March 13, 2008

The death of confidence

The realtors would like you to believe that "we've hit bottom" and that new buyers shouldn't fear losing equity after they dive in today.

Yeah, right.

The Fed wants the banks to regain their confidence, so that they'll resume lending to each other, and this liquidity crunch will go away.

Yeah, right.

Bush and Paulson would like Americans and the world to believe that our dollar is strong, that buying and holding our bonds is smart, and that our economy won't be going into recession.

Yeah, right.

Good luck with that.

Confidence is gone HP'ers. Confidence in houses, bonds, stocks, the dollar and pretty much every investment class except for commodities is gone. Kaput. Poof. And it's gonna take a long time for it to return.

The REIC, government and investment banks just did a number on the world financial system the likes and severity of which has never been seen. Confidence has been destroyed. Trust is gone. Buyers are few and sellers are plenty.

And that's the just way the book said it would all go down.

· The upswing usually starts with an opportunity - new markets, new technologies or some dramatic political change - and investors looking for good returns.

· It proceeds through the euphoria of rising prices, particularly of assets, while an expansion of credit inflates the bubble.

· In the manic phase, investors scramble to get out of money and into illiquid things such as stocks, commodities, real estate or tulip bulbs: 'a larger and larger group of people seeks to become rich without a real understanding of the processes involved'.

· Ultimately, the markets stop rising and people who have borrowed heavily find themselves overstretched. This is 'distress', which generates unexpected failures, followed by 'revulsion' or 'discredit'.

· The final phase is a self-feeding panic, where the bubble bursts. People of wealth and credit scramble to unload whatever they have bought at greater and greater losses, and cash becomes king.


Last honest Banker said...

"self-feeding panic" is SO CLOSE I can smell it, it will be days! not weeks, within 6 weeks the markets are going to look so different from today,GET OUT, NOW... you've been warned!

Anonymous said...

We're still in distress. The unexpected failures -- caused by, for example, cascading margin calls -- have just started.

We won't be at panic until every asset class starts collapsing. Not happening yet.

Mammoth said...

Now that Gold has hit $1000, is it time to take one's winnings off the table, or wil there suddenly be a mad run-up from here?

Anonymous said...

I like silver over gold, since it has so many more uses.

US cash will not be king though. They are trying their darndest to devalue the greenback. Perhaps Canadian or Australian cash will be king. They have mucho natural resources to back up their currency

Client No. 9 said...

Regarding equities, while Asia (China, Korea, Japan, etc...) is tanking the Latin American equities are still holding up:


Why is that?

Anonymous said...

The Death of Confidence is one of the reasons why the government has to be the new lender of choice (in that they insure the loan ).