Hey Guess What?

In Financial Food Chains, Little Guys Can’t Win

"...according to what I hear from my betters in the world of finance, the most serious problems are not with the bundles of subprime mortgages themselves — a large but not lethal quantum as far as I can tell — but with derivatives contracts tied to subprime and other dicey debt. These contracts are superficially an attempt to “insure” against risks of default, hence the name “credit-default swaps.” In fact, they are an immense wager — which anyone with lots of money or borrowing ability can enter — about how mortgage-backed bonds, leveraged loan bonds, student loan bonds, credit card bonds and the like will perform.

These wagers entail amounts many times larger than the total of subprime loans. In fact, there are roughly $62 trillion in credit-default swap derivatives out there, compared with about $1 trillion of subprime mortgages."

except for one thing...

Almost no one (except Mr. Buffett) saw this coming, at least not on this scale.

Ben thinks because he didn't see it coming, no one else this side of Buffett did either. What an arrogant, clueless putz.


http://www.nytimes.c...ss/28every.html

Edited by milbank, 27 September 2008 - 06:06 PM.

There was a Very bearish poster here a year ago named GREENIE.
We gave him a bad time for being soo bearish.
Too bad that he was so right!

LINK to Greenie's posts

Greenie, are you out there?

Jas Jain: "the Prophet of Doom and Gloom"

The current Peak Debt may well foreshadow the collapse of the American political system, as the world has known it since 1776. And that would be a long life for a political system. Circa 2020s: It was a good system for most of the time it lived. May it rest in peace.

Edit: I guess the folks seeing the increasing debt from 1944 to the mid 60's were freaking like today.
Prior to WWII many homes were built by the owners with little or no debt.
After WWII, tract homes were put up overnight by spec builders and people went into debt for the first time.
However from about '64 to '84 the debt ratio held steady.

In a post above I read this:

what you might see prospectively is something that looks a lot more like '68 to '73 did where you had big rolling corrections and rotations and a market that doesn't really make any upside progress but with a lot of volatility that traverses big ranges.

There is another poster who has posted similar sentiments and he has gotten his arse kicked around a bit here too.

Yeah that pesky Greenie, he came from longwave board with me years back where we all love to predict the end of the world. Quite a few people saw this coming, and understood the US economy was just a giant credit bubble, I frequently refered to the US economy as the 'Enron economy' to get this point across - trouble was most of them contantly predicted the end of the world for last 10 or more years, the hard part was knowing WHEN it blow up. I don't know how much time did I spent explaining these issues on this board in great detail, not alot of interest to say the least.

The stage were in RIGHT NOW, I described back in 2004 -
http://www.traders-t...?...ubble&st=10

2004 -
"... Poor quality lenders have gone bankrupt, that's OK. There are
still plenty of lendrs, there's no serious trouble until banks have
large loan write offs, we can't let the banks fail or have to reduce
lending or the games over - so!

The FED/Govt' assures it that should it fail, it will get bailed out,
because the banking system is 'too big too fail'. The FED can pay off
the bad loans, becauese it can monetarize any debt it likes, simply
be 'creating money from thin air' in electronic accounts.[ this is
what Japan is currently faced with doing.


** theres alot in that post that folk might want to look at as it very relevant to now. Note my concluding paragraph -
"I believe when/If the system fails, they will allow the average Joe
to goto the wall, but monetarize high quality bank debt and
corpearate debt to save banks and corperation they see as valueable,
again, look at Japan its facing this now."

And talking with Market neutral who gets all this too -
"MN

You got it - that's why i keep repeating, this is the 'Enron economy'...the whole economy is a gaint enron debt model, and it works until it doesn't .
"


I also called for this bear market to start on November 1st 2007 - and I haven't turned bullish YET.
http://www.traders-t...;showentry=2019
on swing waves I explained more of what I expected for this bear market -
http://www.traders-t...showtopic=79262



"Sins of the father" Apr 20 2006 - I explained why FED was losing control, and that bear market wouldn't
begin until 2007 - some of this with my friend Greenie. Lots of fun charts of real estate and why it would be cause this.

http://www.traders-t...?...=51664&st=0
In response to Greenie who looking for the bear in 2006,
"2. Stocks - I don't see major bear market this year(2006), I've said elsewhere, maybe a 10%, maybe 15%....barring of course the 'end of the world crash in bond market scenario', likely any drop is recovered by year end - I believe the major decline your looking for will occur in 2007-8...the ultimate 4year cycle fakeout and sentiment shell game."


Charts? you want charts? - here's my very old site with millions of charts and some explaination in 2003 of the 'story so far' of the credit bubble. First couple of charts are quite hilarious, they all are infact, I kept the site for amusement when this thing finally blew up.

http://markdavidson....ame1Source1.htm


I did shut up eventually about all this due to deaf ears, and just changed my avatar to represent the 'reality', and the 'Matrix' still truly has most plugged in still.

Anyway, the bubble isn't over yet, not until the treasuries crash as well, THEN its truly over, this is still the beginning of the bursting.

Mark.

Edited by entropy, 27 September 2008 - 09:00 PM.

Anyway, the bubble isn't over yet, not until the treasuries crash as well, THEN its truly over, this is still the beginning of the bursting.

I don't disagree with you, but would you be willing to put a time frame on the above? And in the event Treasuries are headed for a crash, are you buying gold yet?

Bullshort

My post was deleted even though it was true so, I will actually post Bush's own words explaining why the economy is on the verge of collapse...

Borrowers with adjustable-rate mortgages, who had been planning to sell or refinance their homes at a higher price, were stuck with homes worth less than expected, along with mortgage payments they could not afford.

As a result, many mortgage-holders began to default. These widespread defaults had effects far beyond the housing market.

See, in today's mortgage industry, home loans are often packaged together and converted into financial products called mortgage-backed securities. These securities were sold to investors around the world.

Many investors assumed these securities were trustworthy and asked few questions about their actual value. Two of the leading purchasers of mortgage-backed securities were Fannie Mae and Freddie Mac.

Because these companies were chartered by Congress, many believed they were guaranteed by the federal government. This allowed them to borrow enormous sums of money, fuel the market for questionable investments, and put our financial system at risk.

The decline in the housing market set off a domino effect across our economy. When home values declined, borrowers defaulted on their mortgages, and investors holding mortgage-backed securities began to incur serious losses.

Before long, these securities became so unreliable that they were not being bought or sold. Investment banks, such as Bear Stearns and Lehman Brothers, found themselves saddled with large amounts of assets they could not sell. They ran out of money needed to meet their immediate obligations, and they faced imminent collapse.

This is an intellectually dishonest explanation as to why the American people are being asked to foot a 700 BILLION dollar bailout.
It's because these products were leveraged from 30:1 to 40:1. That's what made the collapse so massive. That's what the American people are bailing out.

The CDO in and of itself, is not a bad product. Had the investment banks been subject to the same margin restrictions that Joe Sixpack Investor is restricted to, the losses would have been small on those products. These products had "AAA" rating because those sub-prime tranches were so small.

The foreclosure abuses would have been rightly contained to those lenders who participated in those abuses, those mortgageholders who took on those mortages and a drop in housing prices more like what happened in the early '90s to the country as a whole.

Edited by milbank, 28 September 2008 - 12:32 AM.

One thing I'm optimistic of is that if Ben Stein can finally get it, there's hope that Joe and Jane will also come to understand what they are really footing the bill for despite how our "leaders" misdirect and sugar coat it.

Edited by milbank, 28 September 2008 - 01:11 AM.

Anyway, the bubble isn't over yet, not until the treasuries crash as well, THEN its truly over, this is still the beginning of the bursting.

I don't disagree with you, but would you be willing to put a time frame on the above? And in the event Treasuries are headed for a crash, are you buying gold yet?

Bullshort

Bullshort I thought interest rates would be trending up from here so I got that wrong already. But I think a crash in treasuries we will be able to 'smell it coming' nearer the time, I don't see it right now. Best guess is that it doesn't occur on this leg of the bear market but likely the trigger for the next, maybe in a couple of years as foreign creditors decide to cash out of treasuries when it clear this 'bail out' was just the first of many, and essentially dollars are going to be worthless as government will have no choice but to inflate out of this mess eventually or default due to weight of debt service - and they always choose to inflate right!

Gold ? good question, I wish i'd bought gold as I told a friend today i'm slightly kicking myself on that one, I adviced family and friends to do it years back but I instead bought sterling again the dollar which has worked nicely, but nothing like the gold trade. If a pullback in gold occurs i'd look to get in sure, but only as a long term investment, I don't have time to 'trade' gold as well as the stock market...too much information to process.

Edited by entropy, 28 September 2008 - 01:11 AM.

Greenie was so very right ?. So was Bob Prechter. So was Hayrake. Hey, don't i miss that DOW crash animation with some fantastic music from Hayrake. Will hayrake get the technical analyst of the decade award from TT ? What's wrong with our good ole Zedor ? . P.S - I will concede these folks are right if and only if the secular bear thesis by Bob Prechter (which later became popular with many prechter clones), will pan out. That means we should take out Oct 02 lows on SPX and one should be able to buy homes at prices less than the so called 2000 Secular top. That means the single family homes would need to decline about 60-70% from the 2005-06 mania top.

Greenie emailed me 'cos he's banned from posting here. He asked me to post his blog, so here it is, hope that's OK -

http://http://www.go...=Google Search/

Mark.