Here is the second part of guest blogger Clint Goodrich's take on what it's been like sitting in front of a computer screen trading during during these historic times. In the previous post, he called the end of last week "the closest thing to white-hot pure fright":
This storm didn't come in overnight. This perfect storm was six or seven years in the making. It likewise will not correct itself in a few weeks. The effects of the market reactions will take months, if not years, to play out. However, like an earthquake or, more accurately, a meteor strike, the landscape will forever be altered. If you don't realize it...we are entering a situation that makes the dot com bust nothing more than a migraine headache and the post 9/11 economic environment just a massive hangover from a weekend bender.
The meteor strike in this case is the U.S. Government. On the front end it's the government's willingness to turn a blind eye to the credit markets in every category that produced the insanity of easy money to every single person in this country. People who had no business owning a house owned two or three houses, a new boat, a new Lexus and had a half a dozen gold or platinum credit cards! This stuff was based on nothing! No verifiable income, modest credit scores and, in many cases, jobs that could not even meet the interest payments. But this is what produced "Prosperity in America." The mantra of many people on CNBC was, "The world is awash in liquidity". The truth was the world was awash in CREDIT. Easy credit, unsustainable credit.
My ultimate financial theory is that "money flows where it's least exploited". As a result, this thing they call "the housing market" inflated through the easy credit winks and nods. Once fully exploited, the money began to flow out, it collapsed because the run up in housing and easy credit was completely and utterly unsustainable. House prices in many instances will need to be cut in half. In many cases 50% cuts in price will not produce a sale. Profit is not a birthright. There are simply not enough people out there to mop up the unsustainable build-up in inventory that was produced in this credit and housing fallacy.
Greed drives markets to unsustainable heights, and fear will cause the house of cards to crumble, and crumble it has. We will now enter into a period of denial. The market will have many head fakes to the upside and most likely new lows as this scenario works itself out. All these "smart guys" who were considered wizards in the financial markets and appeared on TV and the covers of magazines have now been exposed as mere mortals. They were in effect more like The "Wizards" of Oz, just guys behind the curtains who were manipulating the kaleidoscopic landscape the public was viewing.
The only thing that makes these guys look smart is that they learned to "exploit", and this brings on the guise of smarts. In other words, they get away with it until they don't. By the time the fraud has been exposed, these smart guys are running for the exits with fists full of money, not slowing down to pick up the trail of dollar bills left behind in their wake as they try to disappear into thin air.
As I'm writing this on Tuesday, September 23rd, the markets are absolutely melting down again as our government leaders try to explain their actions to Congressional and Senate leaders. Believe me, Paulson and Bernanke are struggling, I'm struggling, everyone is trying to figure what to do. I have a sneaking suspicion that I'm getting ready to "learn a lot more."
Is my bailout check in the mail?
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