In 2005, I published a post about an "imminent" GM bankruptcy. I republish the post, not to congratulate my clairvoyance but rather to point out two key lessons that investors can use to analyze any situation.

According to Jonathan Weil at Bloomberg,

His current database indicates the only historical precedent for the current stock market decline is the 1930 - 1932 time period. And according to all five legs down during that time period, the current market has run out of time and is due for the next leg down. Based on a similar analogy, the S&P 500 could decline to between 420 - 700. The following chart shows the various scenarios from that time period.

So the bottom line is we're making loans. We want everybody to know it. I mean, we even have banners hanging on the outside of our branches, saying we're making loans. And so if you see somebody that says, they can't get a loan, give them my number.

-- Kelly King, CEO of BB&T

Not as widely discussed were the import/export component of GDP. Net exports added to the GDP calculation, which is good. However, that's only because imports fell even more drastically than exports fell. And that's not particularly good for world growth. Demand all over the world is falling off a cliff. Therefore, statistically, Q4 may NOT be the low for the economy, as some are hoping.

For instance, if the government just buys the assets from the banks and leaves existing management in place, then the shareholders win. The government will essentially be buying toxic assets at an above market value and putting the burden on working out the problems and taking the losses on the government.

The following are Blinder's six mistakes that could have been avoided as published in the International Herald Tribune:

The following chart has been widely distributed now thanks to Henry Blodget at Yahoo Finance, nakedcapitalism and Nouriel Roubini, among many others. It shows the ratio of domestic debt to total US Gross Domestic Product - comparing the total amount of debt outstanding to the gross economic output. Right now, the amount of debt outstanding is staggering relative to our nation’s economic output.

"TCF did not engage in the activities that have created so many problems in the financial industry,” said William A. Cooper, Chairman and CEO.

However, that premium multiple relative to the group is beginning to erode in a phenomenon known as "multiple compression." Wells Fargo has underperformed the other bank stocks since the beginning of the year. Wells is down 37% vs 23% for the group since December 31st.

"Anyone else have their hand out? - Lewis Black

With the announcement Friday morning that Bank of America (BAC) is getting an additional $138 billion, the bailouts have reached a level beyond absurdity. Has anyone at the Treasury noticed that the market value of Bank of America is only $41 billion right now?

There is nothing more difficult, more frustrating and more expensive than to keep a corpse from sinking" (Peter Drucker)

In bailing out Citigroup (C) a second time (as you recall, Citigroup just received $25 billion from the TARP in October), the government has started the process of creating a bigger problem than the one it is trying to solve. What problem could be bigger than the complete meltdown of the United States' financial system? The complete bankruptcy of the United States.

I ran across Martin's work in my original studies of market and economic cycles after the NASDAQ bubble began to burst.  While I didn't know it at the time, his Economic Confidence Model encapsulated all the cycles from Kitchin's to Kondrateiff's and could predict market turns almost to the day.  I was fascinated enough to cut and past a copy of his article, "The Business Cycle And The Future" from his Princeton Economics web site.  Little did I know that nine years later, Martin would be in jail and my blog would be one of the last public sources of his Business Cycle essay. 

If you assume that we don't enter a depression and the companies could actually get financing right now, a stunning number of high quality companies - companies with high cash flow and relatively low debt - could take themselves private at today's prices.  Obviously, the assumptions of the screen are unrealistic currently.  If General Electric (GE) is paying Warren "Loan Shark" Buffett ten percent interest rates, then most other companies won't be able to find financing.  But that's beside the point.  At these prices, many quality companies are cheaper than they have been in history.  Money is still available - it's just scared and sitting on the sidelines.  If we see any return to stability in the financial system, many of the stocks on the list could see 25% - 50% upside just by a return to median multiple.        

Well, according to BusinessWeek, it turns out they didn't avoid the risk, they just thought they had hedged it with credit default swaps. Credit default swaps (CDS) are a great way to protect investments provided that the counterparty you entered in contract with is able to honor its obligations. However, most of the CDS were written by AIG (AIG). 

First, the LIBOR for three-month loans in dollars dropped for a fifth day, sliding 8 basis points to 4.42 percent.  LIBOR is the rate at which banks lend to each other for short term loans.  It declined 40 basis points this week.  While it's not much, it's better than seeing it continue to rise.   

If the analogy were to continue, last week's sell off should mark a temporary bottom, with the overall market staging a dramatic rebound.   After the initial surge, the market will basically stay in a trading range until it re-tests the recent lows over the next 12 to 24 months.   The next two years will be a tough environment for investors, a better one for traders.