To my friends on DU

[GliderGuider]

I feel like I've gotten to know you all about as you can in this virtual world. Although I've disagreed with some of you and found common interest with others, I have a strong sense of affection for everyone who cares enough to post on this board and wrestles with the big issues every day. So what I'm about to say is offered in the spirit of friendship.

Aside from ecological and energy issues, I've recently been keeping a close eye on the economic picture. I'm no economics expert, but I read to my limit and a bit beyond. I'm also in touch with a couple of people who are educated and experienced in economics, and as tuned in as can be to the whole picture. The news I'm getting this weekend is more disturbing than watching the ice cap collapse last summer.

There is a very strong sentiment out there that the time is up for the stock market. Last week's downgrade of AMBAC is likely to destabilize the markets well beyond the arcane world of SIVs, and may be the straw that breaks this camel's back. The shit is hitting the fan, it's time to duck and cover.

You don't know me from Adam, and you sure as hell don't want to follow the financial advice of some internet stranger. So I'd advise anyone who has any market exposure to read as much as you can over the next day and make your own decisions. You could start with this thread: http://www.tickerforum.org/cgi-ticker/akcs-www?post=24778

As for me, I'm getting everything out of the market, liquidating to cash just as soon as the markets open on Monday morning. I may be wrong, and I may just lose money doing it, but I have a very bad feeling about this. I really hope I have to come back here in a month and eat crow. I'll do it gladly if this turns out to be just a case of Sunday evening panic and everything turns out just fine.

Maybe it's just my innate doomer tendencies talking, but this time I don't think so.

Best wishes to everyone,
Paul Chefurka

[durrrty libby]

1. So are the banks safe or do we need to fill up coffee cans with cash?

That sounds sarcastic but I am serious

[GliderGuider]

4. I think the biggest risk is the stock market.

Banks are protected by FDIC (same goes here in Canada), so the impression I get from people who know more than I is that bank accounts should be safe for now. I think that having a bit (not a lot) of cash on hand might not be a bad idea, though.

[durrrty libby]

6. Thanks and I wonder if the FDIC is false security. I've been thinking about

this the last few days. I too have a strange feeling

[FogerRox]

27. Some are buying foriegn currencies

[SheilaT]

2. Isn't tomorrow a holiday?

Won't the market be closed?

[GliderGuider]

3. I'm in Canada. They'll be open here.

Is there a late-January bank holiday in the US? I wasn't aware of one, but I've been wrong about things before.

[XemaSab]

7. Martin Luther King day

:P

[GliderGuider]

8. MLK? Who's that?

Thanks, I knew they'd given him a holy-day, but I didn't know when it was. I'm lucky all my trades are on Canadian exchanges, I guess.

[SheilaT]

10. We don't call holidays

bank holidays here. My husband used to work for a company that did exclusively banking software, so whenever the Federal Reserve (the Fed) was closed, he was off. Normally a small company like that would not have extended so many holidays to its employees, but it was nice.

Anyway, if the Fed is closed, the Market is closed, I'm pretty sure.

[BanzaiBonnie]

5. I worry you may be right

The whole stock market thing runs on trust of sorts. Trust is gone. The big bankers have broken the system.


ENTER 2008: THE SYSTEM BREAKS
Jim Willie CB - January 3, 2008

http://www.gold-eagle.com/editorials_08/willie010308.html

The year 2008 will be the year that THINGS JUST PLAIN BREAK. It will
be a truly deadly year, unavoidably lethal to the USEconomy and
especially to the US banking sector. Nothing has been repaired. Some
tangible solutions will be offered in the next section, all
legitimate in a real world. However, we do NOT live in a real world,
but rather in a Fairy Tale world of US Hegemony and Wall Street with
a choke hold around the US entire system. Managed inflation is the
policy never to be reversed, until total breakdown occurs. Treason is
rampant, called simply Power Games. All attempts so far are to shore
up the existing system, to enable Wall Street to sell as much of
their damaged asset backed bonds to suckers, and to avoid
international lawsuits against Wall Street firms. In 2008, an
alarming sequence is assured of enormous damage that puts the entire
US economic and financial system in a perilous situation. The powers
survived the end of 2007, with heavy usage of band aids, rubber
bands, and paper clips, but reality continues to itemize a relentless
sequence of unfixable, tragic, intractable problems. The pressure
points are big banks suffering from insolvency, prime mortgage bonds
destined for massive losses, consumers without kitties to rob to keep
spending, a worsening housing market from chronic inventory bloat,
and deepening problems in the lending industry frozen from insolvency
and distrust. Pitch in a global resentment of US fraud and heavy
handed tactics, especially from the last couple decades.

What a prospect! Almost all of Wall Street firms are bankrupt, but
still in control of the financial media. Citigroup is dead in the
water, inevitably to enter restructuring without admission of
bankruptcy and surely with no formal filing of such. Heck, even
Goldman Sachs might be bankrupt, if they ever produced an honest
balance sheet. The goal of Wall Street henchmen, who are clearly
guilty of the grandest larceny even seen since Rubin opened the door
to gold leasing at the USTreasury, is for the (mostly) men in
three-piece suits to fleece their elite firms for personal gain as
much as possible before their broadly suspected insolvency is
recognized as clear bankruptcy. They choked on their own toxic
mortgage fecal IN-securities, with the leverage in the derivatives
backfiring on them. The hidden factor is new Basel rules on
accounting, which in my view seems like a bankruptcy judge ordering
Discovery Phase of bank assets during a Bankruptcy Proceeding. True
to form, the Wall Street firms continue to operate in defiance, as
they created a lunatic new Tier-3 balance sheet item. The greatest
feat to date is the Wall Street urged Congressional adoption of the
subprime mortgage freeze, dubbed 'The Teaser Freezer' in clever
tones. A voice tells me that Basel might push for prosecution of Wall
Street bankster criminals.

[Delphinus]

9. Thank you, Glider.

I probably know less about the stock market and things that are involved in that area than I do about quantum physics but you might just be too right. Already I've read that the foreign markets are opening and going down. It might be a good thing the US markets are closed? :shrug: I dunno.

I'm glad the question was asked about banks and savings - I don't have much (living paycheck to paycheck) and really can't afford to lose what little I have. Guess I'll leave it there for now and continue to squirrel away the little bits of cash I get for odd jobs under the mattress.

Please keep us posted with your layman's thoughts. Although there's a Stock Market thread on LBN everyday with info from 54anickle and Ozymandus, as well as many others, it's hard for me as someone not involved to understand all the implications.

[phantom power]

11. "it looked like Godzilla with Herbert Hoover's face"

http://kunstler.com/

[GliderGuider]

12. Classic Kunstler

another juicy quote from the column:

The United States is so broke, its people at every level from the Federal Reserve on down don't know whether to shit or go blind. The homeowners cringing in the media rooms of their 5000-square-foot personal family resorts don't know how long they can stay put microwaving pepperoni hot pockets with the default clock ticking. The mortgage "servicers" don't know how they will persuade interested parties like, say, the Illinois State Cafeteria Workers' Pension Fund (holder of X-amount of mortgage-backed securities underwritten by, say, Merrill Lynch or Deutsche Bank) to foreclose on properties scattered everywhere from Key West to Bainbridge Island -- or if there is actually any legal mechanism known to man that would make it possible to "work out" the sliced-and-diced collateral.

Armageddon isn't as much fun as I thought it was going to be.

[phantom power]

13. I've been thinking about calling a meeting with our financial advisor.

Mostly, so I can get a little entertainment and catharsis out of this shitstorm.

"So, who was right Miss Financial Optimist? Well? who was right, bitch? Say it! Sayyy iiiiiiiit!!!"

And maybe we can do some allocation rebalancing too. As long as we're there.

My wife dreads taking me to these meetings. She never says why.

[jimlup]

14. Apparently, you'll have to act fast: Tuesday is going to be downer!

http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=OBR&date=20080121&id=8066835

London market down 5.5%
Xetra Dax down 7.16%
Paris down 6.83%

Should be an interesting tuesday...

[phantom power]

15. How did your reallocation go?

[GliderGuider]

16. As well as could be expected.

I cashed out all the stocks I had electronic access to right at the open (I actually put the order in last night), so I lost less than the index. I put a sell order on the fund that's sheltering my retirement savings, but I won't know until tomorrow how that went. I was assured that since the order went in before the market opened, I'd be out today. I visited the bank and took out a wodge of cash, enough to last a week or so just in case. I'm not that worried about Canadian banks in the short term.

All in all I feel more comfortable than I did last night, though I feel a bit guilty about being able to make my move while all my American friends are hamstrung by MLK Day. I imagine a lot of people are watching the red spread across their computer screens and cursing.

Good luck everyone.

[phantom power]

17. I presume a lot of people will wait it out.

The stock market will come back. Although admittedly, maybe not until the next species evolves and invents a stock market, and it recovers.

[GliderGuider]

18. That reminds me of a sad mantra from the days of the tech wreck

I knew a number of people who had been hired by high-flying fabless semis in mid-2000. Their "brass ring" stock options didn't vest for a year, so by the time they vested the tech market had slid a bit. Their universal refrain was, "No problem, I'm just going to sit tight until it recovers. It always does." They were wrong, and a month later they were saying things like, "Well, my options are under water, so there's no point selling now. But the market has dropped so far that it's sure to bounce back. It's can't possibly go any lower than this." Well, it did.

I read a frightening phrase last night: "If the fractional reserve banking system resets to zero..."

[Kolesar]

26. You need equities (company stock) investments to stay ahead of inflation

Real estate may stay ahead of inflation; I have not researched it enough. I have a hunch that you want property near mass transit.

Anyway, if you are depending upon bonds or fixed income investments, you will not have gains that stay ahead of inflation. You need investments that are based on growth. That is my long term strategy.

[Systematic Chaos]

19. Hello from a scant couple rungs up from the bottom....

What I do have is all kinds of health issues, a service sector job that won't last a month when the shit hits the fan, and horrible insurance.

What I don't have are any savings, assets or options. I figure myself to be one of the first ones to go when the real shitstorm starts.

And I never even got my own solar pool heater. :cry:

[GliderGuider]

20. It's stories like yours that make me so angry with what the USA has become.

Universal, single-payer health care is one of the cornerstones of civilization. Instead you get a society full of fucking libertarian gargoyles with their Randian shibboleths that keep people from getting what they need. I hate them.

Unknowingly, the Beatles wrote the anthem for the coming troubles: "I get by with a little help from my friends". We all need friends, and now is the time to check in with them to make sure you're tight.

[OKIsItJustMe]

21. "... liquidating to cash ..."

I'm also pessimistic about the stock market. However, I wouldn't advise liquidating to cash.

With the tremendous increase in oil prices I don't see how we can avoid inflation. (Maybe I'm wrong; I'm no expert in such things.)


One conclusion I drew a few years back is that it's a mistake to assume that the stock market behaves in a rational (or even predictable) manner.

Brokers (on the whole) seem unable to perform as well as mindless "index funds."

Valuations are entirely out of whack. (One of my favorite examples was when Palm was 95% owned by 3Com but the remaining 5% was worth more than stock in its parent company.)

[GliderGuider]

22. For the short term liquidation a safe strategy.

I want to see what happens over the next month before I encumber my money again. We are probably going to see and inflationary depression due to oil prices, but that's a longer term concern. Right now, we should all try to avoid getting wiped out. Cash is good for that.

[GliderGuider]

23. Well, everyone is relaxing over a beer and figuring the US markets dodged a bullet

That would be nice, but hot on the heels of the Fed's interest rate stunt which may have tossed the US dollar into the shitter, comes this little bombshell.

http://www.federalreserve.gov/releases/h3/

The second column of both Table 1 and Table 2 at that link shows the amount of reserves that US banks hold, that are not borrowed (e.g. from the FED if I understand it correctly). Here's an explanation from the article below:

Notice a line called “non-borrowed” reserves of depository institutions and compare it to the column “required.” I generally look at Table 2 the “not seasonably adjusted” or NSA numbers because they are raw and unscrubbed in any way and combine that with the additional NSA data in Table 1 on federal reserve borrowings. You will notice from the release that it is very rare that this number dips below the actual reserves. There is a reason for this. Technically the first column “total” reserves is always supposed to be above the “required” reserves resulting in a positive “excess NSA.” If a bank is really in danger of falling below the reserves, they have an option of borrowing from the lender of last resort, the Federal Reserve Bank (usually they will try to get money in other ways first by liquidating assets or borrowing from other banks). These borrowings are also detailed in Table 1. When they are subtracted from the “total,” that gives you the “non-borrowed” reserves. One of the reasons that the non-borrowed reserves rarely fall below required reserves is that if a bank does not have to, they probably will not go to the Federal Reserve for a loan and would probably prefer to borrow money from other banks.

Now hold on to your hat. I re-checked the latest data yesterday and the non-borrowed reserves is actually NEGATIVE now — ($1.387 billion) versus a reserve requirement of $38.278 billion. NEGATIVE RESERVES EXCLUDING BORROWINGS FROM THE FRB!!! This is completely mind-blowing!!

The discussion of the little next wave of the tsunami is here: http://www.ronpaulwarroom.com/?p=2024

It looks to me like American banks are broke. I have no idea at all what that's going to mean, except I suspect this is a really good time to be sitting on the sidelines.

[jimlup]

24. Yes, thanks...

I think this requires some serious study. I'm moving to strengthen the safety features of my holdings now that the first wave of the storm has apparently passed.

[amandabeech]

25. For those of you who were adults in the U.S. back in the reign of Poppy Bush,

you may remember how the U.S., then in a recession, coped with the savings and loan collapse. I'm at work and can't really do a lot of research, so this is from memory.

The S&L's were deregulated. Formerly, they were required to invest their deposits in home loans and safe, safe investments, like treasuries and AAA corporate paper. They were not known as sophisticated financiers.

With deregulation, the S&L's could invest in anything. In swooped such vultures as Michael Milken and Neil Bush. They sold these over-grown home-town type S&L's a bunch of high yield, highest risk "junk bonds" that were packaged so that they would be "safe," as well as all other kinds of ridiculous stuff. HA. My recollection is that the recession of the late 80's and early 90's tanked the junk, and many S&L's became insolvent.

Poppy and his regulators essentially forced the consolidation of tanked S&L's with healthy ones, and had the U.S. gov take over lots of junk as well as investments left over from the S&Ls that went down. This government behemoth was called the Resolution Trust, and it was a full employment juggernaut for all the lawyers and accountants that lost their jobs when the economy tanked.

Deposits in the S&L's were insured by the FSLIC (like the FDIC for S&Ls) up to $200,000 (I think). Poppy ordered that all deposits, including those over and above the $200,000 limit would be paid. And they were eventually, sometimes with money that came out of the general fund, IIRC.

Eventually, the whole thing was cleaned up, but it took lots and lots of time and money to do it.

My guess is that with the regular banks, the feds will push mergers between solvent and insolvent banks, and that the banks will also be looking for capital where they can get it--all those countries where our dollars have gone. The fed money, of course, will come from the FDIC and sales of treasuries to the same crew that will be investing in banks, but at high rates of interest, which should make trouble for the rest of the economy.

My guess is that things will be very, very precarious for some time as things work themselves out. At the end, our financial institutions will be run more and more by folks from all over the world (like they're not now, right), and investors will eventually get their money out, or at least the insured amount ($200,000), but the dollars will be worth much, much less. Corporate depositors may take a hit, too, as will anyone who holds that bank stock, including high-level employees.

In sum, I think that Joe Willy is somewhat too pessimistic. A lot of people are going to get hurt, but I don't think that the entire country will liquidate just yet.

My advice would be to take your cash and distribute it around. All banks must give financial info to either federal or state regulators and a lot of it is up on the web. Look for some that look less exposed. Some of those small state chartered banks may have been sensible enough to stick to their knitting and not be exposed at all to CDOs and other fancy-schmancy investments.

Good luck!

edit: syntax

[wtmusic]

28. More brave than I am

I spent most of 2001 day trading (almost 1,000 stock trades) and it probably took 5 years off my life.

Now I only invest what I can afford not to need in the next five years, and pretty much ignore the market. I'm much happier.

They all seem like they will last forever, and they never do.