the state.
After all, unemployed people pay few taxes and with no reasonable hope for economic recovery borrowing more money quickly becomes rather expensive.
In the private world these pension liabilities for legacy pension obligations are ticking time bombs on the balance sheet. Several firms had buried in 4Q 08 reports massive pension fund losses, which are going to turn into critical trouble down the road if the market - and economy - does not at least stabilize in the near term.
My quick perusal of a significant number of quarterly reports from the just-ended period shows that a significant number of large firms with these embedded obligations are at material risk of being bankrupted - including a handful of companies who, on the surface, appear to be perfectly healthy (if pinched somewhat by slowing sales into the recession.)
This is where the danger lies in continuing to speak out both sides of one's mouth with regards to the markets and banking system in Washington DC. If we continue to see market deterioration and visit those technical targets mentioned above my "back of the envelope" computations on these obligations indicate that we are likely to see twenty percent of the S&P 500 go bankrupt within the next six to twelve months; the impact of such an event would be cataclysmic in terms of employment, forcing upwards of 10 million more Americans out of work when one accounts for the impact up and down supply chains and destroying the pension funds of the companies involved. The PBGC would be overhwhelmed, nevermind the fact that PBGC-guaranteed pensions are almost always only a fraction of the originally-promised private pension amount.
Such an outcome would bring the impact of this downturn in line with, and might exceed, the economic damage of the 1930s, and if it occurs it will not be "organic" or "inevitable" - it will be the direct and proximate result of the game-playing coming out of Washington DC.
I am looking for a bounce in the market and in fact have been all last week. Obviously, we didn't get one thus far, and it may be that the market is just not going to tolerate the clown car brigade any longer, choosing instead to just plain old fashioned tank until the BS stops - or our nation's economy dies and the market flatlines at 10% of its former glorious valuation.
Buckle up.
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