I mentioned in an earlier Post that this year is the end of the Government Bailouts! You know why? Because it is coming down to either the Banks, GE and AIG go under or the Federal Government goes under! It is coming to that.
The Big Banks, those that are too big to fail hold about $200 Trillion in Toxic Derivatives, CMO's CDO's and CDS's. Last time I looked, they were estimated to be worth anywhere from 50% down to 5% of the value noted on the bank's balance sheets. There is simply not enough money in the world to keep these cash sucking vampire zombies and their blood thirsty management afloat, period.
Look at this. I fully expect the employment numbers to be released on Friday to be north of 700,000, maybe not when they are released, but perhaps when they are "revised" next month when even worse figures will make them look not so bad.
It is official, the stock market has now lost 50% of its value since 10 '07 meaning that 10-12 years worth of accumulated wealth, over 5 Trillions in asset values have been destroyed.
Where will the Dow end up? I predicted in Oct Nov when it was about 10,000 that it would hit 5000 in the next 6 months, and it looks right on target. After that? Below 3,000 is likely. Why?
Corporate profits, the driver of stock prices are down 61% that is the biggest drop in 141 years and they are going lower. Assisting will be a default rate of at least 10% in corporate bonds which will ripple through the bank's asset valuations.
They say that 1 in 5 mortgaged homes is underwater, the owners owe more than the property is worth with prices down about 30% since the peak and since there was only a 25% equity cushion to begin with... With prices slated to go down another 15% this year, that will mean between 25 and 30% of mortgaged homes will be underwater. What was that sound? Jingle Mail, the sound of keys being mailed to the banks! They won't have to bother to foreclose.
10% of mortgages are delinquent, about 4x normal.
Let's see, total consumer debt is is closing in on 350% of GDP, and that GDP is an inflated number! We'll see a record level of credit card defaults as the debt bloated consumers flatulate their way back to normal debt and spending levels.
Where does that leave you, and me? Relying on the Internet to generate cash flow. This is the only out for the Middle Class to become the Internet Class. High paying jobs, like Master's degrees will be nostalgic relics of a time long ago before this century is out.
The only train out of here? Not the feeble pokes the Obama team is making at the problems, with Rush and the Kno Nothings cowering them into feebility.
Precious metals will be the only antidote to the Ultimate Solution to the problem, probably though in Obama's first term, will be precious metals as they have always been in times of chaos and hyper inflation.
Stay tuned as I fleshout these options.
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1 comment:
no need to let it scare you, because 1) it's already priced in to financials, 2)
that $200 trillion is not concentrated in one bank, but among several who
leveraged $5 trillion at 40-to-1, 3) these derivatives aren't really of any
value in the first place. derivatives like CDS and CDO, etc have only CONCEPTUAL
value, not real value. So, when these derivatives lose $200 trillion, our
economy doesn't lose nearly that much from it.
Think of derivatives as insurance on, say, your car. If your car insurance gets
canceled, the car itself still has the same value, and you don't lose your car,
as long as you keep up the loan payments. Of course the loan payments become
higher, due to higher uninsured loan rates. So, now you're paying more the same
car, and have less money left to spend on other needs and wants.
That's what this derivative credit crisis is doing to our economy --- forcing a
lower standard of living, but nowhere near the end of all.
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