TA for the week

Advance/Decline suggests that we have reloaded adequately for a multi-week run up, but I don't see it in other charts: Chart

Consumer discretionary is now at major multi-year resistance and should make a pull-back: Chart

The Dow is in need of further correction to catch up to the NDX. Perhaps we'll have a +NDX/-Dow day early next week. Dow 10,100 would be a logical target. Chart

The TICK 10-day moving average signaled an interim top has occurred. At least a multi-week downturn should follow. Chart

Picks 11/18

Ticker	Price	Stop	Target
AHT	4.40	4.15	5.71
AKS	18.64	19.64	12.00
ARG	47.76	46.90	65.00
AVP	35.02	33.95	45.00
BXP	65.00	63.80	79.00
BZ	5.00	5.80	0.75
CCC	13.46	14.01	11.60
CECO	24.00	22.90	35.00
CLF	40.00	37.00	65.00
CNO	5.35	6.00	1.00
CQB	17.50	16.50	24.00
DOW	27.00	26.00	35.00
ENZ	6.00	5.60	12.50
EPI	21.10	20.50	24.00
FULT	8.86	8.22	13.00
HOTT	6.50	7.25	4.20
LVS	17.65	16.50	45.00
MNP	13.00	13.40	12.00
MT	39.00	40.00	30.00
PZZA	22.24	23.08	18.90
QGEN	22.47	21.96	30.00
RIMM	61.99	61.80	47.00
SHOR	6.02	6.42	3.40
SIGM	11.20	12.00	8.80
SSI	12.40	13.00	8.70
SSS	32.00	30.00	37.25
TECUA	12.00	11.50	15.60
TESO	10.50	9.70	16.25
TRW	22.53	22.60	43.00
TSO	13.74	14.55	9.50
TSRA	24.25	25.00	17.50
USMO	10.99	10.80	9.10
ZLC	5.00	5.60	1.25

Buffett deux

And the stock split? Well, it is akin to Goldman taking itself public after all the money has been made. He's basically selling out (or making it much much easier to do so at a later date with the added float).

Buffett's purchase of BNI

Makes me wonder if this is his thinking..."This has been a technical rally, and fundamentals have yet to catch up, so it is easy enough for it to roll over on technicals. The transports have begun leading these markets down and that will cause the technical traders to pile on the short side. If I buy up BNI at a nice premium, then the Transport stocks will reverse and maybe just maybe I can save the rest of my holdings from going down by getting the shorts to stay away."

Won't work, of course, but if I had enough money to manipulate the markets, this is what I'd be doing. Let's see if he can figure out a way to restore the dollar decline, quickly, since the downtrend line was broken overnight.

As I recall, the last time he was buying anything, the markets dropped like 30% from that point.

Joe

Where we are...

Still not completely clear, but a whole lot of things are breaking down to suggest that a rollover is occurring. Whether the folks that have waited for an opportunity come rushing in with a bid or not is to be seen, although I have a feeling that they will get alligator arms and we will watch another waterfall like last Fall.

I'm positioned with some longs to play a bounce the next 1-2 days, but there are a lot of indicators telling us this bear market rally is over:

1. While the dollar is holding its trendline, the Canadian dollar has broken its trendline. This is currency pair tells us that commodities are going to take a breather. However, it is at pretty strong support here, so I'd like to see that broken as well before getting confident with this perspective. The Aussie currency is holding up, so that it not confirming the trend.

2. The Euro is holding up, let's see what happens tonight.

3. Nasdaq sentiment dropped quickly. This either refuels buying anew or marks the start of an exit.

4. Fear is back - the VIX got up over 30. It is now a little overbought, which is why I took a long position in SSO over the weekend. But I'll be quick to get out of that trade Monday/Tuesday.

5. We had major distribution on Friday. In fact, each time we had a distribution day of this magnitude on NYSE since March, that particular level (if not day) roughly marked the end of the counter-trend rally. This is the other reason I went long on Friday with a tight stop.

6. Advance/Decline on Friday was super-low, which usually causes a snap-back rally.

7. Energy sentiment has rolled over. Look for a nice pull-back in Crude, and hopefully that continues to correlate w/ a higher $, causing follow-thru on the equity sales.

8. Most indices have taken out their uptrend lines.

Anyone who is confident that the rally since March is intact isn't trading technicals. That is not to say that it isn't , it just seems like the best stance now is to be a patient bear rather than a nervous or confident bull.

Joe

The top is likely now in

Just a quick note before the markets open and it becomes old news - the massive sell-off yesterday afternoon likely indicates the top of the bear market rally is finally in. It should be interesting how it unfolds.

The last time (recently) we had that kind of end-of-day sell-off was the start of the last correction in late September. Check out the volume spike on this chart.

Hopefully, it will take a while to play out. The slower it unfolds, the more bearish the prognosis.

If this isn't the top of the bear market rally, it is getting close

It's been a while, but I've been watching a few things and feel like I had better lock in a position here and now. Besides being emboldened by a bad week in the markets, take a look at the following charts and let's see if they play out as I'm expecting them to. Oh, and one reason to think that this is the top is simply because I'm posting to this blog!

1. Nasdaq sentiment is outta-sight high. It got this high 3-4 months before the 1999 top, providing an early warning, although the rise from there before the crash was a parabolic 66%. It also got there in 2003, and that didn't signal too much in the way of a top. However, this time, it is over 90% for an extended period. See Chart.

2. The VIX has found some support at the current levels. This chart suggests to me that maybe there is one more bounce (of a week to several week duration) before we put in the top of this bear market rally, but I can live with being wrong about that one. Having said that, I'll be watching to see if the VIX shoots over the bollinger band and try to scalp some calls for the peak run. See Chart.

3. Weakening accumulation followed by strengthening distribution. We have the weakening accumulation already, but a pop to new highs on less accumulation would signal a top to me. See Chart.

Joe

"Free Mortgages"

At the beginning of the year, I predicted zero percent mortgages. I haven't figured out what the break-even is on the Fed new home-owner assistance program gets you, but I doubt it's "free." However, here's a story that gets us closer, albeit not in the U.S. (yet):

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aA8ctNweckuU

Joe

AIG's "secret" presentation to Govt asking for more $

There is absolutely nothing in here that should be a surprise if you understand what AIG does and how broken the banking system is. However, if you don't, and you assume that this wasn't an academic document prepared to educate the uninformed, then it is gruesomely scary:

http://www.scribd.com/doc/13112282/Aig-Systemic-090309

Joe

News sentiment starting to shift

Since Friday night, I've noticed a change in tone in the news. It's subtle, but it's there. Here are a few examples:

Ron Insana (CNBC Analyst) talking on the Friday nightly news (I think), was asked if part of the reason the stock market is going down so dreadfully is that Obama needs to be a better job of being more positive. This has been all over the news the last few weeks as a missing part of the recovery elixir. Ron's response was the first time I heard anyone basically dismiss the premise altogether and say that the market is going down because things are so darn awful. The media has given up on the "don't worry, but happy" story at last. (n.b. for the record, it wasn't Jim Cramer that they asked to go on the show that day, another indication that somber tones are being favored over sensationalism.)

Tonight's NBC Nightly News did a story "faith in america" reporting that religious affiliation in the US has decreased dramatically since 1990. The story ran right after a story about tent cities, and it seemed to me that they were trying to suggest to people where they should go for help. [I'm long religion for the next 25 years btw, see prior post.]

Another story tonight on NBC Nightly News - they started asking for folks to send in stories about people performing random acts of kindness and have expanded the query to become a regular part of the nightly news. I guess sex, sensationalism and stardom are not as newsworthy as they were...last week?

These guys are starting to see that their annointed president isn't so infallable, and now they're exiting the fan club and heading the the front of the "help your neighbor, help your friend" herd. I don't mean any judgment, they are probably not doing it consciously at all. It's just an observation that the tone has changed...

which means, we are near the mid-term bottom.

Joe

Getting real close to mid-term bullish

There was something about the market today that felt like a slow drip. At the same time, it also felt like when the dripping stopped, the budget would finally be out of water. I went double-long the S&P a couple of times expecting this run-up to occur, but I just couldn't catch it. Instead, I bailed on almost all my shorts and all of my puts. I'm officially mid-term neutral going mid-term bullish soon.

If not today, then within 1 day to a few weeks we'll have put in the mid-term bottom, and I want to get positioned to ride it up for a while. My guess is that the congressional hearing on mark-to-market on March 12 and the completion of the charade known as the stress tests in mid/late March will bring some money back into the market. I think we'll enjoy a nice rally until maybe September or longer. Eventually, some bank will blow-up and the whole house of cards will come down, and that is when we'll start a new vicious leg down in the market. But there's 25-40% upside from here before that happens.

I am double-short silver in the ETF "ZSL." The metals have topped and it won't matter if you play the miners or the metals, they are going down bigtime. I'd expect 35% pullbacks on gold to under $700 and an even greater pullback in silver. This plays nicely with the bank house of cards scenario - folks will get confident in the banks, that will put downward pressure on the metals, and then the actual house of cards falling will take everyone by surprise. That will cause a swift swing out of the markets and into gold & silver.

Not sure if today was the day, but we should at least have a few/several day countertrend rally.

Joe

Just a quick one

If you didn't hear, a week or two ago American Express announced a program to certain cardholders whereby the cardholder will receive $300 from Amex if they close their accounts by April. Membership has its priviledges. A lot of banks apparently are clawing back unused credit lines and otherwise generally tightening potential exposure to the less creditworthy.

Did you know that 1/3rd of your credit score is based on your total credit outstanding as a percent of total credit available? With that in mind, each time the banks claw back credit, they are lowering credit scores. The only thing a person can do to counter this credit score degradation would be to add more credit. However, that creates an inquiry which, if there are too many, also lowers credit scores.

Now we have downward pressure on credit scores while we are trying to get people to refinance. You following me on this? All the new credit in the world can be provided, at the lowest interest rates ever, and that won't change the undertow of the decline in home values dragging the economy down.

This is another case of folks not thinking about the unintended consequences. [Not that I don't support reducing people's credit lines.] It is also another case of focusing on numerators when we should be focusing on denominators (or vice versa). For example:

The S&P is cheap based on price coming down therefore P/E ratios are going up? Sorry, E's are falling faster than P's these days.

The S&P is cheap based on the dividend yield because prices are coming down? I don't know if you've noticed, but dividends are being cut at a record pace.

GE lowered it's dividend Friday. Just before it did, it had a dividend yield of something like 15%. Still think high dividend yields are a signal to buy stocks? Now they've cut it to be a yield of 3-4% I guess. Whether it is a company setting earnings or revenue guidance or a company evaluating its dividend, the current price of the stock goes into their thinking. "Wall Street isn't giving us credit for what we're doing (because the price is so low in management's mind), so we should just lower expectations now while the stock is so depressed." This makes all the sense in the world in a bull market. But, in a bear market, the lowering of expectations perpetuates the concern over the stock and, in effect, you get a virtual "run" on the stock because the lowering of expectations implies that management doesn't know what they are doing. All anyone is looking for these days is for somebody to do what they say for longer than about 4 weeks. And nobody can live up to the challenge.

All of this is exactly what happens in a deflationary depression.

Joe

Bank "Stress" Tests, yeah, ok, we believe you...

The link below will bring you to the guidelines for the bank stress tests. Several observations and an editorial:

* The government's "base case" has unemployment averaging 8.4% in 2009. We're at 7.5% as of Jan 31, so we are either going to get to 8.5% in a hurry or they now expect to finish the year well into the 9's
* The base case unemployment for 2010 is 8.8%. Assuming we finish 2009 in the 9's, they are basically saying that in about 2 years unemployment will come back down to about where it is right now
* The base case home price decline in 2009 is 14% with another 4% decline in 2010. Who is gonna buy a house if the government's own reports say real estate is going down another 20% over the next two years? Why not just rent and wait? (Rents are coming down as we speak.)
* I find their "alternate more adverse" GDP of -3.3% and 0.5% laughable given the other inputs of that scenario. If home prices drop another 22% this year and unemployment AVERAGES 8.9%, there's no f-ing way that 2010 GDP is positive.

Here's the link: https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiys3s3SFVys8tcn2C5sAju4uUPq8vL8xn1Dk3XIYs15vgLdxzpzLlDBLS6z-ZGsmaOXOe1tIX9QoC988IstaTk5paa7Wqm3mSilZFGfl0dXRpqJC2AaM5UIvumJZ2cfbxLPpLNs-GJ80s/s1600-h/EconScenarios.jpg

Joe

Crisis of Credit mini-movie

Pretty nice, simple video explaining the credit crisis, CDO's, CDS's etc.

http://vimeo.com/3261363

Bloomberg: Clinton Urges China to Keep Buying Treasuries

Clinton: "We are truly going to rise or fall together."

Ahem, is it a break from Obamaspeak to say that "falling" is a possibility, and if the word "truly" is in there, don't we have to take the possibility seriously?

Feb. 22 (Bloomberg) -- U.S. Secretary of State Hillary Clinton urged China to continue buying Treasury bonds to help finance President Barack Obama’s stimulus plan.

The two nations’ economies are intertwined and it wouldn’t be in China’s interest if the U.S. were unable to sell its government debt, Clinton said in an interview with Shanghai’s Dragon Television today. China knows it needs a healthy American economy as its biggest export market, she said, adding that the U.S. must take “drastic measures” to stimulate growth.

“We are truly going to rise or fall together,” Clinton said. “By continuing to support American treasury instruments, the Chinese are recognizing” that interconnection. China, the largest holder of U.S. government debt, boosted purchases by 46 percent last year to a record $696.2 billion as the global recession spurred demand for the securities. The Chinese government said last week it plans to keep buying Treasuries, adding that future purchases will depend on the preservation of their value and the safety of the investment.

China continued to buy the U.S. debt amid a 27 percent increase in its holdings of foreign currencies in 2008. JPMorgan Chase & Co. predicted in a Feb. 6 report that China will keep buying Treasuries “not only for the near-term stability of the global financial system, but also because there is no viable and liquid alternative market in which to invest China’s massive and still growing reserves.”

Chinese attempts to diversify from Treasuries into more risk-oriented assets have not fared well. It has lost at least half of the $10.5 billion it invested in New York-based Blackstone, Morgan Stanley and TPG Inc. since mid-2007.

China’s currency reserves of $1.95 trillion are about 29 percent of the world total.

Flying Home

Clinton also pledged that America would not practice protectionism. She said the “Buy American” provision of the stimulus package, which says U.S. goods must be used for infrastructure projects, would be carried out in compliance with existing international trade agreements.

Clinton today wrapped up a weeklong trip to Asia, her first as Obama’s top diplomat, having already stopped in Japan, Indonesia and South Korea. She attended services at a state- sanctioned church, and met with community organizers before starting the trip home. She met U.S. troops at Yokota Air Base in Japan on a refueling stop.

China and the U.S. will continue the bilateral strategic dialogue begun during the Bush administration, expanding it to include security and political issues, Clinton said yesterday after meeting with Chinese Foreign Minister Yang Jiechi.

Clinton will co-chair the dialogue on the U.S. side with Treasury Secretary Timothy Geithner, she said today.

Worthwhile listen

Below is a link to a radio interview with Tom Woods, author of "Meltdown," which has moved up to #16 on the NY Times best seller list. It is not gloom and doom, it is a great summary of what works and what doesn't in recession/depressions and how they get caused in the first place.

Warning - it's 57 minutes. Encouragement - if it helps you understand your surroundings, it is worth the time. A good quote, paraphrased - "we spend more time researching what plasma TV we're going to buy than what bank we put our money into."

http://awr.dissentradio.com/09_02_16_woods.mp3

Telegraph: Harvard's Alumni Fail to Dazzle in Recession

Relating back to comments on college institutions in prior post:

http://www.telegraph.co.uk/finance/financetopics/recession/4634048/Harvards-alumni-fail-to-dazzle-in-recession.html

Joe

Market action and Spring outlook

Pretty good breakdown of S&P futures overnight. Low of 801.5, currently 802.75, that's down another 1% since last night.

I would call it the "not ruling out" overhang - over the last several days, the Obama administration is no longer "ruling out" auto industry bankruptcies and also not ruling out bank nationalization. I think the "stress test" is their effort to transition to nationalization in a way that will be acceptable to the public. "We looked under the hood, and we had no choice..."

Then GE will lower their dividend and the market will really tank.

Then, we have the mother of all bear market rallies while everything thinks the bad news it out. Feels like something's gotta give. That nasty Nasdaq just isn't cooperating and it keeps reminding me "maybe this is the bottom." Then I wake up...

Perspectives on future college tuition

A friend of mine asked, "how will the current economy effect college tuitions?" Here's what I told her.

College tuition has been supported primarily by (1) the pervasive belief of getting a "better" job with a degree than without, (2) abundant sources of long-term credit willing to finance college tuition with very long payback periods, and (3) a populus willing to take on that much debt, at those interest rates, for the terms of those loans. There is one more element to the college tuition financing experience - financial aid paid for by endowments swells the ranks, which creates efficiencies, which lowers the cost/student, which helps regulate tuition increases. In other words, stable or growing enrollment is key to the current systems' maintenance.

At the moment, we are on the verge of all of these elements breaking down. (I could use words like "we may be...", but it's more fun to tell you what I think than advice you on what "could be.") I'm talking full-blown 1930's-like depression, and based on that environment, here is what would (will) happen to the college scene:

1. High unemployment for an extended period of time would severely diminish the expectation of a "better" job

2. High unemployment for an extended period of time would limit a family's ability to pay for college tuition, reducing the ranks of students that can pay their own way

3. Sources of long-term credit will greatly diminish, first because of the liquidity of entities that provide such credit, and thereafter, as endowed schools "step in" to provide the lack of liquidity (much like the Treasury today) but quickly learn that consuming their own nest eggs to live day to day is not a solution. The example here is GMAC providing loans so you can buy a GM car. Without this credit, fewer students will be able to attend.

4. A strong aversion to debt as an answer to any problem will emerge, and students will rationalize that college is not worth it given the amount of debt necessary, particularly given the employment outlook.

5. As schools redirect their diminished endowments (diminished today by significant losses in the stock market, and later by overuse to support a student base that is more and more needy of "help" (i.e., aid or step-in loans), they will realize that the "need" base, as defined by incomes & assets of families versus tuition costs, has swelled to >50% of their current students (let alone their goal of students, which is now unatttainable due to enrollment reductions), they will be forced to reduce tuition to rebalance the rolls between those needing aid and those not needing aid. This rebalancing is a fancy way of making tuition affordable.

6. At first, the wave of lowering tuitions may be validation of the original class who passed up the college degree on the prospect of lack of jobs, unwillingness to take on debt, etc. Those folks will say, "see, I was right because "value" of college at the time I was looking was much less than what they were trying to get me to pay. I went to the school of hard knocks instead and look how well I turned out."

7. Still, quietly and slowly, a new generation will emerge that sees the "new price" of college as simply the current environment, and as it is more attainable, as wages are beginning to increase and unemployment begins to return to normal levels, they become more willing to pay the price and, if necessary, finance the cost with debt. Enrollments will begin to advance for the first time in 10 years.

8. With the expansion of college rolls, sentiment about college degrees will begin to improve, eventually driving more pride of college degreed individuals. Together with improved unemployment and job prospects, wealth expands, putting a generation in the position of donating to endowments to pump up "their" schools...and eventually tuition begins to swell again like it did in the 80's and 90's when everyone had to have an MBA or they couldn't get a job.

Today, if you a recent grad with an MBA you can't get a job. So, the short answer to your question is, tuition will be coming down, probably pretty hard, in the 3-10 year window, unless you think the Fed and Treasury and save the world.

I would also not be surprised if a new set of colleges emerges from this cycle as "Ivy League II," with the greatest of great schools' arrogance causing them to take bigger and bigger risks in managing their endowment to try to make up losses because "they're the smartest guys in the room" thus completely destroying their endowments, while conservative schools with lower endowments preserve what they have and are in a better position to provide aid when college degrees return to social desirability.

You can take the steps above and change "tuition" to just about anything in today's economy and see that we have already begun a deflationary cycle, and deflationary cycles don't end until all consumption is sapped out of the system. It's already happening with homes, cars and appliances, all of which rely on credit to provoke sales. Home values have fallen 30-40% from the peak (that's called "deflation") with another 20+% to go; car companies are doing everything they can to forestall the inevitable, and they will soon start massive price reductions just to purge inventory and generate cash, and if you saw Whirlpool's financial results you'd see that it has begun with large appliances.

PBS/Frontline Special - "Inside the Meltdown" 2/17/09 9 p.m.

http://www.pbs.org/wgbh/pages/frontline/meltdown/

From the press release:

FRONTLINE INVESTIGATES HOW THE ECONOMY WENT SO BAD SO FAST
FRONTLINE PresentsInside the MeltdownTuesday, February 17, 2009, at 9 P.M. ET on PBS
www.pbs.org/frontline/meltdown
On Thursday, Sept. 18, 2008, the astonished leadership of the U.S. Congress was told in a private session by the chairman of the Federal Reserve that the American economy was in grave danger of a complete meltdown within a matter of days. “There was literally a pause in that room where the oxygen left,” says Sen. Christopher Dodd (D-Conn.).
FRONTLINE producer Michael Kirk goes behind closed doors in Washington and on Wall Street to investigate how the economy went so bad so fast and why emergency actions by Federal Reserve Chairman Ben Bernanke and Secretary of the Treasury Henry Paulson failed to prevent the worst economic crisis in a generation on Inside the Meltdown, airing Tuesday, Feb. 17, 2009, at 9 P.M. ET on PBS (check local listings).
As the housing bubble burst and trillions of dollars’ worth of toxic mortgages began to go bad in 2007, fear spread through the massive firms that form the heart of Wall Street. By the spring of 2008, burdened by billions of dollars of bad mortgages, the investment bank Bear Stearns was the subject of rumors that it would soon fail.
“Rumors are such that they can just plain put you out of business,” Bear Stearns’ former CEO Alan “Ace” Greenberg tells FRONTLINE.
The company’s stock had dropped from $171 to $57 a share, and it was hours from declaring bankruptcy. Ben Bernanke acted. “It was clear that this had to be contained. There was no doubt in his mind,” says Bernanke’s colleague economist Mark Gertler.
Bernanke, a former economics professor from Princeton, specialized in studying the Great Depression. “He more than anybody else appreciated what would happen if it got out of control,” Gertler explains.
To stabilize the markets, Bernanke engineered a shotgun marriage between Bear Sterns and the commercial bank JPMorgan, with a promise that the federal government would use $30 billion to cover Bear Stearns’ questionable assets tied to toxic mortgages. It was an unprecedented effort to stop the contagion of fear that seemed to be threatening the rest of Wall Street.
While publicly supportive of the deal, Secretary Paulson, a former Wall Street executive with Goldman Sachs, was uncomfortable with government interference in the markets. That summer, he issued a warning to his former colleagues not to expect future government bailouts, saying he was concerned about a legal concept known as moral hazard.
Within months, however, Paulson would witness the virtual collapse of the giant mortgage companies Fannie Mae and Freddie Mac and preside over their takeover by the federal government.
The episode sent shockwaves through the economy as confidence in Wall Street began to evaporate. Within days, in September 2008, another investment bank, Lehman Brothers, was on the brink of collapse. Once again, there were calls for Bernanke and Paulson to bail out the Wall Street giant. But Paulson was under intense political pressure from conservative Republicans in Washington to invoke moral hazard and let the company fail.
“You had a conservative secretary of the Treasury and conservative administration. There was right-wing criticism over Bear Stearns,” says Congressman Barney Frank (D-Mass.), chairman of the House Financial Services Committee.
Paulson pushed Lehman’s CEO Dick Fuld to find a buyer for his ailing company. But no company would buy Lehman unless the government offered a deal similar to the one Bear Stearns had received. Paulson refused, and Lehman Brothers declared bankruptcy.
FRONTLINE then chronicles the disaster that followed. Within 24 hours, the stock market crashed, and credit markets around the world froze. “We’re no longer talking about mortgages,” says economist Gertler. “We’re talking about car loans, loans to small businesses, commercial paper borrowing by large banks. This is like a disease spreading.”
“I think that the secretary of the Treasury could not fully comprehend what that linkage was and the extent to which this would materialize into problems,” says former Lehman board member Henry Kaufman.
Paulson was thunderstruck. “This is the utter nightmare of an economic policy-maker,” Nobel Prize-winning economist Paul Krugman tells FRONTLINE. “You may have just made the decision that destroyed the world. Absolutely terrifying moment.”
In response, Paulson and Bernanke would propose—and Congress would eventually pass—a $700 billion bailout plan. FRONTLINE goes inside the deliberations surrounding the passage of the legislation and examines its unsuccessful implementation.
“Many Americans still don’t understand what has happened to the economy,” FRONTLINE producer/director Michael Kirk says. “How did it all go so bad so quickly? Who is responsible? How effective has the response from Washington and Wall Street been? Those are the questions at the heart of Inside the Meltdown.”

NY Times: Legacy of a Crisis: A Generation Shy of Risk

In Friday's NY Times, this article http://www.nytimes.com/2009/02/14/your-money/household-budgeting/14money.html?em does a nice job of explaining the potential generational change in risk tolerance we could see. While the article casually dismisses the possibility that we'll see the type of change in risk tolerance experienced by those in the great depression, excerpts of the article actually tell a different story. My interpretation: we are at the beginning of the change in risk tolerance, and articles like this advising changes in saving and investing behavior are providing the road map to ensure that the change takes hold. For example:

...one sensible way to reduce overall risk is to pay down high-interest debt, like credit cards or private student loans. That, at least, offers a guaranteed return, since every extra dollar you pay now keeps you from having to pay more interest later. Also, the sooner you rid yourself of debt payments, the less you would need in your monthly budget if you lost your job.

“I think the only thing younger people should be more risk-averse about is the leverage they take on,” said Jeffrey G. Cribbs, president of Chicago Wealth Management in Oak Park, Ill. In particular, he suggested they buy real estate and cars at levels below what they can actually afford.

Pulling leverage out of the system, as recommended above, will suck GDP out of our economy. It is what the Fed and Treasury are so concerned about. If you take the above comment seriously, the only way to stop the consumer from deleveraging is to provide guaranteed returns that offer better use of funds than paying down debt. That's a business proposition only the government would undertake (offer risk-free rates higher than what people pay on mortgages, credit cards, auto loans). Of course, the zero-percent-mortgage is a good start (an earlier post I predicted this as one potential outcome).

The article goes on to explain the importance of looking at your career as a component of your diversification strategy. That is, if your job is volatile, then maybe you should be more conservative in your investing. (I came to this very conclusion just before the market crashed last October - since most of my current income is highly market dependent, that I should move my investments into more secure instruments.) Likewise, if you are a fireman or a doctor, whose jobs are typical very secure with less volatile pay, then you can take risk in your portfolio. The article provides more, but here is a tidbit...

For most young people, however, their biggest asset is not a 401(k) account or a home but the trajectory of their career and the value of 20 or 30 or 40 years of future earnings. It makes nearly everyone a millionaire on paper. So whether you are taking on too much risk right now or not, all of that money will provide many more chances to fix any mistakes you have already made.

This conclusion is interesting. They are basically saying, "forget everything you read in this article - if you are young, take foolish risk on the promise of many more bites at the apple." Who's really gonna buy that?

Joe

Nov 16, 2008 stock picks...scorecard.

I've made a lot of "predictions" for lack of a better word in prior posts, so I thought I'd collect them and track progress once in a while. I'll do my best not to dismiss when I've been off-base.

The Nov 16 Stock Picks are three months old, time to put them to the test:

HIG, "if it goes to $10, it starts looking like a short." The next day, it broke below $10, and was at $4.95 by the end of that week. 1-0

UBS, short, it did go lower, but not far enough and not for long. 1-1

PCU, short, didn't reach target. 1-2

MS, as a short, it sort of worked, but it only went down 20%. 1-3

JBHT, did not hit target. 1-4

GGB, did not hit target. 1-5

CCK, did not hit target. 1-6

ISRG, did not hit target, but it was close. It's a loss on paper but it would have been a great short, down 40% from the entry point. I hate to say it... 1-7. P.S. I'm short this again at $114 w/ target $85 I think.

CMA, target met & exceeded, 2-7

BK, did not meet target, although the move that week was 20% in the right direction. 2-8

AIV, met intermediate target, on it's way to hitting longer-term target. Has to be a W. 3-8.

That's not so good, but if the money management was right, with riding winners and cutting losers early, it would have been a good palatte of picks.

The next shoes to drop

Well, we are about ready for the government to start realizing that bankruptcy for GM (and I guess Chrysler and eventually Ford) is a better alternative after all. Had they thought it through in the first place, they would have come to this. But the threat of losing millions of jobs clouded their judgment. Didn't they realize that sending the auto makers away to figure out a way out of the mess would have them come back either having failed to answer that question, or deciding to shed millions of jobs anyway? So, here we are, well, not yet, but we're closer to where I get to say "I told you so." And the cascade will begin...

Once they allow GM to go into bankruptcy with federal debtor-in-possession financing and, not only does the sky not fall, but they actually create a brief but measurable burst of GM auto sales, they'll start feeling good about themselves. Then that will give them a little confidence that wiping out preferred and common shareholders can be good for many although bad for a few. Did I say "nationalize" the auto industry? Of course not, but that's what it will be. That's ok, it's better than shutting it down and letting all that manufacturing capacity go away, and permitting the rest of the world to take it up.

Once they've had a taste of wiping out shareholders, then they can start coming up with a word for nationalizing the banks that isn't "nationalize." Whatever this word is, the operation is what matters - let the preferred and common shareholders that decided to risk their capital on the banks take the hit, not every person in the country (and our children, etc.). Maybe this gives them the framework to begin. I'm skeptical, but that is only because of the penchant for being unable to do the "right" thing. In this case, nationalize and get it over with. They may have taken a political stance against nationalizing the banks that would seem duplicitous, thus preventing themselves from being able to do the right thing.

They get to say that "nationalizing the banks isn't the American way" because that sounds good, but it (a) isn't true and (b) isn't their real reason. Who did Obama have surrounding him when he had his little economic summits? Big business [with whom I have no issues]. But if we nationalize the banks, then Mr. Obama has to deal with his friend, Mr. Buffett. Buffett gets wiped out by that move (and the ensuing moves).

In order for this president to succeed, he is going to have to turn his back on everything he's learned and a lot of people that he calls friends. In the end, the only real answer to this mess is to recognize that the deflationary spiral cannot be avoided, leaving two choices - slow it down or let it go basically at its own pace. What he's doing now is only going to slow it down, which is only going to cause it to lengthen dramatically, perhaps by a decade. Honestly, since his main edict is to get the credit markets "working," he's actually pushing up a string. Debt contraction is underway and it can't be stopped, and until he realizes that, we'll just be creating smaller and smaller bubbles until all the assets are wasted.

By the way, when no one can afford to pay back a loan, when the collateral under which a loan is given loses value faster than the loan can be paid off, or when no one wants to borrow money because they see the value of savings as the best way to build their assets, and no one issues credit in that situation, the credit markets are working. They're working just fine. They just don't like the fact that the effects are not desirable for the country (GDP shrinks). However, they are very desirable for the country long term.

Where was I? Oh, and once GM files bankruptcy, maybe they'll see the answer to the foreclosure mess is to let people file bankrupty rather than try to prop them up. It's (a) fair to the people who didn't overextend themselves (b) very quick in terms of getting on to the next phase of our economic history and (c) very very painful for the banks, since the credit card debt will also be wiped out. But, that's ok, because we'll nationalize the banks and then really nobody gets charged for those bankruptcies except the debtors that are not owned by the federal government. If the government owns all the debt and they forgive it all, they don't have to raise taxes to fill the gap. They just liberate people from their debts so they can start keeping more of their paychecks and consuming with their disposable income.

But we have to get very far from here in terms of removing credit from the system before we get to that point, and they have chosen the slowest path there.

Perhaps the next leg down in the market will move the needle on their perspective a little. More likely, it will solidify their resolve, encouraging them to make more of the same mistakes, only bigger. However, that resolve will give people a new sense of hope, and that will lift the markets like nobody's business. Eventually, when the air pops out of that balloon, and the markets show everyone how low they can really go, only then will folks wake up and start to say, "I understand now that we can't make things better for my generation, so let's do what we can to make things better for our children's." And, since these politics are not the politics of our generation, we'll need a whole new cast of characters in Washington. I can't wait.

I noticed nobody pointed out that it was OK for the White House to send a private plane to Ohio to have a Senator come back for a vote. Too bad the Auto Industry doesn't have a panel where they can bring Senators in and berate them like selfish, arrogant children. Seems to me most of those in the Senate would make excellent auto executives and bankers, at least as far as the current standards have been established.

Joe

Congressman Kanjorski discussing "the world economy would have collapsed"

Here is the link (wait out the irate caller, the good stuff comes at about 2:20 in the video): http://www.youtube.com/watch?v=_NMu1mFao3w

The text of the comments:

On Thursday (Sept 18), at 11am the Federal Reserve noticed a tremendous
draw-down of money market accounts in the U.S., to the tune of $550 billion was
being drawn out in the matter of an hour or two. The Treasury opened up its
window to help and pumped a $105 billion in the system and quickly realized that
they could not stem the tide. We were having an electronic run on the banks.
They decided to close the operation, close down the money accounts and announce
a guarantee of $250,000 per account so there wouldn't be further panic out
there.If they had not done that, their estimation is that by 2pm that afternoon,
$5.5 trillion would have been drawn out of the money market system of the U.S.,
would have collapsed the entire economy of the U.S., and within 24 hours the
world economy would have collapsed. It would have been the end of our economic
system and our political system as we know it.

We are no better off today than we were 3 months ago because we have a decrease in the equity positions of banks because other assets are going sour by the moment.

Obama's White Knight...Paul Volcker

A short historical perspective on Paul Volcker that casts a different light on his economic genius: http://www.realclearmarkets.com/articles/2008/02/the_paul_volcker_myth.html

Volcker's focus on managing the money supply was a failed attempt at creating growth. Ultimately, it was banking deregulation that broke the cycle. Banks started issuing "NOW" accounts, which swelled bank reserves with capital that was previously in money market mutual funds. We exited the early 80's recession with a step-function change in bank reserves, combined with tax cuts, that increased risk appetite.

I'm not necessarily pointing this out to say that deregulation is the answer to our current problems. Rather, I simply observe that our general prosperity since the early '80's was fueled by ever-decreasing banking and business regulations, and now that the populist sentiment is that more regulation is needed, we are extremely likely to at last pay for the contraction of the 70's as policy shifts to reregulation.

We are working through some massive pendulum swings as a culture right now. Regulations went from being anti-business to eventually anti-capitalist and therefore anti-American. Now they are the savior. Will the government cure our job losses by mandating long severance periods, such as those of France? I think they will eventually come to decide this is part of the answer. [I disagree.] Credit is contracting and the government can't fill the void fast enough (not that I think they should attempt to), and businesses are reacting with layoffs, which perpetuates the cycle. Businesses are looking out for themselves and they will continue to react to the shrinking economy with additional layoffs as demand continues to fall. The problem no longer can be solved by arresting falling housing prices, layoffs have to be arrested. There should be a lot more corporate cash available to hold on to workers that we don't need on the payroll, since the move to cap executive pay has begun. The transition will be very distracting to the economy; the deflation of executive pay will crimp consumer spending and individual income tax receipts like nobody's business, this on top of already rapid declines on both fronts.

A simple blog morphed into a rant. The good news is that we're more likely to come out of this with more experience in the White House. We just have to wait about 3.9 years.

Joe

Smoking made illegal?

This one also makes perfect sense. We all know how much smoking costs the healthcare system. Once we hit rock-bottom and stop trying to create jobs by wasting money, by propping up the economy with spending for spending's sake, we'll look for ways to create value. There will be no more tobacco lobby by that time to defend itself. There will be no stockholders of tobacco companies to piss off, because the stocks will be worthless by then anyway. And the federal government will eventually stop being so concerned about wiping out common shareholders. Shoot, maybe by then investing will be socially frowned upon.

Nicotine is a stimulant. Use of stimulants fuel bull markets. Depressants take over in bear markets. Long booze! The rise of Starbucks through the last bull market and subsequent crash in the bear is all you need to understand this concept.

By the time we get to the other end of this depression, I'll bet you smoking will be illegal. So, smoke 'em if you got 'em!



Joe

Best long play, next 5 years, maybe 25 years

I can't help but correlate the desire for energy conservation with a growing attraction toward conservatism. Frugality is in, people are doing more with less, getting back to basic, finding their roots, living like their parents/grandparents did and rediscovering "what's important." Translation, consumption is dying, and it ain't coming back for a multi-generational span. Consumption is being made the scapegoat, and now the government is going to consume excessively. When the government's excess proves also to not provide an answer, consumption will be as dead as "buy and hold."

As things unfold politically, the conservatives (Republican Party) are already setting themselves up to be begged to lead. They are claiming no connection with this stimulus plan. The stimulus can't "work," in that the best you'll be able to say about it is, "we would have lost a lot more jobs if we didn't do it." That didn't work for Bush ("we avoided a lot of terrorist attacks because of our policies"). It won't work for Obama, and as the unemployment rate peaks in mid-2010 (hopefully), the republicans will retake the Congress or at least make some great dents coming into the 2012 election.

So, what is the long play here? Religion. Living like our grandparents, fearing God, taking care of our neighbors, humility. Being conservative. When people run out of places to turn, they always wind up at the same place. And if unemployment grows as high as many think, there will be an historic number of people running out of options. By the time this is all over, which could be 10 years, the dollar may take a beating. But I bet the currency will still say, "In God We Trust" on it.

Joe

Superlative Statistics

I've been noticing that most statistics recently reported have been described "at levels not seen since..." So, I thought I'd start a chart. This chart illustrates how far back you would have to go for a particular statistic to find a value that is "worse" than what has recently been reported. Some of the descriptions have asterisks - these signify "the worst reading ever," and the bar only tells you how far back that measure/survey goes. Of the 17 statistics listed here, 8 are "all-time worsts."

Japanese industrial output record slide

Another economic statistic that blows through 2002 records.

Why stimulus won't stimulate

The problem is confidence, but, more specifically, it is a concern that the government can and will keep changing the rules. Generally speaking, once money finally gets onto the sidelines, the safety differential magnifies the lack of visibility on tax rates, interest rates, and other long-term factors that investors need to have a handle on to make investment decisions.

Even new capitalists get this.

China Shuns Investments in West’s Finance
Sector
Mr. Lou said that the sheer pace of new initiatives and new rules issued by Western regulatory agencies was disconcerting and made it even harder for him to choose worthwhile investments. “If it is changing every week, how can you expect me to have confidence?” he asked.

http://www.nytimes.com/2008/12/04/business/worldbusiness/04yuan.html?_r=1&ref=business

Are stocks a bargain at these levels?

The forward P/E of the S&P 500 is over 22. "TWENTY TWO." We have heard so many comparisons of economic data that end with "not seen in 40 years [or more]" that it is hard to imagine that we'll avoid going at least as low as we did after the 1982 recession. The would halve the markets from today's values, give or take. I mean, "take."

Graphic courtesy of the blog below, a very good read:

http://lcmarket.blogspot.com/2009/01/s-earnings-estimates-for-2008-and-2009.html

Hank Paulson July 2007 Interview

Maybe I'm kicking a dead dog, but I couldn't resist giving others an opportunity to read this Fortune interview with Paulson in July 2007.

The greatest economic boom ever
A lot could go wrong. And it may not feel like a day at the beach to most Americans. But for your average globetrotting Fortune 500 CEO, right now is about as good as it gets, says Fortune's Rik Kirkland.

(Fortune Magazine) -- Just how red-hot is the current worldwide expansion? "This is far and away the strongest global economy I've seen in my business lifetime," U.S. Treasury Secretary Hank Paulson declared on a recent visit to Fortune's offices.

http://money.cnn.com/magazines/fortune/fortune_archive/2007/07/23/100134937/index.htm?postversion=2007072300

Moody's warns of downgrades as pension schemes take hit

UK Times:

http://www.timesonline.co.uk/tol/money/pensions/article5587268.ece

Here comes the protectionism

From the UK Times, article and pictoral:

http://business.timesonline.co.uk/tol/business/industry_sectors/industrials/article5587443.ece

http://extras.timesonline.co.uk/pdfs/biz/bizfront_260109.pdf

Interesting read of municipal bond defaults

A research paper discussing the extent of municipal bond defaults during the 1930's. Here are a couple of excerpts.

"Of all defaulting issues, 48.1% were Aaa rated in 1929 and 78.0% were rated Aa or better."

The paper was based on research done in the '60's. Here is a quote from that 60's paper:

“Problems develop when the expectations of the borrower and lender prove to have
been too optimistic. The danger of overoptimistic expectations is probably the greatest
during periods of sustained economic prosperity. At that time the expectations for
future income and the prospects for selling assets are at a maximum. Such optimistic
expectations may lead many individual borrowing units into accepting future
commitments dangerously large in relation to their resources and without sufficient
allowances for possible future emergencies. For the total economy, there is a distinct
danger of an overexpansion of economic capacity during such optimistic periods. This
overcapacity is undesirable and may contribute toward and increase the severity of a
subsequent recession.”


http://www.mcdonnellinvestments.com/FIFIles/Municipal%20Default%20History%20Commentary%20-%2041408%20-%20REVISED.pdf

Bernanke...Great Depression "Expert"?

This post is a fascinating read on what causes depressions. The conclusions of this article are (b) we have met all the criteria of starting a depression and (b) Bernanke doesn't get any of this at all, so it can only prolongue the situation.

http://www.debtdeflation.com/blogs/2009/01/11/bernanke-an-expert-on-the-great-depression/

Joe

2009 Storylines

There have been a lot of stories within the stories that may be easy to miss - optimism is a very powerful force and it can work as a filter not only for the speakers but also for the audience.

Take for example this week's unemployment report. Broadly, total unemployed reached a 25 year high. However, because initial claims were down and it was a brutally slow news week, the focus was on the improvement in initial claims. You could say that it just meant that the market had already priced in the figures. I think the market was completely asleep before and after the figures came out, so it would be hard to say whether or not the news was priced in.

I think there are other likely events this year that will be negative news catalysts that will pressure stocks.

First of all, a retest of the 750-800 range on the S&P is pretty much universally expected. What will people be saying when this happens? Assuming it happens after a run to 950-1000, we're talking a 15-25% high-to-low. That has got to knock the wind out of anyone's sails for a day or two, and every time we get whacked like that (Sept 29, Oct 12, Nov 19 I think were the dates this year), somebody new calls their broker and says, "get me out." And once you get out, there really is no longer a sense of urgency to get back in. What you feel is a tremendous weight lifted off your shoulders. It is a feeling you could get used to, and it gives you a lot of objectivity that you simply couldn't have when you were betting your life savings on the stock market (real estate market, etc.). We break 800 again, and I don't see how we can muster enough confidence to will this market back up again.

When we figure out that you can lower mortgage rates to 100-year lows and it has little impact on property values because the people who are underwater, who need it the most, cannot afford any mortgage, because in the process of failing to pay their mortgages, they have already neglected the electric company, their credit card companies, their car payments, etc. They need a "clean slate" (aka the type one gets from bankruptcy), not a quick fix. The program will appear to be working, as refinance applications will rise and there will be reports about how many people have taken advantage of low rates. And there will be stories about first-time buyers who can afford a house for the first time because the decline in market prices and interest rates has finally put home ownership within reach for them. However, as housing continues to decline, these folks will face the emotion of being underwater and feeling like they should have waited, and they'll see so many others not paying their mortgages getting handouts from the govt. Then there will be the majority of home owners - those that have jobs and savings and can afford to pay their mortgage will hoard the supply of new mortgage funds, because they will be the preferred customers from an underwriting perspective. Ultimately, completely new programs will be developed to prop up home values. We may see some completely different programs this year or not, but what they have going so far is not going to work for all the above reasons.

Right now the Fed has a Zero Interest Rate Policy (ZIRP). I'll bet you a cup of coffee we have near zero percent mortgages before it's all over. It's very simple, really: if you believe the Fed's current actions will stave off deflation, then they will stop expanding programs ad nauseum; however, if you believe that the Fed will do "whatever it takes," and you also believe that the Fed's actions won't be enough, then "whatever it takes" includes taking mortgage rates to zero. I'm sure you've heard the many talking heads say that something has to be done to stabilize prices ("that's where it all started and that's where it needs to be fixed"). As long as the recession continues, they'll get crazier and crazier in terms of what they'll try to do to stop the bleeding. What would come after zero-percent mortgages? Why, the government purchasing homes directly to suck up the excess inventory (or simply knocking them over) of course. I think the term for this is "quantitative easing." If they could apply ZIRP and quantitative easing to solve liquidity challenges and lack of credit in the marketplace, why wouldn't they do the same for home values? [PS I like the "knocking them over" plan better. It will create jobs and sop up the glut pretty quickly. Then the builders could go back to building...]

I also think that this year will afford investigative journalism time to piece together the story as to why the economy went from "so great" to so terrible, so quickly. The SEC's internal investigation into the Madoff case may be the catalyst. For now, we can blame Bush and his team - they're easy scapegoats since they are on their way out. Certainly, they provided their share of botches. However, when you think about the economic stimulus of the war in Iraq, the creation of 100,000+ new jobs creating the TSA (not to mention all the make-up, nail files and shampoo and bottled water that people still have to throw away and repurchase at airports), I think you can chock up a whole bunch of silent stimulus that forestalled the recession. The biggest mistake that Bush made was to not appreciate the inevitability of the situation during the recession earlier in this decade. But I digress somewhat. At some point there will be a tell-all on what was known, and when, over the last year, and the smart and dumb moves that were made. When the Dateline audience starts hearing that maybe the government didn't really know what they were doing, it will provide a nervous awakening that "Joe the Plumber" had previously not contemplated. There remain a whole bunch of folks just doing things the way they always did, listening to Charles Schwab in his commercials tell them to stay the course. A Water-gate sized story is in there somewhere, and somebody will find it, and the media will love it.

Bottom line, a perception that there was either government incompetence or, worse still, a cover-up, will shake the foundation of this recovery and ultimately contribute to it's delay. It is also likely to create a wave of completely new thinking and ideas in terms of regulation and viable solutions.

People have developed a severe lack of patience over this consumerist era. "What have you done for me lately?" is a common tone of interaction. This recovery is going to take longer than the average person thinks it will, and that will wear them out. And they will take it out on politicians and regulators that told them 2009 was the year of the recovery. The more optimism is encouraged, whether the motive be genuine or not, the harder the fall from optimism will be, and the more blood the masses will seek. Only after this cycle ends with the consumerist seeing themselves as part of the problem ("maybe we should have given New Guy more time") can we begin to cleanse this immediate gratification element from the collective public psyche.

I think I mentioned before, "under-employment" will be the trojan horse of "unemployment that is not as bad as it could be." We'll have a good opportunity in the next few months to frame the unemployment data as not-so bad, what with the extremely low expectations that we've set. However, the proof will be in the pudding: (a) disposable income will shrink faster than unemployment grows, effectively meaning incomes are shrinking and (b) consumer spending will continue to decline no matter what they do about home values or mortgage rates or anything else. A huge amount of money left the stock market for good - the 50+ crowd cannot afford to get back in, now that they have seen first-hand that it could get whacked in a way that never recovers. [OK, some will, and they'll take on more risky bets to try to earn back what they lost, which will prop up volatility, but ultimately they'll lose that money, too.] The answer to the undercapitalized next decade's retirees? Working harder and saving more has always provided a pretty good return on assets. Wealth creation for this crowd will come from spending less, saving more, working longer and being grateful that things aren't worse. And when they start understanding that they can impact their asset growth faster than any money manager ever could, by simply being smarter about how they spend their money, they'll be done with the markets for the rest of their lives. By the way, this is the baby boomers we're talking about, so it is a very disproportionate amount of money that will not return to the markets. The only upside to this is that this mass exodus was going to happen at some point as this population base matured, so we'll be better off when they are all on social security.

The March Fed economic data will tell some of the story, but it won't be until June that there will be no denying the situation. And when folks start framing the recovery as "some time in 2010," we will have chipped yet another piece of optimism away.

Another good storyline for 2009 will be how many jobs we've lost as a result of the auto industry slowdown and the federal intervention. I never once heard anyone on TV say that we'd lose X jobs even if we give them the money, but when the Treasury put conditions on those loans, I heard those conditions translate into lost jobs in the industry. If they shift those jobs to green specialties, there is no skills overlap that will allow the auto worker to migrate to this new paradigm.

One of the simplest things the Govt could do is to give "vouchers" for the new low-wattage flourescent bulbs to everyone, and then give grants to the companies that make incandescent bulbs to get out of the business, or at least give them an incentive timetable to reduce production. Rewarding energy efficiency while accelerating the advent of new technology (and therefore the destruction of old technology, which creates consumption) sounds like a good approach to spending our tax dollars while stimulating the economy.

Schools are another interesting change that are likely to come. As states cut their budgets on everything, schools will be far from exempt. And with municipal bonds out of favor and likely to deteriorate, long-term funding that would forestall the inevitable won't happen. The cycle of lower property values and higher property tax rates to make up the difference will break the backs of the property owners and the state budgets. The solutions are on two ends of the continuum: either the Fed starts providing a massive amount of funding to public schools nationwide (not a bad idea) or the states start outsourcing the education process by providing vouchers or selling public schools altogether. 2009 will be the school year that they cut all the fat; 2010 will be where they have to start cutting to the bone.

The 401(k) match will start to become an anacronism this year. And the reduction or removal of match will add to the current disincentive of a lack of a return over the last 10 years. That will also impact 529 plans. Another example of money leaving the market in a self-feeding spiral.

Some time this year you'll hear the term "the new protectionism." We bail out our auto industry, they bail out theirs. Immigration goes down (because we have no jobs) and they'll do stories on how effective the new border patrol programs have been, which will be perceived as protectionist. We'll discourage exporting jobs (that's old news, it just hasn't been called protectionist, exactly). "Buy American" will come back as a rallying cry as we try to will ourselves out of the recession.

I made myself depressed writing this...

Joe