We're so glad you could attend
Come inside! Come inside!
There behind a glass is a real blade of grass
be careful as you pass.
Move along! Move along!
Right before your eyes, we pull laughter from the skies
And he laughs until he cries, then he dies, then he dies
Come inside the show's about to start, guaranteed to blow your head apart
You've got to see the show, it's a dynamo
You've got to see the show, it's rock and roll...
And he laughs until he cries, then he dies, then he dies
Come inside the show's about to start, guaranteed to blow your head apart
You've got to see the show, it's a dynamo
You've got to see the show, it's rock and roll...
"Karn Evil 9 First Impression" by Emerson, Lake & Palmer
Act One:
American's living large; new cars, flat screen TV's, and everyone deserves to own a house.
Interest rates will be held at historically low levels, and everyone qualifies. Life is good, in fact you can even buy hats and shirts that remind you "Life is Good".
Act Two:
American's discover that house prices don't always go up, especially when a huge segment of the population can't make their mortgage payments.
It appears that the banks who made all those mortgages spread their risk to so many other banks that everyone was exposed...spreading the risk meant that they all went down together.
Act Three:
The markets swoon as fear runs through the land. A few astute investors profit from the collapse of Lehman Brothers, American International Group, and Fannie and Freddie Mac.
Will our financial system survive?
Act Four:
Fed Chairman Bernake, our Treasury Secretary, and Congress ride to the rescue. Congress gives the banks $700 billion, and the Federal Reserve prints $1 trillion to bail out all those to big to fail.
Newly elected President Obama enters stage left (far left) with $787 billion in fiscal stimulus.
Intermission:
The audience wonders if the numerous rescue packages will be enough to allow them to return to their prolific ways, or if there are other plot twists that may "blow their head apart."
Act Five:
Amazingly, with the ability to borrow at zero, the banks are posting record profits. Bonuses are back, some real estate is stabilizing, and corporate America is showing its resilience.
Things are looking brighter, especially if you are not part of that 17% unemployed crowd.
Act Six:
A twist, it seems that America was not alone in living the good life. Other countries around the globe also went through their boom's, bust's, and bailout's.
But it appears that some minor characters (call them the PIIGS), are struggling with the debt they took on to bail out their citizens and banks.
Unbelievably, some nasty bond vigilantes are actually tiring, of buying debt being issued to pay off debt...something about the debt never dying.
The citizens riot when they begin to realize that their promises of the good life were just promises.
Act Seven:
The markets swoon as fear runs through the land. But again the white knight rides to the rescue with his $1 trillion rescue package, put together at the last moment by the European governments and the International Monetary Fund.
The rescue package has bought time, but was there enough fear to force the citizens into austerity, and how can a country grow when its citizens are being forced into austerity?
Act Eight:
Still working on the ending...happy or sad? Do competitive devaluations lead to scary inflation? Can governments forced to cut deficits and renege on promises grow their economies?
The markets know that when governments can't cut spending or raise taxes or grow their economies fast enough to pay their debts, they don't pay them.
To paraphrase Maggie Thatcher,"Socialism dies when it runs out of other peoples money."
"And he laughs until he cries, then he dies, then he dies."
Be careful out there,
Chris Wiles
This article contains the current opinions of the author but not necessarily those of the Rockhaven Capital Management. The author’s opinions are subject to change without notice. This article is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.
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