I have the answers...
...CNBC asked for CEOs to come forward and lead us out of the fray on Friday, Oct 9th...the day of the thousand point swing. Reluctantly I answered the call. I have enough economics training, experience, and a touch of arrogance to be dangerous...and I have nothing but theories anyway.
It's safe to assume that the worldwide markets aren't just correcting, they are broken. If the equity markets are shut down worldwide, it could allow the bailout measures, and other remedies at the disposal of those in charge), to take some sort of effect. Thaw the gears in the frozen credit wasteland.
The credit markets, (interbank lending), have to flow again for many companies to remain going concerns. The de-leveraging has to complete its course, and the main side effect is wealth destruction. Wealth was created by electronic means via financial vehicles like checking, credit cards, and the more subtle forms are only understood by some in Wall Street...derivatives, collateralized debt obligations, (CDOs) mortgage backed securities, (MBS) options (puts and calls), shorting, hedges, straddles, collars etc. All of these and more create multiples of actual dollars, layers of synthetic dollars...in fancier forms. Since risk is being re-valued, the 60 to 1 ratios of synthetic to real dollars have recenty been ratcheted down, and since there still isn't a market for the smaller ratios... it might have to get to historical ratios. History tells us that those ratios are often associated with the average price earnings ratios of fortune 500 companies. That's 10 to 1 and since we're way above that, Look out below...
If you think Education costs too much...
...you should see how expensive ignorance is.
I have a theory that is somewhat connected to the US government having the ability to print more money...and flooding the illiquid system. The side effect is that inflation will ramp up, and dollars will be worth less, meaning it will take more actual dollars to buy the same gallon of milk, the same widget, the same car and the same sheet of plywood. What will also happen is that the very expensive housing market will be supported in dollar values, and a floor will be set...which will set the stage for a recovery. The side effects will be too numerous to mention. The minimum wage will not be enough, taxes will need to be adjusted, and everyone will just have to adjust to ten dollar milk...but since the market is already broken, let's make sure that housing is fixed. If you think that AIG is too big to fail, wait till you see how big the US housing market is...
Comments