Stock Market Blood Bath

[concretist]

It's going beyond the worst predictions. A few months back I said 8,000 would be the bottom, and a lot of people told me that was ridiculous. Sad that I am wrong in the wrong direction.

The next stop is deflation. The US economy is about to right-size itself, which is bad news. As a functioning economy, this country just plain flat doesn't work. The whole thing has been built on debt, and there is little going on that generates sustainable wealth. We could be looking at staggering unemployment, as millions find out that their jobs were financed by pipedream money.

The cycle has been sickening. "Free" trade lets us take all our borrowed money and use it to buy cheap stuff, which has been destroying our manufacturing base. Countries need to protect certain parts of their economy, unbridled free trade is as bad as over-protectionism. Clinton had the right balance between the two, Bush, on the other hand, is a Free Market Radical, a nut who should have never have been made president. His cowboy-pawnshop-capitalism was great for his rich friends, but for the rest of us, it always meant eventual ruin. Can you just imagine if the Republicans had had their way and managed to "privatize" Social Security?

Unless a nation can take raw materials, convert it into greater-value finished goods which it can sell to the markets at a profit, it is not creating actual wealth - instead it is enjoying wealth created by borrowing or by bringing their manufacturing base and the wealth created by prior generations to the pawn shop. I have been saying for three years that it cannot last forever. That time has arrived. We need a moon-shot style program to develop an alternative to foreign oil - an easy one given that we have natural gas to fuel automobiles and nuclear and coal to produce electricity. Republicans are going to have to accept taxes on foreign gasoline so we can make domestic sources competitive.

We need to make massive cuts in our government military spending, and put the money into revitalizing our economy. We need to make Social Security and Medicare means-tested. We need to end NASA, a huge waste of money, and put it into real industries. We need to make a giant leap in robotics, which is the only way we can defeat the advantage of Chinese labor. We need to make all higher education free of charge for those who can do the work. We need a single national health insurance company. We need massive, massive change.

On the same day that we discuss dumping the largest single manufacturing base in this nation our markets reach 5 year lows, Unemployment hits 16 year high, consumer confidence is at record lows, Purchasing Managers reports show record slowdowns of orders.

At a time when manufacturing is the ONLY source of muscle to grow this economy with any degree of volume, some folks want to cut it down at its knees. No economy in the world can recover with services only recovery. We can't make a recovery simply by pushing money around or pushing bits around. If we are not PRODUCING, we are a consumer economy. And a consumer economy will not grow long term. We have watched that bubble pop.

The couple of Trillion bucks that we are waving around at the financial sector, while blowing off the auto industry and the couple of million folks that it will impact is nothing compared to what is going to happen if this economy goes into depression because of a collapsed manufacturing base. This is not some silly parlor debate. The stakes are staggering.

Every 2 MILLION jobs that do not FAIL at this point in time are jobs that PRODUCE growth in this economy. Every 2 MILLION jobs that do fail are jobs that destroy this economy. Cities and States are already lining up at the US Printing Shop waiting for money as their tax bases are looking bleak. Their unemployment rates are skyrocketing and their revenue projections are down for 09-10. Add 2 Million more to that mix and the dominoes will start falling quicker and quicker.

Not doing EVERYTHING to fix this NOW is just weapons grade stupid.

[LH_Newbie]

With all the news shifting to grim reaper mode - historically, this should be the time to buy.

In January, when I can put back into my 401K again, I am cranking up my percentage to the maximum allowed by my company. We're also fully funding our IRAs. Buy low, sell high. We are trying to tighten the belt so we can pour more into the markets. If you have time to ride out the market - I personally believe buying at these levels will prove to be a wise investment. We're in that "under 40" category, so we're trying to be as aggressive as we can.

Brian

[concretist]

With all the news shifting to grim reaper mode - historically, this should be the time to buy.

In January, when I can put back into my 401K again, I am cranking up my percentage to the maximum allowed by my company. We're also fully funding our IRAs. Buy low, sell high. We are trying to tighten the belt so we can pour more into the markets. If you have time to ride out the market - I personally believe buying at these levels will prove to be a wise investment. We're in that "under 40" category, so we're trying to be as aggressive as we can.

Brian

Probably a good conservative approach. Strangely, this was the best week in the market i've ever had -- bought SKF (etf ultrashort) wednesday morning and sold it thursday at close. I've been short this market on the financials since March and done well.
The blame for our current situation IMHO rests primarily in the ratings agencies who put AAA ratings on CDS's that were tranches of guano. There are ways to blame every politician of the last century, but if the ratings agencies acted in a responsible way and accurately assessed the risks in these derivatives we would not be in this situation.
I do believe the various politico's, the Treasury, and the FOMC, have been grossly incompetent in many areas, and in myriad ways, but again if the ratings agencies do the right thing, we're talking housing slowdown, not worldwide debacle.

[RobertB]

With all the news shifting to grim reaper mode - historically, this should be the time to buy.

In January, when I can put back into my 401K again, I am cranking up my percentage to the maximum allowed by my company. We're also fully funding our IRAs. Buy low, sell high. We are trying to tighten the belt so we can pour more into the markets. If you have time to ride out the market - I personally believe buying at these levels will prove to be a wise investment. We're in that "under 40" category, so we're trying to be as aggressive as we can.

Brian

Yeah, baby!

I'm in the strange position of celebrating every drop in the markets. I took out large loans against my 401(k) (in a vain attempt to remain married) when the market was high -- which counts as a "Sell". I've been paying on that loan out of every paycheck -- a "Buy". So as the market chugs down the hill, I'm buying like crazy without even trying. The only thing I should have done earlier is to move all the investments to Indexed Funds, which track the averages directly and don't have exorbitant "management fees".

[mjblazin]

You are confusing finanial transactions with the service economy. Teaching someone how to use a machine, tracking location of spare parts to a machine, sending people to repair a machine, designing new machines, maintaining the trucks that take the people to repair the machine, etc, are just as valuable as the original effort to make the machine.

One other cause preceded the ratings issues: the huge appetite of the gigantic pension funds worldwide to find investments that could support the benefits promises. Money poured into these funds from baby boomers and the managers needed nominally high grade investments with above average return, things that can't exist by every rule taught at business school. That voracious and illogical appetite spawned inventive efforts to create silk purses from sows' ears. It was at that point that the ratings agencies stepped into the game to bless the results.

[concretist]

The evolution of the economic crisis is getting very interesting. Increasingly, banks are buying government bonds. To a degree, the banks are getting out of the business of being like highly leveraged hedge funds. Instead they are loading up on government bonds. On the other hand, governments, in particular the US Government, are taking over the role of highly leveraged banks and high risk hedge funds. The source of new liquidity to the economy is leaving the private sector and being taken over by government. This is an interesting turn for the United States, a nation that was established on the principle of limited government.

Private Sector Deleveraging

The brutal forced asset liquidations and hedge fund selling continues at all levels of the private sector, from the individual consumer to the largest investment banks. It is difficult to estimate, but noted adviser Marc Faber mentioned a figure of about $30 Trillion in equity asset losses globally this year alone plus other types of asset losses which may in total be as high as about $100 Trillion1 . The level of these private sector losses in asset values has been staggering.

Against this trend of asset value losses is the massive monetary stimulation of global central banks. Below is a chart (courtesy of Chris Puplava of Financial Sense) of US Federal Reserve Assets2 . See also the two diagrams below (courtesy of Bud Conrad of Casey Research3 ). Although escalating to very high levels, the collective monetary stimulation of central banks is still an order of magnitude less than the extent of asset value losses.

http://www.financialsense.com/editor...2008/1205.html