The reason, why the market does not crash …
… at least for now … but most certainly will
The reason is: People don’t (want to) understand, what is going on.
A classical case of desinformation and DENIAL. Like seeing light at the end of the tunnel and not realizing, that it is a STEAMTRAIN …
So far, any bubble was explainable and feelable. You were able to put a name and faces to them.
You understood, that tulips were too expensive or Railroad stocks or Internet companies. Now we have a derivatives led crash … every week a different abbreviation, a different product which causes hazard. Even the “experts” have problems, explaining them. No real world attached.
And this causes the problem. Nobody knows the instruments, nobody can put numbers to them, so the problem is still FAR UNDERRATED!!!
The problem became so HUGE, that it threatens the FINANCIAL SYSTEM!!! (I think, it will even lead to a currency reform in the USA, devalueing the Dollar BIG TIME)
This is the reason, why the big Dollar holders like China, Singapore and the Arab States prefer buying “bankrupt” institutions to prolong the process than throwing in the towel now and lose most of their Dollars.
Every day counts … this is why they LIE every day, and bring positive rumours … most of them NEVER turn true … but markets hold as NOBODY wants to go under first.
And everybody is caught by old valuation measures. Equities are cheap relative to bonds. Market sentiment is too negative. Very bad Januaries are followed often by good years. Election years are most of the time positive.
MANY DUMB REASONS … as it is a NEW SITUATION!
This is again, why Bernanke lowers interest rates to whatever level he has to … HE KNOWS, what is going on. Just fighting for time.
I am sure, that we will have a long and deep recession, years, not months. Even a stagflation seems to be around the corner.
WHY?
Look … Bernanke started denying the housing crisis, then talked about 100 bln$ losses, last time he talked about “not more than 500 bln$” …
And the economy was first at no “real” risk of a recession, then 50/50 chance, now a shallow recession is talked about …
BUT last week in the WSJ, Martin Feldstein, who was the former chairman of the Council of Economic Advisers under President Reagan and was one of the favorites to succeed Mr Greenspan, said:
The Fed’s interest rate cuts can’t end this recession as it has previous ones in the past two decades.
His principle cause of concern was the paralysis of the credit markets, which had the elements of the following Catch -22: the credit flows needed for economic expansion require confidence in the values of existing financial assets, but market participants may not have such confidence while the risk of recession hangs over us.
If a recession does occur, it could last longer and be more painful that the past several downturns because of differences in its origin and character.
He added, the deep recession of 1981 “only lasted 16 months,” implying that this recession could be longer(!!!).
And always remember … THIS TIME … damage is done by derivatives, meaning … LEVERAGE … which equals MORE DAMAGE!!!
This is why Warren Buffet talked about them as weapons of mass destruction!
SO BE VERY CAREFUL … and NO, I am NOT A PESSIMIST 
Tags: Bernanke, crash, derivatives, Dollar, financials, Martin Feldstein, outlook, recession, stagflation, Warren Buffett
