One of the biggest outright lies of this housing, economic and financial collapse is that “No one saw it coming.”

This is a patently absurd comment. Anyone who makes it — and there have been lots and lots of people saying as much –  reveal themselves as either clueless or liars or both.

Today’s WSJ has two articles about the many warnings that were out there. Not just on Blogs, but amongst fund managers, Wall Street Analysts, academics, and Fed economists.

The most striking example is found in Justin Lahart’s column, Mr. Rajan Was Unpopular (But Prescient) at Greenspan Party:

“It was August 2005, at an annual gathering of high-powered economists at Jackson Hole, Wyo. — and that year they were honoring Alan Greenspan. Mr. Greenspan, a giant of 20th-century economic policy, was about to retire as Federal Reserve chairman after presiding over a historic period of economic growth.

Mr. Rajan, a professor at the University of Chicago’s Booth Graduate School of Business, chose that moment to deliver a paper called “Has Financial Development Made the World Riskier?”

His answer: Yes.

Mr. Rajan quickly came under attack as an antimarket Luddite, wistful for old days of regulation. Today, however, few are dismissing his ideas. The financial crisis has savaged the reputation of Mr. Greenspan and others now seen as having turned a blind eye toward excessive risk-taking.”

What exactly was it that professor Rajan was warning about? It reads like a laundry list of precisely what has hit the financial markets:

  1. Incentives were horribly skewed in the financial sector;
  2. Credit-default swaps generated big returns, but failed to consider the risk if defaults occurred;
  3. Banks were holding a portion of the credit securities they created, putting the banking system itself at risk.
  4. Banks might lose confidence in one another;
  5. If that occurred, the interbank market could freeze up. This would cause a full-blown financial crisis.

As we now know, that is precisely what occurred.

That the warnings were there is one thing. That they were ignored at the highest levels reflects the massive failure of our institutions, most notably, the Federal Reserve. Bernanke might get high marks for his handling of the crisis, but its his institution that is behind so many of the bad decisions and missed opportunities. That speaks volumes . . .


Mr. Rajan Was Unpopular (But Prescient) at Greenspan Party
WSJ, JANUARY 2, 2009

Has Financial Development Made the World Riskier?
Raghuram G. Rajan

The Doomsayers Who Got It Right
More Bad News in Store for 2009? Last Year’s Cassandras Are Still Gloomy
WSJ, JANUARY 2, 2009

Category: Credit, Derivatives, Federal Reserve, Markets

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.

90 Responses to ““No One Saw It Coming” — REALLY?”

  1. Katie says:

    This is the most convenient excuse and justification for the executives who’ll walk away with bonuses based on mirage profits. How are they going to justify their job and pay by admitting that they were either ignorant or greedy or both?
    I think that bailing out everybody and applying the same policy that actually brought us into this mess doesn’t qualify for high marks. It only prolongs the cycle which Greenspan thought he could abolish.

    Happy New Year

  2. Dustin says:

    They really need another set of columns titled “Who got it wrong.” They can’t do that, though, because it would have too many of their regular columnists.

  3. grumpyoldvet says:

    Just think of all the great advice one receives from the “wizards” on CNBC. It’s amusing to me that this “financial advice/information” channel has recently had ads featuring Snuggies. Billy Mays hawking everything, some guy selling telephone service…..sounds more like late night TV or HSN. Ah well, guess GE needs moolah wherever they can find it.

  4. BrianSJ says:

    “With these advances in technology, lenders have taken advantage of credit-scoring models and other techniques for efficiently extending credit to a broader spectrum of consumers. The widespread adoption of these models has reduced the costs of evaluating the creditworthiness of borrowers, and in competitive markets, cost reductions tend to be passed through to borrowers. Where once more-marginal applicants would simply have been denied credit, lenders are now able to quite efficiently judge the risk posed by individual applicants and to price that risk appropriately. These improvements have led to rapid growth in subprime mortgage lending; indeed, today subprime mortgages account for roughly 10 percent of the number of all mortgages outstanding, up from just 1 or 2 percent in the early 1990s.”
    Chairman Greenspan Federal Reserve System’s Fourth Annual Community Affairs Research Conference, Washington, D.C. April 8, 2005

  5. Struggling Man says:

    One (of many) things that keep bugging me is,,,,,,,,

    How did the experts THINK this was going to play out? Did they have a plan?

    There is no way house prices could for ever rise w wages nearly stagnant.

    I always heard about a “soft landing”,,,,,, like over what, a period of twenty years.

    I was working in the Phoenix area in 2005/2006. Everyone I spoke w over the age of forty knew the whole thing was unsustainable,,,,,, we used to joke about it.

    A couple years ago ( just when the “leverage spring” was getting wound to the breaking point), we had congress drilling baseball players on their performance enhancing drug use habits.

    When are are we going to see some of these clever Wall Street types in front of congress answering some questions.

    It blows my mind that the public has not received a single apology from a single person on “Wall St.”

    Good God,,,,,,,, the hubris.

    If Paulson wanted to do ONE thing to restore faith in our finacial sysytem, he would get a gruop of his peers together,,,,,,, they could draw straws,,,,, and a couple of them could make very public apologys,,,,,,, or jump off a tall building.

  6. Steve Barry says:

    This is the one year anniversary of my call on this blog that 2008 could be the worst year in S&P history…if I had said nasdaq or nikkei, I would have been right. Oh well…QID had a total return of 76% vs. a QQQQ loss of 42%…not perfectly 2X, but given the volatility, Iam very pleased with that.

    Now for 2009…the S&P actually never hit my revenue target of 900 per share…we are at 1000 according to my data, but that does not yet capture 4Q, which will be down due to stronger dollar and terrible holiday season. We really need to wait a month for earnings to come out. I still think we will hit 900 or less…and the worst crisis since blah blah blah, ought to bring a multiple of .5 to .7, so let’s say .6. That would be 540 on the S&P. Thus, we are again threatening 40% downside, which is near worst year ever… but it may hit that earlier or later than 12/31/09…calendar year is too arbitrary once the easy call has been made.

    Bottom line…I will wait until February to refine my targets, but current strategy has to remain in place…long QID. Nasdaq still trades at 30 P/E and 1.23 P/S, and shorts have all left town. Brian Wesbury LOVES tech this year…enough said. Good luck in 2009.

  7. Steve Barry says:

    Love GMAC Bank’s new commercial…”stand on solid financial ground”…already in running for Chutzpah of The Year Award.

  8. Steve Barry says:

    Also, measured in gold, oil is as cheap as it gets right now (almost 3 SD from mean)…if you want to be in a commodity, go with oil…stay away from gold.

  9. Bruce in Tn says:


    As I often do, looking at the one economic number released today…under the surface:

    If you look at the 6 month history in the explanation of the ISM from this morning…the thing that strikes me is the extraordinary continuing decline in orders….or future revenues if you wish…

    Supposedly this index, when it bottoms, it at least four months prior to any relief from the recession/depressionary environment…

    based on today’s numbers…I’d say we are not at the bottom yet…and that may mean we are in for a weaker 1st quarter than many expect..

  10. Hal says:

    anybody who saw it coming was not allowed to discuss it on mainsteam media–and as implied or inferred by Barry when you mention the bloggers–the issue among bloggers was just how bad this was going to get.

    Housing, Banks, economy, energy–everything–

    there is a certain audacity or arrogance among leaders which is what is going to damage this country–not necessarily this economic cycle.

    Chris Cox defending Bear Stearns a couple of days b4 it goes BK–not only was he wrong-dead wrong–as SEC commish he had no business going there in the first place–of course, since he cannot enforce the regulations he has to do something.

    Now we create more red tape with more govt regulations which wil not be enforced.

    Does anybody in Govt believe in a) K.I.S.S., b) setting higher standards (or standards at all) , c) ethics.

  11. VennData says:

    “They” weren’t listening was the problem.

    “They” prided themselves on “their” own knowledge.

    “They” knew better.

  12. austincompany says:

    Governments, kingdoms and children often do not hear or see what they choose – it’s called self interest. As another poster above mentioned, any “average” Joe could figure out that the house price mania would end (and badly). Just like most average Joe’s (and Mary’s) can predict that the Country is currently bankrupt and our currency will (one day soon – along with Medicare and SSI) not be worth goat spit.

  13. Unsympathetic says:


    Why should Bernanke get anything resembling high marks for his handling of the crisis? He was Greenspan’s #2 on the FOMC during Greenspan’s entire tenure. He is just as much to blame for easy money as is The Wrinkled One.

    Either he was itching to test his academic thesis (which has failed fantastically, by the way) or he’s just another paid-for lackey of the banking cabal. I’m going with the latter.

    If only there was a way to put my money on that belief..

  14. Steve Barry says:

    Bruce…ISM is out at 10 AM, no?

  15. Steve Barry says:

    Suze Orman quote live on NYSE floor on CNBC just now: “Cramer is very intelligent…listen to him…he has NOT been wrong.”

    She actually has a lot in common with Cramer now…any resemblence between them and financial advisors is purely coincidental.

  16. Bruce in Tn says:

    Already out..lower than predicted..(surprise!)…and the business of severely curtailed orders is the striking thing when looking over the last 6 months..

  17. Bruce in Tn says:

    Steve…my are right…back on this in twenty minutes…

    (more coffee might help)

  18. danm says:

    Either he was itching to test his academic thesis (which has failed fantastically, by the way) or he’s just another paid-for lackey of the banking cabal
    Really? I think you’re a little too quick. He started with the rates which are now at 0. He followed with the buying of securities/assets. The next step is just throwing money out the helicopter… he just got the OK! Look at the impending deficit (1 to 2 trillion?) and that will give you a clue to how much money will be thrown down our way.

    He’s just on the verge of realizing his lifelong dream.

  19. I was/am in the residential real estate business. It was August 2005 at a family gathering at my house that I observed, like anyone that wished to see could have, that this (residential real estate mania) was all going to end and badly. My brother-in-law is also in the business–a regional vp for the biggest mortgage lender at the time–and scoffed that all the economists working for them were saying housing demand wouldn’t falter for at least another ten years.

    My prediction pissed my brother-in-law off at the time. It makes him even madder now, since I was right. We don’t have family gatherings at my house anymore.

    Now the Fed pumps $500b or so into buying down residential mortgage rates so we can try to do this whole thing over again. This, too, will end badly, and it doesn’t take a B-school professorship to understand that the answer to inflated housing prices caused by too easy and too cheap credit is not easier and cheaper credit.

  20. Steve Barry says:

    Brother-in-laws are always economically ignorant LOL.

  21. Hal says:

    Cramer, FEH,

    Orman, Feh

  22. Andy Tabbo says:

    Love the quote of the day from Goethe….great, great quote.

    Steve Barry: was thinking the same thing about that GMAC commercial…I almost spat out my coffee.
    Also, agree with you on the oil. Also, market sentiment is very, very low for oil. I like the oil v. gold trade but it’s a tricky one to execute with the extreme contango. Which months do you buy on oil? It’s a tough call. You don’t want to pay up too much going out on the curve and you don’t want to be too close to the front of the market and get caught in some vicious storage game.

    Funny thing about technical analysis how people can see it differently…there was this guy on CNBC talking about “inversed head and shoulder pattern” on the stock market. I can sort of see what he’s referring to, but there’s no way I would categorize the pattern as an inverse head and shoulder….the right shoulder has become way to elongated and messy relative to the left shoulder….imho.

    - AT

  23. Steve Barry says:

    Brucie…DJ headline:

    10:02 * DJ US ISM: Dec New Orders Index At Record Low

    good call Nostradamus

  24. Mannwich says:

    Who exactly gives Bernanke good marks for his handling of the crisis? After all, he denied there was a problem until it was far too late. Part of being good at crisis managment is seeing/admitting/acting on the problems before they spiral out of control. Mssrs. Bernanke and Paulson clearly failed to do that, therefore, they both get “F’s” from me.

  25. Bruce in Tn says:

    Yes, Steve…appears I was up too early without my java…but the trend over the last 6 months is very very clear…there is still an implosion going on…and it will be worse the first quarter than the last quarter of 2008.

    If orders are at an all time low, by definition revenues must continue to fall…

    and of course Europe will be in the very same boat…

    Europe Manufacturing Recession Worsens in December

    Most of us here see what is coming, at least in the first half of the year..

  26. Bruce in Tn says:

    Here are the amazingly weak orders numbers and the trend…and the velocity of the decline appears to be unchanged…

  27. karen says:

    Just a reminder on the ways to play gold and oil: my current favorites are UGL and UCO… those wanting to short gold, have at it, and try DZZ. GDX is a bet on the gold miners (pays a dividend as well.)

  28. danm says:

    After all, he denied there was a problem until it was far too late. Part of being good at crisis managment is seeing/admitting/acting on the problems before they spiral out of control
    As if any of them could actually scream out:”Run for the hills!”

    I don’t understand how anyone could expect those 2 bozos to tell you the truth in times of crisis!

  29. danm says:

    The Fed is there to twist reality around. If it wasn’t, rates would be set by the market. And please don’t even bother arguing that the Fed has no impact on long term rates.

  30. Mannwich says:

    @danm: I wasn’t suggesting those two bozos tell US the truth but their actions told me they actually didn’t think there was a problem until it was a too late.

  31. Bruce in Tn says:

    And as I read it, China is going to use all available methods to ensure they are still the low cost manufacturer in the world…

    Rising desperation as China’s exports drop

    The money quote in the article is from December 19th…

    “China will resort to tariff and trade policies to facilitate export of labor-intensive and core technology-supported industries,” Li Yizhong, the minister of industry and information technology, said at a conference Dec. 19.

    Uh, yes, I think I can see what is coming…

  32. Mannwich says:

    Dennis Kneale just proclaimed that “the recover has begun”. Glad we cleared that up.

  33. AT,

    to your point re: QOTD:

    Hell begins the day that God grants you the vision to see all that you could have done, should have done, and would have done, but did not do. —Johann Wolfgang von Goethe (1749-1832)

    I post it for, at least, two reasons: one, they roll away, and, two, it, truly, is a ripper worth pondering..

    Also, I’ve been hearing that ‘reverse h-and-s’-story, too, and, I concur, it doesn’t seem likely.

    To me, it strikes as another ledge, of consolidation, before the next drop of the waterfall..

    Past that,

    with this: “based on today’s numbers…I’d say we are not at the bottom yet…and that may mean we are in for a weaker 1st quarter than many expect..” from Bruce, above..
    “Suze Orman quote live on NYSE floor on CNBC just now: “Cramer is very intelligent…listen to him…he has NOT been wrong.”

    She actually has a lot in common with Cramer now…any resemblence between them and financial advisors is purely coincidental.” SB, above

    We need to know that the MSM is completely FOS–there are so few exceptions, it’s, hardly, worth mentioning..

    Steve Barry’s been laying out the case, well, and clearly, our Economy has serious issues ahead of it..

    The less intrepid, among us, need to be as Defensive as possible–exposure to many realms of Financial Products will not bode well for continuing longevity..Wealth, Health, or otherwise.

    and, with von Goethe’s point fresh in mind, we should dig out Maslow’s Pyramid, clear the Brush, and begin at the base.

  34. KJ Foehr says:

    Call it collective cognitive dissonance; they didn’t “see” it coming because it didn’t jive with their beliefs that the free-market wouldn’t allow risk imbalances to occur to begin with.

    Fortunately, not everyone has such a blind spot.

  35. Mannwich says:

    We’re slowly inching closer to one whale of a shorting opportunity. Going to wait for it now.

  36. karen says:

    Jeff, you’ll be crying in your bud lite if you attempt to short this market for anything more than a quick trade. : )

  37. Mannwich says:

    @karen: Nothing is “long term” anymore. Fundamentals will matter again at some point. Me-thinks you give the Feds far too much credit for being able to manipulate our way out of this mess. Reality will be an even bigger bitch in ’09.

  38. Steve Barry says:

    Rule No. 1…anything can happen in light volume

    Rule No. 2…never forget rule No. 1

  39. Mannwich says:

    Anything I do between now and Jan. 20th will be very small……..

    Might just sit, watch and do nothing until then.

  40. Steve Barry says:


    That may be a little rash…I would use today’s inane rise to start shorting…remember put calls are at 3 year lows.

  41. km4 says:

    U.S. Manufacturing Index Hits 28-Year Low…. but no one saw it coming.

    The US service economy is now completely dependent on creative bullshit financial engineering to keep the cheap credit flowing to prop up inflated asset prices and the ruse going !

  42. Mannwich says:

    @SB: I’ll probably nibble a bit but don’t want to discount the market’s ability to completely ignore reality for a long time until the thing comes crashing down again. There are many chapters to this mess yet to be played out in the coming years.

  43. karen says:

    Steve, what disturbs me is that you don’t realize how far out of your league you are.

  44. Steve Barry says:


    I outperformed the S&P by 114 percentage points last year…I am far out of my league.

  45. km4 says:

    Government bailouts now total over $8.5 trillion

    ‘The fundamentals of the US economy are strong ‘

  46. Jim Greeen says:

    I awoke one morning in late July ’07 and heard on CNBC that banks had stopped lending to other banks.

    Got up, turned on the computer, open my account, sold everything , went straight to cash, then went back to bed and have not looked back.

    If I saw it coming, or better yet saw “something” coming, anybody on the planet could have done the same thing.

  47. KJ Foehr says:


    ” remember put calls are at 3 year lows.”

    What numbers are you looking at? I’m am trying to learn about put/calls but all I see is daily print data, and it doesn’t appear to be at 3 years lows? Index? Equity? Total? Or something else?


  48. Mannwich says:

    Bullish on oil, commodities, and bailouts. That should lead us to prosperity, no doubt.

  49. Steve Barry says:


    I tried to post my put/call charts many times…it never works…go to…put in symbol $cpc…overlay simple 10 and 21 day MA…look at those over 3 years. Note that when put/calls bottom, that is bearish…note the signals in mid-May and Aug of last year…and the put/calls MAs are lower now.

  50. fabiansiegel says:

    As you point out – many people saw it coming. Only the market timing was unclear. Investors want to ride the wave as long as markets go up even if they know it is unsustainable (apart from the ones that claim that everything is different this time). The behavior is not so different from what happened in tech before 2000.

  51. Andy Tabbo says:

    I know there are some bears on this board, and I’m definitely bearish for 2009. We will take out the 2008 lows. It would take A LOT to get me off that stance.

    However, shorter term, I must say that the pattern I’m looking at intra day looks pretty bullish if we can decisively take out 919. It will look like an “ascending triangle” – rising bottoms, flat top. That pattern targets 1030 ish. Also, looking at ABC analysis from the lows, it’s easy to get targets around 1030.

    I’m always weary of bull traps in situations like this. If you’re short term bullish you want to see the market take out 919…cause a rush of buying, then pull back and HOLD the 919. You definitely don’t want to see it take out 919, cause a little rush, and then puke out below 919. That would be a classic bull trap.

    I’m going to have to buy this thing above 919.

  52. BDW says:

    In 2005, I told my father-in-law (who owns GM and Ford dealerships) that it would be a very good time to cash out, take his well-earned gains, and lay on a beach somewhere for a 5 or six years, and then look to get back into it if he still desired. Instead, he bought 4 more dealerships, which my wife runs, and tried to flip a couple of houses in Phoenix.

    Being right all the time can be a nuisance.

  53. “Government bailouts now total over $8.5 trillion”

    If we figure the government paid $8.5 trillion for bailed out assets worth 1/4 less than was actually paid, i.e., that the government got stuff worth about $6.38 trillion for its $8.5 trillion investment, which is perhaps a charitable assumption, since there is really no way to know what most of the trash was/is worth because nobody was buying…

    …it means about $2.13 trillion of the dollars printed to buy these assets represent nothing, except our ability to print dollars. Or, in the context of the overall economy, we printed phantom dollars amounting to about 15% of the 2008 GDP.

  54. karen says:

    XLF and $bkx not joining in today’s fun. $nyupv still not letting up on the 10 minute chart. Today is just odd. Next week will be more telling, i.e., if the money will come in on the long side or the short. But come in, i bet it will : )

  55. Pat G. says:

    Funny, not one comment here on the supposition that this has all been part of the plan to eventuate our country’s repudiation of debt. Afterall, there were alarms being sounded so “no one saw it coming” has no merit. Yet our government turned a blind eye by allowing it to continue making matters wherein we currently find ourselves, even worse. They are in positions that not only make the laws but are obliged to enforce them. Yet we are the mass. They are just well connected. Or I’m out in left field.

  56. AT–

    w/o doubt, there are, always, Trades. You happen to be one of the best Elliot technicians I’ve ever seen.

    that, his wave Theory, is a, veritable, Thicket, you’ve the proper Machete.

    that you, like Steve Barry, share your insights, is, at the very minimum, a good turn that you do, moreso, a Gift– to those able to tell ‘Beans’, when the Bag is untied.

    For the others, they should double-check their, own, Stores, and see if they have Buckles, and Breakers, enough.

  57. bob.behrooz says:

    Steve Barry, do you manage money? If not can you recommend a few money managers?

  58. Pat G.

    that’s twice you’ve gone with: “Or I’m out in left field.”

    you may care to ask Manny Ramirez, for instance, just how well-paid that Position, well played proficiently, can be..

  59. Did you personally see it coming? Let’s just say the *majority* did NOT. Why? Because the “majority is always wrong.” It’s the famous quote from John Kenneth Galbraith, economic adviser to JFK and others… a famous Keynesian…

    Here the concept is applied to 1975:

    But I’d argue that you could apply it to the majority of “experts” last year.

    I’d also argue that you can apply it today. Given most of what I read currently, the consensus is more gloom for 2009 and “the worst is yet to come” mantra.

    I believe the majority is wrong again this year. And I think Galbraith would agree.

    (no gloom and doom here)

  60. KJ Foehr says:

    Well there goes 919; looks like we will be testing AT’s thesis soon. Place your bets please…

    @SB, thanks. It does look low, but how much lower / longer can it go, that is the question / problem. The euphoria over O and his big FSP will probably put a rosy tint on market sentiment for a few days or maybe even weeks. Unless other bad news such a earnings / jobs trumps that mood.

  61. rww says:

    GNE, I don’t now how you can look at the last six weeks of trading and say that the “consensus” is gloom and doom for ’09. The market IS the consensus.

  62. Winston Munn says:

    I would think a leader would seek out people who showed this degree of analytical skill and at minimum interview them for a position of high standing – but no, what our leaders seek are loyalists and idelogues who will “stay the course” even when navigating the Hindenberg.

    In the markets, it appears to me present conditions are setting up one of the great bull traps of all time. Most would say we are closer to the end than the beginning. I am not so sure about that.

    Perceptions about risk and debt and the value of work has been altered – soon it will cause a generational shift in that perception, as happened during the Great Depression. Jobs continue to disappear. Housing still has 11 months of inventory supply – I have never seen numbers on inventory supply of nail salons, tanning beds, home improvement stores, electronics stores…..but I can guarantee there is overcapacity of each. Anyone have an idea how many years supply of automobiles have already been produced?

    With overcapacity, the Strip Mall Shop-til-you-drop Economic Model will not soon be resurrected – cash is king; credit is tight.

    This is a debt event of unprecedented proportions – the unwind of 25 years excessive credit – and we are closer to the beginning of the unwind than to its end. The Fed can push cheap money into the system to pay for the search-and-rescue operation for The Lost Decade, but economic growth will go missing until equilibrium is reached and maintained for some time between risk and its reward.

  63. Pat G. says:


    I have got to pitch my ideas out there every once in awhile to either confirm or deny my suspicions. I try talking to those around me about these things but when their eyes begin to glaze over I change the subject.

  64. leftback says:

    I am modestly long and will not short here unless we see a push to 945. I am with AT and Karen on this market, wait and see where the direction is heading when traders return and there is more volume.

    Jeff, I may short a bit next week, but if I did my stops would be set pretty tight just at the minute. SPX 1000 is the promised land, you can load up on the short side as we approach there.

  65. DL says:

    Andy Tabbo @ 10:02
    “…market sentiment is very, very low for oil. I like the oil v. gold trade but it’s a tricky one to execute with the extreme contango”.

    Why do you conclude that sentiment on oil is so bearish, given the contango? For example, the December 2010 contract is priced $20 higher than the February 2009 contract. Futures traders don’t seem all that bearish to me.

    I think that, once the S&P has its correction, it’ll pull oil down with it (barring some sort of Armageddon in the Middle East).

  66. @Pat,

    I hear ya, though you should see GNE’s post, above, re: JKG

    sadly, for us, James is not John.

  67. constantnormal says:

    @ Winston Munn — 12:57

    I agree with you almost completely, up to the part about the unwinding of debt. While I desperately want to believe that this debt bubble is imploding, from everything I can see, it is not. Bernanke and Paulson have done a magnificent(?) job of pumping fresh new debt into the economy, matching that which has imploded, and are now prepared to print money ad infinitum to debase that debt, smearing the pain of inflation across all of us in the process (once they manage to smother the monster of deflation in money).

    I don’t think this alters any of your observations about the shift in perceptions of debt and the value of employment, and if anything, it means that the “return to normalcy” will occur over a MUCH longer time frame than if we had a precipitous unwinding of the debt bubble.

    Of course, there is always the potential for The Law of Unintended Consequences to stick its nose into the tent, allowing us to have a precipitous unwinding of the debt bubble in concert with the collapse of our currency.

    I figure that to post in this forum, there are standards of doom-and-gloom that must be maintained. :-)

  68. KJ Foehr says:

    Pat G. Says:

    “Funny, not one comment here on the supposition that this has all been part of the plan to eventuate our country’s repudiation of debt. … Or I’m out in left field.”

    No, you are not. But it may not be repudiation that reduces our debt, but the “kindness” of our debtors like Japan. They might decide to write off some of the Treasuries they hold in an attempt to bailout the USA, and thus save themselves from further economic woe. There was a Bloomberg article about this that I posted a link to several days ago, but I can’t find it now.

    What such a thing would do to the USD, I don’t know. It would seem very bad at first blush, but perhaps Japan’s loss would be to the benefit / gain of others, and so the USD might actually rise – who knows?

    Anyway, I think it is something to keep an eye on. The USG can’t bailout / sustain the entire economy with printed dollars indefinitely, but if others countries decide to give us a break on our Treasury debt, then perhaps it can?

  69. leftback says:

    DL: I like both oil and gold, longer term, but expect corrections inboth during Q1. There is nothing much to support the $ beyond the liquidation trades. I am playing in Mister Rogers neigborhood – a hard assets, short $ guy over the long run. Short-term, play what you see and pay attention to AT and Karen.

    Anyone else looked at the industrials (X, AA) and rare metals (GMO, URZ)? Mucho bullish charts there, people, I would guess that if you are long the old economy (aka “real business”) and short the nail salon economy (aka “imaginary earnings”) in 2009 you will end up doing very well.

  70. Steve Barry says:


    I don’t manage money…I’m a retired elctrical engineer with an MBA…Mr. Ritholtz is the money manager…he could probably help you. My advice here is all free.

  71. @ KJ,

    seriously, just out of curiosity, you don’t play Chess, do you?

  72. Pat G. says:


    Thanks. But with economies of scale themselves going into the shitter, I don’t see why Japan or China should be so benevolent towards us.

  73. Steve Barry says:

    Sue Hererra going nuts…”Dow up 194..YESSS!!!”…”look at the market go”.

  74. leftback says:

    @ Bruce: SPX 926 and rising. Fire up the grill… guess who’s coming to dinner??

  75. Andy Tabbo says:

    DL said:

    “Why do you conclude that sentiment on oil is so bearish, given the contango? For example, the December 2010 contract is priced $20 higher than the February 2009 contract. Futures traders don’t seem all that bearish to me.”

    Market Vane bullish consensus on energy as been below 20% for some time now. Gasoline sentiment actually hit 11% a few weeks ago..that’s why I said sentiment is negative toward oil.

    In re: the futures market. The fact that the market is so contangoed is a sign of a hugely bearish market. I could flip your statement around and say: “The current market is $20 LOWER than the Dec 2010 futures…traders seem very bearish oil in the prompt market.”

  76. KJ Foehr says:


    “seriously, just out of curiosity, you don’t play Chess, do you?”

    No, I have played it occasionally over the years, that’s all. But I do admire it as worthy intellectual pursuit, although perhaps limited too much to spatial reasoning to be really satisfying for me.

    The stock market is my game, and it provides me with more than enough entertainment, challenge, and excitement. I just wish it wasn’t so damned painful along the way.

    When I play other games they are strategy games like Rise of Nations, Civilization, and Age of Empires, but I got burned out on them: you can only conquer the world so many times before it becomes boring.

    In cards I like Canasta, but always wanted to learn Bridge, I assume it is the most challenging card game, but I don’t know for sure.

    Outdoors it’s tennis and fishing.


  77. DL says:

    Andy Tabbo @ 1:59

    O.K. I have no trouble believing that oil futures traders are short-term bearish. I suppose one must specify a time frame when hazarding a guess as to sentiment.

    Note also the very minimal short interest in USO (about 0.5 day) and oil service stocks like HAL. No bearishness there.

  78. Winston Munn says:

    @ constantnormal 1:22 pm

    Notice my take was that it is an “excessive credit unwind” and not debt unwind – the additional debt funds from the Fed are simply being hoarded by the banks. They are going to bonds and excess reserves. But some day they will be the basis of the next great bubble.

    I am with you on time – this all will be a long, long process.

  79. leftback says:

    @ DL said: Note also the very minimal short interest in USO (about 0.5 day) and oil service stocks like HAL.

    No-one will be short crude until there is a big rally or the Gaza conflict ends. Range-bound: $39-46 until there are big changes in demand, but keep an eye on gasoline price as the main trigger for higher crude.

  80. DL says:

    David Lereah (National Association of Realtors) finally admits he was spinning the numbers.

  81. DL says:

    leftback @ 2:48

    Maybe the conflict ends in another 5,000 years.

    (But I know what you mean).

  82. @ KJ,

    yes, on occasion, though, seems few care to play, thereby, few to play with..

    Canasta’s hiliarous, depending on the point multiplier, people can get pretty twisted..

    Bridge has long been on the TTD: list, though, never makes it to the top, for some reason..

    Outdoors: Golf, and other associated target sports, Hunting w/ Nikon, Astronomy, y Otros..

    past that, Mr. Ritholtz should craft an offering so that those, able, can ‘Buy’m by the Box’..

    or, deign to make obvious, that he, already does so..


    as you know, a little self-promotion never hurt anyone.. : )

  83. KJ Foehr says:


    I don’t get it; you mean a discount for the small investor? Or something else?

  84. cke says:

    “No One Saw it Coming”

    I believe that Dr. Kindleberger made some comments on the developing housing bubble in one of his last interviews: Wall Street Journal, July 2003.

  85. KJ,

    one never discounts Quality, I’m referring to a MutFund/Closed-End Fund-style vehicle..

    the Launch costs can be prohibitive, though, he should just Buy one out..

  86. KJ Foehr says:

    “MutFund/Closed-End Fund-style vehicle”

    Interesting thought; it should be a winner, right?

    Personally, when I flip to the long side again it will be mostly in China and then the rest of Asia. Although, I would allocate some here, if I had enough confidence in the fund / person.

  87. Che Stadium says:

    The Austrian school as a group got this one right. Despite that, their free market philosophy has been discredited anyway.

  88. Bruce in Tn says:


    Spent all day cutting trees…It looks like you are going to get fat after all…

  89. bob.behrooz says:

    Steve Barry, thanks! I am also an electrical engineer in Silicon Valley. I am all cash now, do not want to go back to mutual funds and need a money manager that uses hedging strategies like you. With a full time job I don’t have the time to mange my money.