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goldminingXpert (28.95)

Worst Case Scenario

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March 05, 2009 – Comments (26)

Thanks to Karl Denninger, master blogger, political activist, and technical guru for posting this sobering look at things today.

Here's the highlights (or lowlights maybe?)

"Just so you have a short list of what's at stake if Washington DC doesn't change policy here and now (which means before the collapse in equities comes, which could start as soon as today, if the indicators I watch have any validity at all.

All pension funds, private and public, are done.  If you are receiving one, you won't be.  If you think you will in the future, you won't be.

The FDIC will be unable to cover bank failure obligations.

It really is that bleak folks, and it all goes back to Washington DC being unwilling to lock up the crooks, putting the market in the role it has always played - that of truth-finder, no matter how destructive that process is.

Only immediate action from Washington DC, taking the market's place, can stop this, and as I get ready to hit "send" I see the market rolling over again, now down more than 3% and flashing "crash imminent" warnings."

Remember folks, there is no reason the bottom has to be anywhere around here. The dow went down 90% in the Great Depression. Assuming this is Great Depression II, the dow could fall 90% again. In case you want to know where that leaves us, think Dow 1410. Yeah, let's hope that doesn't happen.

 

26 Comments – Post Your Own

#1) On March 05, 2009 at 11:58 AM, swank9 (< 20) wrote:

so yeah... interesting read.

 

i was tempted to sell it all late yesterday and pile back into gold.  oh well... optimism is painful sometimes :-/

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#2) On March 05, 2009 at 12:00 PM, DaretothREdux (71.65) wrote:

Dow 1410

What will the world look like after such a collapse? With us thus goes the rest of the world...

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#3) On March 05, 2009 at 12:05 PM, kaskoosek (29.92) wrote:

GMX

Right now you are too emotional.

There are many value plays, but overall the market has much more room to fall.

 

Hyperinflation might not be very far away. The ECB measures are really CRAZY.

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#4) On March 05, 2009 at 12:09 PM, goldminingXpert (28.95) wrote:

Kaskoosek: that wasn't my blog post, I'm just quoting it for all of you. Besides most of my risk capital is in cash, so I'm pretty cool right now actually.

Hyperinflation might not be very far away. The ECB measures are really CRAZY.

In Europe? Trichet was just talking about deflation this morning.

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#5) On March 05, 2009 at 12:20 PM, neenrneenr (38.62) wrote:

How shall I put this.....uhhh....let's see... How Depressing, yeah that's it how depressing.

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#6) On March 05, 2009 at 12:36 PM, kaskoosek (29.92) wrote:

My mistake, I mean bank of england.

Bought commerial paper and government bonds.

 

We are on a slippery slope from here on.

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#7) On March 05, 2009 at 1:04 PM, gsricks55 (< 20) wrote:

Seems more like one foot in the grave and the other on a banana peel!

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#8) On March 05, 2009 at 1:08 PM, Antipopnfresh100 (68.35) wrote:

Also note that in the great depression stocks fell to their lowest levels since 1908 - 21 years wiped out from 1929.  That means you could see the dow at 1987 levels - somewhere north of 1740 and 2722 (and volatile).

The stocks bottomed out also at 2x the price of gold - about 2000 today.

So there ya go.

The upside is that the bottom won't last very long, and will probably be followed by a large run-up ala 1932 and 1987.  And even though the bottoms of the market stay pretty much the same+inflation over time, the bubble tops keep getting bigger.  So if you're patient this will be an EXTREME buying opportunity.

Unfortunately, I am not patient.

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#9) On March 05, 2009 at 1:09 PM, BigFatBEAR (28.61) wrote:

This is unsettling: "Tax-deferred accounts will be seized to fund rollovers of Treasury debt at essentially zero coupon (interest).  If you have a 401k, or what's left of it, or an IRA, consider it locked up in Treasuries; it's not yours any more.  Count on this happening - it is essentially a certainty."

As is this: "Civil unrest will break out before the end of the year.  The Military and Guard will be called up to try to stop it.  They won't be able to.  Big cities are at risk of becoming a free-fire death zone.  If you live in one, figure out how you can get out and live somewhere else if you detect signs that yours is starting to go "feral"; witness New Orleans after Katrina for how fast, and how bad, it can get."

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#10) On March 05, 2009 at 1:44 PM, goldminingXpert (28.95) wrote:

Bigfatbear: Yeah, slightly troubling. The thing is that he's banned lots of people from his forum who have suggested a so-called "Mad Max" scenario and now he's calling for some downright crazy stuff. If his past record weren't so good... well... it's always good to look at more data points, no matter how out there.

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#11) On March 05, 2009 at 3:35 PM, oversea (< 20) wrote:

This paper was nice and honest, but we should not exagerate with our comments. Sorry folks, these profets of gloom who seem to have fun from all this mess (at the bottom of their soul looking forward to a Mad Max's future being trigger happy people) don't help at all.  There is no use to add gloom to gloom, it dishearthens those few who try to improve things. As I stated in one of my posts there is no way to guess our future, there are no rules. Those who tried and, believe me they did try very hard, were met by failure. In my opinion the only wise thing to do is to wait and see.

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#12) On March 05, 2009 at 4:32 PM, Entrepreneur58 (37.20) wrote:

Unfortunately, we'll soon be like much of Latin-America with barbed wire and iron bars on all the homes. 

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#13) On March 05, 2009 at 7:39 PM, TideGoesOut (< 20) wrote:

There isn't enough tinfoil from all the companies that make tinfoil to make a hat big enough for this kind of craziness.

The sky is falling! The sky is falling!

I hope you're wise enough in a few years to see the folly of your current statements.

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#14) On March 05, 2009 at 8:11 PM, goldminingXpert (28.95) wrote:

The sky is falling! The sky is falling!

Kickstart: This part of your post was good. The rest of your post=fail.

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#15) On March 05, 2009 at 8:37 PM, TideGoesOut (< 20) wrote:

OK, then let's reiterate without the insults.

The population of the U.S. is 4% of the world, thereabouts.

U.S. and Canada own about 27% of the world's wealth, with Europe and Asia each having about the same and the rest distributed elsewhere. Mexico, C.A. and S.A. have about the same as the Middle East.

Assuming that all of the wealth of the U.S. disappears and it devolves into the W.C.S. as you've stated (highly, highly unlikely) do you think that the rest of the world will just give up and devolve as well? Not bloody likely at all.

That's concept 1.

As for within that 27% segment, let's say there is a 50% loss of wealth within the U.S. Not the markets, with encompass a relatively small segment of the total wealth of the country (wealth being defined as all property and money). How is this even remotely possible? Half the farms stop operating...half the cars don't have fuel, half the workers can't find work, half of everything just disappears? Ridiculously unlikely.

Gun battles in the streets? Martial law? Occupation of the towns by marauding bands of nomadic criminals? 

This is absolutely tin foil hat territory. I'm not trying to be insulting here, but this is the kind of thing I was absentmindedly fantasizing about in high school, sitting at the back of the classroom drawing pictures of Rambo and Mad Max.

...

In every serious crash...in every serious economic downturn and crisis...these concepts came up. In the 70s and 80s I remember the same discussions happening.

"What if we run out of oil? Oh my god, lock up your daughters!"

I remember the L.A. riots, and exasperated people going on the news...those reassuring everyone that it would die down to a continuing and constant simmer of the racial issues that still exist today...and those blathering on about how the riots in Topeka would spread and wheat fields would be torched across the country!

Guess who was right?

Mr. Status Quo, esq.

As with all crisises, this too shall pass. Learn from it now and remember, because the next time this comes around - and it will - you'll be in a better, smarter, more thoughtful position to benefit from it, both financially and in the available volumes of wisdom.

Now, I've said my piece. I will not be responding in this thread again. I will read any responses, and I hope to see the of the common sense folks on TMF come out of the shadows.

They won't be bringing the boogeyman.

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#16) On March 05, 2009 at 8:51 PM, kryotex (< 20) wrote:

best article i've read here. their is NO reason the dow is anywhere near a bottom now; in fact, i'd beg to differ. As the author indicated, the dow is only half way to its potential bottom. As Jim Cramer says, the potential bottom he's waiting for, is 0. Other countries have shown this in history. 65xx is still expensive. I learned in Mexico, just because a merchant offered me 50% off, didn't mean I was close to "value" yet. In fact, after more time, and further negotiations, I often got 90% off the sticker price. So a $15000 dow may only be worth $500 (just a number). But $65xx is definately not the end of the volatility. If you want stocks, WAIT until there's some confidence in the market and confidence in the government; otherwise find some safer areas to put your capital. Whether you think that's gold, foreign real estate, silver, sugar, treasuries, or whatever. Stocks is the closest to Gambling as its ever been.

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#17) On March 05, 2009 at 8:54 PM, Jimmy2008 (< 20) wrote:

"Tax-deferred accounts will be seized to fund rollovers of Treasury debt at essentially zero coupon (interest).  If you have a 401k, or what's left of it, or an IRA, consider it locked up in Treasuries; it's not yours any more.  Count on this happening - it is essentially a certainty."

If we had to sell equity in 401(k) and IRA and then to buy treasury, there would be another stock market crash. That would be worse than printing even more money for Fed to buy treasury. I just believe that it is only possible for us to be forced to buy treasury using new 401 (k) contribution.

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#18) On March 06, 2009 at 1:30 AM, Ecomike (< 20) wrote:

IF anything the government will promote more 401(k) and IRA investment in the stock market, with more deductions to bolster the market.

They have done it before (80's and 90's) and will do it again. They might even make it tax free as long as you stay long in stocks, versus shorting the marketing. Don't know how they would do that, but they are creative in Washington when it comes to money.

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#19) On March 06, 2009 at 9:05 AM, falang1 (< 20) wrote:

I might even start watching gold now that I can picture GMX as a 29 year old miner with wavy brown hair, a broad muscular chest and a smuge of mine dirt on his nose. Wow, lots of visuals on the introductions. -Maria

GMX, did you catch this post over on GVs blog?  Priceless.

Also I have a question for you.  You seem to be stuck not knowing where the market is going right now (which is fine) and think that it could very well tank.  However, you short gold which you even admit goes up when the market goes down.  This doesn't seem to fit.  What's going on?

Thanks, -falang.

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#20) On March 06, 2009 at 12:38 PM, SideShowMel0329 (32.98) wrote:

Kickstart70

Good post. Glad to see there are still others here without the tinfoil hat one. Recessions come and go, I'm only 20 years old and I know better than to panic when a recession comes along.

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#21) On March 06, 2009 at 12:38 PM, ikkyu2 (98.23) wrote:

I don't understand why people are talking about a bottom.  Volatility is still scraping the top of the chart, all the indicators are well below their moving averages, and yet when you look at the broad market there are trillions of dollars in market cap - e.g., most of the banks and their balance sheet "assets" - that are still yet to be marked down to zero where they belong.

What's the bull case?  "There's been a lot of selling already?"  That's not a bull case. 

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#22) On March 06, 2009 at 1:43 PM, jesusfreakinco (28.43) wrote:

What's the bull case?  "There's been a lot of selling already?"  That's not a bull case.

 That's false hope or denial.  Where are the tehcnicians calling for a bounce?  DOWN with TA.  It'll make you broke in this market.  Market sentiment is SOOOOO horrible right now. People just want OUT and rightfully so.

Indeces will all be down 5% by the end of the day.  No one wants to hold over the weekend...

JFC

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#23) On March 07, 2009 at 6:26 PM, RonChapmanJr (30.24) wrote:

Status quo wins - until it doesn't.  It is better to be prepared for the worst than to call the doom and gloom people crazy.  The one time they are right, and they will be at some point, everyone else will look stupid or be dead.

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#24) On March 07, 2009 at 9:55 PM, SideShowMel0329 (32.98) wrote:

RonChapmanJr

I think I responded to you in another blog post, but I'll reiterate briefly here:

That's a stupid mindset to have.

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#25) On March 08, 2009 at 1:30 AM, herztical (27.73) wrote:

As far as IRAs/pensions/deposits go, the U.S. will back them to the end, the only question is what will you get in terms of PPP for the dollars in your pension/ira/bank account? (PPP as in purchasing power parity not plunge protection team)  The U.S. has been stealing money off foreign governments for years and will continue to do so.  Don't worry all your money is safe, but a cup of cofee (not starbucks) will cost $50....

And civil unrest?  Hmmm business men vs Marines?  Will they start throwing pencils and change their spreadsheets into battle plans?   Maybe they'll send paper airplanes on bombing missions or convert their BMWs into tanks.  My bet is that any civil unrest will be quickly squashed and don't stand the slightest chance against modern weapony/technology.

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#26) On March 08, 2009 at 11:17 PM, SuperPicks (28.64) wrote:

In such a scenario....what's to happen to ETFs that are supposed to be up in such carnage? (ie maybe short ETFs, foreign currency ETFs, etc)

is there some legal fine print within the main proxy materials allowing for such funds to be liquidated or confiscated or inaccessible in such doomsday scenarios?

anyone know?

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