B of A, Citigroup "In A Year, Gone!" - though could take a bit longer- while the next buuble bursts

Some good thoughts in the following article - the point I would like to make is the saving problem. Americans were brainwashed to borrow money to spend it as the government did as well. That behaviour is not an endless road it has to come to a grinding end with severe consequences and here we are as in times ob trouble you might want to lend and could have problems to do so. America has to borrow the record sum of 2 tril. that's for starters it will get higher over time and as the Bond charts suggest the next bubble is about to burst. That means rising interest on the one hand but also new losses for banks and private hands as bonds and stocks will drop together later this year and destroy trillions of value in the meantime. Basically that should not be a problem as bonds are payed back at 100 at maturity one could argue but that exactly might be the problem as all parts of the world will be busy printing money and hence borrowing it the pool of money that can lend will diminish. The sovereign funds who are not the smartest investors as we saw i dealings with the bank financing will through again good money at them far too early but fade out at some point. Same is true for the bond funds who will make the same mistake as most stockfunds do automatically now. Since their system and managers are trained to invest in ever rising markets they do not know how to deal with the current situation. The rating agencies which will be of work in 1-2 years as they miss out again on crucial things as the proper rating of countries will be reluctant to mark the risks accurately now which helps to overprice bonds again. A country which has to borrow over 20 % of its recent accumulated debt can not have a triple A even not a single A and when the wealth of that country is destroyed at current pace with a depression declared by the IMF actually America's bonds need to be at junk level. That would rise the borrowing cost immediately by 300 - 400 BP ( when a bond yields at 3 % now it will be at 6 or 7% ) for everybody and banks would be bankrupt which they are anyway. That's why no one pushes that issue but you as an investor should stay away from all government bonds as an investment longer dated then 1 year as the bubble will burst in the 2nd half of 2009. That does not mean that the rating agencies will put America on Junk status in 2009 that might not happen before 2010 if ever but the bonds will trade at junk levels in 2010 as people will recognize that all those stimulus packages will not have worked as promised.

Excerpt from CNBC

Those were the words this week from Don Straszheim of Straszheim Global Advisors. He was speaking at the annual forecast dinner for the CFA Society of San Diego. "Gone?" I asked him in disbelief. "You mean, like no more Bank of America [BAC 5.57 -0.30 (-5.11%) ] Versateller ATM for me?" Well, no, he told me. "Just gone as in no shareholder equity left. I don't see how B of A or Citi [C 3.49 -0.12 (-3.32%) ] can be worth anything."

Straszheim gave an impassioned speech to the crowd of finance professionals. He was joined by Liz Ann Sonders, Schwab's Chief Investment Strategist. I moderated the event, taking notes furiously.

Forecasting is always a perilous endeavor, but here are the highlights of what these two pros see looking ahead, based, in part, on looking back.

Straszheim, a well-known expert on China, says we are in the middle of a "global buyers' strike."

What's more, he says the stimulus plan "makes no sense...it's crazy". Why? It's too big, for one thing. Any stimulus check or tax cut he gets would go into savings, not into spending, "because that's the right thing to do." Instead, Straszheim would prefer a package of $250 billion, with most of that going to "those bleeding the most," that is, the unemployed, etc.

Straszheim really gets worked up over the government's desire to get consumers borrowing to spend again, believing one of the worst things that could happen is cheap credit. "I remember when a credit card was for convenience, not a reason to buy things we can't afford." He'd be happy to see credit card interest rates double. He also predicts more gloom for the retail sector, saying years of easy credit have led to "30 percent too much capacity in the retail system", and a lot of stores won't survive.

Other thoughts from Straszheim:

"I think there's gonna be real brain drain from all those companies that have TARP money to those that don't."

"China is going to be weaker I think than most anyone believes." He predicts only two percent growth in China this year, but believes Chinese companies are still a better play than multinationals, suggesting investors look into the FXI, an ETF filled with 25 state-owned companies.

Finally, Straszheim predicts the financial sector, which has already fallen to only 10 percent of total value of the S&P 500, will fall to three percent by the end of 2009. Still, for the market overall, he says, "Fortunes are made at bottoms not at tops."

SONDERS--"MORE CONSTRUCTIVE NOW"

Liz Ann Sonders, who turned bearish is mid 2006, says that now, "I'm not boldly optimistic but more constructive" about the market. She agrees with Straszheim that the "politicians are wrong" for thinking the solution to fixing our economy is to stimulate lending to consumers--that's what got us in trouble in the first place.

She believes Treasuries are in a bubble, but isn't sure when that'll pop. However, she says the yield curve is signaling a recovery.

And using history as a guide, Sonders pointed to some hopeful signs. For one thing, she says recessions in the post WWII era usually last 13 months, and we are 14 months into this one.

Sonders points to a couple of indicators, one worth noting, the other she says you should ignore. The one worth noting is GDP. Historically, once the GDP hits its lowest point in a recession, a year later the S&P 500 jumps 25 percent. The indicator you should ignore is unemployment. In her opinion it is a massively lagging indicator, peaking, on average, six months AFTER a recession ends and probably a year after the stock market bottoms.

Finally, Sonders says people are starting to invest again. In December, 42 percent of US investments were in cash, 42 percent in stocks, and 16 percent in bonds and bond funds. One month later in January, the breakdown had changed to only 30 percent cash, 48 percent stocks, and 22 percent bonds and bond funds. "The deer in the headlights era has passed."

Let's hope so.