Tuesday: Fed Chairman Ben Bernanke defended the AIG bailout, saying the alternative would've been a disaster. Treasury Secretary Tim Geithner defended the Obama Administration's plan to buttress and stimulate the U.S. economy. Auto sales plummeted; Citigroup said it'll lower some mortgage payments; and subsidiaries of Warren Buffett's Berkshire Hathaway announced job cuts. CNBC heard from experts who said the U.S. economy is in a depression — but the next move is an upside jump.
Market Verbs: 'Bottoming, Suffering, Self-Immolating'
Oppenheimer's Carter Worth said that in every major metric, the market is at the 2002-'03 lows. The presumption is we continue to respond to that reference point, and that we are not on the cusp of some new major down-leg.
Harbor Advisory's Jack DeGan said he is 35 percent exposed to equities; "we would have to be scared to death" to go 100 percent cash. He believes the government must deal with toxic assets now. Scott Brown of Raymond James said we are in "that chain-reactive phase" where the bad news is feeding on itself, and it would be good to have "some major shock" to break the cycle.
Rx For Sick Markets? Induce Vomiting
Kevin Ferry of Cronus Futures said it became evident late last week that the market is in a negative feedback loop; he's looking for something that will break the cycle. Monday was the "ipecac phase," and that may have been a helpful cleansing. The first sign of traction will come from China and some of the peripheral markets in Asia, and if American markets can build on that, they can get out in front of the situation. The last few days have shown conclusively that we are not yet out in front.
Real Estate & The Dreaded 'D' Word
Eric Hovde of Hovde Capital Advisors said commercial real estate is collapsing, and 25 percent of commercial mortgages could wind up in default.
Low-interest loans drove a lot of speculative building, and that space is coming onto the market just as companies are scaling back and releasing their extra space; result: an enormous surplus of capacity. Residential mortgages continue to decline; real estate is down 50 percent, as are auto sales. Hovde's conclusion: The economy has suddenly moved into a depression. But the next move is likely to be a strong surge to the upside.
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