Akkam’s Razor

I’ve seen the rhetoric for the D-word heating up, and I don’t mean downturn. This very well may be the week that the curtain is pulled back on the batshit insanity that is the US economy.

The stock market has lost @ 10% of it’s value since 1/2/08. In 1929, the one day drop was 13% (There were actually several tightly spaced drop; In 1987, the one day drop was 23%, eventually totalling 60%.

As Barry Ritholtz states at the Big Picture:

World markets are plunging in response to fears and expectations that the United States will be (or already is) in a recession that will be both long and deep.

Headlines around the globe are rather stark:

Major Indexes Drop Sharply On Worries Over U.S. Economy (WSJ)
Europe Starts to Feel Pinch as U.S. Slowdown Spreads (Bloomberg)
Global markets plunge on U.S. recession fears (CNN/Money)
US recession fears sink global markets (AP)

So much for that decoupling thesis.

What is rather incredible about the past few years are the number of pinheads who so totally got this wrong. Not your run of the mill idiots who insisted Housing and Credit would have no broader impact; These hacks were merely blind incompetent cheerleaders.

No, what really stunned me is the number of otherwise intelligent people who, once again, claimed “its different this time.”

The $800 bucks per taxpayer bailout isn’t going to do crap, and I also heard some expert state that they should be prepared to do it every quarter if need be. No mention of where that money is coming from - I guess the same place as Helicopter Ben got those liquidity injections.

For what it’s worth, we got $300 for the recession in 2001, which was quite mild (although it didn’t feel that way in the car business). Adjusted for inflation, that $300 currently has the buying power of $254. Do we take that to mean that this recession will be ~3-4 times more severe than that of 2001?

The talking heads have repeatedly assured us ‘the contagion was contained’, and that all is well. Of course, that is dependent on viewing subprime as the disease itself, and not a symptom. Jim Kuntsler at Clusterf*ck Nation sees this as the beginning of the unraveling, not the end:

There’s a lot to be concerned about out there. I don’t mean to be too cute about it. But, as the master once said, nothing is funnier than unhappiness.

A whole closet full of “other shoes” is now waiting to be dropped. Surely the biggest clodhoppers in the closet belong to the hedge funds, representing trillions and trillions of dollar-denominated “positions” which, however hallucinatory, had previously yielded enough real “money” year-by-year to keep all the realtors and Humvee dealers in the Hamptons goose-stepping to Goldman Sachs’s drumbeat. These “positions” can’t help now from moving into counterparty crisis territory, especially as the bond insurers such as MBIA and Ambac go up in a vapor, and if that happens the damage could be so colossal globally that Stephen Hawking might have to be brought in to run the Federal Reserve.

This is going to be a rough week. Fastening your seat belts may not be enough for this ride. Better superglue yourselves to the floorboards and pray for God’s mercy.

What sweet hell does this week bring?