The new found populism of Obama, turning against those bankers who thrust him into power, whom he so richly rewarded in 2009, has inspired a guestblog from G8torbear, a frequent commenter. The Democrats are now in a panic ("no seat is safe! no seat is safe!") and looking to get in front of the mob storming their palaces. First to be thrown under the bus looks like Ben "Helicopter" Bernanke. Will Tim Terrific Geithner be next? And will he be indicted for securities fraud? G8torbear wishes to put some perspective around the idea than Bernanke et al. saved the banking system and the crisis is behind us.
Causa Proxima
by G8torbear
First of all, I believe we are already in the banking crisis. How do you "lose" Lehman, Bear Stearns, AIG, Fannie, Freddi, Merrill, Citi and many others and believe that we are not IN crisis. The gash created in the system is wide and deep. Do you really think Bernanke and crew fixed the system? NOT!! They managed to cover up and gloss over years of stupid thinking ie 30-40x leverage on our financial institutions ... for a few weeks or months. What Prechter sees is a chart that suggests we are on the edge of an enormous financial panic!! (Please note I said financial panic, not stock market crash, all asset classes will be involved in the slaughter.) One of the smartest men I have ever known, Stan Salvigsen, said "it is like a game of musical chairs with only one chair. The game will not truly be over until the winner does not get paid."
Causa remota of the crisis is speculation and extended credit. We have been here for a while.Causa proxima is some incident which snaps the confidence of the system, makes people think of the dangers of failure, and leads them to move from commodities, stocks, real estate, bills of exchange, promissory notes, foreign exchange - whatever it may be - back into cash.
In itself, causa proxima may be trivial: a bankruptcy, a suicide, a flight, a revelation, a refusal of credit to some borrower, some change of view that leads a significant actor to unload. Prices fall. Expectations are reversed. The movement picks up speed. To the extent that speculators are leveraged with borrowed money, the decline in prices leads to further calls on them for margin or cash and to further liquidation. As prices fall further, bank loans turn sour, and one or more mercantile houses, banks, discount houses, or brokerages fail. The credit system itself appears shaky, and the race for liquidity is on!!!!
I will defer to Charles Kindleberger as to the trigger.
As a bear I'll take all the 'up' days like this one that the bulls want to throw at me. A no volume up day, with decliners beating advancers on the Nasdaq and flat on the major indicies.
You don't need EW to tell you that the winds of change are blowing.
If this were two months ago the market would have closed at the highs of the day and bears stopped out in the opening minutes.
Posted by: cloudslicer | Monday, January 25, 2010 at 01:02 PM
Cloud,
I think that fund managers and traders are trying to be patient this week... there really is no reason to be aggressive in front of the State of the Union Address on Wednesday (also FOMC Meeting)which will almost assuredly contain more bank "bashing" and Obama's populist message.
The fact that Bernanke's confirmation vote won't occur until the end of the week tells you that there is even further uncertainty in regards to lining up votes for his support.
As a result, I'm not all that surprised that the market merely treaded water today.
Posted by: Michael | Monday, January 25, 2010 at 01:22 PM
RICHARD RUSSELL: If I’m correct, if this is the beginning or a top-out in a bear market rally, then I can tell you that the fun’s over, and the really bad times lie ahead.
Posted by: Mamma Boom Boom | Monday, January 25, 2010 at 01:36 PM
Ms. Geffreon:
I think Richard Russell is insane. The bear was in the box for most of the 90's as I recall. Someone to fade imo.
Hock
Posted by: Hockthefarm | Monday, January 25, 2010 at 02:20 PM
Kind of hard to argue with this:
"First of all, I believe we are already in the banking crisis. How do you "lose" Lehman, Bear Stearns, AIG, Fannie, Freddi, Merrill, Citi and many others and believe that we are not IN crisis."
Has a kind of William of Ockham ring to it.
Great post by the way,
Hock
Posted by: Hockthefarm | Monday, January 25, 2010 at 02:29 PM
Insane: Exhibiting unsoundness or disorder of mind; not sane; mad; deranged in mind; delirious; distracted.
Does he drool, uncontrollably.
Posted by: Mamma Boom Boom | Monday, January 25, 2010 at 02:31 PM
Wall Street Brokers and Bankers gave over a $$ 100 MILLION dollars to the 2008 Obama Campaign..foolish trade..After a Feb/March top look out on the downside
Posted by: betterdays | Monday, January 25, 2010 at 02:49 PM
In the end, look for BofA, CITI, and Chase to join the ranks of the fallen listed above (CITI) never was buried, it is still living dead.
Posted by: gus | Monday, January 25, 2010 at 04:03 PM
Boomer:
I'm not sure. I had a 1 year subscription to his letter back in the early 90's. That was enough for me. Lots of folks like his insight, including Prechter. Not me.
Hock
Posted by: Hockthefarm | Monday, January 25, 2010 at 09:06 PM
S&P Action: WOW! Just plain spooky.
Posted by: Mamma Boom Boom | Tuesday, January 26, 2010 at 08:40 AM
Evidently, the oversold condition is going to worked out over 'time' not 'price'.
(thyme: Thyme is a well known herb; in common usage the name may refer to any or all members of the plant genus Thymus, common thyme, Thymus vulgaris, and some other species that are used as culinary herbs or for medicinal purposes.)
Posted by: Mamma Boom Boom | Tuesday, January 26, 2010 at 11:18 AM
I would not suggest that ONE DAY of market action is indicative of the "oversold" condition being worked out over time, and not price.
Posted by: JT | Tuesday, January 26, 2010 at 12:11 PM
PRECHTER ALERT!
He's coming on CNBC now at 3:20PM
:)
Posted by: JT | Tuesday, January 26, 2010 at 12:22 PM
Notice that Sue McMahon of CNBC asked Prechter HOW FAR DOWN he thinks that the market will fall, and Bob did not answer the question.
He merely said that all of his indicators are pointing down and that March 2009 was not the end of the Bear market.
He said to wait at least 1-2 years before doing any buying.
Posted by: Michael | Tuesday, January 26, 2010 at 12:32 PM
Big Down or crash by end of next week?
Or is CNBC ,the right hand of democrats pulling a fake-out to the downside ?
Posted by: betterdays | Tuesday, January 26, 2010 at 12:58 PM
A correction is now priced in. Time for a price check on the morrow.
Posted by: Anon | Tuesday, January 26, 2010 at 01:19 PM
Just between us girls, I wouldn't rule out a triple bottom followed by a failed breakout attempt. Then an air pocket!
Any other soothsayers?
Posted by: Mamma Boom Boom | Tuesday, January 26, 2010 at 01:20 PM
Who cares?
Just TRADE IT!
Posted by: Dave B. | Tuesday, January 26, 2010 at 01:25 PM
Dave B., Pipe-Down! (slap..slap)
Posted by: Mamma Boom Boom | Tuesday, January 26, 2010 at 02:04 PM
"I wouldn't rule out a triple bottom followed by a failed breakout attempt. Then an air pocket!"
Spoken like someone that has no idea what they are doing...
Posted by: Prechter Blows | Tuesday, January 26, 2010 at 02:24 PM
Hmm. Read a essay to my son last night that he brought home from school. It explained Ponzi's original scheme and Bennett's later deal that promised 100% return on invetsment instead of 50. Reading that musical chairs quote connected some dots for me and a light came on. Are my circuits faulty or does our whole economy seem like some megalonomic (yes I made that word up) complicated twisted ponzi scheme? You can only build so much wealth out of debt, inflated asset values, and unsustainable promised returns. The essay described it as a "house of cards." Oversimplified I know, but I couldn't resist putting it out there. Same mix of driving forces anyway.
Posted by: Alison | Tuesday, January 26, 2010 at 04:55 PM
That is about right Prechter Blows.
The sad thing is that this market will probably cave in eventually - but Jesus - "air pocket" -
Alison - tell me you are not about to do something stupid - like investing because you read the wrong essay from your kids school??
Wow - Prechter sure did get his pound of flesh - on CNBC, too - doesn't matter to him if he is right, as long as his subscription base goes up. When he is wrong about the timing, he will just come up with a new pitch.
Joe
This market will eventually give -
Posted by: joe | Tuesday, January 26, 2010 at 05:45 PM
Joe, Nah, but hanks for your concern. Ha! I manage my gov thrift savings plan account (index fund investments, S&P 500 etc.) based on market news, gestalt, and blogs like this- so far I've never fallen below a 7% annual rate of return, not even over the past 3 years, a couple of months ago I was at 9% for the past year so I think I'm doing OK with my strategy. That was just a philosophical megatrend musing that maybe wasn't in step with the scale, or primary purpose, of the blog thread. I have a PhD in Ecology, never read an economics book or took a class in my life. But I am trained in critical thinking and have studied many types of models, my favorite being multivalent set theory (fuzzy logic), so market economics are very interesting, more so every day.
Posted by: Alison | Wednesday, January 27, 2010 at 12:46 PM