19 DAYS TO ZERO

Money & Company



Tracking the market and economic trends that shape your finances.

Dow zero? At this rate, we'll almost be there by Halloween .

4:48 PM, October 7, 2008

Just 19 more days like this one and the Dow Jones industrial average will be at zero. And we can all start over from scratch.

Stocks were hammered today by what many traders described as another round of desperation selling.

The Dow lost 508.39 points, or 5.1%, to 9,447.11, its lowest since September 2003.

We said goodbye to Dow 10,000 on Monday. Today, the Standard & Poor’s 500 index closed below the 1,000 mark for the first time in five years, tumbling 60.66 points, or 5.7%, to 996.23.
The severity of Wall Street’s decline over just the last 2 1/2 weeks has been breathtaking.

By the classic bear-market yardstick -- a minimum 20% drop in a major stock index -- the S&P 500 now has experienced a bear market in just 12 trading sessions: The index has fallen 20.6% since Sept. 19.

That would be a bear-within-a-bear. Measured from its record high a year ago, the S&P now is down 36.3%.

Yes, investors are fearful of what will happen to the economy because of the credit crunch. But when selling reaches this magnitude, some portion of it surely has to be disconnected from economic fundamentals.

Art Hogan, veteran analyst at Jefferies & Co. in Boston, noted the relatively uniform percentage declines in broad market indexes today: 5.4% in the New York Stock Exchange composite, 5.6% in the S&P small-stock index, 5.8% in the Nasdaq composite.

"That tells you it’s just waves of people selling everything that’s traded," Hogan said.

Who is so desperate to get out? Many analysts point to hedge fund managers, who are believed to be facing another round of massive redemption notices from clients who want their cash back.
"You’re seeing selling by people whose hands are forced now," said Christopher Johnson, head of Johnson Research Group in Cincinnati.

Ditto for stock mutual fund managers, as retail investors join the exodus.

Then throw in gun-to-the-head selling by investors who bought stock on margin and now are facing margin calls by their lenders -- demands to put up more cash to offset the tumbling value of their portfolios.

As I noted in this post on Monday, everyone’s looking for signs of capitulation -- a final deluge of selling by investors too disgusted and demoralized to hold on any longer.

"Bottoms don’t happen until everyone walks away," said Johnson.

The last two days certainly have had the feel of capitulation. But is it enough, already?
Some analysts say there still are too many market pros reluctant to exit stocks because they’re sure a bottom is near.

Mark Hulbert, who tracks investment newsletters, wrote today on MarketWatch.com that Monday’s market dive -- which saw the Dow off 800 points before recovering about half that loss -- probably was another capitulation false alarm.

"An eagerness to declare that capitulation has occurred probably means that it hasn't," Hulbert wrote. Read his piece here. And be prepared to weep, if he’s right.

Photo: On the NYSE floor today. Richard Drew / Associated Press

REF: http://latimesblogs.latimes.com/money_co/2008/10/just-19-more-da.html

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Dave Israel

A TRILLION HERE A TRILLION THERE.....!

Hi All,
One of the privileges of founding a Channel such as this BLOG is that I get to rant from time to time on matters that, in my humble opinion, I consider important. I am sorry if I tax the patience of our readers.

Whether you have noticed or not, the greatest drama in the History of the Republic is playing out on the Global Stage. This drama poses a threat to our National Security as great as any in our short history as a Nation.

Egregiously bad judgment by our National leaders fostered over time, through the legislative process, the concept that Americans could have anything they wanted; regardless of their ability to pay for it.

This absurd idea lead to a phalanx of rapacious Bankers and Money Brokers concocting the most arcane financial instruments in the history of man.

Mortgages with no documentation or Liar Loans have led to the meltdown of the greatest financial institutions and the melting away of many retirement accounts, we have yet to gauge the full extent of this erosion of value.

Tonight, the Senate passed the so called Bailout legislation I watched the debate and vote with horror; if the House follows suit, I say to you all it will constitute the greatest error in a long history Government overstepping their brief. The potential approaches for the actual failure of the Federal Full Faith and Credit Balance Sheet, with consequences to hideous to contemplate.

Rumor has it that former US Congressman Everett Dirksen once quipped "… a billion here, a billion there, and pretty soon you are talking about some real money." In the last few years we've upped the ante. Now it's a trillion here, a trillion there — on the Wall Street Bailout, on the Iraq War, for instance. It looks like the NeoCons have at least insured that the government will be squeezed in times to come. Their dark dream of Starving the Beast, however, is not a short-term outcome. It looks like the US government is getting ever-more-powerful by the day and by the year, in both military and financial arenas. Or maybe that was their real dream after all. Sad but likely true: Too few NeoCons will go to jail. Too many of the rest of us will suffer.

The Fed has taken on the following obligations to name a few:

Overnight loan for JP Morgan to take over Bear Stearns

parenthetically, this bears comparison to the 1907 bailout organized by The John Pierpont Morgan, which saved the National banking system. That event pales to insignificance compared to the current debacle.

Nationalization of Freddie Mac

Nationalization of Fannie Mae

These two in aggregate account for 50% of all mortgages in the United States.

Overt nationalisation (for 2 years) by granting an 11% interest loan to AIG on condition that AIG surrender 79.999999% of its stock in the conglomerate to the Federal Reserve as collateral, in effect giving the Federal Reserve Bank of New York complete control over the corporation.

The Fed's balance sheet has been taking on huge amount of (worthless) new assets and given away tons of cash on loan -- and we just KNOW how well Wall Street types are at paying back their obligations.

The US Treasury authorizes a flood of Sovereign Bonds [US bonds that foreigners buy] and T-Bills to prop up the cash at Treasury, which will be given over to the central bank to replenish funds.

This means all the bad debt that these idiots have created is now riding on the full faith and credit of the United States of America.

Here's what the potential effects are:

1. The ability of the US to repay its debts, which has never been doubted since the beginning of the Republic ... is now put to question.

2. Foreign governments will get skittish about lending the United States money.

3. While the risk of Depression-era deflation is avoided, the risk of Zimbabwe and Argentina style hyperinflation now becomes very real. If this happens, then the value of money itself will become meaningless.

In the Fog of War flow of all of these events, the National debt has surpassed Ten Trillion dollars!!

10,000,000,000,000 dollars in debt!

Will the current generation of Americans repay that? No, the current generation seems determined to go even deeper in debt.

So, that means that Americans are dumping this debt on to their children and their grandchildren and to generations beyond that.

What America has done is they have sold their children and grandchildren into economic slavery ostensibly forever.

How would you feel if you were a little child and you discovered that your parents had left you with a debt that you could never, ever repay and that you would be making interest payments on for the rest of your life?

America's children and grandchildren will ALL be working all of their lives to pay interest on this ridiculous debt. Their labor will go into serving the owners of this debt, and there is no escape.

Having some experience in the field of National Security, permit me to opine on the worst case scenario in the current environment; as the debt builds, and inflation spirals, and confidence continues to wane; as the dow volatility and steady downward delta further erodes investor equity, some strange events ensue:

1) Runs on banks
2) Money becomes worthless
3) Investment dries up
4) Fuel costs escalate
5) Transportation and public utilities fail
6) Increased acquisition of weapons
7) Food riots
8) Civil Insurection
9) Rogue Militia bands run rampant
9) Tanks in the streets
.
.
.
Don't imagine for a minute that "It can't happen here"

High technology based societies, such as ours, do not degrade gracefully under this sort of stress; they tend to collapse catastrophically, quite literally back to the stone age in a very short time, and this process feeds on itself and advances exponentially.

I pray daily that I am wrong and this crisis resolves for the best, but I have great doubts.

Dave Israel
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AIG BAILOUT

Hi All,
Do not get excited about the Bailout and the math error in another post on the BLOG.

As usual, the Press, in it's never ending effort to roil the populace and sell copy and air time, nuances the truth a bit.

It turns out that the AIG "Bailout", will almost certainly make money for the Treasury and save many jobs and much financial infrastructure.

Start your research with the following release from The Federal Reserve:

Dave
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REF: http://www.federalreserve.gov/newsevents/press/other/20080916a.htm

Release Date: September 16, 2008

For release at 9:00 p.m. EDT

The Federal Reserve Board on Tuesday, with the full support of the Treasury Department, authorized the Federal Reserve Bank of New York to lend up to $85 billion to the American International Group (AIG) under section 13(3) of the Federal Reserve Act.

The secured loan has terms and conditions designed to protect the interests of the U.S. government and taxpayers.

The Board determined that, in current circumstances, a disorderly failure of AIG could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth, and materially weaker economic performance.

The purpose of this liquidity facility is to assist AIG in meeting its obligations as they come due. This loan will facilitate a process under which AIG will sell certain of its businesses in an orderly manner, with the least possible disruption to the overall economy.

The AIG facility has a 24-month term. Interest will accrue on the outstanding balance at a rate of three-month Libor plus 850 basis points. AIG will be permitted to draw up to $85 billion under the facility.

The interests of taxpayers are protected by key terms of the loan. The loan is collateralized by all the assets of AIG, and of its primary non-regulated subsidiaries.

These assets include the stock of substantially all of the regulated subsidiaries. The loan is expected to be repaid from the proceeds of the sale of the firm’s assets.

The U.S. government will receive a 79.9 percent equity interest in AIG and has the right to veto the payment of dividends to common and preferred shareholders.

Bailout Fantasy

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Dr. Martin's Comments:

I got this today and had to get it out ASAP. Maybe this kind of attitude by the American public to our politicians might get a point across. Please, if you liked this and think this attitude needs to be passed on feel free to email to as many people as possible. Maybe someone of influence will get the message.


OK....Here's a Plan I Could Live With


Hi Pals,

I'm against the $85,000,000,000.00 bailout of AIG.

Instead, I'm in favor of giving $85,000,000,000 to America in a We Deserve It Dividend.

To make the math simple, let's assume there are 200,000,000 bonafide U.S. Citizens 18+.

Our population is about 301,000,000 +/- counting every man, woman and child.
So 200,000,000 might be a fair stab at adults 18 and up..

So divide 200 million adults 18+ into $85 billon that equals $425,000.00.

My plan is to give $425,000 to every person 18+ as a We Deserve It Dividend.

Of course, it would NOT be tax free.

So let's assume a tax rate of 30%.

Every individual 18+ has to pay $127,500.00 in taxes.

That sends $25,500,000,000 right back to Uncle Sam.

But it means that every adult 18+ has $297,500.00 in their pocket.

A husband and wife team has $595,000.00.

What would you do with $297,500.00 to $595,000.00 in your family?

Pay off your mortgage - housing crisis solved.

Repay college loans - what a great boost to new grads

Put away money for college - it'll be there

Save in a bank - create money to loan to entrepreneurs.

Buy a new car - create jobs

Invest in the market - capital drives growth
Pay for your parent's medical insurance - health care improves

Enable Deadbeat Dads to come clean - or else

Remember this is for every adult U S Citizen 18+ including the folks who
lost their jobs at Lehman Brothers and every other company that is cutting
back. And, of course, for those serving in our Armed Forces.

If we're going to re-distribute wealth let's really do it...instead of
trickling out a puny $1000.00 ('vote buy') economic incentive that is being
proposed by one of our candidates for President.
If we're going to do an $85 billion bailout, let's bail out every adult U S Citizen 18+!

As for AIG - liquidate it.

Sell off its parts.

Let American General go back to being American General.

Sell off the real estate.

Let the private sector bargain hunters cut it up and clean it up.

Here's my rationale. We deserve it and AIG doesn't.

Sure it's a crazy idea that can 'never work.'

But can you imagine the Coast-To-Coast Block Party!

How do you spell Economic Boom?

I trust my fellow adult Americans to know how to use the $85 Billion

We Deserve It Dividend more than do the geniuses at AIG or in Washington DC.

And remember, The Birk plan only really costs $59.5 Billion because $25.5 Billion is returned instantly in taxes to Uncle Sam.

Ahhh...I feel so much better getting that off my chest.

Kindest personal regards,

T. J. Birkenmeier, A Creative Guy & Citizen of the Republic

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Bank Failures

If a bank fails ,what happens to a persons brokerage acct. ,if they have that with the bank also?