Stocks Cramered, Yet Again (Musical Tribute)

You should be buying things and accept that they're overvalued, but accept that they will keep going higher. I know that sounds irresponsible. - Jim Cramer, October 31, 2007

When have I heard that before? Oh, I know. The year was 2000.

The Winners of the New World

How did this bizarro world where nine-tenths of the companies I have followed as a stock picker for the last 20 years are losers and one-tenth are winners? To answer that question, you have to throw out all of the matrices and formulas and texts that existed before the Web. You have to throw them away because they can't make money for you anymore, and that is all that matters. We don't use price-to-earnings multiples anymore at Cramer Berkowitz. If we talk about price-to-book, we have already gone astray. If we use any of what Graham and Dodd teach us, we wouldn't have a dime under management. - Jim Cramer, February 29, 2000

They say that nobody ever rings a bell at the top. Really? Cramer's my cowbell hero. A legend is born.

More Lies

IMF head: worst of financial crisis may lie ahead

JEDDAH (Reuters) - The worst of the financial crisis may still lie ahead and more major financial institutions may face trouble in coming months, IMF director general Dominique Strauss-Kahn said on Wednesday.

I just wish I knew what definition of "lie" he was using.

Still, the world economy was very resilient and should rebound in 2009, Strauss-Kahn said to reporters after a meeting with Gulf Arab finance ministers and central bank governors.

Oh oh. I think I know which definition it is.

The Four Low Riders of the Financial Apocalypse (Musical Tribute)

1. Lehman Brothers
2. Larry Kudlow
3. Lawrence Yun
4. Lereah, David

April 11, 2006
Lehman Brothers: A super-hot machine

Fuld's modus operandi has been to bind his employees' fates together—to turn the culture from one of sibling rivalry to cooperation and teamwork. His tool: money.

Halloween, 2007
Despite the Gloom, More Bush Boom

The print and broadcast media do not give President Bush much credit for his economic policies. But somehow I have to wonder whether low unemployment, strong growth, negligible inflation, and record stock markets do not deserve just a bit of praise.

It is still the greatest story never told. - Larry Kudlow

Today
Top economist says state housing market is "whacked"

You have a situation in New York where you have more people with jobs and more people living in the state than 10 years ago. Affordability conditions are very similar, yet home sales activity is much lower. So something is out of whack, and what is out of whack is the buyers’ lack of confidence. - NAR's Chief Economist Lawrence Yun

March 3, 2005
Why NAR's David Lereah Believes The Housing Boom Is Far From Over

I believe that in years to come historians will see the beginning of the 21st century as the 'golden age' of real estate. - NAR's Former Chief Economist David Lereah



All my friends know the low rider
The low rider is a little higher
Low rider drives a little slower
Low rider is a real goer
Low rider knows every street yeah
Low rider is the one to meet yeah
Low rider don't use no gas now
Low rider don't drive to fast

Panic Revisited (Musical Tribute)

`Tectonic' Market Shift as Lehman Fails, Merrill Sold (Update1)

• Balked
• Ballooned
• Bankruptcy
• Breaking
• Breathtaking
• Carnage
• Chain Reaction
• Collapse
• Convulsions
• Criticism
• Cut-Price
• Detiorating
• Dimmed
• Dropped Out
• Eliminated
• Emergency
• Erasing
• Extinction
• Failing
• Fail
• Fails
• Flawed
• Great Depression
• Liquidation
• Lose
• Loss
• Losses
• Painful
• Pressure
• Push Down
• Refused
• Repercussions
• Shaken
• Silliness
• Sold
• Swirled
• Tectonic
• Thrust Into Reverse
• Trouble
• Tumbles
• Ugly
• Unable
• Under Seige
• Undermined
• Unwinding
• Vaporized
• Wipes Out

See Also:
Don't Panic
Don't Panic Revisited

Once in a Century

Greenspan Says Crisis May Be `Once in Century' Event (Update1)

``This is a once in a half century, probably once in a century type of event,'' Greenspan said. ``We shouldn't try to protect every single institution. The ordinary cost of financial change has winners and losers.''

1800

Long Depression

In the United States, the meltdown of the European economies led directly to the Panic of 1873 and ushered in the Long Depression.

Panic of 1873

Years of government-promoted speculative credit created vast overexpansion of the nation’s railroad network. The failure of the Jay Cooke bank set off a chain reaction of bank failures and temporarily closed the stock market.

1900

Great Depression

Another explanation comes from the Austrian School of economics. Austrian theorists who wrote about the Depression include Hayek and Murray Rothbard, who wrote America's Great Depression in 1963. In their view, the key cause of the Depression was the expansion of the money supply in the 1920s that led to an unsustainable credit-driven boom. In their view, the Federal Reserve, which was created in 1913, shoulders much of the blame.

2000

October 27, 2005
Bernanke: There's No Housing Bubble to Go Bust

U.S. house prices have risen by nearly 25 percent over the past two years, noted Bernanke, currently chairman of the president's Council of Economic Advisers, in testimony to Congress's Joint Economic Committee. But these increases, he said, "largely reflect strong economic fundamentals," such as strong growth in jobs, incomes and the number of new households.

Let's not forget the "unsustainable credit-driven boom" that we also saw in the previous two "once in a century" events. I'm surprised that wasn't mentioned. After all, the Fed did lower interest rates to 1% in 2004.

"Without these policy blunders by the Federal Reserve, there is little reason to believe that the 1929 crash would have been followed by more than a moderate dip in U.S. economic activity," Bernanke wrote.

It seems Bernanke's finding some difficulty these days sustaining an unsustainable credit-driven boom. Go figure.

Snatching Defeat Out of the Jaws of Defeat

I flipped on the TV early this morning and was told that yesterday's 290 point stock market rally was "proof" that the bailout of Fannie Mae and Freddie Mac was exactly what the economy needed. How could I dispute it? It was proof.

Using a logical extension of this existing proof, then it stands to reason that today's 280 point plunge is "proof" that the bailout is exactly what the economy doesn't need.

The bailout was therefore exactly what the economy needs and exactly what the economy doesn't need. Dizzying, huh?

Unfortunately, that's not the only paradox. The Government clearly attempted to reduce uncertainty by bailing out Fannie Mae and Freddie Mac. Less uncertainty would translate into less market volatility. Less market volatility would imply less risk. All things being equal, less risk will eventually lead to greater rewards. For example, less risk and companies might be more willing to add jobs. It was a very noble effort. I'll give them that.

Hell isn't merely paved with good intentions, it is walled and roofed with them. - Aldous Huxley

What we actually got was two consecutive days of heavy volatility (280+ point moves in the DJIA). More volatility implies more uncertainty. More uncertainty implies more risk. All things being equal, more risk will eventually lead to fewer rewards. For example, too much risk and people will invest in highly predictable toilet paper and canned goods instead. Wall Street will not find that to be very rewarding. Not that I speak from personal experience or anything. *cough*

So let's summarize what the bailout has done.

• Gives the economy exactly what it needs.
• Gives the economy exactly what it doesn't need.
• Creates less uncertainty, volatility, and risk.
• Creates more uncertainty, volatility, and risk.
• Offers greater rewards.
• Offers fewer rewards.

That's probably exactly what we should expect out of our government. After all, they are using OUR taxpayer money to bailout US taxpayers out. In my opinion, it is like robbing Peter to pay Peter. How can Peter possibly be any better off once he's been robbed and then compensated for the loss?

Economic Magic (Musical Tribute)

Greenspan: Don't use Fed as a 'magical piggy bank'

Greenspan, 82, who ran the Fed for 18 1/2 years and was the second-longest serving chief, says he is concerned that Capitol Hill will look to the Fed's actions "as a wondrous new font of seemingly costless federal funding -- a magical piggy bank."

The "magical piggy bank" reminds me of a little parable that Ben Bernanke offered in 2002, well before Greenspan retired.

Deflation: Making Sure "It" Doesn't Happen Here

The conclusion that deflation is always reversible under a fiat money system follows from basic economic reasoning. A little parable may prove useful: Today an ounce of gold sells for $300, more or less. Now suppose that a modern alchemist solves his subject's oldest problem by finding a way to produce unlimited amounts of new gold at essentially no cost. Moreover, his invention is widely publicized and scientifically verified, and he announces his intention to begin massive production of gold within days. What would happen to the price of gold? Presumably, the potentially unlimited supply of cheap gold would cause the market price of gold to plummet. Indeed, if the market for gold is to any degree efficient, the price of gold would collapse immediately after the announcement of the invention, before the alchemist had produced and marketed a single ounce of yellow metal.

Today an ounce of gold sells for $800, more or less. That's a 167% increase in price. I think it is safe to say that alchemists have not been able to produce unlimited amounts of gold at essentially no cost yet.

What has this got to do with monetary policy? Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.

Meanwhile, our government's monetary alchemists do have a proven "magical" technology which allows them to produce as many U.S. dollars as they wish at essentially no cost. Unfortunately, they've been dabbling in the black arts for nearly 30 years (as seen here). I'm not sure they know how to stop. In fact, they must summon more dollars into existence just to pay the interest on the dollars they have previously summoned. Further, investors are a fickle lot. They don't just want interest. They want a real return above inflation. That requires even more summoned dollars. Without the extra reward, investors are no doubt tempted to hoard hard goods instead.



You have to believe we are magic
Nothin' can stand in our way
You have to believe we are magic
Don't let your aim ever stray
And if all your hopes survive...

Late-Year Recovery Hopes Devastated

Stocks plummet after retail, unemployment data

NEW YORK (AP) -- Dejected investors sent stocks plunging Thursday, hurtling the Dow Jones industrials down more than 340 points after retailers and the government added to a mountain of bad economic news and devastated hopes for a late-year recovery.

Captain Obvious says, "Goodbye bull market's wall of worry, hello bear market's slope of hope?"

Furthermore, if the job market keeps deteriorating, it is tough for Wall Street to see a rebound in sight for the economy's biggest culprit: the tumbling housing market.

Captain Obvious says, "Deteriorating job markets aren't generally known for their ability to generate prosperity, even in an illusionary sense. The same could be said of deteriorating housing markets."

"You have to have a paycheck to pay that mortgage," said Craig Peckham, market strategist at Jefferies & Co.

Captain Obvious says, "While currently true, there was a time when paychecks were not needed to pay that mortgage. All that was needed was a pulse and a banker willing to offer a stated income loan (see below)."

"We're seeing nothing but sellers," said Ted Oberhaus, director of equity trading at Lord, Abbett & Co. "In a bear market, you sort of really don't need an excuse to sell."

Captain Obvious says, "You 'sort of really' do need a good excuse when telling your bank why you aren't paying the mortgage though. Without a really good excuse, you 'sort of really' need to sell something in order to pay it. Stocks can be sold. Houses can be sold. Based on recent late night TV commercials, so can unwanted gold jewelry (and dental gold). Go figure."

Stated income loan

However, a real estate investor may have multiple properties and for each may receive only a small amount more than their loan payments on each house, but end up with 200,000.00 in disposable income. Nevertheless, a non-stated income loan would decline this person since their debt to income ratio would not be in line. The same issue can arise with self-employed borrowers, where the bank with a fully documented loan would include the borrower's business debt in their debt to income calculation. Stated income loans also help borrowers where fully documented loans normally would not consider the source of income as being reliable and stable, such as investors who consistently earn capital gains.

Captain Obvious says, "Since 2006, the consistency of the stock markets and housing markets to earn capital gains for investors seems more than a bit suspect."

U.S. House Price Decline Could Be Worse than Great Depression, Economist Shiller Says

The current hopeful consensus -- that house prices will bottom soon and then begin to recover -- is most likely a dream. Housing markets don't usually have "V-shaped" recoveries. And even if house prices stabilize in nominal terms, after adjusting for inflation, most homeowners will continue to lose money.

Captain Obvious says, "It may be best to remain on the sidelines during periods of hopeful consensuses. Using the power of hindsight, Captain Obvious should have sold his house a few years ago to become a renter. He's also seriously questioning his stagflationary outlook, not that he's going to alter his inflation protected investments and begin to bury fiat paper dollars in his backyard. That is not what concerns him most. It is that he's talking about himself in third person. He's clearly fallen off the deep end, much like our overall economy."