HOLY SMOKES : Did i read this right? Dow below 10,000 S&P;1,100 Nasdaq 1500. Is this possible by October?

jefa,



I think that the next President doesn't have the luxury of waiting two years to get the fiscal house in order. Waiting that long without an appreciable increase in the overall economy will hand the mid-term elections to the Republicans on a silver platter. The next President has to really get into making changes fast, so they can claim any rebound or recovery as a result of their actions. New regulations, cramdowns/writedowns, and a signifigant amount of domestic spending will most likely be on the agenda. We'll know more after 11.15.08
 
[quote author="IrvineRenter" date=1225512663]I have an open question: What would be a catalyst to another wave of selling?



I think we are in a bear rally, but I do believe the markets will rally from here. Everything bad about the economy is known. People already believe Obama is going to win, so there are no surprises waiting there (except maybe a McCain victory). I think the sellers have spent themselves for a time.</blockquote>




Dr Roubini is saying that the next wave will be failures/closure of hundreds of hedge funds that will flood the market with stock sellars with not enough buyers leading to a huge market collapse followed by shutdown of the exchange for a week. They don't call him doctor doom for nothing.
 
[quote author="IrvineRenter" date=1225512663]I have an open question: What would be a catalyst to another wave of selling?



I think we are in a bear rally, but I do believe the markets will rally from here. Everything bad about the economy is known. People already believe Obama is going to win, so there are no surprises waiting there (except maybe a McCain victory). I think the sellers have spent themselves for a time.</blockquote>


Maybe US treasurys will default.
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[quote author="awgee" date=1225606255][quote author="IrvineRenter" date=1225512663]I have an open question: What would be a catalyst to another wave of selling?



I think we are in a bear rally, but I do believe the markets will rally from here. Everything bad about the economy is known. People already believe Obama is going to win, so there are no surprises waiting there (except maybe a McCain victory). I think the sellers have spent themselves for a time.</blockquote>


Maybe US treasurys will default.</blockquote>


I can't see how this would happen. The FED may not get the price they want, and they may be forced to increase rates to sell treasuries, but I can't see a default being a possibility. Couldn't the FED just print money and monetize the debt? and couldn't the Federal Government raise taxes to pay the debt if necessary?
 
What would happen if the US defaulted on all of its debt? Just send out a few "our bad" letters and then reset the national debt to zero. Immediately after adopting a budget that doesn't spend more then tax income, because treasury notes prolly wouldn't sell for another 50 years or so. Would it cause a war? At some point, with so much debt, does this become the best option?
 
[quote author="IrvineRenter" date=1225620835][quote author="awgee" date=1225606255][quote author="IrvineRenter" date=1225512663]I have an open question: What would be a catalyst to another wave of selling?



I think we are in a bear rally, but I do believe the markets will rally from here. Everything bad about the economy is known. People already believe Obama is going to win, so there are no surprises waiting there (except maybe a McCain victory). I think the sellers have spent themselves for a time.</blockquote>


Maybe US treasurys will default.</blockquote>


I can't see how this would happen. The FED may not get the price they want, and they may be forced to increase rates to sell treasuries, but I can't see a default being a possibility. Couldn't the FED just print money and monetize the debt? and couldn't the Federal Government raise taxes to pay the debt if necessary?</blockquote>


Truly the Fed is chartered to print money and the charter does not limit the amount. But, the charter does specify how the money is introduced and the main barrier is Congresses approval of the deficit, (or is it debt). It seems that with the introduction of interest paid on reserves, the Fed is no longer limited by any other influence. Raising taxes takes time and interest must me paid upon maturity. Here is a nice article on Naked Capitalism about the possibility of default. It seems the market makers are pricing in the possibility.



<a href="http://www.nakedcapitalism.com/2008/11/cds-pricing-in-increasing-treasury.html">default risk</a>
 
[quote author="IrvineRenter" date=1225512663]I have an open question: What would be a catalyst to another wave of selling?



I think we are in a bear rally, but I do believe the markets will rally from here. Everything bad about the economy is known. People already believe Obama is going to win, so there are no surprises waiting there (except maybe a McCain victory). I think the sellers have spent themselves for a time.</blockquote>


Maybe the CDS market will continue to go south. It isn't like the payouts are advertised. It appears to me that the Lehman bankruptcy was the main catalyst behind LIBOR skyrocketing, because so many financial institutions had to scramble for cash.
 
[quote author="Nude" date=1225589215]jefa,



I think that the next President doesn't have the luxury of waiting two years to get the fiscal house in order. Waiting that long without an appreciable increase in the overall economy will hand the mid-term elections to the Republicans on a silver platter. The next President has to really get into making changes fast, so they can claim any rebound or recovery as a result of their actions. New regulations, cramdowns/writedowns, and a signifigant amount of domestic spending will most likely be on the agenda. We'll know more after 11.15.08</blockquote>


By fiscal responsibility, I meant increasing taxes, paying down the debt, and slashing programs. I think if you did that now everything would unravel. So I expect a lot of fiscal irresponsibility for the sake of stabilizing the economy (preventing a great depression low). How long that will go on unti we are "out of the woods" is anyone's guess.



It's also a guess that either president would super-spend as opposed to tightening up shop now. As I wrote in a previous post, the Great Depression capitulated when congress passed tariff legislatin aimed at protectionist policies for the U.S. It made everything worse and the markets tanked that day. All the economists said not to do it. Will we have a congress/president who does the same thing? We'll see.



But as for unexpectedly bad numbers, I don't think we'll see any "I can't believe it's this bad" numbers until the December consumer numbers come out.



Do you guys think a terrible christmas would freak investors out?
 
[quote author="graphrix" date=1225554968]

Commercial RE. I don't think people comprehend how bad it really is, and hopefully acmpe can chime in here too. It also goes back to awgee saying that PE is overleveraged, because they are with their commercial RE investments. It is late, and I am too lazy to do the search, but growth capital (I think that is the name) is in some serious deep doo doo. They own the shops at the Palazzo in Vegas, plus two other giant malls in Vegas. They have a $900mil loan coming due next month for which they do not have the cash to make due on, and even Goldman was unable to help them raise the funds. There have been several other commercial RE bust related articles in the WSJ lately, and this is as the job market has started to get bad. These commercial RE debtors are burning through their interest reserves, and as the job market gets worse, then they will burn through them even faster. They can't refi, because no one wants to touch RE, commercial or residential right now.



So far it is already priced in for commercial RE, but again I don't think people comprehend how bad it is about to become. The Kool-Aid is still being served in this sector. No one believed me when I said residential foreclosures were only going to get worse, and my predictions were too optimistic. I think that the same will happen with commercial, my predictions will seem too optimistic. The difference will be that I will not be as surprised when it happens to be worse than I thought.</blockquote>


you're refering to general growth props. they've lost 90% of their value in the past few months. the fall has been sudden and dramatic although not surprising. you're absolutely right that the entire sector overleveraged and debt maturities are the elephant in the room with these companies, and GGP is the one with the most debt coming due in the next 2 yrs. debt to asset ratios continue to rise as property values plummet which makes financing even more difficult.



i have heard for far too long that dividends were a justification for buying REITs. unfortunately too many people just took the high yields at face value without asking skeptically whether those dividends could be maintained. turns out many companies are not able to cover. almost every company in this sector that has reported 3q has announced a div cut or no div payout at all for 4q, as well as significantly lower guidance for 2009. div cuts are not a good sign for "dividend stocks". ;)



but even outside of the RE-specific sectors, a crash in commercial RE is going to have broad effects. historically, RE has accounted for 25% of corporate balance sheets. with the commerical RE bubble that number has undoubtedly risen due to inflated prop values. in addition corporations that had small JVs and side-businesses that dabbled in RE became heavily reliant on the growing revenues of that sector. life insr companies, financing and investment arms of corporations (GE capital), public pension funds, private equity, etc. you name it - they overinvested in that asset class.
 
[quote author="acpme" date=1225760656][quote author="graphrix" date=1225554968]

Commercial RE. I don't think people comprehend how bad it really is, and hopefully acmpe can chime in here too. It also goes back to awgee saying that PE is overleveraged, because they are with their commercial RE investments. It is late, and I am too lazy to do the search, but growth capital (I think that is the name) is in some serious deep doo doo. They own the shops at the Palazzo in Vegas, plus two other giant malls in Vegas. They have a $900mil loan coming due next month for which they do not have the cash to make due on, and even Goldman was unable to help them raise the funds. There have been several other commercial RE bust related articles in the WSJ lately, and this is as the job market has started to get bad. These commercial RE debtors are burning through their interest reserves, and as the job market gets worse, then they will burn through them even faster. They can't refi, because no one wants to touch RE, commercial or residential right now.



So far it is already priced in for commercial RE, but again I don't think people comprehend how bad it is about to become. The Kool-Aid is still being served in this sector. No one believed me when I said residential foreclosures were only going to get worse, and my predictions were too optimistic. I think that the same will happen with commercial, my predictions will seem too optimistic. The difference will be that I will not be as surprised when it happens to be worse than I thought.</blockquote>


you're refering to general growth props. they've lost 90% of their value in the past few months. the fall has been sudden and dramatic although not surprising. you're absolutely right that the entire sector overleveraged and debt maturities are the elephant in the room with these companies, and GGP is the one with the most debt coming due in the next 2 yrs. debt to asset ratios continue to rise as property values plummet which makes financing even more difficult.



i have heard for far too long that dividends were a justification for buying REITs. unfortunately too many people just took the high yields at face value without asking skeptically whether those dividends could be maintained. turns out many companies are not able to cover. almost every company in this sector that has reported 3q has announced a div cut or no div payout at all for 4q, as well as significantly lower guidance for 2009. div cuts are not a good sign for "dividend stocks". ;)



but even outside of the RE-specific sectors, a crash in commercial RE is going to have broad effects. historically, RE has accounted for 25% of corporate balance sheets. with the commerical RE bubble that number has undoubtedly risen due to inflated prop values. in addition corporations that had small JVs and side-businesses that dabbled in RE became heavily reliant on the growing revenues of that sector. life insr companies, financing and investment arms of corporations (GE capital), public pension funds, private equity, etc. you name it - they overinvested in that asset class.</blockquote>


This sector is already showing cracks and will continue to deteriorate as the economy worsens.

Circuit City announced they will close 155 stores.

They aren't waiting until after Christmas either.
 
Looks like someone already started a thread with the Circuit City news.



Target?s looking to raise money as well.



<a href="http://www.nytimes.com/2008/10/30/business/30target.html?_r=1&ref=business&oref=slogin">Seeing Gold in Target's Real Estate</a>
 
[quote author="acpme" date=1225760656]you're refering to general growth props. they've lost 90% of their value in the past few months. the fall has been sudden and dramatic although not surprising. you're absolutely right that the entire sector overleveraged and debt maturities are the elephant in the room with these companies, and GGP is the one with the most debt coming due in the next 2 yrs. debt to asset ratios continue to rise as property values plummet which makes financing even more difficult.



i have heard for far too long that dividends were a justification for buying REITs. unfortunately too many people just took the high yields at face value without asking skeptically whether those dividends could be maintained. turns out many companies are not able to cover. almost every company in this sector that has reported 3q has announced a div cut or no div payout at all for 4q, as well as significantly lower guidance for 2009. div cuts are not a good sign for "dividend stocks". ;)



but even outside of the RE-specific sectors, a crash in commercial RE is going to have broad effects. historically, RE has accounted for 25% of corporate balance sheets. with the commerical RE bubble that number has undoubtedly risen due to inflated prop values. in addition corporations that had small JVs and side-businesses that dabbled in RE became heavily reliant on the growing revenues of that sector. life insr companies, financing and investment arms of corporations (GE capital), public pension funds, private equity, etc. you name it - they overinvested in that asset class.</blockquote>


Yes, it is general growth props. They are in quite the bind. I'd short them, but the price of the stock is too low, and buying puts is risky since I don't know when they will go BK.



Anyway, do you remember some of those commercial RE bulls from earlier in the year? Yeah... I just might dig up of few of those gems here soon, like the guy who had the handle re_fan. That guy thought he knew his stuff, with all the industry knowledge he had, and all the financial models that confirmed his bullish perspective. I know I should be more humble, but I wonder how he feels now, knowing we were right and he was horribly wrong?



Anyway, here is some of the latest chartpr0n from <a href="http://www.voitco.com/voit_reports.htm">Voit on OC's office space</a>...



<em>"<strong>Net absorption for the county posted a negative 361,184 square feet for the third quarter of 2008, giving the office market a total of 1.37 million square feet of negative absorption for the first three quarters of this year. Last year Orange County had a total of 947,370 square feet of negative absorption.</strong> This negative absorption can be attributed to the credit crunch and finance companies consolidating."</em>



More than 2.3 million negative absorption in less than 2 years. That sucks, even with the losses from the mortgage cos.



http://www.badongo.com/t/640/4698804.jpg



http://www.badongo.com/t/640/4698809.jpg



http://www.badongo.com/t/640/4698813.jpg



I always wondered how job growth in the health and education sectors would help absorption rates and lease rates. I guess the nutter was not so nutty after all.
 
Not sure if it's been discussed yet, but who do you think Obama will be naming as Treasury Secretary ? It doesn't appear that he will be keeping Hank.
 
[quote author="Trooper" date=1225813372]Not sure if it's been discussed yet, but who do you think Obama will be naming as Treasury Secretary ? It doesn't appear that he will be keeping Hank.</blockquote>


There have been a lot of rumors on who it would be, including Jamie Dimon of JPMorgan (<a href="http://www.usnews.com/blogs/capital-commerce/2008/10/22/treasury-secretary-jamie-dimon-dont-raise-taxes-obama.html">An interesting choice I might add, because he is anti-tax increase</a>).



<a href="http://www.timesonline.co.uk/tol/news/world/us_and_americas/us_elections/article5076702.ece">But the real deal is</a>... <em>The leading contenders to head the US Treasury in an Obama Administration are Tim Geithner, president of the Federal Reserve Bank of New York, Laurence Summers, President Clinton?s last Treasury Secretary, and Paul Volcker, who chaired the Federal Reserve from 1980 to 1987. Mr Volcker, in particular, has become an enormously influential economic adviser to Mr Obama in recent months. </em>



From what I can tell, and what I have read, I believe it will be Tim Geithner. Mainly because he follows closely to <a href="http://www.nytimes.com/2007/12/18/business/18subprime.html">Ed Gramlich</a>, and if Ed were alive today there would be no doubt who would be Treasury Secretary. I have some great papers by Ed in case anyone is interested.
 
[quote author="graphrix" date=1225819537][quote author="Trooper" date=1225813372]Not sure if it's been discussed yet, but who do you think Obama will be naming as Treasury Secretary ? It doesn't appear that he will be keeping Hank.</blockquote>


There have been a lot of rumors on who it would be, including Jamie Dimon of JPMorgan (<a href="http://www.usnews.com/blogs/capital-commerce/2008/10/22/treasury-secretary-jamie-dimon-dont-raise-taxes-obama.html">An interesting choice I might add, because he is anti-tax increase</a>).



<a href="http://www.timesonline.co.uk/tol/news/world/us_and_americas/us_elections/article5076702.ece">But the real deal is</a>... <em>The leading contenders to head the US Treasury in an Obama Administration are Tim Geithner, president of the Federal Reserve Bank of New York, Laurence Summers, President Clinton?s last Treasury Secretary, and Paul Volcker, who chaired the Federal Reserve from 1980 to 1987. Mr Volcker, in particular, has become an enormously influential economic adviser to Mr Obama in recent months. </em>



From what I can tell, and what I have read, I believe it will be Tim Geithner. Mainly because he follows closely to <a href="http://www.nytimes.com/2007/12/18/business/18subprime.html">Ed Gramlich</a>, and if Ed were alive today there would be no doubt who would be Treasury Secretary. I have some great papers by Ed in case anyone is interested.</blockquote>


Hank said repeatedly he does not want to stay after Bush. But don't worry it's the same crowd from Goldman Sachs.
 
Another Democrat who was at Goldman Sach. I mean it's the same crowd.





<strong>Where was Rubin when Citigroup went astray?</strong>



<a href="http://www.iht.com/articles/2008/04/27/business/27rubin.php">http://www.iht.com/articles/2008/04/27/business/27rubin.php</a>
 
[quote author="Nude" date=1225522570][quote author="IrvineRenter" date=1225512663]I have an open question: What would be a catalyst to another wave of selling?



I think we are in a bear rally, but I do believe the markets will rally from here. Everything bad about the economy is known. People already believe Obama is going to win, so there are no surprises waiting there (except maybe a McCain victory). I think the sellers have spent themselves for a time.</blockquote>
The fifth of November is one possible catalyst. Let me be clear, I expect an Obama win. I also expect people to sell prior to 12/31/08 to avoid the guaranteed hike in the capital gains tax rate, regardless of what level of income Obama is currently setting as a cut-off. It's one thing to speculate about who wins, but it's another thing when the election is over and a winner is known. If we get a rally above 2006 levels after the election, I expect a lot of profit taking by people that are looking to save 5% in taxes. The reality of a new tax policy for the next 4 years will also lead people to adjust their portfolio accordingly.</blockquote>
In a world of pops and drops of 300+ points being relatively normal, I hesitate to say I called it. Yet, a 486 point drop the day after the election isn't encouraging.
 
[quote author="Nude" date=1226056872]Second down day of -400+ on the Dow... and now Japan is down 4%. Not looking good.</blockquote>


Neither are the futures for Europe. Tomorrow is already looking like it will be another down day. Not pretty at all, unless you have puts that went green today and probably greener tomorrow.
 
[quote author="acpme" date=1223948395]hmmm i wonder where today would represent in this chart...



<img src="http://img902.mytextgraphics.com/photolava/2008/10/13/bigchartoct13-4c6mizo8z.jpeg" alt="" /></blockquote>


This seemed to be a fitting time to bring back this chart...
 
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