The American lost decade

[solarbird]

Good afternoon.

The S&P 500 - the broadest of the American stock indices - cleared its 2002 lows today, which is to say, fell below the lowest point it reached during the 2001-2003 bear market. We are now, at least for the moment, back to mid-1997 levels in that index, and this is officially the worst year in the history of the S&P 500 index. The S&P 500 has lost 52% of its value from peak. (SPX today -54.14, -6.7%).

The Dow Jones Industrial Index (down 5.6%) has not yet cleared its 2002 lows, but closed the day sitting on support virtually identical to the Cloud City antenna I mentioned in the previous update, and you see how well that held up. The NASDAQ, down only 5.1%, has a little more pad than that before it breaks south of 2002.

The US has already lost a decade, and the first phase of this isn't over yet. RGE Monitor notes (unlinkably, which annoys me), "...Nouriel Roubini expects a doubling to $2 trillion writedowns with according capital raising requirements as house prices have to fall another 15-20%... we're only half-way through." But the second phase is already ramping up, as unemployment claims are soaring. Nicholas Bloom at RGE Monitor thinks 2009 will be a "nightmare on main street" but that recovery is possible in 2010 - if intervention doesn't choke markets. Otherwise it will extend longer.

All that said, I'd think you'd have to have a snapback rally at some point very soon, just because of the general nature of the market. Too bad that's not bankable.

Bloomberg is announcing that the H.4 report from the Fed ("Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks") due out today is delayed. Indefinitely. (No link, sorry.) Freddie Mac is suspending all foreclosure sales of occupied homes until January 9, 2009. Marketwatch adds unlinkably that Fannie Mae is doing the same thing... oh wait, it's linkable now. It smells like something is going on here, but whatever it is, it's pretty opaque.

Mish has commentary on record-low treasury yields, and collapses in swap spreads. He also says that the Fed is out of room and that rates are already effectively at zero; I think they're effectively at .35, and yes, that's only the discount window, and all these other devices - trillions worth - are at zero, but the discount rate is the benchmark rate and does affect other things. Not that a third of a percent or so is going to have a huge impact.

You gotta be seriously brave or seriously stupid to try an IPO in this climate. But hey, if after a day like this you can be down only 15¢ a share from your initial offer, you're not doing too badly. They were one of the few stocks technically up today, as they opened at $10 ($2 below their offer) and rose to $11.85. In this climate, that's not bad.

In helpful news, oil continues to fall, closing at $49.62/barrel as economic activity augers in. Silver linings and all that. The Yen continues to soar against all currencies, somehow pulling the US dollar up with it. I still don't get that. It has to be T-bill purchases (with deficits at record highs) but c'mon.

And in crazy news, the Vatican says the current Pope had a vision of this in 1985. Yay?

Comments

[firni.livejournal.com]

For some reason, when I saw that bit about the Pope, I'm reminded of a Mad Magazine from my childhood, in which they lampooned "The Exorcist"... the possessed starts wailing that "the bishop reads Playboy and the Pope takes payola!"

My brain goes in odd directions.

P.S.

[firni.livejournal.com]

From a friend who read that article:

"Great headline work they did there... Use the word "prophecy" with its religious connotations next to the Pope, when the actual story appears to be that he made a fairly reasonable and common sense statement? Yet the impression is created that he started speaking in tongues, went on a peyote-fueled vision question where he talked to Judas returned as a spirit guide in the form of a kangaroo, or whatever...

From now on every time I say something, like "that shitty MS Origami product that nobody wants will fail in the marketplace," I'm going to carry a staff, wear robes, and shout it from a mountaintop, just to make sure I get prophecy cred."

Re: P.S.

[solarbird]

Except the word prophecy is presented as a quote. Not of the Pope, but of Italian Finance Minister Giulio Tremonti.

[maellenkleth]

uh, 'not-yay' to the latter.

the minute that the markets start reaching for spectral evidence like Papal visions is probably the minute we should go for the mattresses and conclude that the situation is irretrievably broken.

whatever hopeful noises may have emanated from Chicago (or DC, or NYC, or anywhere else), presumptive president-designate Obama is not F.D.Roosevelt, nor is any New Deal going to fix things (it didn't fix things the last time; the Hitler-Stalin war fixed things, in a very black swannish sort of way).

I will still argue from comparative pricing that oil is undervalued right now. I don't want it to be higher, no sane person wants it to be higher, but on the other hand, the current low oil price has put the skids to a number of large energy-substitution projects and right now the only one that seems to make any sense at all is voluntary demand decrease.

Where I think we get really screwed is if/when the RMB Yuan gets itself revalued. But I didn't say that, at least not as long as I might want to keep using my work visa.

Anyway, thanks for the heads-up, which is something we can't really do on a craptalicious dial-up connection.

[solarbird]

"Yay?" is rarely to be read as literal. I agree oil is probably undervalued now, but I think a lot of things are going to get undervalued, and I think currency deflation-triggered price deflation is going to have some nontrivial impact on oil price moving forward.

[maellenkleth]

Okay, far enough on the yay. Noted and filed.

Big thing with oil might be near-term demand loss owing to collapse of markets. I do not know what, realistically, the floor price for Arabian crude is, other than to guess from known drilling and lifting costs that it is likely between 22 and 28 dollars per barrel at present-day exchange rates.

At the floor price, it makes more sense to shut-in the wells, fields and processing systems, but once that shut-in has happened, that oil will be unproduceable for at least a year (it takes a long time to turn a secondary/tertiary recovery field around, way longer than bringing in well with virgin reservoir pressures). So I could see a price rebound simply because some of the freely-tradeable supplies had been taken out of play.

I suspect that's what the PacRim coal traders are seeing, too. Hence the very high prices on the spot market, at least for supercomplience supplies.

My unhappy guess is that regulators (and major traders) will continue to opt for the cheap fix / quick fix strategy, even when it has foreseeable lower probability of success, because all of the fail cases are equally painful at the personal level, whereas most of the high-risk high-reward success cases will only potentially reward those very gamblers who reach for them. That does not predict a good outcome for larger economic systems, or for most participants therein.

On a farther-out bleak note: we've been receiving unsolicited e-mails from someone in Britain who thinks that the economic upheavals are due to emergent systems (for which said correspondent presently amplified: "AI systems") working beyond their planned constraints of action. Here we are certainly aware that attempts have been made, starting with crude expert systems for financial-industry CADM [1] to use AI as a support system for decision-making in some of the major bourses, and find it just interesting enough to consider what would happen if they did indeed extend their reach into the broader economy.


[1] Computer assisted decision-making, which is fairly widespread now in many industries. Really cannot drill a high-pressure, high-temperature gas well without CADM on the engineer's console, for example.

[gfish.livejournal.com]

It wouldn't be the first time my sanity has been questioned, but I'm quite disappointed to see oil dropping so quickly. High prices are an excellent motivator for alternative energy/public transit development.

[solarbird]

Oh, I worry about the same thing. It overshot on the way up; it's overshooting on the way down.