Wednesday, October 8, 2008

a NON-FOOD post

well, if u happen to listen radio or watch news on tv, u will know whats happening over USA recently. It is just so sad that Fannie Mae and Freddie Mac have collapsed and hence being nationalized, then few days after AIG also kena nationalised, JP Morgan Chase repayments, loans to bank via Fed's Term Auction Facility and bla.....

OMG!!!!! USA u think urself very rich??? u are just pushing ur citizenz into a deeper debt!!!! really wanna scold F word!!!

You see I do not believe that we are on the edge of a total collapse. Some key credit barometers, although at fear levels, are actually below the point that they were the other week. For instance the yield on the 3-month Treasury bill is above its low of the other week. I take this as a positive, because if we were really on the verge of a total banking collapse then you would think this would not be the case. It makes me think that this crisis is not as bad as the bailout creators have warned.

Secondly, if the market continues to drop from here we will get a real end to this bear market and a cleansing for the economy that will set the stage for true sustainable and healthy economic growth. Yes it will be tough times for another year for the economy and it would mean lower stock prices in the short-term, but I much rather take this kind of medicine now than have this economic mess continue for another five or ten years and end with a possible hyperinflationary collapse in the dollar. What could lie at the end of a bailout that could means trillions of dollars added to the deficit is a hell worse than what happened in the Great Depression.

The debts for the bailouts so far add up to $1.6 trillion dollars. That is 12 percent of GDP. The current account deficit stands right now at 6.7 percent. In the next two years both figures would likely double if the bailout package had passed. That trend would cause the dollar to drop in value and would bring us to the edge of a bull blown dollar crisis - if not into one. Instead of the banks going down it would be the value of the dollar that implodes - and that would totally wipe out your savings.

No we don't need a bailout. And if you opposed the bailout then you need to call your Congressman right now. Find out how he or she voted and if they voted against the bailout congratulate them and tell them to continue to resist the agents of Wall Street. Buck them up. They will need it in the next few days if the House leadership brings the bailout plan up again for vote.

Last night I said to myself to just forget about the news and look at the charts to figure out where we could go. Well, the market drop is certainly picking up and suggests that we on the verge of a mini-crash. Crashes come when selling gets out of control despite signs up pure panic in the market. The VIX for instance is in the 40's - a sign that there is pure panic in the options market. Internal indicators show extreme selling. By these indicators there is so much fear in the market that it should bottom right now - if it doesn't then the selling would get out of control and morph into a crash with a few more days like what we saw yesterday.

But if that were to happen we would actually see an end to the bear market! We would see a drop similar to what we saw in the summer of 2002 when the Enron and WorldCom news broke and caused huge selling that marked the end of the 2000-2002 bear market. Right now such a selling climax would probably take us to the 950-1000 area of the S&P 500, but such a drop would most likely bring us to the end of the bear market. From there I would expect something similar to what happened after the 2002 bottom to occur - a big counter rally back up and then a retest of the low. We would then see a few months of sideways action and the start of a new bull market sometime next year.

This is what the market would do without a bailout - it would fall another 10% or so - but then bottom and go into a sideways consolidation range that would set the stage for a new bull market.

Personally I much rather see this happen than see a bailout.

if we get a bailout then we'll have a rally here that we really won't be able to trust. Every rally we've have seen the October 2007 top has occurred due to government intervention and each has failed.

A natural bottom would give us a real bottom!!

An artificial bottom simply helps bankers, prolongs the agony of this bear market, and will bring us to a full blown dollar crisis down the road, which will be worse to live through than a credit crunch.

Two hundred of the nation's economists wrote a letter opposing the plan, including former FDIC Chairman William Isaac, but of course you won't hear this on CNBC.

We need a real natural bottom. And if the bailout isn't brought back up and/or we see continued big selling in the market in the following days don't be afraid. I know there would be panic on TV and more cries for a bailout and it'll look scary, but if you ignore the fear you'll know that what you are seeing is a process that will take us to the end of this bear market.

There is light at the end of this tunnel as long as the government doesn't shut the door so that some bankers don't have to realize their losses like grownups.

Call your Congressman to keep it open. Congress voted no against the wishes of the banking lobbies, the President, and the Senate and House leadership that is owned by the banks. They did so because of the voice of the American people. It is proof that we still live in a Democracy. It shows that your voice can count if you use it. You can protect your children and grandchildren and ensure that their generations aren't saddled by debts that they will never pay thanks to the greed of the Wall Street bankers. You can protect the value of your own savings and dollars. You can stand up and act now.

We are on the edge of pure fear and panic when it comes to the stock market. By just about every indicator you may use to measure the market it is extremely oversold and ready for a bottom. The number of stocks below their 20, 50, and 200 day moving averages are at extremely low levels not seen in decades. The ratio of down to up volume on the Nasdaq was over 95% two days last week, hitting 97% last Monday, which is a level I've never seen before. The VIX is above 40 and has been at an elevated level for the past three weeks. According to the Investors Intelligence Survey there are more bears than bulls in the market, which is a positive from a contrarian standpoint.

I read through lots of commentaries and listened to several podcasts over the weekend and just about everyone is saying this. And when it comes to the general public the fear is out there. I have had several people call me out of the blue worried about their retirement funds and mutual funds. These are people who never call me about the stock market.

The fear is growing and this is the type of fear you see at important bottoms. The technical indicators are off the charts.

I do expect some sort of bottom to come in sometime this week, but I am concerned that this bottom may come after a waterfall decline. The fear and panic could morph into terror. This would be something I had never seen happen before, but we saw a glimpse of last Monday.

I believe the President, Treasury Secretary, and Fed Chairman may have created an extremely dangerous situation. All three of them - and throw in the Democratic Congressional leadership - claimed that the stock market would collapse and the economy would go into a depression if the Wall Street bailout bill did not pass. This talk succeeded in terrorizing Congress into caving in to Wall Street and has also disturbed the American people. It has created a sense of unease and insecurity in the United States.

Some desperate people have convinced themselves that all will be fine when the bailout bill passes. FOX News has been running 2-hour news "specials" with titles like "Saving the American Economy" in support of the bailout bill this weekend. If the stock market falls hard in the next few days it is possible that these people will panic. The fear created by those in support of the bill could turn into terror and irrational panic as unreasonable expectations have now been created for what the bailout bill can do.

George Bush played with fire when he gave a primetime speech to the American people in which he said if you do not pass the bill the stock market will crash. He may have created a self-fulfilling prophecy.

I was against the bailout bill, because I do not believe it will fix the situation and believe that it will pile up so much more debt on to the Federal government that we may see a full blown dollar crisis down the road.

We have already seen multiple bailouts this year and not a single one of them has stopped the credit crisis or put an end to the bear market in stocks. At this moment the costs of all of the bailouts totals $17,000 per every single American household. You will pay for this through higher taxes or higher inflation.


The bailout bill is not going to fix the economy. As Reuters reports, "experts say the most important thing that needs to happen before the $700 billion bailout even has a chance of working: Home prices must stop falling. That would send a signal to banks that the worst has passed and it's safe to start doling out money again."

The problem is that housing in the United States is in a bear market and the bear market in housing is not over. There is still too much excess inventory in what were the "hot markets". You can find actual ghost towns outside of San Diego and in Nevada. Take a trip from Las Vegas to Laughlin Nevada and you can go off the main road and find a ghost town.

When the Fed lowered rates in 1998 to bailout the Long-Term Capital hedge fund on behalf of Wall Street they created an artificial bubble in the stock market. They pumped excess money into the economy and that money flowed into technology and Internet stocks. As a result they created an unsustainable bubble and when that bubble burst the Nasdaq went into a two and a half year bear market.

That bear market ran its course despite the Fed lowering interest again to the lowest levels seen in decades. The rates were so low that banks went crazy lending money. As a result a bubble in real estate formed in the United States as speculators bid up the price of condos and homes in a dozen or so hot markets. Prices went to irrational levels and of course when this happens a bear market follows.

That bear market will not end just because the Fed bails out banks. It will end when the excess inventory created by this real estate bubble is slowly bought off the market and prices come down to a level that makes sense from an investment standpoint. Home prices are not going to bottom because people all of a sudden start to throw money at houses with the thought they are going to make a big return when they appreciate in value. The bottom will come when investors can buy properties with the intention of making a profit from renting them. The condo flipping game is over and is not coming back.

We are probably a year away from the bottom in real estate.

What this means is that the bailout bill will do absolutely nothing to help the real economy.

That is why after the bill passed the stock market fell anyway.


For more information u can visit Mike Swanson website.

Quoted from Mike Swanson, WallStreetWindows, retreived 8th October, 2008 from http://www.wallstreetwindow.com/content/node/8095

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