Big 2008 events and 2009 thoughts (ZT)÷÷
2008 “Highlights”: The Dow dropped ~34%, worst year since 1931 The S&P 500 dropped ~39%, worst year ever The NASDAQ dropped ~40%, worst year ever Median home down 13%, worst year ever (since tracking began in 1961) Household wealth dropped by $10T (biggest loss ever) US markets saw the highest period of volatility in 100+ years Unemployment (even the fictitious government numbers) hit a 26 year high US national debt highest ever ($10.56T, up 14.5% YOY) Total US Debt (excluding unfunded pensions/medical) highest ever ($53T = $700k per family of 4) A country (Iceland) “failed” The largest insurer (AIG) failed The two largest mortgage issuers (FNM/FRE) failed The largest S&L (Washington Mutual) failed The two largest investment banks (MS/GS) failed The largest (remaining) subprime lender (IndyMac) failed The largest auto maker (GM) effectively failed The PBGC is now insolvent The FDIC is now insolvent The SEC looked the other way on blatant fraud, even when painstakingly documented (Madoff) Bond ratings were proven worthless (always were, but now everyone knows it) Investors started pricing in a Treasury default Securitization market seized up (and could remain that way for a long time) Muni market seized up (and could remain that way for a long time) Corporate debt market (esp junk) seized up (and could remain that way for a long time) The Fed/Treasury committed $8T ($2.3T already spent) without any appreciable benefit The Fed demonstrated it can expand its balance sheet without any apparent limit (or oversight) The Fed/Treasury successfully blocked every FOIA request from taxpayers/citizens The Fed/Treasury became the lender of “first” resort The Reserve Bank of Zimbabwe commended the Fed on its approach (I LOVE this highlight!) Those least deserving of a bailout received one
Some sobering thoughts for 2009 and beyond: Derivatives ($650 Trillion) have only experienced minor counterparty failures (so far) The largest Ponzi scheme (worldwide fiat currencies) hasn’t collapsed (yet) The 2nd largest Ponzi scheme (fractional reserve banking) hasn’t collapsed (yet) The 3rd largest Ponzi scheme (Medicare) hasn’t collapsed (yet) The 4th largest Ponzi scheme (Social Security) hasn’t collapsed (yet) The “Alt-A” (aka “liars loans”) bubble hasn’t burst yet (>$500B of opt-ARMs to recast in 2009-2012) Housing inventory continues to rise (~12 months now) adding more pressure to prices Over half of the mortgage “workouts” default again within 6 months More hedge funds will fail More money market funds will fail (i.e. “break a buck”) More insurance companies will fail 200,000 retail stores are expected to close in 2009 More municipal bankruptcies are expected for 2009 Unemployment will worsen Most large pension funds (i.e. GM) are now hopelessly underfunded TARP legislation allows suspension of “mark-to-market” TARP legislation allows suspension of reserve requirements Every corporation is now “too big to fail” Every corporation can now become a bank, even if they don’t resemble one (AmEx) Most corporations can’t afford to roll their existing debt The most toxic assets are kept off-balance sheet, hidden from investors No income statement or balance sheet is trustworthy Foreigners are still buying T-Bills at 0.1% and 10-yrs at 2.2% Foreigners are still accepting US Dollars as payment Markets are still expensive by all traditional measures (P/E, yield, etc.) The Dow/Gold ratio is still a “lofty” 10 (historic bear market lows are in the 1-2 range) The deficit may approach $2T in 2009 We seem to quickly be crossing the Rubicon from (what was left of) capitalism to fascism/communism The IMF hinted it might print its own money The Fed hinted it might issue its own bonds The Fed is way beyond its original charter; Congress stands aside and watches Many households are insolvent but haven’t realized it yet Many corporations are insolvent but haven’t realized it yet The government is insolvent but hasn’t realized it yet Finalthought: When the excesses are an order of magnitude (or more) beyondthose leading up to the Great Depression, why shouldn’t we expect thepain of the correction to be an order of magnitude worse? |