Dow 4,000?

We think we will see 10-12% unemployment, a 4-5% decline in GDP, and the equity markets could drop at least 70% from peak to trough.

J. Kyle Bass of Hayman Advisors, 14 October 2008. (htp: "Dearieme")

This source reckons LIBOR is out of sight, not because of counterparty worries, but because banks simply haven't got the money to lend.

Less pessimistically - just - George Slezak (quoted on Jesse) thinks the Dow could possibly go as low as 6,000.

Financial self-education

Watch Paul Grignon's "Money as Debt" video:

... and see here for Chris Martenson's online "Crash Course" (a condensed version of his "end of Money" seminar).

(htp: Yoyomo)

If these teach you anything, please pass them on!

The importance of correctly predicting liquidity movements

A hedge fund manager (Andrew Lahde) says farewell to the industry (extracts):

Recently, on the front page of Section C of the Wall Street Journal, a hedge fund manager who was also closing up shop (a $300 million fund), was quoted as saying, “What I have learned about the hedge fund business is that I hate it.” I could not agree more with that statement. I was in this game for the money. The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.

I will no longer manage money for other people or institutions. I have enough of my own wealth to manage. Some people, who think they have arrived at a reasonable estimate of my net worth, might be surprised that I would call it quits with such a small war chest. That is fine; I am content with my rewards. Moreover, I will let others try to amass nine, ten or eleven figure net worths. Meanwhile, their lives suck. Appointments back to back, booked solid for the next three months, they look forward to their two week vacation in January during which they will likely be glued to their Blackberries or other such devices. What is the point? ... Throw the Blackberry away and enjoy life.

...I truly do not have a strong opinion about any market right now, other than to say that things will continue to get worse for some time, probably years. I am content sitting on the sidelines and waiting. After all, sitting and waiting is how we made money from the subprime debacle. I now have time to repair my health, which was destroyed by the stress I layered onto myself over the past two years, as well as my entire life – where I had to compete for spaces in universities and graduate schools, jobs and assets under management – with those who had all the advantages (rich parents) that I did not. May meritocracy be part of a new form of government, which needs to be established.

On the issue of the U.S. Government, I would like to make a modest proposal. First, I point out the obvious flaws, whereby legislation was repeatedly brought forth to Congress over the past eight years, which would have reigned in the predatory lending practices of now mostly defunctinstitutions. These institutions regularly filled the coffers of both parties in return for voting down all of this legislation designed to protect the common citizen. This is an outrage, yet no one seems to know or care about it. Since Thomas Jefferson and Adam Smith passed, I would argue that there has been a dearth of worthy philosophers in this country, at least ones focused on improving government. Capitalism worked for two hundred years, but times change, and systems become corrupt. George Soros, a man of staggering wealth, has stated that he would like to be remembered as a philosopher. My suggestion is that this great man start and sponsor a forum for great minds to come together to create a new system of government that truly represents the common man’s interest, while at the same time creating rewards great enough to attract the best and brightest minds to serve in government roles without having to rely on corruption to further their interests or lifestyles. This forum could be similar to the one used to create the operating system, Linux, which competes with Microsoft’s near monopoly. I believe there is an answer, but for now the system is clearly broken...

(htp: Michael Panzner)

All the Earth's water and air (by Adam Nieman)

We're back to last Thursday

The Dow has closed at 8,577.91, 733.08 off its start today. My amateur trend-drawing suggests that it's now back into its midstream; but then there's often an overshoot.

However, for those who do have money and also a long view, maybe it's not a bad price.

Deflation hasn't happened yet; interest rates to rise, eventually

Jesse argues that we're not yet in a deflation, technically speaking; it's "the transfer of wealth from one asset class to another". So the money is merely changing pockets.

But after that, he expects (as I suggested yesterday) gold to rise sharply: "the move in gold will obtain explosive momentum from which a major rally leg will occur as the banks lose control." The euro, too, he thinks; and oil will stay high. So he concludes that when the pent-up liquidity starts to flow in the system, the US will have to raise interest rates to prevent a relative decline in the dollar.

A future case for impeachment?

The threats:

htp: Karl Denninger

The result:

At least $125bn is to go to nine of America's largest banks, including Citigroup, JPMorgan Chase and Bank of America, in exchange for capital under the rescue plan.

The power:

(9) TROUBLED ASSETS-

The term `troubled assets' means--

(A) residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before March 14, 2008, the purchase of which the Secretary determines promotes financial market stability; and

(B) any other financial instrument that the Secretary, after consultation with the Chairman of the Board of Governors of the Federal Reserve System, determines the purchase of which is necessary to promote financial market stability, but only upon transmittal of such determination, in writing, to the appropriate committees of Congress.

...not "prior approval", you'll note. For those that think they understand law, here is the full text of the genetically-modified bill as enacted on 3rd October 2008.

And here's an intriguing clause in Section 119:

(2) LIMITATIONS ON EQUITABLE RELIEF.—

(A) INJUNCTION.—No injunction or other form of equitable relief shall be issued against the Secretary for actions pursuant to section 101, 102, 106, and 109, other than to remedy a violation of the Constitution.

Excuse my ignorance, but is this a watered-down version of the infamous "non-reviewable" Paulosn proposal ("Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.")?