GKM

The Coming Crash of 2008: A Result of Overleveraging

drmlaka I think you've nailed. it.

This is what's going to happen today (in about 40 min). The Fed will cut 100 bps. The market will explode higher, especially crude and gold. The dollar will absolutely crater. This will look great. For a while. Then folks will wake up and see what they have done and the party will be all over but for the hangover. The Fed is going to throw the party for Wall Street and Joe Public will get to deal with the aftermath.

Bear markets do not finish like this and its been that way since the beginning of time. Bull markets in oil, gold, and Euro do finish like this as time will shortly show.

The Real Story on Countrywide, Cont.

They talk about "the smartest guys in the room" but you, Herb, are the smartest guy here without a doubt (of course some offer no challenge).

There is without question some sort of back room deal by BofA with government officials. The only real question is whether BofA was smart enough to foresee that being possible and bought the call option on CFC with the initial deal that they did. Alternatively, they are complete idiots and, as some say, shorting BofA here will be an excellent trade. Does anyone remember Dynegy's failed purchase of of that stink-bomb known as Enron? Look what happened there - so imagine if they'd actually gone through with the purchase! Will BofA regret their craftiness/foolishness...

Let me add another couple points while I'm on the soapbox. It's very interesting to hear more talks about protectionism. The only bailout available (after the Fed has printed all the money that it possibly can) will be sovereign funds. This is America's last and ultimate hope. Keep talking about protectionism and you can be sure that the discount built into the assets, that eventually have to be sold, will be greater than otherwise would have been the case.

It is amazing to me, although not unexpected, that some people just don't get it and probably won't even get it in hindsight. Do people not understand that most people's savings are in their homes? That those homes have lost 20% of their value and will likely lose another 30% over the next couple years (at least in real terms)? On top of that, a large number of baby boomers will be trying to liquidate their homes in the not too distant years to come to finance their retirement. People spend money based on income and perceived wealth. When one drops precipitously, then guess where spending goes. Who have been propping up the economy? The consumer. If no one's consuming, there's less money to go around and hence less income. So income drops. Income drops so spending drops so income drops. This is called the multiplier effect and you can look it up to get a better understanding if necessary. It is a key concept and is just as critical to the continuing credit crunch - which has only just begun. There have only been a couple 'runs' on the bank - so far.

Finally, did anyone pay attention to the crop reports today? Corn - limit up. Wheat - limit up. What exactly are people going to eat that isn't going up in price in a falling income environment (except the carpet in their home)? Does anyone really think that Chindia can be kept from growing and demanding more food and fuel in the years to come? So lower wealth, lower income and rising prices. Where will this leave the level of prosperity of the American people?

Some will undoubtedly say that these comments and of course Herb's musings are out there. Believe what you want - but in a couple years time when those disbelievers are eating crow (literally as well as figuratively) you may look back and recall these prognoses. Remember that the future is never totally obvious to the market - otherwise it would already be discounted in - but the curtain has been pulled back only a little ways so far.

ps. The fiasco with CFC equity and options taking off before the announcement publicly of the BofA deal is another despicable illustration of the decrepitude of the financial markets and needs to be fully prosecuted. Although I'm sure that, at least, will never happen.