MaverickBian

The Worst Bear Market in Modern History?

First, in terms of volatility, I don't think this time the stock market would have been less volatile. If you zoom in on minites level or daily level, within a few weeks, DOW can add 2000 as a counter trend, yet countless bad news immediately pounched it down to new lows. In the past, we have Bear Sterns, then Lehman Brothers, and now we have GM and Citi...Sure we have more ahead if on every firm's balance sheet, assets shink a lot, then those whithout enough cash reserve and who couldn't raise capital will be forced into bankruptcy.

Just wonder, how many more firms can Paulson and Congress save?

Citi is in ER room now...

Whose will be the next?...In a word, too many...

John Hussman: Preparing for Extreme Possibilities

BTW, if 30%~50% hedge funds went out of businesses, what would happen in the market place.

Today BP capital, which has built a very good history for the past decade, claimed more than 50% of its investors would redeem their money by year-end. So far, BP has lost more than 60%. So much liquidation by heavy-leveraged hedge funds within next 3~5 quarters would no doubt push down the broad market to the extreme.

John Hussman: Preparing for Extreme Possibilities

Today's rally, at best, would be short-lived.

Tons of bad news within next couple quarters from around the world would punch down S&P 500 to its new low.

More than one month money market freeze would no doubt have hurt a lot of businesses a lot, sure not reflected in this quarter but in next couple of quarters.

And housing downward trends are still intact, almost globally. If the housing market shed by another 15%, what would happen to all business investments and sonsumers spending? Try to think, if everyone's 401K shed by 30%~40%, and your house's value shrink on a monthly basis without end soon, then what would you as a consumer do? spending a lot or save a lot. No doubt much less spending, which ironically represents 2/3 of US GDP. From this perspective, you will see tons of very nasty numbers just like today's consumer confidence.

Another big concern would be higher and higher unemployment rate. If 1 million more lost their jobs at an average of annual compasation of 50K(some from very high paid industry like Wall Street), then consumers' spendings would have been hurt very much on an aggregate level.

Also, ironically, Naumuri saved Lehman Asia and MUFJ saved Morgan Stanley, but they need some super rich guys to save themselves if Neikki goes much deeper.

And most importantly, today's rally occurred only after 2:00pm with light volume. Sure, a lot of deep-pocketed guys like fund managers, in order to assure a big stampede, tried their best to build a mirage that bottom has reached. Personally, I deeply doubted it. Based on current tailspin speed, every quarter, S&P shed by 12%. If the recession will go deeper, which most analysts and economists have assured so, then we may see 600 as you first claimed in your article.

Anyway, be prepared for the raining days from now on unless you're pretty sure economy has turned around, which will be at least 2~3 quarters away.

A Magic Multiplier?

My biggest question is:

This bailout plan may help banks to clean up their balance sheets and banks will start lending again, yet how come Paulson & Co stops the countinuous downturn of the US housing market?

A Magic Multiplier?

Based on M1, the multiplier is less than 2, and on M2 money supply, the multiplier is around 8.

You have to consider the money drain out of the banking system, such as cash held under your mattress.

At current stage, banks' reluctance to lend to each other also significantly affect the multiplier you mentioned above.

Also, those banks with below required reserve ratios or with a very low D/E ratio need to consolidate their capital or reserve first, which will discount this multiplier a lot.