Dusty

Great Depression 2? Not Even Close.

It would appear that this article completely misses the disparities between the happy numbers from the Beltway and the numbers of U3 and U6, let alone the numbers estimated by the few sources trying to determine current reality.

The current state of the economy is also not even close to where it is going. The housing-driven crash of Subprime that brought us to where we are now is only a prologue.

The housing-driven crash of Alt-A and its affiliates is barely starting to tickle awareness of its existence. By the end of the year (2009) it will be a major force. In 2010 and 2011 it will be a tornado tearing down the wealth of the nation, blowing away the wealth of the middle classes and more.

It will be late in 2012 before we can step back and even begin to survey the damage, two years to try and clear the wreckage, an average after one of these events of an additional 5 years to recover beyond that.

It may well be 2013 or 2014 before a realistic evaluation can be made of what kind of Recession or Depression this is. For now we should all consider that it will be far worse than our personal experiences can imagine and try to prepare accordingly.

---------Dusty.

Scary Numbers

On Friday night I got an E-mail from my son. He commented that on the commuter train "you can see the fear in their faces," and at work, "you can hear it (fear) in the voices on the phone."

This is from the the Market reaction to the next bump on the trail; there is a bigger one due in the fall. The real mountain crossing starts with calendar 2010 and will take more than two years (30 months). The first trek across the peaks (2007-2008) took 18 months.

If this week is the anticipation of the mortgage resets for March, the Dow Jones and the S&P 500 may hold for awhile. A slight recovery and a lot of volatility until the leaves begin to turn to their autumn hues.

Beyond that, maybe we all need to research how our parents, grandparents, nation really endured through the 1930's.

The Hopefully Not So Great Next Depression

War in Iraq and Afghanistan: Yes, back out now! And THEN KEEP QUIET when the extremists from there and North Korea put a Nuke into..., Well, their missiles are not going to be too accurate, they will only have 4 or 5 warheads, but the Eastern Megalopolis is a big target, so they will be trying for Manhattan and the Washington Mall. More warheads? Add Chicago, St Louis, maybe Seattle or Los Angeles. Alternatively, stay where we are and this time make sure there is a stable sensible government in place before we pull our armies out. The current mess is because everybody dropped Afghanistan like a hot potato when the Russians pulled out and left an enormous power vacuum. Each time we do that the consequences will be worse.

White Wine and Brie? Great! But before you speak about the real world try going out and spending at least a half-decade working hard enough to develop real body strength and a lot of calluses with the clear understanding that if you do wrong in any way you will starve for lack of a paycheck and probably end in a jail for just being in a hopeless situation. We need to amend the Constitution to require that anyone elected to office have at least this much history of having had to work really hard in a miserable job.

How long and how deep will this Depression be? Refer to a chart called "Credit Suisse Mortgage Resets" originally published in the fall of 2007. Phase One of this mess started in perhaps August 2007 and ran to about Christmas 2008. The calendar year 2009 is a big Phase Two Bear Trap. There will be a nasty hole on the path in the middle spring, another worse one in the middle fall, but the trend of the year looks manageable just like any other Bear Trap. Phase Three, "Alt-A" and "Agency Resets" will kick in right after New Year 2010. That will look like the worst that happened in 2008, except that it will continue with a slight increase in intensity straight through into late spring 2012. There is not enough money or enough lies on the planet to get us through all that without a lot of serious scars. While the principal causes of the nightmare will be over by summer 2012, rebuilding to the level of an evening of conversation with White Wine and Brie is very likely to take well into the twenty-teens. Maybe longer because of having to clean up the messes left here and there by those incoming warheads.

What Is the New S&P Normal?

Interesting chart. Use those values, add a factor for inflation, maybe SPX at 850 'is' at the mean? This is also about where it was in December 2002. I can only look back 10 years. It would be very interesting to look back to the 1970's or even better to 1950. Correct for inflation along the way, see where the median line adjusted for bubbles and (1987?) Technical Glitch Crashes fell?

Historic Financial Collapse Underway?

The hue and cry about how evil the "Fiat" currency is ignores reality. A century or slightly more ago all money WAS gold or silver. Coins made of the real thing. A small amout of paper representing the real thing in government storage. Already there was not enough to go around. There was no way to increase the supply of the comodity and people did not have the cash to pay for goods and services or to be paid. The will to do work, the manpower, the goods (as in wheat, meat, manufactured products) were there: there was not enough coin or currency to conduct commerce and barter only goes so far, too. The only answer then and even more now is "Fiat" money.

Double Bottom Forming or Just a Pit Stop on the Way Down?

The Genie in my Bottle of Smoke says this is end of quarter, end of first half. Some big money funds must move around a little bit, breathe(?). Last day or two of June, first few market days of July. Keep your seat belt tight. Then we decend to a late summer crash (Ref: Royal bank of Scotland, others). That will carry us into Alt-A housing and credit mess Part 2 (Ref: Credit Suisse Mortgage Resets chart) and more. We are really not even half way down the first big drop on the roller coaster.

What is scary is that the Genie may have it together. I am holding what cash I can.

Preparing for the Fall, Part II

During most of the First Quarter, Credit Suisse had a graph about mortgage resets easily accessible on the internet. The US economy/market has followed that graph like a champ; the market has been a negative mirror image. Subprime is largely ending now, June '08. The market is bouncing around because it does not know which way to go. In September through January the name of the game should be "Alt-A." The Alt-A loans will be riding on top of "Agency Resets." Fall will be a replay of the 5 or 6 months now ending. Then it gets better, but not much. This summer might be a good time to be sure your parachute and seat belt straps are tight. We can look forward to real improvement, according to that Credit Suisse chart, in June of 2012.