Monday, September 15, 2008


Apocolypse Now 2

It's a no brainer to issue a crash alert right now but I wanted to do it any way. (I've been harping on this subject for so long that I am getting bored of it.) With Lehman going belly up the Fed and Treasury have signaled how far they are willing to extend the good faith and credit of the U.S. gov't. This is good and bad. The good is that we have to stop trying to stop bailing out poor decision making. The bad is that Wall Street now has to figure out how they are going to unwind all those derivatives in which they are counter party with Lehman. Good luck.

Starting today and for the foreseeable future the credit markets of the U.S. are going to shut down while everyone tries to figure who is a good credit and who is bad. This is where all the old rules of lending get thrown out and Wall St. succumbs to the fear of default without a Federal safety net. It isn't going to be pretty but it is necessary. This is the only way for the system to find a price level that is a true reflection of the strength of our economy without the inflated asset prices caused by easy money credit.

The only thing that is certain in my mind is that investors are only willing to risk their capital at prices much lower than we see today.

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