Paul B Farrell makes the case: "this time is never different" as he heads for the exits. – Ilene
Double Dip? Great Depression II? Game Over. Bye-Bye Bull. Crash Dead Ahead. Sell. Get liquid. Now. Dow’s “Slam Dunking” Below 6470 (Again!)
Courtesy of Paul B Farrell, JD, PhD at Wall Street WARZONE
Originally published at MarketWatch
“This game’s in the refrigerator! The door’s closed, the lights are out, the eggs are cooling, the butter’s getting hard, and the Jell-O is jiggling …” That was legendary Lakers’ radio announcer Chick Hearn’s signature way of calling a game early, telling fans the home team won … you can head for the exits before the final buzzer. Chick wrote the book with popular sports phrases like “slam dunk,” “airball,” “charity stripe,” and a “bunny hop in the pea patch” for a traveling violation.
Chick’s our inspiration today: March 2009 I wrote “6 reasons we’re calling a bottom and a new bull.” We scored a bullseye. It was a great run. Net gains over 50% in 2009. Now it’s time for a new call: “Game over, head for the exits.” Bears trashing bulls.
No, no, “it’s a buying opportunity,” says another legend, hedge fund manager, Barton Biggs. Buying opportunity? For who? Remember, Biggs isn’t advising Joe Lunchbox about what to do with his little 401(k). Biggs’ customers are mega-millionaires in his $1.5 billion Traxis Partners Fund. Main Street investors like Joe are prey in his casino. Read on, you decide: As you stare from high up in the nose-bleed bleachers watching the game, staring at a Dow that not long ago was above 11,000 and heading for 12,000. Now the Dow’s sitting on the bench, ready for the showers, weak after a couple airballs around 10,000. No more timeouts. “This game’s in the refrigerator.”
How bad is your bookie’s point spread in this game? A blowout? Will the Dow drop below 9,000 again? Now that it’s broken technical supports, will it drop below 6470, where the last bull rally started in early 2009? Can you handle the nerve-racking volatility generated by Wall Street’s high-frequency traders playing the game at warp-speed with algorithms making thousands of micro-bets in milliseconds, betting billions daily? So who should you listen to? Barton and I arrived at Morgan Stanley about the same time. He stayed decades longer, became one of the world’s leading strategists, advising the kind of high-rollers who also bet at private tables in a Vegas casino.
You remember Biggs: In his book Wealth, War & Wisdom he advises his high rollers to prepare for a “breakdown of the civilized infrastructure.” Buy a farm: “Your safe haven must be self-sufficient and capable of growing some kind of food … It should be well-stocked with seed, fertilizer, canned food, wine, medicine, clothes, etc. Think Swiss Family Robinson.” Biggs is not advising small investors on what to do with their 401(k)s. If you’re gambling at “Wall Street’s Casino” folks, the odds-makers are betting against Biggs. It’s “game over."
”Wake up! Main Street lost 20% of your retirement last decade …
Only a fool would trust Wall Street another 10 years!
Yes, if you’re channeling Chick, here’s your “mixed metaphor” cue card: “This game’s in the refrigerator … Wall Street won (proof, Goldman’s $100 million profits trading days and Blankfein’s $68 million bonus) … Main Street’s headed for another losing streak … Congress’ lights are out … the refrigerator door’s closing on financial reforms … the lobbyists are laying some rotten eggs, poisoning capitalism … the Tea Party-of-No-No ideologies are hardening … the bull’s Jell-O is jiggling to a flatline … and this market’s going into hibernation, with the bears … run, don’t walk, to the exits, folks.”
But will Main Street exit? Will we ever learn? No. The “Wall Street Casino” makes mega-billions for insiders like Blankfein and the Goldman Conspiracy. Yet “The Casino” is still below the 2000 record of 11,722. So after accounting for inflation, Wall Street lost over 20% of Main Street’s 401(k) retirement money between 2000 and 2010. Yes, Wall Street’s a big loser the past decade. Their advice is self-serving. Period. Given their miserable track record, only a fool would bet with Wall Street. Betting odds are Wall Street will lose another 20% in the next decade from 2010-2020. Yes, today’s market is a “buying opportunity,” but only for “Wall Street Casino” insiders like Biggs, Blankfein and even low level staffers inside “The Casino.” But not for our 95 million Main Street investors, there’s more pain ahead, this market’s dropping.
Correction? New crash imminent, worse than 2008 … Great Depression II?
More proof: Earlier economist Gary Shilling said P/E ratios are at a “nosebleed 22.5 level.” The Dow was around 11,000. Money manager Jeremy Grantham recently said the market’s “overvalued” 40%. That could mean a collapse to 6600. Last week in Reuters “Markets Could Be Derailed Again,” George Soros echoed a “game over” warning with a “stark warning … that the financial world is on the wrong track and that we may be hurtling towards an even bigger boom and bust than in the credit crisis.” Now Dow Theory’s Richard Russell is warning the public of an imminent crash: “Sell … get liquid … by the end of this year they won’t recognize the country.”A bigger meltdown than the credit crisis? Yes, Bush’s team drove America into a ditch. But now Obama and his moneymen, Summers, Geithner, Bernanke, are digging the hole deeper. Soros says we have not learned “the lessons that markets are inherently unstable.” As a result, “the success in bailing out the system on the previous occasion led to a super-bubble.” Now “we are facing a yet larger bubble.” Worse than 2008? Yes, the game may be “in the refrigerator,” the lights will go out, but as Soros hints, the electricity may get turned off too. Get it? This may not be a correction. Not even a bear. What’s coming could be worse than the 2000 dotcom crash and the 2008 meltdown combined, a “Super-Bubble” says Soros.And the biggest reason, Nouriel Roubini and Stephen Mihm tell Newsweek is that “the president’s half-measures won’t fix our failed financial system” because he refuses to “bust up the too-big-to-fail banks.” Instead, not only did the Senate pass a weak financial reform bill, there are the seven key areas many commentators now must happen in the Senate to keep business as usual:
1. No Fed audits, no transparency, no matter how much money Fed prints.
2. A toothless Consumer Protection Agency.
3. No new statutory fiduciary duties owed to investors.
4. Wall Street must continue controlling rating agencies.
5. Unregulated derivatives trading with loopholes for most derivatives.
6. No new Glass-Steagall separation of hi-risk trading & retail deposits.
7. Taxpayers must remain liable for all future bailouts in unlimited amounts.
So yes, Congress will pass something. But unfortunately as MSNBC reports, Senator Dodd, the reform bill’s sponsor, is a turn-coat, working overtime with Wall Street lobbyists “to weaken financial reform,” leave us vulnerable to a new, bigger crash in the near future. And Wall Street lobbyists are spending hundreds of millions to kill reform.
“White Swans:” 2000 and 2008 crashes were predictable, next one too
Recently Roubini was interviewed by Charlie Rose in BusinessWeek. His message confirms the worst. Roubini was questioned about his new book, Crisis Economics. Rose began by asking, “what have we learned from these crises of capitalism?” Roubini could easily have been, “nothing, we learned nothing.” His actual reply:
“The first lesson is that crises are not ‘black swan’ events … they’re not just random outcomes. They are the result of a buildup of financial and policy vulnerability and mistakes—excessive risk-taking, leverage, debt, and so on.” They are White Swans “because these events are predictable. But generation after generation, we seem to forget the past. When there’s a bubble, there’s euphoria. There’s irrational exuberance. Consumers can use their homes like ATM machines. Governments and policymakers are happy because they get reelected. Wall Street makes billions of dollars of profits. Everybody’s delusional.”
Sound familiar? Yes indeed, in This Time Is Different: Eight Centuries of Financial Folly, economists Carmen Reinhart and Kenneth Rogoff pinpoint the key signal that will blow the whistle and call the game: The “90% ratio of government debt to GDP is a tipping point in economic growth.” For 800 years “you increase it over and beyond a high threshold, and boom!” Warning fans, the numbers on the game-clock are flashing wildly. America’s ratio is now 92%, thanks to Obama’s $1.7 trillion budget, future deficits, exploding debt. Soon, Ka-Booom! Another great nation bites the dust. Depression follows. Goodbye retirement.
Warning: 800 years of history are calling “game over”
But can’t we change destiny? Or is Dodd, Congress, Obama, Wall Street, the Party of No-No and 300 million Americans all just playing their parts in a historical script well-known to historians like Reinhart and Rogoff, Kevin Phillips, Niall Ferguson and others? The message of This Time Is Different is very simple:
“We have been here before. No matter how different the latest financial frenzy or crisis always appears, there are usually remarkable similarities from past experience from other countries and from history. … no country, irrespective of its global importance, appears to be immune to it. The fading memories of borrowers and lenders, policy makers and academics, and the public at large do not seem to improve over time, so the policy lessons on how to ‘avoid’ the next blow-up are at best limited.”
So please listen closely: All the TARP bailouts, stimulus debt and Fed loans won’t work. Neither will a new conservative government. This is not a basketball game. We are not channeling Chick Hearn, calling this game before the final buzzer. While we prefer the illusion that “this time really is different,” eight centuries of history suggest otherwise:
“The lesson of history, then, is that even as institutions and policy makers improve there will always be a temptation to stretch the limits. … If there is one common theme to the vast range of crises … it is that, excessive debt accumulation, whether it be by the government, banks, corporations, or consumers, often poses greater systemic risks than it seems during a boom. … Highly indebted governments, banks, or corporations can seem to be merrily rolling along for an extended period, when bang—confidence collapses, lenders disappear and a crisis hits. … Highly leveraged economies … seldom survive forever … history does point to warnings signs that policy makers can look to access risk—if only they do not become too drunk with their credit bubble-fueled success and say, as their predecessors have for centuries, ‘This time is different’.”
No, “this time” it’s never different. Get it? In the end, it doesn’t matter what happens to the Dodd-Obama financial reforms. The endgame’s never a Black Swan, it’s a very White Swan well known to historians—guaranteed, inevitable and inescapable. This time is never different.
The clock’s flashing. Huge point spread. Think bear, think crash, think end of capitalism, think “Great Depression II” … This is no buying opportunity, this game’s in the refrigerator, call it.
Original, Marketwatch, May 2010
