Make no mistake about it, the bears are loose on Wall Street and won't be satisfied until we reach rock bottom ~ which will be considerably lower than we are now. For the more dollars the Fed pumps into the U.S. banking system, the more it will devalue the dollar ~ driving away international investors and actually creating the very credit crunch it's now trying to avert: Allen L Roland
Having been an Investment Banker for eleven years, let me let you in on a secret ~ the stock market is a sophisticated crap shoot and all traders are essentially like sheep. When the bulls are running, they run with the bulls and when the bears are running, as they are now, they pull in their chips and wait for the bottom.
And that's why we are heading for the mother of all downturns as Mike Whitney so brilliantly describes in his The Grim Reaper Pays a Visit to Wall Street .
Excerpt: " As the banks tighten up their lending standards; the number of business deals will drop accordingly and the economy will slow to a crawl. This process is already underway. A few “Up Days” in the stock market mean nothing. This is a Force-5 hurricane headed for a trailer park. Nothing will slow it down. The problems are too deeply rooted---the infection too far along. The huge, overleveraged bets will progressively unravel and the economy will go into freefall. It’s always painful when fundamentals re-emerge and economic gravity takes hold."
Allen L Roland http://blogs.salon.com/0002255/2007/08/11.html
The Grim Reaper pays a visit to Wall Street
Mike Whitney
08/10/07 "ICH" -- - Thursday, August 9, 2007: --Alan Greenspan’s low-interest, subprime, snake-oil Caravan took another spin down Wall Street today---ripping up pavement, knocking down power-poles and sending traders scampering for safety. When the dust finally settled, “Maestro’s” wrecking ball had lopped another 387 points off the Dow Jones leaving markets reeling and investors cringing in fear. No doubt about it; the mood on the “Street” has taken a 180 overnight. A long procession of bears---marching three-abreast with arms locked—can now be seen winding through downtown Manhattan. Their sense of triumph is palpable.
Meanwhile the last wounded bull—still writhing at curbside-- is being carted off to slaughter.
MORTGAGE BLUES
No one has summed up the disaster in the mortgage lending business better than Paul Muolo of “Broker Universe”:
“I'll put it bluntly: if you operate a non-depository mortgage firm and don't have a deep-pocketed parent or hedge fund as a sugar daddy you're likely to be out of business by year-end, probably sooner. In the 20-plus years that I've been covering residential finance I haven't seen a financial meltdown this swift since the S&L crisis of the mid-to-late 1980s. One subprime executive who closed his shop a few months ago told me, ‘This is a liquidity crunch the likes I have never seen.’ Meanwhile, the mudslide is rolling downhill from Wall Street to mortgage bankers, to loan brokers, and then the consumer.”
“The mudslide from Wall Street ”. That says it all.
In a matter of days, the credit markets have frozen making it impossible to secure financing on anything from a leveraged buyout (LBO) of a major corporation to a meager home loan. The cheap money and easy credit have vanished into the summer-ether leaving the investment banks holding $300 of billion toxic debt they have no way of off-loading.
It’s a real mess and there are no simple solutions. Lenders are standing on the sidelines waiting for the next shoe to drop or the next body to float to the surface. Deals are going undone; business is grinding to a halt.
What were the geniuses at the Federal Reserve thinking when they dropped rates to 1% and pumped out trillions of dollars that made their way into “no document” liar’s loans to applicants with bad credit? Didn’t they know there’d be a day of reckoning when the housing and credit bubbles would smash into each other taking down much of the US economy with them?
Was it an honest miscalculation or a sinister plot? Or, maybe, it was just stupidity?
Who knows; who cares. Whatever it was; the aftershocks are bound to be felt for a very long time. Decades maybe.
Meanwhile the last wounded bull—still writhing at curbside-- is being carted off to slaughter.
MORTGAGE BLUES
No one has summed up the disaster in the mortgage lending business better than Paul Muolo of “Broker Universe”:
“I'll put it bluntly: if you operate a non-depository mortgage firm and don't have a deep-pocketed parent or hedge fund as a sugar daddy you're likely to be out of business by year-end, probably sooner. In the 20-plus years that I've been covering residential finance I haven't seen a financial meltdown this swift since the S&L crisis of the mid-to-late 1980s. One subprime executive who closed his shop a few months ago told me, ‘This is a liquidity crunch the likes I have never seen.’ Meanwhile, the mudslide is rolling downhill from Wall Street to mortgage bankers, to loan brokers, and then the consumer.”
“The mudslide from Wall Street ”. That says it all.
In a matter of days, the credit markets have frozen making it impossible to secure financing on anything from a leveraged buyout (LBO) of a major corporation to a meager home loan. The cheap money and easy credit have vanished into the summer-ether leaving the investment banks holding $300 of billion toxic debt they have no way of off-loading.
It’s a real mess and there are no simple solutions. Lenders are standing on the sidelines waiting for the next shoe to drop or the next body to float to the surface. Deals are going undone; business is grinding to a halt.
What were the geniuses at the Federal Reserve thinking when they dropped rates to 1% and pumped out trillions of dollars that made their way into “no document” liar’s loans to applicants with bad credit? Didn’t they know there’d be a day of reckoning when the housing and credit bubbles would smash into each other taking down much of the US economy with them?
Was it an honest miscalculation or a sinister plot? Or, maybe, it was just stupidity?
Who knows; who cares. Whatever it was; the aftershocks are bound to be felt for a very long time. Decades maybe.
The easy money is drying up, the big mergers are slowing down and the hand-wringing in the front office has just begun. Next question: How low can the stock market go?
At present valuations; stocks are vastly overpriced reflecting the inflationary pressures from our recycled $800 billion current account deficit and the loony expansion of the money supply at the Federal Reserve.(now running at a whopping 13%) Presently, the stock market is hanging on by its fingernails. One little gust of wind ~ like a few more collapsing hedge funds ~ and the market will go somersaulting through deep-space.
The ISI Group’s Andy Laperriere put it like this: “It’s worse than the most pessimistic assumptions”. In these kinds of financial corrections, it pays to expect more surprises.” (WSJ Aug 6, 2007)
At present valuations; stocks are vastly overpriced reflecting the inflationary pressures from our recycled $800 billion current account deficit and the loony expansion of the money supply at the Federal Reserve.(now running at a whopping 13%) Presently, the stock market is hanging on by its fingernails. One little gust of wind ~ like a few more collapsing hedge funds ~ and the market will go somersaulting through deep-space.
The ISI Group’s Andy Laperriere put it like this: “It’s worse than the most pessimistic assumptions”. In these kinds of financial corrections, it pays to expect more surprises.” (WSJ Aug 6, 2007)
To continue click on ~
Allen L Roland
Freelance columnist Allen L Roland is available for comments , interviews and speaking engagements ( allen@allenroland.com )
