This week’s The Economist has a big feature on Wall Street’s crisis.

Check out the cover:



Here’s the list of related stories:


Wall Street’s crisis
The Economist, Mar 19th 2008

Category: Credit, Derivatives, Financial Press

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

45 Responses to “The Economist on Wall Street”

  1. rj says:

    My gut tells me this qualifies as the “contrary magazine cover that means go the other direction”.

  2. Eddie says:

    Exactly what I was going to say.

  3. Spectator says:

    You’ll have to be kidding. Did you read the piece?

    The counter-trend rally may last a few days. But no way is there any way to support anything resembling the sham that was going on. Expect more dominoes to fall – just a matter of time.

  4. MitchN says:

    You want a contrarian indicator? How about all the talking heads and analysts saying the storm has passed, all clear to jump back into equities. Suckers.

  5. dblwyo says:

    It’s the Economists usual thorough, comprehensive and insightful job on special surveys. Highly recommended. The NYT had a shorter piece over the weekend “What Created the Monster? ” that’s a shorter but also thorough and competent survey. I’ll also presume that everyone saw the special on the front-page of the WSJ on the breakdown of market regulatory mechanisms ? This has been over 20 years in the making and it’ll take a while to unravel but will be unraveled.

  6. MitchN says:

    This week’s upside action is nothing but the boys on Wall Street putting end-of-quarter lipstick on the equity pig. We’ll be heading south toward that much-vaunted “bottom” come Monday.

  7. Ross says:

    Don’t use all magazine covers as contrary indicators.

    The best one I ever saw was the Economist one week in August 1982. The caption was “The Bull Jumps Over The Moon”. We all know what happened for that next 18 years. Sometimes smart guys get it right.

  8. JasRas says:

    YEAH! Bring on the parade of magazine covers!

    The long standing sign is beginning. It won’t be complete until it is on Time, US News, Businessweek, Newsweek, etc.

    The Economist is almost too esoteric for it alone to be the contrary indicator. Its grade level of writing is too high for it to be the populist news source.

  9. NiNM says:

    The Economist is generally right on track. Also one of the best-written magazines out there. I knew a lady who did fact checking for them, and they were really, really serious about it – despite being a weekly.

    In any case, their “Housing Bust” (a brick falling) cover was June 18, 2005. Compare that to the RE promo of Time Magazine’s “Home Sweet Home” (guy hugging a house) cover on June 13, 2005.

  10. Ross says:

    The Economist was off in 2005. The peak was in July. They were early!

    I liked the quote from Barton Biggs. “Buy a farm”.

  11. AGG says:

    The bottom isn’t in. When the powers that be at the SEC in collusion with some brocker banks eliminate the ability to short on a down tick, they are setting up the short money machine. When the last big squeeze has eliminated 99% of the shorts, THEN the stocks will fall and fall and fall. I believe this will dovetail with high poll numbers for the Democratic presidential nominee right after the convention. Whatever you plan to do, if you don’t like log rolling in whitewater, don’t try to make money in this market.

  12. Jesus, not everything is a contrarian indicator.

  13. E says:

    AGG, with the advent of so many short and ultra-short ETFs, nothing can really eliminate the shorts. In fact, this new and now permanent market demand for short contracts has probably played a role in all these bear rallies.

  14. JustinTheSkeptic says:

    Perhaps, we are in such a “instant media age” that the old once a month magazine headlines, aint got the same old rock’n’roll? jmho

  15. OkieLawyer says:

    Forget Wall Street; what do you think will happen to the American economy if the truckers go on strike on April 1, like they are threatening to do? Most of the talk has been about Wall Street seizing up due to the banking crisis and subprime mess. What about Main Street seizing up because nothing gets to the stores?

  16. JustinTheSkeptic says:

    OK, Shorts, don’t get too sure of yourselves, the next bail-out is Congress coming in and buying up loans. So far I have had heavy short positions three times,and old gentle Ben has fucked me up the ass…it hurts!

  17. geoff says:

    The Economist is sometimes right, sometimes wrong. They were talking about the housing bubble for years… they were wrong for 3 years, and now they’re right. But they were terribly wrong when they said oil was headed to $5/barrel.

    Fact is that nobody knows how bad things on wall street can get, because nobody can tell you where the bad credit is, or the quantum of the eventual losses.

    And for that very reason, I’m taking advantage of the current rally to sell all my Citi. Still hanging on to UBS, though.

  18. RenoDino says:

    So sick of reading about why the system is broken due to the lack of liquidity and insolvency of Wall Street. The system is broken because American’s don’t make enough money due to globalization, expensive education and expensive health care but were encouraged to live the American Dream beyond their declining means. Taking on debt was the last gasp of the consumer who could not otherwise raise their standard of living. Real wages have been declining for 20 years. First the wife went to work to augment their income and then they borrowed against their house. Now it’s game over for the 75% of the population who have no savings and are buried in debt. Wall Street shook them down for their last few dimes and leveraged the debt 30X.
    Sounding trumpets for rescuing the Street, as does the Economist, is to miss the whole point of this crisis.

  19. mj says:

    dont worry be happy!

    your government will solve this with tax dollars and we will all pay.

    they know not what they do

  20. prefect41 says:

    From the second article:

    But there is also an intellectual rift. The Fed has long argued that central bankers should not try to prick asset bubbles, but must mop up the mess promptly when they burst.

    Ben Bernanke, Mr Greenspan’s successor, holds these views even more strongly.

    First, is this accurate? Second, is this sane? What happened to “taking away the punch bowl just as the party’s getting started?”

  21. Jim D says:

    So sick of reading about why the system is broken due to the lack of liquidity and insolvency of Wall Street. The system is broken because American’s don’t make enough money

    You say poTAYto, I say poTAHto…

  22. bc says:

    @ RenoDino… very well said.

  23. John Borchers says:

    The one thing I learned recently is be diverse. Even if one expects the overall market to trend down should have some stock they expect will go up over time no matter what. This will keep you from a really red or green day. I’d rather have this as a really red day is really painful and it’s nice to watch something go green.

    Even if congress bails out the housing that doesn’t solve the problem. People in the US carry too much debt.

    Be careful of the some of the short indexes. Some are junk. Look at EEV versus EEM. EEV is supposed to track double against EEM but since inception it’s only gained 100% not 200% and on loss days it will take the 200% loss.

  24. Here’s an interesting indicator from Fedco Seeds of Waterville, Maine, a very small organic seed and plant company:

    We are concluding an astonishing season. The possibility of a million dollar seed order first occurred to me during our February peak, when for four consecutive weeks we bettered our previous record weekly high of $81,000, topping at $108,000. Those 4 weeks alone generated $400,000. Now it is no longer a question of ‘will we top a million this year?’ It is ‘when will we reach the million. My guess is either March 26 o 27th. Our 22 percent sales growth this spring is our largest since Y2K.”

    – C.R. Lawn, Fedco Seeds. March 15th.

  25. John Borchers says:

    Wow Douglas, thanks for that. That’s a big red flag. So are earnings of over 10% for 5 years in a row.

  26. km4 says:

    Did ir say that American consumers are most pessimistic since Nixon was president ?

    The latest S&P/Case-Shiller home price index finds that U.S. consumers “are more nervous about the future than at any time since December 1973, when Richard Nixon was President.” The survey also found that home prices in 20 U.S. metropolitan areas “fell 10.7 percent in January,” the sharpest decline since 1987.

    The Bush admin had clearly accelerated the decline of the USA and BB is out of bullets

    Yowza !

  27. Paul Jones says:

    RenoDino has it.

    When society thinks it is better off when its talented people unbolt machines from factory floors and ship them abroad, rather than design and operate machines; said society is OVER!

    Look around NYC, Barry. How many of your contemporaries ever produced a product? Yet they are awash in cash and wealth. Reward for what? Designing and operating solipsistic ponzi-scheme?

  28. mo says:

    Agree with John Borchers re: short funds.

    I bought an inverse high yield bond fund in June. It was all over Bloomberg today about how poorly high yield bonds are doing. Have I made $$ on this thing? No – it’s down about 1% since I bought it and it is pissing me off. It is up about 5% since the start of the year though – so maybe it’s not so bad.

  29. Dee Leverage says:

    Why do I have a funny feeling that the hero of the story, the unscathed JP Morgan, will eventually be the biggest bust of them all?

  30. Ross says:

    Well Dee, to answer your question…You are right!

    The thugees are in the treasure room with weapons. Bernake has been lapped in the race to the bottom. The ECB didn’t even enter a car. When they cut, MAMA I WANT MY GOLD TOY! Competitive devaluation. Begger thy neighbor. God this is so predictable I’m bored.

  31. Dee Leverage says:


    It wasn’t hard for me to find a blog on JPM that made my “funny feeling” seem very ominous. For you all to enjoy now and say your prayers.

    JP Morgan Rolls Fed

  32. jeff macke's comb says:

    Mo, John Borchers, might i suggest you retake remedial math and learn this program called MS Excel before losing any more $ in double inverse-land (hint: google your question and you’ll get the answer)

  33. wunsacon says:

    Ross, did you say something about your neighbors “thinning their cattle herds like in the 70s, because they’re not making money on them”? Are they suffering from input price rises or recessionary demand/output-price reduction? … Or both?

  34. Judy says:

    Renodino: again, well said.

  35. Wai Lapeng says:

    DOW 300

  36. j-daddy says:

    You’ve probably all gone to sleep already, but so it’s said: the magazine cover contrary indicator only works in retrospect, just like Jim Cramer’s predictions. With a full range of opinions spewing forth constantly, either from the print media at large or from one blowhard, you just have to pick the call that ends up fitting your thesis and voila.

    As to the debate about whether we’ve hit a bottom, the obvious short answer is “no, you f***ing retard.” CNBC’s perma-tards and bubbleheaded babes can misapply Buffet’s bromides all they want, but a multi-decade old imbalance can’t be resolved over a weekend. Calling the BSC implosion the cathartic event that signals the bottom is akin to saying “well, with Archduke Ferdinand out of the way, what’s there to fight about?”
    I was long in early 2007 until I woke up to the many reasons to be short. Those reasons have not yet found full expression in the market. The sword of Damocles still dangles, though we’re more of us aware of it.
    Bulls, stock up on kneepads.

  37. Darkness says:

    Another red flag: The taco job measure

    (longtime Fedco customer, love their product, but I haven’t needed to order in many years since heirlooms are easy to take seeds from year to year, so most of their orders must be newcomers or recidivist gardeners.)

  38. Barley says:

    I think we should take a step back and look at everything from an objective opinion…here is a mainstream mag putting a face on the obviouse (to some of us) and this will seep into the minds of many at some point. Having read this mag for some 25 years they rarely dither but always state obvious and eventually the words become mainstream if not old to some of us.

    I find this very disturbing on some level as I think we have arrived. The comments is something new but revealing. I too now live on a farm, bought it two years ago..

  39. Patrick says:

    Re: Contrarian covers.

    Contrarian covers come after a year or three into a bull/bear.

    The Business Week “It’s a Low Low Low Rate World” was last January–right before the first sub-prime problems. The Time “Why We Love Housing!” cover was, I think, in July 2006, right at the peak of the housing market.

    To think that only some 6 months into this debacle that a magazine cover is a good sign of the turn is foolish. I would be more interested in the magazine covers come this summer or fall when people throw in the towel.

  40. Great debate — I appreciate thoughtful discussions like this.

    For those who want to read more about the strengths and weaknesses of the magazine cover indicator, see these previous discussions.

  41. Ross says:

    Some of the serious livestock growers I know are thinning herds because of input costs. It’s a combo of feed and fuel prices along with fertilizer costs. It’s a typical cycle that lasts a couple of years.

    Once prices rise 15% or so, they typically expand. Funny, a new ETF I found equals 1 lean hog and 1 live cattle contract and trades under the symbol COW…..

  42. Andy Tabbo says:

    The economist is famous for providing temporary counter trend blips…see the dollar. Each time they put out a bearish dollar story, the dollar rallied at least a few percentage points…

    The stock market is in serious doubt about it….but I think we’re in the middle of one of those corrections that will send all new bears/shorts to the crazy house….

  43. RN says:

    I love these morons who invest on the basis of magazine covers. They sure do make life easy for the rest of us. :)

    As though a story in the Economist is going to pay back ARM mortgages that have reset and somehow recapitalize derivative structured instruments.

    My PhD in Economics is from some years back, so I may be behind on the new math, but even today I’m pretty sure it doesn’t work that way.

  44. wunsacon says:

    Thanks, Ross.

  45. The counter trend rally may last a few days.