Wall Street WARZONE
Double Dip? Great Depression II? Game Over. Bye-Bye Bull. Crash Dead Ahead. Sell. Get liquid. Now. Dow’s “Slam Dunking” Below 6470 (Again!)
by Paul B Farrell, JD, PhD
| Discuss | Print | 7/4/2010

“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)

Doomsday Conspiracy: 12 Warnings, New Global Market Meltdown: Stiglitz, Faber, Grantham, Ferguson, Taleb, Kaufman, Soros, Johnson, Biggs, Shiller
by Paul B Farrell, JD, PhD
| Discuss | Print | 6/27/2010

Test time: Take a neuroeconomic peek inside your brain’s new strategy for the “Doomsday Decade” (2010-2020), while leaving behind the “Lost Decade” (Yes “Lost” because the Dow dropped from 11,722 to 10,428 between 2000 and 2010, while Wall Street got richer wiping out 20% of your retirement money and dumping an estimated $23.7 trillion on taxpayers in the bailouts). First, check out your brain’s natural bias. Are you an …

(A) Optimist? As the new decade starts, are you an optimist who trusts Wall Street’s advice that 2010 will be a great time to buy stocks. Wall Street says the “Lost Decade” (what a great title) is now behind us. So you believe that the 60% market rally since the March 2009 bottom will continue, with at least 20% gains in 2010.

(B) Pessimist? Or, you’re distrustful, cynical and pessimistic about all predictions made by Wall Street’s bosses and pundits. You’re particularly skeptical of any and all forecasts by the “too-greedy-to-fail” bankers who stole trillions from taxpayers, the Fed and Treasury, then failed to stimulate the economy, and now pocketing mega-bailout bucks as record bonuses, just one year after we saved Wall Street from near-bankruptcy.

This is a simple test of your mindset. Betting odds say most of you will pick answer “A.” Why? America was founded by optimists. You believe that a “happy conspiracy” binds politicians, CEOs and Wall Street, making capitalism work and America a powerful nation: So you accept Wall Street’s greed, lies and thievery as the price of “free-market capitalism,” and part of America’s DNA. So you embrace “capitalism-without-morals.”

Unfortunately, optimism also blinds us to our individual and national faults: Hidden saboteurs tell us we know more than we do, have amazing skills we don’t, and are protected by divine forces against dark enemies and even our own irrational stupidity. Yes, optimism is our inner-enemy that periodically triggers trillion dollar meltdowns.

New Strategy: “Getting back to even” means new risks, more debt, gambling

True optimists are gung-ho about the future, expecting to recover losses and, as Mad Money’s Jim Cramer preaches, “get back to even” in 2010. But the problem is: No one has a clue if the market will ever “get back to even.” Quite the opposite, since Bernanke is pushing the same optimistic cheap-money fantasies that Greenspan used to create the dotcom and the subprime crashes, we can expect to see the next bubble fizzle and pop, pushing us deep into the dreaded “Great Depression 2” that the Fed and Treasury are trying to avoid by down-streaming today’s problems onto future generations.

But soon, future generations will start screaming: “The buck stops here” and revolt when the buck isn’t worth much, and they’ve lost faith in the dollar (just like China). Then the game of musical chairs will end, tragically, sadly, stupidly, unfortunately. Why? Because we failed to stop short of total disaster, failed to prepare, and it’s too late.

So to all you optimists who plan to actively invest in 2010 because you accept that America’s “capitalism-without-morals” is working in spite of Wall Street’s quasi-criminal behavior: Here’s some darkside input to factor into your investment equation for 2010 and beyond. Listen closely to the words of our 12 “Drs. Doom.” For a moment, take off your rose-colored glasses, step out of your denial, see the “Great Depression 2” dead ahead, really look at the future our “Drs. Doom” see in their “Doomsday Scenarios:”

One.  Faber: The “American Empire” has peaked, is on a decline
Hong Kong economist Marc Faber says “the average life span of the world’s greatest civilizations has been 200 years … Once a society becomes successful it becomes arrogant, righteous, overconfident, corrupt, and decadent … overspends … costly wars … wealth inequity and social tensions increase; and society enters a secular decline.”

Two.  Grantham: Learned nothing, doomed to repeat past, only bigger (More)

That Lovable “Mr. Market” is a “Certifiable Lunatic, Nuttier Than a Fruitcake.” Stock Market Cycles are Highly Unpredictable: Trust Wall Street? Lose Money!
by Paul B Farrell, JD, PhD
| Discuss | Print | 6/11/2010

In his classic, Stocks for the Long Run, Wharton economist Jeremy Siegel researched all the big-up and big-down days in market movements over two centuries, from 1801 to 2001; Professor Siegel discovered that for more than 75% of the time there is no rational explanation for major moves either up or down in the stock markets and economy. Broad markets, like individual investors, are unpredictable and inherently irrational, especially at peaks and bottoms when uncertainty intensifies. This costly reality ought to be factored into our investment decision-making—but rarely is.

Are you an “intelligent investor?” Are you, really? “Would you willingly allow a certifiable lunatic to come by at least five times a week to tell you that you should feel exactly the way he feels? Would you ever agree to be euphoric just because he is, or miserable just because he thinks you should be? Of course not,” says Jason Zweig in his “commentaries” to his update version of Benjamin Graham’s The Intelligent Investor. And yet “when it comes to their financial lives, millions of people let the stock market tell them how to feel and what to do, despite the obvious fact that, from time to time it can get nuttier that a fruitcake.”

Bad advice from a market’s that’s “nuttier than a fruitcake”
Maybe you’re one of the million who’s already read Graham’s classic. After all, it was first published back in 1949. And even if you haven’t read it yet, you may be impressed by the fact that Warren Buffett, the second richest man in the world, says The Intelligent Investor is “by far the best book on investing ever written.” And Zweig adds: “Every basic principle is a valid as when he wrote it, if not more so,” and Zweig’s make it contemporary and bring it to live again.

Zweig added more than two hundred pages of brand new commentaries to Graham’s classic, at the end of each chapter. That’s a whole new book. In fact, Zweig’s commentaries could easily be carved off and published as a separate book. They’d be a stand-alone bestseller. He’s clearly one of America’s top financial writers regularly appearing in Money magazine. Thanks to the commentaries, this special edition book gets my recommendation as the best financial book ever.

“Mr. Market” is a “certifiable lunatic,” don’t listen to him!
My favorite commentary is his profile of the “certifiable lunatic.” Millions of investors rely on this loveable lunatic—”Mr. Market”—to tell them how and when and why they should invest on a daily basis. That way they don’t have to do any independent thinking. If the lunatic feels euphoric today he’ll tell you to buy, buy, buy! But if our favorite lunatic is feeling miserable, you’ll hear him screaming at you to sell, sell, sell!

Who is this lunatic? Graham was a bit more diplomatic. He called him “Mr. Market” in his original parable. Zweig adds color and pizzazz to drive home Graham’s message: The market is totally irrational and is constantly either over-pricing or under-pricing stocks. Graham never had much faith in Mr. Market. Zweig amplifies the point by updating Graham with examples of the Internet stock lunacy of the nineties. In fact, all twenty chapters in his book have similar examples updating and amplifying on Graham’s basic principles. (More)

Niall Ferguson Warns: America’s a “Fragile Empire” at Risk of a Sudden Catastrophic Ending. Could We Really Be “Here Today, Gone Tomorrow?”
by Paul B Farrell, JD, PhD
| Discuss | Print | 5/11/2010

In The Ascent of Money Harvard financial historian Niall Ferguson says that in the 400-year history of the stock market “there has been a long succession of financial bubbles.” In America the main problem is The Fed: “Without easy credit creation a true bubble cannot occur. That is why so many bubbles have their origins in the sins of omission and commission of central banks.” Now, suddenly, Ferguson shifts, warning that America’s demise may be sudden and precipitous. His concerns are outlined in a Los Angeles Times opinion column: “America, a Fragile Empire. Here today, gone tomorrow, could the United States fall that fast?” Also see another version in Foreign Affairs, discussed below.  This is a must-read:

For centuries, historians, political theorists, anthropologists and the public have tended to think about the political process in seasonal, cyclical terms … we discern a rhythm to history. Great powers, like great men, are born, rise, reign and then gradually wane. No matter whether civilizations decline culturally, economically or ecologically, their downfalls are protracted. … the challenges that face the United States are often represented as slow-burning … threats seem very remote …

But what if history is not cyclical and slow-moving but arrhythmic — at times almost stationary but also capable of accelerating suddenly, like a sports car? (More)

Fannie Mae & Freddie Mac Bankrupt, Federal Takeover Coming! Big Impact on Economy, Rates, Housing & Employment … and Your Retirement Nest Egg?
by Paul B Farrell, JD, PhD
| Discuss | Print | 4/28/2010

Now healthcare will begin sharing more headlines with financial reforms. Not just Dodd’s bill, derivatives regs and the CFPA, but the emerging “Plan to Reshape Mortgage Market” that Timiraos & Crittenden write about in The Journal. Coverage like this shouldn’t be buried deep in the paper. Why? Because “The Plan” is certain to have a huge impact on the economic recovery, interest rates, housing, employment and yes, your Fannie Mae, Freddy Mac and Ginnie Mae securities. Read more. Raise your radar antenna higher so you don’t miss “The Plan” as Congress focuses on it in future weeks. No more delays. Obama, Geithner and Frank are being forced by economic and market forces to develop solutions now. The GOP wants to privatize. The Dems says no … action is dead ahead:

Fannie Mae and Freddie Mac won’t be allowed to return to a precrisis structure that rewarded shareholders with big profits for years but ultimately saddled taxpayers with massive losses, Treasury Secretary Timothy Geithner will tell a congressional panel Tuesday. The administration will outline broad principles for the future of the mortgage market at the hearing, including stronger consumer protections and explicit guarantees for any government backstop of mortgages. “The housing-finance system cannot continue to operate as it has in the past,” Mr. Geithner says in prepared testimony. The administration won’t issue a detailed overhaul proposal until later this year. (More)

Jobless Recovery? Is America Destined to Repeat Japan’s Disastrous Two-Decade Recession? Big Odds, Thanks to Greenspan, Paulson & Reaganomics
by Paul B Farrell, JD, PhD
| Discuss | Print | 4/18/2010

Will America recover from the “Lost Decade,” the costly years of Greenspan, Paulson and Reaganomics? Or, like Japan, will America suffer a prolonged 2-decade slide, with Wall Street losing another 10% of our money? I was with Morgan Stanley in the 70s. Mitsubishi was a big client. Life was fabulous for Japan … until 1989. Since then it’s been tough. The new decade got me thinking about the past few. USAToday started the new year, the new decade asking “How will the arrow point in 10 years” for America? Market history says better:

An analysis of the 15 worst rolling 10-year periods for the S&P 500 by The Leuthold Group found that stocks posted positive returns in the next 10 years in all 15 cases. The average annual gain: 10.7%, topping the 10% long-term average. “In general, after bad periods come good periods,” says Bob Doll, global chief investment officer of equities at BlackRock. But not always. Japan’s stock and real estate bubble that burst in early 1990 set Japan up for not one lost decade but two. The Nikkei stock average peaked on Dec. 29, 1989, at 38,915 but remains more than 70% below its high despite big periodic rallies.

Yes, America may well repeat our own history and gain 10%. Maybe even the 20% former Value Line research boss San Eisenstadt predicts. Wall Street could also lose another 10% of our money. Maybe even come back begging for more bailouts for their “too-greedy-to-fail” banks. (More)