Occasionally he has been spot on, but occasionally he writes economic nonsense too (stopped clock effect).

I think this is one of those nonsense pieces.

Most of the rhetoric has been overly bullish until very recently. If anything, stocks are over valued because of this.

I also don’t think he has a clue how bad it could get …and it’s too early to know at this point.

Just my 2 cents…

“Don’t Call It A Bailout. Or A Depression” here’s why … http://www.liveoakcapitalgroup.com/2008/09/dont-call-it-a-bailout-or-a/.

However, to add some levity to the situation please enjoy this …

Sound Financial Advice

If you had purchased $1,000.00 of Delta Air Lines stock one year ago you would have $49.00 left.

With Enron, you would have had $16.50 left of the original $1,000.00.

With WorldCom, you would have had less than $5.00 left.

But, if you had purchased $1,000.00 worth of beer one year ago, drank all of the beer, then turned in the cans for the aluminum recycling REFUND, you would have $214.00 cash.

Based on the above, the best current investment advice is to drink heavily and recycle.

It’s called the 401-Keg.

A recent study found the average American walks about 900 miles a year.

Another study found Americans drink, on the average, 22 gallons of alcohol a year.

That means, on average, Americans get about 41 miles to the gallon.

Makes You Proud To Be An American!

At this rate we are going to hit my price targets by Friday …jeeeesh!!

I talked to some regular Joes yesterday. Smart people that are good at their professions, but just clueless when it comes to economics. They are about to get gobsmacked. They are still buying the “buy and hold” line.

I’m going to do another post on that topic.

You borrowed their ETF and sold it at market price. In the future you have to buy it again (from the market) and give it back. Assuming a financial meltdown occurrs, the ETF should be cheaper, but counterparty failure should make it even more cheaper.

I may be wrong, but I assume ProShares would spread the loss evenly across all shares if a “counterparty” goes bk and can’t pay up.

Also, my “~XX% down” meant down from HERE, not down from the peak or YTD or some other starting point. These are also 6-18 month targets …the next plunge may not go this low.

The argument is that as bad debt is realized this hurts the bank’s margins (% they need to hold by law). They will sell their bad debt to the government to meet their margin requirements …but that’s it. They still won’t be running around loaning a bunch of money because they are still trying to deleverage.

Anyway, I don’t know if it will play out this way, but it’s a realistic scenario. IF it is true though, we end up like Japan in the 90s …enough government support to keep zombie banks limping along for years.

Also, for the record, I like Mauldin alot also, but his “muddle through” theory was way too bullish in my opinion. On the flipside I think Karl is too bearish at times, though I know he is trying to be balanced. I think we are in such uncharted territory that if anyone “get’s it right” they are probably just being lucky.

My current price targets (based on multi-year head and shoulders patterns) are:
S&P – 950 (~22% down)
DJI – 8000 (~30% down)
NASDAQ – 1600 (~27% down)
R2K – 450 (~36% down)

I hope I am wrong …this is financial devastation, but this pattern is supposed to be fairly reliable.

Final note on counterparty risk …GRZZX is one way to go (already discussed), but shorting double-longs is another. YOU hold the etf, so counter-party failure only helps you. I still have some double shorts, but I think I may switch to shorting double longs after the likely “bail-out” rally.

BTW, nice posts guys …it is fun to be part of an adult informed conversation.

I really liked your post Why bailouts will not stop the depression. Great explanation of why we are going to get continued deflation – at least in the short run.

PS — My own target for the S&P is about 350. At least that’s the number I’m not afraid to use in public. Take PEs and earnings each down by 50% off peak levels and that’s what you get.

PPS — Mauldin is a weenie.