Which banks are weakest?

Matt at Discursive Monologue compares the banks' mysterious black-box "level 3 assets" with the value of shareholder equity, to give an idea of the scale of the risk the investor in financial stocks may be taking.

Turkeys should note that Thanksgiving is on November 22 this year.

Mutts of the Dow

Greg Silberman suggests buying cheap, small-cap US stocks. Shades of Sir John Templeton's founding investment at the start of WWII?

Pioneer work ahead

Nigel Maund (November 5, republished in SafeHaven Nov. 12), after a florid beginning, concludes that gold must rise and the dollar must be defended with heavy interest rate rises:

...gold's great bull market will be the harbinger of a major global recession or, more probably, a depression brought on by a sequence of massive defensive interest rate rises required to support the dollar in its pre-eminent position as a global currency, with all the benefits, political and economic, that this brings to the USA.

Riding the waves

Eric Chevrette shows how the chartists can read the same pattern in radically different ways. His view is that the US market is due to go up, not down - though the declining dollar still makes other regions and assets look more attractive.

To what extent can one sensibly make predictions from the line alone, instead of interpreting it in the light of theorized underlying causes?

Financial liquidity for dummies

At last, somebody spells it out for us. A testy (which I like - the man is clearly genuine in his desire to communicate) article on how the Federal Reserve influences interest rates, and the important distinction between permanent and temporary cash injections. Karl Denninger ("Genesis" of Market Ticker) reads between the lines and suspects a bank has been caught short in the bad-loan imbroglio.

He also directs us to a useful blog ("The Slosh Report") on Fed Reserve liquidity operations, and the Fed's own funds site, which you can find here.

Denninger is rightly outraged at the cynical abuses of the financial system, and quite emphatic that US real estate will have to devalue by 30% - 50%. He has set up a petition, sadly limited by its nature to US citizens.

And a video, though I find the use of nuclear explosion imagery counter-productive (I've momentarily forgotten the psychological term for this, but it's a "never happen, Cap'n" response to terrible imaginings).

America will survive

Mark Twain claims not to be dead, May 1897

Wifred Hahn (SafeHaven) gives his reasons for thinking that, post-bubble-burst, American fundamentals will improve, at least for a while.

Is the US going through a bit of slow-down ... a bit of currency trashing? Yes, of course. It is deserved. But economic adjustments will now occur, feeding through to other world economies. Gradually, the trade (non-energy) deficit will shrink. Once foreign equity markets begin declining significantly in anticipation of a slowing global economy and the USD has put in a bottom, it is possible that a torrent of foreign-invested portfolio capital will return to the US. Some estimates put the value of this foreign investment at over $1.5 trillion (and rising as the US dollar falls.)

From our perch in Canada, the next few months likely present the lowest risk buying opportunity of US dollars in at least a century. US "large-cap" companies with significant overseas operations are also attractive on a relative global basis as these are best able to weather an economic slowdown. America will survive for a few years longer.

Real cycles

The number 11 bus, or Outer Circle, takes about two hours to go round Birmingham. Years ago, it was regulated by Bundy clocks at various points on the route. However early he arrived, the driver would have to wait for the correct moment, insert his key, then continue with his journey.

With any routine, selfish habits creep in: the consumer pays, but the service revolves around the provider. Even in the coldest weather, the driver, shut in his heated cab, would leave the passenger door open at each stop, including the long pauses at clock stages; this saved him having to punch the control for the door if a new fare should arrive. If the driver got hungry, he might pull up outside a fish and chip shop and get a hot meal to eat off his dashboard as he drove. On the 16 route, there was an green-painted cast-iron Victorian public urinal just off the Soho road, where the driver would stop off when he felt the need - leaving the bus door open, as usual.

"As above, so below", the alchemists said; and vice versa. I read a long time ago how British elections tend to be timed around economic boomlets; and more recently, how the American economy revives every four years to fit the fixed-term Presidential elections. Among stockbrokers, it used to be said "Sell in May, and go away", so the market suited the requirement for gentlemen to relax in summer; and see how even now, the Dow and the FTSE rise towards the end of the year, when traders' annual bonuses are calculated - the Tech boom of 2000 being an excellent example.

The doomsters don't tend to set timetables - maybe they've learned that from the Jehovah's Witnesses (I don't know how often The Watchtower showed us that the end was possibly going to come very soon - a favourite image was a runaway train heading downhill to a bridgeless chasm). So I'll my neck out instead and make a prediction: the Dow will rise until bonus time, then flutter nervously until the 2008 Chinese Olympics; then there's the US Presidential election to get through; then we'll have the reckoning. A new president will be able to say, "I've had a look at the books, gentlemen, and I hadn't realised how badly the company was managed." And at last, the corrective process will really begin.

That's my chance to join the ranks of the comprehensively wrong. Place your bets.