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Which Black Swan Will Pop the Treasury Bubble?

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Cycles, Recessions, and Looking Forward

The Mexican crisis originated a latin american crisis in the same way that the housing crisis has triggered a credit/financial crisis. When the mexican debt crisis started, the american government implemented the Brady Plan to reestructure Latin American debts to US Banks, and sell them to investors. In this way, they cleaned the US Banks balance sheets and reestructured the latin debt. Why not a Housing Brady?. The difference that i see necessary from the actual plans is that a huge cash pool should be made available to mostgage debtors (not banks), where they can get the cash to prepay and refinance their motgages o convenient terms. The government can then sell the Housing Brady Bonds with certain government collateral to investors and recoup their money. As the mortgage debtor will be owing to a special rescue fund from the government, instead of a bank, they will feel morally compelled to pay instead of walking away.

Four Commonsense Clues to a Genuine Market Bottom

This is a waste of time.

Cheapest Valuations in Decades Will Trump Panic Selling

Valuations are extremely cheap, even for a massive correction of earnings. The problem is that as fear continues, what was not real could actually become self fulfilling. But i think that the governments have intervened timely and aggresively to stop this armaggedon of becoming true by recapitalizing and backing banks. So, without a systemic risk in hands, governments can focus on rebuilding credit, even if it is necessary to do it with their own hands. For the sake of corporations and consumers, it doesn´t matter from whom they get the credit as long as they receive them. For governments, it is also important to keep the economy up and running.
So, even though we are still headed towards a strong recession, the kind of stock price crash that we had is more representative of a complete economic meltdown, which is, by the minute, reducing its probability of occuring. Even for cyclical industries like commodities producers, i think that as there was probably a bubble some months ago, now we are seeing the opposite. Nothing has changed fundamentally regarding the extreme tightness in demand and supply.

More from Grantham: S&P to 585?

I don´t understand the panic that has engulfed the whole world. Here are the facts:

1) The world is going to continue and the people are going to continue to demand goods to fulfill their needs.
2) There is no negative supply shock that can put in danger the global economy. i.e. the moon is not falling down, the sun is still there and there is no world war.
3) Financial institutions are now as safe as their governments.
4) Corporations have basically sound balance sheets.

So, basically what we are fearing is fear itself. It is PURE NONSENSE.

The Recession Is Already Priced Into Stocks

From my continuous reading of the financial crisis issues i have come to the conclusion that all the problem comes down to the deleveraging process of the financial institutions. It doesn´t matter how much capital you pour into banks, there are sizable sectors that will continue to deleverage. And i refer to hedge funds.

I think that Hedge Funds should be forbidden of selling assets, at least in a desorganized fire sale way. Hedge funds should be put into quarantine and redemptions from hedge funds should be halted.

This will relief the markets from the selling pressure that it is suffering right now.

This Hedge fund freeze should be in the interest of the normal people and for the hedge fund participants also, as their assets will not be sold into a fire sale but into a more organized market.

Certainly Treasury Secretary Paulson could verify this alternative. He, more than anybody understands the hedge fund world. Certainly some banks with exposure to hedge funds could suffer, so those banks should be pumped with the necessary liquidity and capital to avoid their failure.

Best Regards

Using History to Plan Near-Term Investing

All technicals show an extremeley oversold condition. What has happened is that a small probability of having an economy implosion has scared people heavily and they have run for cover into the woods. As soon as the Armageddon probability dissapears, a huge rally should form...which doesnt mean that the economic problems are gone, but prices shouldstart to reflect reality.

This Isn't a Bottom, It's a Disturbance in The Force

A market bottom has formed. Vix touched 70, put call equity ratio blew up over the roof and valuations are RIDICULOUSLY low. Governments are a cm short of guaranteeing every penny that goes through the financial system (actually they are by pledging putting the necessary capital into them). So, as soon as credit markets start rolling over again, which i expect to happen on tuesday after the governments pledge (normality is not needed, just a sign that it will start to run again), a huge rally will get underway. The market is in an extremely oversold condition and cash is piled up in the sidelines. Investors are SURE that the market is extremley cheap, but they don´t want to get burn´t in this downward spiral, but as soon as the market gets more stable buyers will pile up.

One important thing to consider is that losses in the financial market are only nominal losses. Productive real assets are still there. People that demand products are still there.

Getting Ready for... Anything

Discussion on inflation is futile. Cash injections from the FED are not reaching the economy as the credit markets are frozen. The multiplier effect of the financial system is not working so actually M2 or M3 are not growing. The problem with the Greenspan reflation was (a) that it went on for too long and (b) that it was used to fight deflation in certain markets and thus providing for bubbles in others. At this time, deflation risk is more widespread as it comes from a credit crunch hitting pretty much everything. I expect bernanke to begin taking out the liquidity as soon as credit markets start to work again.

Regarding the credit crunch, i think that it is the FED, Treasury and Fuld fault that we reached this level. By letting Lehman to fail they derailed the confidence on other financial institutions. It doesnt matter how many financial institutions are bailed out now, you will always be wary if the next one to fail will follow Lehman´s fate. But for the sake of market transparency, this was probably the best thing to do, otherwise the Moral Hazard would be huge benefitting badly managed institutions against well managed ones.

But steps are being taken in the correct way. Governments are seeking to relief the financial system balance sheets and there is no other way than undergoing asset reflation policies .

Hey, Congress, Guess What? WaMu's Toast

There are only two ways to stop a crisis like this. One is that the government steps in and backs every institution out there (with tax payer money of course) and work things out in time and the other is that everything is so collapsed and destroyed that the only way value of things can go is up. Financial crisis has existed in developing markets and governments has always worked them out by bailing out the whole system. Financial crisis has cost between 12% to 30% of GDP when they happened in other countries, i feel that $700bn is a cheap bargain to pay for the US taxpayer to get rid of the 12% GDP fall that is the alternative, best of cases.