Sunday, September 21, 2008

Wall Street to Close

Paulson and Bernanke can pull the strings and control the banking and financial markets, but they really can’t do much with the stock market without destroying it. Even in a poker game, change the rules in the middle of a big hand, the game is pretty much over after that, you're going to lose.

Foreign investors will be repatriating their funds back to the homeland next week. We were nice enough to insure everyone. It’s called the “Leave no foreign investor behind" plan. The international value of the dollar (the soon to be American Peso) is in question right now. The Treasury auction this Tuesday could be an eye opener. One percent interest when you’ve just written a blank check (backed by the full faith and credit of a printing press) seems a little paltry.

Cash is being sucked out of the country. It might be possible for Congress to save our FDIC insured accounts and maybe the private 401K retirement plans. But we can’t be the lender of last resort for the whole planet. The rest of the world has to take a big hit in order for us to survive. Here’s hoping that Congress drags their feet on this bailout (give the foreign banks some time to collapse).

Over the last 6 months, we have been watching mutual fund runs, bank runs and hedge fund runs. They have all been controlled by Ben and Hank with massive cash infusions. Wall Street is a different animal, it can't be controlled in the same manner.

This week, look for a serious drop in the DJIA of 4,000 to 6,000 points and the close of the stock market for a week or two. Never happen? Well it happened in 1914 for 4 months. Several things are at play and things are snowballing at a fast rate. Major market-makers for the exchanges might be real scarce. Most people have sensed something is seriously wrong with the markets and are heading for the exits (even the President said so). With the automated computer trading system in place, this could be very fast and furious,--sleep late and wake up broke.

Monday morning at the brokerage houses you’ll hear; “Sell everything; I didn’t sleep a wink the whole weekend.” It will be a group effort. The weekend to weekend adventures of Bumbling-Ben and Monkey-Wrench-Hank have stressed everyone passed the breaking point. If it isn't in your wallet, Ben gets to spend it!

Copyright 2008 All rights reserved


Anonymous said...

I know people are unaware. People at my work place were excited the market bounced- meaning they still have their retirement funds in S & P types- and my husband said a guy making 6 figures at his office was in denial and said he didn't think his fund had really lost any significant $- we're all watching football on TV today and we all went out to eat last night. My question is if it is end game next week- what happens next?
I am interested in your real opinion of how much this will truly affect our day to day lives... I have been reading and learning from your posts for a while now... at least we are out of the market because of internet blogs- honestly, if we had not been reading blogs we would probably been still "hanging in there".
thanks, Catholic girl

Jim in San Marcos said...

Hi Catholic Girl

The tide is coming in and Ben and Hank are trying to save their sand castle. The final outcome isn't in doubt. The whole world has lost an awful lot of money. In 1929 our government had very little debt and survived. That isn't the case today.

Everyone with savings has probably lost 50% in this fiasco. Or if you use government math, they will print the 50% lost and you will be whole again. Everything will cost twice as much.

The thing to notice here is that the people who have been saving for 40 years are the ones who get ripped.

The under 30 crowd probably has little in actual losses. It's the retirees that get the shaft on this.

Hang in there, I hope I'm wrong on this one.

Anonymous said...

I find it very interesting that although the market came screaming back on Thursday and Friday, the giant bump in gold prices held fairly firm. That's very telling.

Anonymous said...

If you have a large garden and skill in canning and are prepared to defend your garden from those that cant afford food .....

in ct there are people that run modest stores talking about the rampant shoplifting of food couple that with the innovate ways of draining fuel tanks particularly those of SUV's and pickups (battery powered drill and large drain pan in the dead of night) siphon hose doen't work in modern fuel systems with out jobs people will do what they need to to feed there kids and get to minimum wage jobs those that are lucky enough to have oneixvvvb

watchtower said...

I ran across this on Wikipedia about the Russian ruble crisis of 1998 and wondered in your opinion if it would have any correlation to the present state of the U.S.'s problems?

"Annual yields on ruble denominated bonds were more than 200 percent. The stock market had to be closed for 35 minutes as prices plummeted. When the market closed, it was down 65 percent with a small number of shares actually traded."

Jim, I guess what I'm asking is whether or not there would be any benefit in studing the Ruble collapse or would it not be much help considering that Russia is a communist country with different circumstances at work.
Well maybe what I'm really getting to is: do you think it is possible for our U.S. dollar to collapse like the Ruble did because of all these bail out shenanigans?

Jim in San Marcos said...

Hi Watchtower

What happens next is very uncertain. When Congress is asked to pass a bill with entitlements larger than the yearly budget in one or two days, kind of boggles the mind with its absurd size.

The government is going to screw this up royally, its a given.

We've had the train wreck, this is triage center for the injured. Your bank balance will indicate how bad your hurt.

It's still too early to try and guess the end results. Sorry for being so evasive.

Tyrone said...

7:00PM PDT:
Asian markets opening up in positive territory. US futures are down. Should be interesting in the morning.

I'm mostly out of the crap market, but surprisingly, the folks at work are clueless and they are "in it for long term"--I guess that makes it "all right". BWAHAHAHA

The Good Life said...

I've said it for about a year now, and I still think it is in the process of happening.

Once the govt realizes there is no other way out, they are going to start letting inflation run rampant.

Inflation is already much higher than they will admit, but it is probably going to go through the roof for a couple of years.

That will hurt those with savings and it will be especially hard on retirees.

Hang on, it will be a wild ride.

Anonymous said...

My wife and I have worked hard to live below our means and save money in CD's and savings accounts earning respectable interest. We're quite proud of this.

Now I feel we are screwed. How can we preserve the value of this money? Should I go out and buy something with intrinsic value like bulldozers, used Porsches, or collectible firearms?

I can almost kick myself for living nearly debt-free.

Jim in San Marcos said...

Hi Goodlife

I think you looking at it backwards. The Gov is printing money which is causing inflation which they under report.

In order for investors loan money they need a reasonable return like inflation + 2 percent. This is not what we see now. Something is keeping the market from seeking realistic returns.

It seems like everyone is flocking to treasuries for safety and not return. lets face it a lot of business's have over 100k payrolls each week. You don't dare keep it in a bank.

I think what we are looking at is a financial traffic jam. i would expect to see interest rates go up to at least 7%. At that point retirees might see some relief.

As for the Wild Ride, we have left the gate. 700 billion for one ticket is a bit steep. Enjoy the
Look for interest rates to shoot way past 7%

Thank you for your comments

Jim in San Marcos said...

Hi Anon 7:34

Don't change what you are doing. Keep your present plan. Cash will be King. So you may get some very good buys in the future. I see luxury cars and rental properties being given away two years from now. Just two rental properties paid off and bought cheaply could be a reasonable retirement income.

I wouldn't recommend changing everything just because of what you read here. Look for investment advice from those that are doing what you would like to emulate.

Thank you for your comments and the best of luck to you.

Brian said...

Its interesting that some of the major beneficiaries of the S&L bailout are among the highest ranking governors in the Country right now.

John McCain was one of the Keating five - deeply involved in the chicanery which went on in the 80's. George Bush's brother was running one of the failed S&Ls which was bailed out.

Can we expect our next generation of candidates to include those being helped out in the current situation? Will Mozillo be the next POTUS after McCain/Obama fizzles out after four years?

Shankar said...

If the yields rise above 7%, wouldn't it be good for anyone in cash at that point?

At least you might get a higher return on your cash holding.

As debt gets deflated, the real money becomes important.

comrade ks said...

The biggest problem right now is uncertainty. The rules are being rewritten. It is impossible to know what is likely to happen next.

IF there is a printing frenzy (as seems likely if this crazy bill gets into law), then large inflation might occur. However, IF the deleveraging is allowed to continue, deflation is the most likely outcome.

We are stuck waiting for the Washington clowns to decide which way it will go.

Whatever these idiots do, they will f it all up. It would be nice to know which way they decide. Then we can all place our bets accordingly. Until then, all bets are off.

I'm Not POTUS said...

Hi Jim,

What we have here is a classic prisoners dilemma here. The other Central Banks and SWF are so deep into the dollar that they see no good choices. Leaving the dollar or sticking with it are the choices. The US has been campaigning that the choices are equal so stick with what you know because it will be a mess one way or the other.

The question will be who and when will decide otherwise. I pick Russia. When??? who knows, If I were them I would do it between Nov 4 and Jan 20.

The Good life said...

I think you misunderstood me, Jim.

I didn't mean interest rates would drop.

I think we are going to have very high interest rates and very high inflation, ala the late 1970s.

From 1979 to 1981, prices increased 40% and mortgage interest rates were about 15%.

You and I can agree to disagree, but I think it's coming.