Thursday, July 24, 2008

"Don't Confuse Brains WIth A Bull Market"

When I worked at Bear Stearns, one of my bosses had the quote "Don't confuse brains with a bull market", on his wall.  

The commodity run of the past several years has been breathtaking, almost without taking a break.  Just over 1 year ago, the Amaranth hedge fund went belly up, and in unwinding the funds positions, the creditors and clearing firm are not in the trading business, the markets got creamed.  How would it be possible to foresee extraneous events like these?  It is not possible. But it is very possible to profit from the sell off by picking up the pieces.


Creating a the false sensation of a "bottom" in the Financials did nothing to cure the underlying issue.  That is:

Home prices will continue to fall, defaults will continue to rise, and the banking system is technically insolvent.  The Oil import volume into the U.S. will decline from this point forward, making the value of any property that is dependent upon cheap and abundant fuel for its egress, provisioning, and maintenance worth less and less and less, etc... This negative feedback loop will continue until all of the silly, worthless subdivisions that are standing on productive, VALUABLE farm land have been removed from the surface of the earth.  The process might take 20  or 25 years to complete - but think about it:  That means the "DEMAND DESTRUCTION" you hear tell about in the media regarding energy will apply to suburban and exurban housing at a rate of 4 to 5% per year.

Still think that Fannie Mae, Freddie Mac, Washington Mutual, Wachovia, Citi, and the rest of these miscreants will survive?  Really?

What we are witnessing is mass denial, confusion, and desperation at the Federal level.  For the past 2 years we have been bombarded with attempted manipulations from the Fed, U.S. Treasury, The National Association of Realtors, etc... and myriad smaller equally desperate interest groups (nothing special about them.)  The housing crisis is "contained", then housing prices were bottoming.  When this did not come to pass, the "bottom is in sight" became the mantra in the Mainstream Media.  And just where does the MSM get their data?  From the very folks that cannot, under any circumstance, vary from the script.

It is the improper response that will do most of the damage as business as usual is not an option.  Government's refusal to cut their budgets.  The Individual's insistence that "THEY" will do something.

I regularly receive comments and emails from folks that seem to believe that the "rate of change" will be a rapid one.  While I think that is possible, as I have posted many, many, many times before, I believe it will be a slow, steady, grinding unfolding of events.  If, as I believe the most likely outcome, that U.S. oil imports go from circa 13mm barrels per day in 2007 to circa 5mm barrels in 2020, it won't be the end of the world.  But it will be the end of the U.S.$, suburbia, the bulk of the value of social programs, defaults by the Pension Benefit Guarantee Corp. and Fannie & Freddie, and a litany of other issues foreseen and unforeseen.  

So what to do?

Life is not fair.  If you sell your suburban home, somebody else has to buy it.  That means SOMEBODY is going to be left holding the bag.  That makes this the ultimate competition, like it or not.  The Amish have a great saying:  "I would not cheat thee, I would out wit thee".

So, go forth.  Don't cheat.  Out wit.

Yours for a better world,

Mentatt (at) yahoo (d0t) com

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