You can’t convince any sane person on this planet, that a ten-fold growth in the options market over the past few years was about “hedging portfolios”.

You can apply calculus to astrology as well, but it doesn’t make it science. Pseudo-science is what it is.

700 down yesterday, and not a single mention of capitulation, because it certainly didn’t feel like capitulation.

Let’s see; the good news:
Some banks didn’t lose as much money as expected.
Google came in with good revenue, mainly because people clicked on ads.
Bonds look unattractive.
If you ignore earnings and outlook, the market appears oversold.
Slight thaw in lending.
Oil dropped near $70 bucks.

The bad news:
Manufacturing declined the most since 1974.
Baltic index says Asia isn’t shipping much.
Homebuilder sentiment hit an all-time low of 14, with 50 being neutral.
Gold dropped because hedge funds are selling it to cover redemptions.
Oil dropped because they don’t see it being used much in the future.

If I assume the credit crisis was over tomorrow, and banks were lending again because it is guaranteed, then:

Why would healthy businesses borrow right now? Maybe for retooling, but not to add capacity until demand picks up.

Will banks lend to distressed companies who want to borrow? Not until demand picks up.

Do these two conditions favor new hiring, or layoffs?

When will demand pick up? When the consumer starts buying again, duh.

Consumers will not buy on credit in a down economy. Consumers might pay down debt with disposable income, or salt it away.

Prices will decline across the board.

More mortgage defaults, and an increasing glut of office space. More distress and distrust in MBS’s.

Wash, rinse, repeat.

Prone to shocks the whole time, such as bond defaults/CDS events.

Cities/towns can’t raise capitol, and the government is too busy trying to buy up newly toxic junk, and bailing out bond insurers because they would hate to see the banks fail after all this work to save them.

I think I am going to increase my SDS positions.

It would not be unheard of to follow a deflationary collapse with a rapid inflationary expansion. The last Great Depression featured both in series.

Prior to 1933 the dollar – gold rate was $20.67 per ounce. Roosevelt criminalized gold money in 1933 and allowed the dollar to float for a year. The oligarchic media of the era said this would help end money hoarding.

In 1934 his administration established an external exchange rate of $35 per ounce.

So was the last Great Depression a) deflationary or b) inflationary? Or were both experienced at different points?

With federal bailout commitments now over $1 trillion and rising I sure wouldn't rule out some inflation down the trail. Particularly since the best and brightest still haven't made any connections between a) genuine economic investment, b) offshoring, c) massive external energy & fuel dependency, d) falling real incomes and e) rapid formation of asset bubbles which then pop.

These hearings however, are no more than a thinly disguised attempt at rewritting history, for Mr. Dodd knows all too well the origins of the crisis point directly to his desk.

The witness list is stacked with either clueless individuals or co-conspirators. Read this mornings’ WS Journal for a more in depth look at this charade.

thanks for the article re: ARM.

i had a feeling something was about to burst there but i couldn’t put my finger on the right data.

that graph is chilling.

Similar, yet so very different
Lower interest rates may have helped ease the pain inflicted on subprime borrowers with their adjusted reset rates, but option-ARM borrowers are in for a much bigger surprise because their mortgage rates don’t just reset, they recast. This means that borrowers will have to start making full payments on the loan according to a 30-year-amortized schedule. In effect, Fitch Ratings expects the average monthly payment to jump 63%. Given that many borrowers are already defaulting on marginal increases in the minimum payments due, it seems likely the recasting will be catastrophic to most of these borrowers.

Don’t say we didn’t warn you
According to Huxley Somerville, a director at Fitch Ratings, $29 billion of these loans will reset by the end of 2009 and another $67 billion in 2010. The drastic increases anticipated on each loan are expected to cause delinquencies to more than double.

Interview: Jim Finkel, CEO Dynamic Credit – Part I

http://www.revver.com/video/1917…-credit-part-i/

Also see: In August 2004, Moody's Corp. unveiled a new credit-rating model that Wall Street banks used to sow the seeds of their own demise. The formula allowed securities firms to sell more top-rated, subprime mortgage-backed bonds than ever before.

http://www.bloomberg.com/apps/news?pid=20601109&sid=ax3vfya_Vtdo&refer=home

Something being immensely profitable (which market making by SELLING option premium can be) is not necessarily parasitic; it’s just good business sense, if you know what you’re doing.

Consider the following two facts:

1. 95% of people lose money in options.

2. 95% of the people “investing” in options can’t tell you how to calculate their thetas (rate of premium decay).

Are those two stats correlated?

Most floor traders will tell you they are.

Matt Dubuque
NOSPAMmdubuque@yahoo.com

This was the esteemed Senator’s comment to me about my complaint about Greenspan and his ‘wealth creation’ low interest rates.

Congress is as much to blame for the financial crisis as anyone – maybe even more. I have asked my Senators Boxer and Feinstein and my ‘Rep’ McKeon – several times in the past 4 months – to tell me how much in contributions they received from FNM and FRE and have not gotten any response