There's More Than One Monetary Policy "Villain"
Greenspan's Reversal of Fortune

The Economist magazine published a favorable review today of a book about the housing market crisis, and one comment from the review kind of jumped off the page: "The story has no single villain, but Alan Greenspan comes close. Under him, the Federal Reserve fuelled the housing boom by sharply cutting the cost of short-term money." So, from "Maestro" to "Villain" -- how's that for a reversal of fortune?

Do the Stock Indexes Actually Show How Investors "Are Doing"?
Stock Market Myths 101

After all, half the households in America own equities via 401k accounts, mutual funds, IRAs, common stocks, etc., etc. Whatever the vehicle, people who own equities get in for "the long term." The "rational" advice of nearly all financial "experts" is for people to "buy and hold" in bull and bear markets. So that's exactly what investors do.
Right?
If you believe that, dear reader, then have I got a Biscayne Bay condo for you. The "experts" may well drivel on about how people should buy & hold, but any claim that most investors actually do so during bull and bear markets is complete rubbish....

Walmart Capitulates -- The Rich Win
Attention Brutus, please observe aisle seven...

Stock markets closed lower today, Wednesday, October 3, 2007

The Voice of 'Risk Reduction' Speaks
Long-Term Picture

When investors want to reduce or minimize their risk, the bond and fixed-income markets are where they turn. No one expects to "double their money" by owning AA-rated bonds or a money market fund, yet everyone does assume they won't lose money in those vehicles.

But these days it seems like almost no assumption is safe, especially when it comes to not losing money. "Subprime" mortgages have been sliced, diced and repacked into markets and vehicles that are supposed to be free of high-risk debt. No one has a clue about how much of the bad is mixed with the good – estimates between $100-to-$200 billion are common, but it could be much higher.

Housing Hollowed Out
Never trust a muskrat

The housing market is beginning to resemble a watermelon I once floated in a pond overnight to cool. The next day a small hole was in one end and the red interior was completely gone, hollowed out to the sour green rind, sculpted by little teeth. Some muskrat had a feast.

A Family Portrait of Financial Mania
We're all in the snapshot.

I write from the catbird seat here at EWI, with access to the best technical market analysis in the world. In the space of an hour I can read forecasts of commodities, currencies, stocks, metals, and interest rates, and compare them to socionomic observations of news and events. Nowhere else can you grab such a broad, detailed snapshot of the clockworks of the “engine of history.” Today’s digital snapshot is a family photo of a resurging financial mania.

Searching for FWMDs
Well, financial markets actually found these weapons... in 2007 -- a bit later than we did.

Once-transparent global financial systems have become opaque, changing too fast to be visible. New varieties of financial contracts are evolving rapidly, such as credit derivative futures, credit default swaps, binary options, and soon perhaps, derivatives of credit derivatives, or even derivatives cubed (D³, perhaps?).

Deflation is a Process, Not an Event
And doesn't move in a straight line...

People tend to associate predictions with events, not processes. Because our culture-at-large encourages brief attention spans, it's confusing to be carried along in a long, unfolding process. If it happens slowly, it is much easier to deny. That is, unless you have lost your job, or house, or both.