financials in weak hands

The severe drop in financials yesterday shows that we have no bottom there yet and going forward. The reasons to not be long will be even more obvious with the coming earnings. Goldman JPM, the seemingly survivors, are substantially overvalued, as I have stated earlier. There is no prospect for a fundamental turn around and all this phony turnaround housing price news just are distracting. As we have heard yesterday, 1/3 of all house buyers within the last 5 years have negative equity on their homes and the job market just started to get worse. It is / was a drastic mistake of the Bush administration and Greenspan to not have acted with foresight and not to have regulated the greed of the banks and their reckless lending or betting their stockholders assets with such leverage so foolishly. I was shaking my head already in 2005 and 2006 without having all the inside data of the FED, so in my evaluation it was common sense and it was obvious then that the disaster was building. Unfortunately, the mainstream was also recklessly using their houses as ATM's. There is no one way profit machine on this planet -- never has been. The most amazing recognition about mankind is that we can repeat mistakes over and over again - including myself.

By any means and with simple common sense, everybody will and can see what we do not want to see - tough times are ahead and the real value for the US markets within the next 2 years is at half the value it has now. Add the exaggeration effect of 20-30% and you get an idea what kind of levels we might see. Banks especially will suffer deeply by a severe economic downswing. The crazy part is the deflation talk emerging again. Sure, we have an asset implosion, but in terms of real estate, people owe money in terms of the inflated prices - with central banks creating inflation to stop it we hardly get a deflation - rather more a dilution of assets which is an inflation.

Two scenarios are possible. In both, banks will have close to no business. First is stagflation (less likely) - economies run on low to 0 expansion while inflation keeps rising. The second one and, if you look on charts over 50 -100 years, one can see growth of assets were too fast and a serious contraction is necessary to bring it back to equilibrium. Both have the same effect - they average the exponential 20 year trend back to its long-term trend. Trends always go through boom and bust cycles and we entered clearly the bust part and anyone saying different lies or is just plain stupid. It's human to try to ignore the tough things but, in an overall context, they are part of any overall development and a necessary process to get rid of the excessive behavior.