Big 2008 events and 2009 thoughts (ZT)

I’m sure most journalists & analysts will fail to put into perspective just what an extraordinary year 2008 was.  Here are a few memorable “highlights” (I’m sure I missed a bunch):

 

2008 “Highlights”:

The Dow dropped ~34%, worst year since 1931
The S&P 500 dropped ~39%, worst year ever

The NASDAQ dropped ~40%, worst year ever
Median home down 13%, worst year ever (since tracking began in 1961)

Household wealth dropped by $10T (biggest loss ever)

US markets saw the highest period of volatility in 100+ years

Unemployment (even the fictitious government numbers) hit a 26 year high

US national debt highest ever ($10.56T, up 14.5% YOY)

Total US Debt (excluding unfunded pensions/medical) highest ever ($53T = $700k per family of 4)

A country (Iceland) “failed”

The largest insurer (AIG) failed

The two largest mortgage issuers (FNM/FRE) failed

The largest S&L (Washington Mutual) failed

The two largest investment banks (MS/GS) failed

The largest (remaining) subprime lender (IndyMac) failed

The largest auto maker (GM) effectively failed

The PBGC is now insolvent

The FDIC is now insolvent

The SEC looked the other way on blatant fraud, even when painstakingly documented (Madoff)            

Bond ratings were proven worthless (always were, but now everyone knows it)

Investors started pricing in a Treasury default

Securitization market seized up (and could remain that way for a long time)

Muni market seized up (and could remain that way for a long time)

Corporate debt market (esp junk) seized up (and could remain that way for a long time)

The Fed/Treasury committed $8T ($2.3T already spent) without any appreciable benefit

The Fed demonstrated it can expand its balance sheet without any apparent limit (or oversight)

The Fed/Treasury successfully blocked every FOIA request from taxpayers/citizens

The Fed/Treasury became the lender of “first” resort

The Reserve Bank of Zimbabwe commended the Fed on its approach (I LOVE this highlight!)

Those least deserving of a bailout received one

 

Some sobering thoughts for 2009 and beyond:

Derivatives ($650 Trillion) have only experienced minor counterparty failures (so far)

The largest Ponzi scheme (worldwide fiat currencies) hasn’t collapsed (yet)

The 2^nd largest Ponzi scheme (fractional reserve banking) hasn’t collapsed (yet)

 The 3^rd largest Ponzi scheme (Medicare) hasn’t collapsed (yet)

The 4^th largest Ponzi scheme (Social Security) hasn’t collapsed (yet)

The “Alt-A” (aka “liars loans”) bubble hasn’t burst yet (>$500B of opt-ARMs to recast in 2009-2012)

Housing inventory continues to rise (~12 months now) adding more pressure to prices

Over half of the mortgage “workouts” default again within 6 months

More hedge funds will fail

More money market funds will fail (i.e. “break a buck”)

More insurance companies will fail

200,000 retail stores are expected to close in 2009

More municipal bankruptcies are expected for 2009

Unemployment will worsen

Most large pension funds (i.e. GM) are now hopelessly underfunded

TARP legislation allows suspension of “mark-to-market”

TARP legislation allows suspension of reserve requirements

Every corporation is now “too big to fail”

Every corporation can now become a bank, even if they don’t resemble one (AmEx)

Most corporations can’t afford to roll their existing debt

The most toxic assets are kept off-balance sheet, hidden from investors

No income statement or balance sheet is trustworthy

Foreigners are still buying T-Bills at 0.1% and 10-yrs at 2.2%

Foreigners are still accepting US Dollars as payment

Markets are still expensive by all traditional measures (P/E, yield, etc.)

The Dow/Gold ratio is still a “lofty” 10 (historic bear market lows are in the 1-2 range)

The deficit may approach $2T in 2009

We seem to quickly be crossing the Rubicon from (what was left of) capitalism to fascism/communism

The IMF hinted it might print its own money

The Fed hinted it might issue its own bonds

The Fed is way beyond its original charter; Congress stands aside and watches

Many households are insolvent but haven’t realized it yet

Many corporations are insolvent but haven’t realized it yet

The government is insolvent but hasn’t realized it yet

 

Final thought:  When the excesses are an order of magnitude (or more) beyond those leading up to the Great Depression, why shouldn’t we expect the pain of the correction to be an order of magnitude worse?

 

Best wishes for what is certain to be a very interesting 2009!