DO NOT TELL US 08 COULD NOT HAPPEN AGAIN!

Amazing! Headline: “TEN YEARS AFTER BEAR STEARNS, NOBODY THINKS IT WOULD HAPPEN AGAIN!”

Really? Nobody? This somebody disagrees. We do not need to rehash our constant drumbeats of the financial stocks woefully under-performing in 07 and into 08 telegraphing trouble. We do not need to rehash our constant calls of a credit bubble. We do not need to rehash our telling everyone that we knew people that received $280,000 mortgages on $250,000 homes with only $10,000 in the bank. But little did we know that the bad people leveraged securities 10 to 1, 20-1 and amazingly 30-1. How hard would it have been to figure out any drop would cause disaster? Not hard at all but when you are earning zillions off that leverage, who cares? And what happened at the end of the road? Not one person indicted even though massive fraud from the top to the bottom occurred. Not one person indicted even though certain outfits created products, sold them and immediately shorted them. We would have been in jail for this. No one indicted even though it was found that certain entities took bad loans off their books before earnings and put them back on the books after earnings. No one indicted even though certain CEOs did not divulge material information of trouble to the investing public. In fact, those people were promoted or got CEO jobs elsewhere. And what finally happened…WE BAILED ALL THESE ASS CLOWNS OUT AND RECEIVED NOTHING FOR OUR LARGESSE. Actually, we take that back. For our largesse, we got our central bank screwing every saver by taking rates down to 0% and leaving all that dough with guess who? The same companies that did the screwing in the first place.

But we digress. We believe an 08 can easily occur again. It’s not hard to figure out. It’s not hard to put the pieces of the puzzle together. It is simple. No one learned any lessons and many of the same people that caused the problems are still in place.

LEVERAGE caused 08 and the lack of oversight of that leverage. Remember, there were rules. There were regulations. They were just not enforced. You do recall the head of the SEC Chris Cox going on tv a week before Bear went under defending the company? Really? The head regulator defending a company he regulates! Yup. THERE IS NOW A ZILLION TIMES MORE LEVERAGE IN THE SYSTEM NOW THAN IN 08. Total notional amounts outstanding for contracts in the derivative market is estimated to be over $550 trillion. That’s not a typo. Defenders say that is not a real number. They say what matters is only the gross market value of derivatives. Well…that’s about $13 trillion. Feel better. The same people that said everything is ok back in 08 now tell us $13 trillion of derivatives works just fine. On top of this, margin is again at an all time high.

THE ONE-SIDED TRADE caused 08. You want one-sided trades? Depending on which abacus you are using, our central bank printed almost $5 trillion (that’s what they tell us) and other central banks have printed to the tune of $10-15 trillion. There’s your one-sided trade. The trade that forced Aunt Mary and Uncle Bob out of their risk-less income investments into everything else. Has anyone even added up how much money is in passive investing accounts? There is your one-sided trade. Do you know what happens when such a gargantuan one-sided trade goes awry? Greed turns into fear. Passive turns into worry. As mentioned, margin is at an all time high. Do you know how you get there? You get central banks continually bubbling up asset prices building on the one-sided trade.

COMPLACENCY caused 08. You do recall that genius of geniuses Bernanke who stated for 2 years that the economy was sound, subprime lending was not an issue, housing prices do not drop and all is well? A guy named Paulson said the same thing.  So there was no worry in the world because these geniuses said so. Geniuses are again telling us everything is just fine as all the same conditions are building up. And as we have reported, our complacency numbers in markets have hit levels we have not seen in over 30 years.

LACK OF ENFORCEMENT OF RULES AND REGULATIONS caused 08. But NOW they tell us there is now tougher capital requirements, more “regulatory scaffolding” and elaborate crisis communication plans in place. Sorry…none matter when you have so many trillions of leverage again in the system.

BERNANKE AND GREENSPAN caused 08. EASY MONEY BABY! They think easy money cures everything. Easy money does nothing more than create booms and busts. You have all the evidence you need since 1998. Every bust was met with even more easy money culminating in what you have seen the past 8 years both here and around the globe. We will only know after the fact how many distortions there are out there. We have told you to go no further than the bond market, particularly junk to see how big the distortions are.

So…don’t piss down our backs and tell us it’s raining. Government debt and deficits continue to skyrocket without a care in the world. Leverage in the system is waaaaay ahead of 08. Many of the same people who ran the show back then are still running it now. Margin is at all time highs. Central banks are their easiest ever printing tens of trillions, keeping rates at 0% for years and actually into negative rates. (You deposit money in the bank and give them the toaster!)

We are not predicting anything. We are not predicting doom. We are just letting you know the con artists remain out in full force. Leverage and debt are the problems. The culprits are the ones that created that leverage and debt. The dummies are us because if something happens again, we will end up bailing these same people out again.