Everyone just keep thinking happy thoughts! There’s just not enough happy thoughts going around! Think harder D it!
What comes after this?
Look at the mid 20’s, big spenders, living beyond your means, then the 30’s… collapse… and then WW2…
Now, in the mid 90’s we had the big spenders … up to now, but now the collapse starts… If we do not pull it together with very high discipline right now, and all get a bit poorer, WW3 is next? I really hope not! But one has to look at the truth sometimes.
Most jobs went overseas. Why? Too much potato couch and greed by corporate executives. Keep the small shop running, keep the big dreams going, but ever so ever with sound business sense in a sustainable manner. Look at the companies that are sustainable, forget those that do not want to be.
Paul, when seeing the title i knew this had to be you. We all know you are a born optimist. Maybe you should finally tell us what’s in the cup?
But optimism isn’t a good trait for an investor. Realism is.
Sure there will be banks that in 10 years from now are worth more then today, maybe even in real terms. The big question is how do you know which ones? Hard to judge future value of assets in the present situation. Dangerous to take past earning records as a guide for the future: how much of that was “the magic of leverage”, how much of that were sustainable earnings? As a small investor the wisest thing you can do is know your limits and know what you understand and what you don’t. In short, buying bank stocks now is like playing Russian roulette, and I wouldn’t advise it to the general public, Paul…
Since the stock market buys and sells in hours and days, not years, even months, and since the current market is wildly volatile, “too much pessimism” would be for buying and selling on which days?
In the long run the entire financial system of the US, (maybe the world, its pretty interconnected these days) is totally f*%ked. It can’t function in shrinking economies. The only question is how long it will take for the pyramid scheme to collapse
Selling loans back and forth and then calling them assets doesn’t make them assets. Much less solid assets. If there is a way for the system we have to even *function* without continued (and increasing) new lending, someone please explain how.
If we are not (as a nation) about at the top of our borrowing ceiling, we have gotta be pretty close.
Personally I suspect that the more “creative” institutions that made the most profit during the boom now have negative assets. I wouldn’t want to own a piece of them now, no matter how cheap it sold.
150% surge! I had 28 cents yesterday and today it surged up by 150%!!! Whoopie! I can mail a letter! Don’t quote percentage changes unless you specify the amount. So short trading “surged” by 128%. Was there 100 or 100,000 short sellers because it makes a huge difference? When companies (and the government) start reporting true and realistic numbers, then the shorts will ease off . If it really is all that rosey out there as the numbers keep saying, then why is the FED/Goverment having Sunday announcments and falling all over themselves trying to keep the market from doing what the market does! Point the finger at the market manipulators, not the shorts!
We are not within sight of the iceburg let alone seeing the tip of the iceburg. There is still 50 trillion dollars worth of toliet paper ou there. The bank CEOs are attempting to collect every possible check they can before people see the truth. Lehman and WaMu will go under this year, CITI and BofA next year along with GM. They have lost so much money on vechiles the last couple of years, I would consider them a bank also. Home prices still have to come down and that will cause more failures. There will be good buying oppertunities for homes and bonds in 5 or 6 years.
Sure, the Implosion can overshoot on the downside much like the Explosion or Bubble can overshoot on the upside.
So sure, Paul R. La Monica’s Anti-Bubble can theoretically get TOO small.
But we are nowhere near that situation.
Let’s “bear” in mind that Bear Markets have the most explosive rallies UP — but these are either sucker-rallies or short-covering and short-squeeze-type rallies. They are short-term and quickly fizzle out.
[Tyler said...] “With SOME banks, people are going to look back years from now and kick themselves for not buying them at these prices. There are great opportunities if you do your homework.”
Right. The question is, how MANY years from right now is this “self-kicking” going to happen? And which banks are going to be left standing?
This non-buyers’ remorse doesn’t make sense unless you think the recovery is right around the corner.
I don’t think that is the case.
Think more in terms of 7 to 20 years.
Future values discounted back to the present, even over say 10 years, even if they are going to be 200 percent HIGHER than they are today, would not BEGIN TO justify TODAY’s bid and ask prices.
So time horizon is important too. Stocks bought in 1929 took 25 years to “come back”. Some never did.
Investors who bought Freddie Mac or Fannie Mae 2 years ago rue THAT day. What difference does it make that I did not buy these stocks when they were recently at their lows?
If your investment goes to ZERO, there is no “coming back”.
Short-sellers are just like long-buyers, if they are good. They diversify. They short-sell a lot of bad individual stocks, trusting that in a financial depression (or some other market-sector depression), some of their picks will go to zero.
So there isn’t much concern among the short-selling crowd of those stocks that will “bounce back” and that THEN might have made them money if they had just bought them ‘long’.
The only thing I would not sell short at this point in time is America — at least not YET.
Please, if you have time, refer to
Also http://mises.org/story/3103
And maybe also http://mises.org/story/3085
To Marcus,
I believe the next illion after Trillion is GAZILLION.
Pretty soon the government will just start lopping off the 0000’s just like they did in Africa cause there were too many and the paper they were printed on couldn’t handle any more digits.
hey, maybe our financial computers are all f–ked up because the numbers are too long. Hmmm, no wonder why Henry Paulson said they didn’t sit down with a calculator to figure out all the bailout costs. Good thing cause his calculator probably couldn’t count that high.
What does it really matter to him anyway, after January 2008, he and Benny B. will be asked to quietly go away and some other poor schmucks will be installed to assume the positions (literally), while collecting some hefty parting gifts for all their hard work and sufferings. Oooo, oooo, I’ll do it, for a nice golden parachute clause. Sign me up!
You bet I am pessimistic and for good reason. It seems that evything is “TOO BIG TO FAIL”. Meanwhile, the concerns of Americans are “TOO SMALL TO MATTER”.
Turn the question around and ask yourself… “What is there to be optimistic about?” Besides a bailout of Lehman, WaMu and possibly Merrill, how about the looming bailout of the FDIC? Where does it all end? Where does the money come from to prop-up these “smoke-and-mirror” entities?
To prepare myself for discussions regarding our future debt, does anyone know what comes after TRILLION?
Most likely not enough. The IBs are routinely announcing billions in losses that would see any other bluechip going the way of the dodo.
Lehman’s going, Merrill will be next and I wouldn’t been surprised if WaMu and BofA soon become a piece of financial history as well. The sheer level of fraud here is staggering!
Paul, the issue right now is not PESSIMISM BUBBLE… most people in general and investors in particular are smart, vigilant and proactive of really what’s going on in the economy…I the financial sectors for example we knew that during the second quarter of 2008 these companies were trying to unload their CDO’s and SIV’s by enticing their clients that these were good investments but in reality these are a rotten one. Then the New York Attorney General Cuomo threaten to file a class action suit for these banks and financial institutions. What they did they bought back these shares as part of settlement with the AG Coumo. What will happened when these companies will declare their respective earnings in the 3rd and 4rth quarters of 2008. Not to mention the current wave of mortgage foreclosures that are accelarating the fastest in decades afflecting even the PRIME barrowers. The government policy of bailing out those titans in the mortgae industry with the tax payers money are not working because they are trying to prevent the inevitable. If they will just leave this sector alone and if it collapse then face with it. The bottom of this economic downturn had long been over. When the bottom have been known then that’s the time that the government will intervene and use the tax payers money to rebuild what is left. The situation right know is still floating and no one knows what will happened next. We are just kind of playing a guessing game. Stocks will go up today then falters tomorrow…everything right now is uncertain…
To answer the question posed: Is there too much pessimism about banks or not enough?, my answer is NOT ENOUGH.
The problem is, we have not been given all the information about the banks dealings to know if we shouldn’t be pessimistic or optimistic. Clearly, the banks have been giving us the chinese water torture with dribbling out the writedowns (which IMHO aren’t 50% done yet) that we can’t really make good financial decisions based on the information or lack of information that we get from banks.
Bear Stearns had a 167:1 leverage ratio. How in the hell can any financial institution survive with a lend to reserve ration like that, if even the smallest thing goes wrong? What are the leverage ratios of the other banks? I’m guessing the ratios are way up there too. Lehman is dying fast (soon to be on governemnt life support), and we truly don’t know who’s next. I’m pretty pessimistic that all the bad news has not been been revealed yet!
Short sellers are a vital part of any financial system, as they balance all the long players. Remember, the CBOT balances all the shorts against the longs so we always have winners and losers, that is how the game is supposed to be played. Problem is, we have been getting constantly brainwashed in this politically correct country that there are no losers allowed. We wouldn’t want anybody’s self esteem to be damaged now would we. Well tough beans to that. Real life has winners and losers, sometimes you win (bet correctly) and sometimes you lose (bet incorrectly). That’s the way it is supposed to work.
With the government stepping in to prevent LOSERS, we all end up losing in the long run (slowly, thus more painfully). The system needs strong medicine, but the government keeps watering it down so it becomes less effective, thus prolonging the illness.
If the US Government would just get out of the way, the financial systems would end up sorting themselves out much more quickly. Would it be VIOLENT, probably, but at least it would get done quickly and we could start picking up the pieces and starting over, as our country always does.
I am not pessimistic that we won’t EVENTUALLY come through all this mess, but with all the interference being pumped in, I have no idea when it’ll all shake out (my gut feel though is about 6 years of subpar economic activity going forward before we start re-building to the next bull market.
“Our banking system is a safe and sound one”
“The crisis is contained to subprime”
“recovery is just 6 month off”
“largely reflect strong economic fundamentals”
…according to Paulson & Bernanke.
I wonder, if everything is contained and our banking system is “a safe and sound one” with strong economic fundamentals and recovery just around the corner, why do we need to fund all these bailouts?
Somebody is lying to the public/congress while internally they are in panic mode. They (Bernanke & Paulson) know how bad things really are but are afraid to admit it, so not to cause a world wide panic. My money is in cash and it stays there until the dust settles. Considering the ongoing implosions that might take a while.
We simply can not afford these bailouts. We already have a huge (and rising) deficit. We have social security and medicare shortfalls. The politicians are talking about cutting taxes.
Where is the money going to come from? We don’t have it. America will be bankrupt soon enough. Pessimism? I don’t think that there is *enough* pessimism.
I agree with Todd – stop the bailouts and live with the stupid and greed centered mistakes made on Wall Street and by banks, amongst others. In the long run the deflation/devaluation of real estate will benefit this country as more people will be able to afford housing. It’s time the taxpayer stops being the fall guy for the greed and stupidity of others. I had little respect for Wall Street and now I have none. To me Wall Street and used car salesmen go hand-in-hand and in the same breath. Same for the bankers. Wall Street is a perfect example that PhDs and MBAs don’t mean squat as compared to common sense and moderation. All those highly educated overpaid financial people can take their historicals and their graphs and shove’em. Maybe they need to get out of their ivory towers and smell the coffee to wake themselves up. I now hear that the Big 3 automakers have their hands out. Let Lutz and Wagoner and Ford give back to the companies all their bonuses and stock options (now probably worthless) and then we’ll talk about a possible loan of some sort.
There is so much denial about the current state of the US economy and what is yet to come. I listen to commentators almost daily saying that “historically” real estate should bottom early next year and the economy will turn around. The problem is that the bubbles in the stock market, housing, and credit far exceeded anything ever before and it will take a long time to work out. History cannot be used as a guide for the current state of things. Cleaning this mess up takes even longer when the Fed tries to keep things propped up by bailing out all of the banks and brokerage firms who had a big role in creating the problems. And now these bailouts are being dumped onto the taxpayers. This ship is sinking fast and there are going to be a lot more bailouts needed. It’s a very slippery slope. The net result will be huge Federal budget deficits resulting in a huge supply of Treasuries and rising interest rates at a time when the economy is in sharp decline. But the big problem comes when our foreign creditors lose faith in our ability to hold the system together and day is coming.
I agree with Peter, the next bubble is in Treasuries related to the deficit. Once the Treasury starts selling more and more notes to finance the deficit, Treasury prices will crash and yields will soar. We may see lower mortgage rates due to the Fannie/Freddie takeover for a short time, but not for long with a record deficit looming. As for short-selling the banks, we got a long way to go baby before the bottom hits. The banks are being killed by mortgage delinquencies, both prime and subprime. But now delinquencies are rising for commercial construction loans, auto loans and credit card loans. Yep, a lot more skeletons in the closet to be sure. Yes, this is reality. At some point things will improve, but not for another couple years.
we do not know and can not know whether the present level of shorting is excessive. That is because the banks and investment brokers involved have consistently failed to provide good information.
ARM loans have little track record under conditions of falling house prices. In part, that is because few previous bubbles allowed house prices to get so far from reality.
Indeed, the whole housing finance scheme has little track when housing prices are falling.
Of course, the various parties to the lending binge all happily participated for what they saw as good reasons. That someone out there is left holding the bag and now is receiving capital losses is a direct consequence of poor lending practices.
There is plenty of research from our academic institutions showing the causes of home price increases. Lenders, however, paid little or no attention to that research [not invented here] in their rush to lend, lend, lend.
Imho, [i've worked in banking and other financial areas for 38 years], the ultimate problem lies with the Boards of Directors. they tend to choose salesmen as CEOs when salesmen have a very poor track record as bank/broker CEOs.
For the record, I’m in cash. Even I can’t figure out the situation well enough to place a good bet. And I’m probably a lot better at inspecting financial firms’ statements than 99% of the traders and analysts on Wall St.
[aside to Todd: All money is fiat money, unless and until you use something that has inherent value for other purposes -- example: kilowatthour of electricity.]
Why do people short-sell stock? Because they can. It not so much as being pessimistic, but being realistic. When there is major turmoil in the system and people report what they see and experience, they are branded as pessimistic. People are just trying to make a buck anyway they can. It looks like short-selling is the only way to do it nowadays.
Paul,
Most of us are not saying the world is going to end. We simply feel that we have not reached the bottom yet. I personally would like all be BS coming from the govt and the media to stop. Stop bailing out idiots and let the economy work out the trash so we can all thrive down the road.
Paul, the real issue with bubbles and all “business cycles” is that the fiat money system makes them possible. Banks, by their fiat nature, are inherently unsound (read that as insolvent). They only need to keep 10% of their reserves on hand to remain in good stead with the Fed. If banks were a warehouse storing any other physical good than Federal Reserve Notes, they would be indicted for fraud. What we are seeing is a general awakening to the fact that our financial system is based on smoke and mirrors, not anything that has value. Federal Reserve Notes are backed by faith in the American worker and their future productivity. This housing bubble is the BIGGEST asset bubble in US history. We are mirroring the housing bubble and the interest rate actions that the Japanese made in the late 80’s and early 90’s. This is more than a negative feeling, this recession/depression is real. Our government needs to stay out of is, let prices reset and take our lumps. Any other bailouts or other actions by our benevolent government will prolong the current economic conditions indefinitely.
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Gee! if you only knew the answer. We’re seeing the beginning of the collapse of Capitalism unregulated. Greed my friends. You haven’t seen nothing yet. This is going to get bad for a whole lot of people. Prepare for winter.