Tuesday, January 22, 2008

... and so the wheel keeps spinning a little longer still

... powered by the hope that we'll wake up someday soon, and find it was all just a bad dream, and everything is fine, the jungles are filled with a million tigers and a zillion brightly colored birds and plants and the rivers and oceans teeming with fish in sparkling blue water, and the house is warm, the bread and coffee fresh on the table, the cupboards and the fridge well stocked, and all the smiling people gentle, and we will find true meaning in the work we do, and be richly rewarded for it, and most of all tomorrow will be even better than today .....

Asian stocks soar on Fed rate action
Asian stocks posted strong gains Wednesday, boosted by the U.S. Federal Reserve's decision to cut its key interest rate by three-quarters of a percentage point in its first emergency reduction since 2001.

Australian shares cheered the decision, reversing direction after 12 straight days of declines and New Zealand stocks rose after 14 days of losses, while Japanese stocks climbed after giving up more than 10% in the two previous sessions.

Japan's Nikkei 225 average jumped 3.8% to 13,045.76 and the broader Topix index advanced 3.8% to 1,266.64. Australia's S&P/ASX 200 soared 6.1% to 5,500.50 and New Zealand's NZX 50 index added 1.1% at 3,646.55, while South Korea's Kospi climbed 2.6% to 1,651.52.


Greyzone said...

I do not want to imply that everything will turn out ok but in the 1978-1982 timeframe had some tremendous economic fears. We faced economic numbers never before seen until then and many thought the system would surely implode. It didn't.

What that means is simply that while many of us, myself included, believe that the numbers this time mean we will eventually fall all the way down, most do not and are going to latch onto every shred of hope that arises. Today was such a day. Maybe the system will hang together and pull out of this but somehow I don't think it will.

godraz said...

"You know, if you let me write $200 billion worth of hot checks every year, I could give you an illusion of prosperity, too." Senator Lloyd Bensten

It's the same old trick which still has some Wizard of Oz like power to it. How much longer is debatable, but it won't surprise me to see this go on far longer than we keep thinking it can.

Whatever, it won't end in a nice way.

Ilargi said...

It's this hope, and this resistance to change, both so inherent in the human mind, that are played to the fullest by those who know that hope is for suckers.

A 1% gain the day after a 6% loss makes people see an image they like. And when they see it, they are happy participants in the game.

It's simply a matter of feel-good chemicals in the brain.

And then you reel them in and clobber them over the head. Works with fish, works with people.

Anonymous said...

Thank you for reappearing in the nick of time for those of us who desperately missed your evaluation and insight...now ,carefully bookmarked..snuffy

Anonymous said...

Of course I just bought metals and energy funds a few days ago for a sizzling 12% drop. As Jim and John said on the Financial Sense Newshour - it's going to be rough. But then they're calling for a depression by 2010 and a collapse of the fiat currencies.

Anonymous said...

The Automatic Earth and TOD - twin pillars of pre-Peak reason. Welcome back!

Greyzone said...

Here comes part 2. Asia rose last night but Europe is cratering. And the Dow is down another hundred plus points currently (was down over 200 earlier). Maybe, just maybe, someone out there is starting to understand the schemes of the industrial north's banker cartel.

Anonymous said...


I share the general analysis here and am aware of what Ilargi wrote in the comments opposite.

That being said, for the sake of those with a compulsion to look at both sides of an issue (i.e. me), I would greatly appreciate reading any rational, documented articles on how we might climb out of this mess.

Simply in a spirit of objective research.

Are you aware of any?

Many thanks for your work, I never cease to be amazed at how much information you gather and make available.


Greyzone said...

I cannot give you a rational argument. The last time this happened and we tried this sort of trick, the economy went to hell in a handbasket. Then Paul Volcker was named Fed chairman and did what everyone feared - raised rates and just simply chose to ride out the recession.

What many younger people do not realize is that the 1978-1982 recession was the worst crash since the Great Depression of the 1930s. This saw the beginning of the end of steel and automobiles as backbones of American industry and the entire dawn of the "rust belt". While Detroit had issues in the 1970s, today Detroit is a shocking shell of a city.

The problem now is that this mess is far, far larger than that mess, because the bankers figured out how to leverage everything even more than before. I don't see any rational way that this can end well but I suppose there are a number of irrational ways it might.

One should never discount the ability of the human animal to lie, especially to itself.

goritsas said...

In line with the theme GZ and godraz were suggesting comes this perspective:

Stock market follies

The idea that the real estate problem in the US has “wiped out” capital is simply absurd. Carpet bombing industrial assets wipes out capital. Mortgage defaults and market volatility entail a transfer of money from one pocket to another, not its disappearance. Investors need to ask themselves, with inflation surging along with money supply, what does one do with one’s money? Do you park it in government bonds yielding less than nothing in real terms, do you leave in cash yielding even less or do you buy real assets and real companies doing real things?

Anonymous said...

Thanks for opening up shop again!

Any chance I can get some explanations around the nonborrowed reserves issue? No doubt it's inordinately complex, but I'm hoping for a simple layman's explanation nonetheless.

Does a negative nonborrowed reserves balance mean that the US banking system is insolvent?

Farmerod said...

Goritsas : not sure what you meant to imply with that article but it seems like whoever wrote that doesn't appreciate the magnitude of the situation. Obviously there are real assets in the world but, these days, the amount of "money" in the form of credit dwarfs the value of the underlying assets, which themselves are declining in value. I think investors should be more concerned with 'Return OF capital' rather than 'Return ON capital', to use a cliche.

710 said...

The rational argument is that there isn't a "way out" of this mess that doesn't involve massive dislocation, pain, and difficulty for vast numbers of people.

The silver lining to the mushroom cloud is that there's a chance that after collapse we might build something better. Historically, the odds are against us learning from our mistakes, but then again we have never made mistakes this gargantuan before. Nor has there ever been a time in history when so many people had information about the men behind the curtains, or had access to alternate views of mainstream cultural myths.

"Zeitgeist" and "What A Way To Go" are recommended viewing.

These ideas, however, still have to survive the collapse of TWAWKI and a population correction.

In the meantime, interesting dichotomy in the use of "capital". In one sense, real physical goods and labor are capital. Most people consider money to be capital. But it is the large-scale, complex exchange of goods for labor and labor for goods that allows an "economy" to do anything of significance. And it is money which allows that large-scale exchange.

If defaults and market revaluations cause the money supply to suddenly shrink relative to the available labor and producible goods, that would be a destruction in the access to capital. Like the Great Depression. Depression vs. carpet bombing, like hopelessness and despair vs. extinction, do we have the wisdom to make this decision?

Great to see the new site. Format will take getting used to.

Anonymous said...

Hooray, your economic information continues! Your information at theoildrum.com was very timely and I'm glad to see it continue.

Keep up the good work!


goritsas said...


I simply meant the piece endorsed the notions the current situation could go on far longer than many of us think it can. The author is just one among how many that may very well fuel the fires supporting the current situation for weeks, months, and possibly even years to come. After all, if two big NY money centre banks can convince a few sovereign wealth funds to join on the fun, this could be just the beginning of a much bigger final blow-up.

Greyzone said...

Right, goritsas. Never underestimate the ability of people to lie, especially to themselves. And especially when they are terrified of the truth.

Every single excuse under the sun will be trotted out to explain away whatever is happening that is negative. If it gets bad enough, I expect to see scapegoating, including scapegoating of those who said this would happen for "causing" it to happen. Yes, that is irrational but taking responsibility for one's own mistakes is not a strongpoint for homo sapiens.

Greyzone said...

MGIC, another insurer, is now showing signs of problems.


The insurance mess is spreading...

super390 said...

I guess this is the time that the nerdy extremist arguments simmering for 80 years over the real cause of the Great Depression suddenly burst into mainstream-media fame.

Rightwing Great Depression revisionists annoy me more than neo-Confederates, global warming deniers, and people claiming that the Founding Fathers intended the US to be a theocracy. I expect them to rush in with demands to give Hooverism a real chance this time, or even to blast Hooverism as too bleeding-heart liberal and instead advocate the British program for dealing with the Irish potato famine (80% population reduction by death & escape). Not that I think many people will listen; if they would then Ron Paul would have won New Hampshire and Nevada.

We should recall that the actual capitalists during the Depression were only laissez-faire when it came to trivial matters like starving babies. They were plenty pro-Big Government when it came to heading off a workers' revolution, re-rigging the banking system, and plotting to overthrow FDR and install a fascist dictatorship. These are exactly the kinds of conservatives who seem to be running things in New York and Washington now. Sometimes I think the only reason we survived those bastards was the fluke that due to the Civil War, Southern and Northern feudalists were divided along party lines and couldn't gang up on us the way they do now.

souperman2 said...

Cool, you two are back.

and none too soon either.

and it looks like we have.

If your coverage and response to comments is as top notch as before you should consider putting up a tip jar as I would love to show my gratitude.


Unknown said...
This comment has been removed by the author.
Unknown said...
This comment has been removed by the author.
Ilargi said...

To all of you, once more thanks for all the nice things you write, as well as the general support. I need to be brief so today's Debt Rattle can be up before 6pm.

The idea is to post the Rattles in the morning, and then add to them as the day passes, but today that was not possible, since the coding of this blog yesterday took my time.

And Souperman, we will get a tip jar here someday (soon), as well as ads, I guess. Prime thing was to get the blog up, the details will follow.

Thanks again, and don't be strangers.

Anonymous said...

Nice to see you two got it going.


Anonymous said...

Great to see you both back in action. I've got the site book marked. All the best,
rude crude

Stoneleigh said...

This was my take on the situation on Monday when the US markets were closed:

"I think we're seeing a set up for a counter-trend rally. A sharp downward spike retraced intraday would be a typical kick off for a rally, and bear market rallies can be sharp (fueled by short-covering). I don't know how long the rally phase would likely be or how steep a retracement, but a minimum retracement would be about 38% of the preceding decline. About 62% would be more typical, and about 78% would be an approximate maximum for a rally (as opposed to a market headed for a new high).

Once the rally is over, the next phase of the decline should set in with a vengeance. There's an awfully long way to go to the downside, but no market ever declines only in one direction. Sucker rallies can keep hope alive and people invested a long way into the downtrend. Instead of buying the dips as one would in a bull market, selling the rallies (cashing out) is the bear market strategy."

Two days later I think this situation is playing out much as I expected. The rationalization for the rally is the rate cut combined with the talks over bailing out the monoline insurers, but IMO a rationalization is all it is.

I don't see how a bailout of the bond insurers could possibly work as the sums involved are simply too large. What is likely to happen IMO is various agencies throwing a bit of money at the situation in order to calm the market's nerves.

A comparable thing happened in Argentina in 2001 - small amounts of money were meant to cover for large ones, but all it did was to feather the nests of the well connected who took the new money off the table as soon as possible then watched as the decline started again.

Once the market decides that something is going down, the speculators become frenzied like sharks that smell blood - pump it up with a sucker rally then sell and aggressively short it. Central banks who stand in the way stand to lose billions for nothing - like the UK when the pound was driven out of the exchange rate mechanism in the 1990s. Soros made a billion dollars betting against the pound, at the expense of the public purse.

Markets are a mechanism for concentrating wealth at the center over time, not for distributing it to the little guy. The little guy only appears to win for a while at the height of a mania (for long enough that a large number become suckered in by the paper gains of their neighbours), but his job is ultimately to be the empty-bag holder when it's all over (and when each counter-trend rally ends on the way down too). It's a classic ponzi scheme.

Anonymous said...

Good to see you two again, missed you a bunch. This is the first time in ages my first stop in the morning hasn't been you know where:)

I'll put out the good word at every chance on TOD but as far as TOD itself I think I will stop throwing stones and I think that idea is best for all of your other more tempestuous supporters. TOD seems really to have not had a happy time, they have done themselves an injury, so lets leave them to heal, they do the oil end of things so really well and are needed. I wish them the best but will come here for financial and soon I imagine the environmental news as well. Thanks guy and gal. Any thing I can do to help, let me know, I owe you!

Stoneleigh said...

Thanks Crystal Radio :) I agree - we're not trying to compete with TOD but to do our own thing with material they didn't want to cover. They're not going to change their minds and it's too late to mend burned bridges anyway. They can concentrate on their remit and we can be much more flexible.