Tuesday, December 2, 2008
(Cont'd from above)...

Jim (cont'd):    We've seen plenty of that lately, and our whole system is built on confidence... confidence. I don't want to be the guy who brings everything down by creating unnecessary panic. But it would also be irresponsible to ignore the negatives that are still out there. No Pollyanna, this guy. Before things can truly get better, confidence in the system has to be restored...

So the most important thing to remember from the depression is FDR's poorly-timed first inaugural... First of all, let me assert my firm belief that the only thing we have to fear is fear itself... Now, that's what everybody knows... Here's the sentence that I think really gets you that no one knows... No one remembers this... Right here... This is a phrase, not a sentence, but it says, "nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance." No one knows that, but that's what the phrase is about.

Of course, FDR did get it wrong. Or, as they say on the Street, he was early... They had a lot more to fear than fear itself... Another decade of the Great Depression, 33% unemployment, massive production declines, the collapse of most banks, rampant deflation and, until the massive spending of the lend-lease program, and World War II, bailed us out, we were in big trouble...

At least he knew better than to raise rates... Don't forget, we had no social security net, plus big tariffs and rising rates, when the Great Depression began. It couldn't be more different now... just couldn't.

So what do we have to fear right now. Alright... just nameless, unjustified terror?... Not quite... but certainly not the terror facing the nation in '32...

Just this week, we've got three legitimate worries... Okay, a troika of worries... The European Central Bank and the Bank of England need to cut rates savagely... and that's a full point Thursday please... because America can't save itself at this point... we can't... we need the Brits and the Europeans to juice their economies. That has to happen, okay... They need huge rate cuts. Small ones will not do it!

So that's two reasons to be concerned... Then we've got the big, bad - but emphasis on big - unemployment number coming out on Friday... And I can't see how that can be anything but negative. And, if you don't do something fast to create millions of jobs, we're going to see another wave of foreclosures... definitely something we have to be vigilant about. But the incoming President is all over that... another reason to be more positive... about the economy... we're not talking about the stock market... about the economy.

We need to worry about China not coming back. Remember, they're not eating as much Kentucky Fried Chicken as they were... If they announce some kind of serious plan to put millions upon millions of people to work in infrastructure projects, that's a reason not to fear. The Chinese... listen up! You should be more worried about revolution than pollution...

We know we need to be more concerned about commercial real estate falling off a cliff, especially because so many of those loans have been "securitized"... That's a curse word... and we know what that means... no way to undo the damage...

But here's why I can't buy into the second Great Depression story...

We're not going to see massive bank failures like we did in '32, even if the unemployment number on Friday shows a gigantic surge, we're still talking maybe 8% jobless (claims). That's only a quarter of where we were in '33... a difference even the most doomsday-prone bears have to start recognizing.

Another big difference... we've already save the financial system... especially with the new Citigroup template, so the fear is gone. Hey, Citigroup is going up... you know that as well as I do.

So too is the fear of the unknown. Not many people are talking about this... But, now that we've dealt with Fannie, Freddie, Lehman, AIG, Wachovia, Bear, Washington Mutual... it looks like that congress will soon fix up the automakers, somehow, I still hope... Maybe a little debtor repossession financing bankruptcy for all three of them now...

There are a lot fewer unhappy surprises in store...

We know what the problems are now. We didn't... or, at least, federal policy makers didn't... when I started warning of a potential reprise of the Great Depression more than a year ago.

And, as my friend, Michael Sembalas, who is really unbelievable... He is from J.P. Morgan... he's the Chief Strategist... He put it so great... the guy is smart... He says, "We are now in a Malcolm X market." Yes, Malcolm X... "by ay means necessary market"... Even the radical, reactionary republicans have chosen to embrace Malcolm X's interventionist philosophy, given the exigencies of the moment, although I think Paulson and Bernanke may not recognize their embrace of that Malcolm X mandate...

The Fed has successfully reduced mortgage rates by buying mortgages from Fannie and Freddie. They dropped again today, and they're still coming down! Housing prices have fallen 40% in the worst-hit parts of America... And the steep dropoff in building permits... my housing bottom call on June 30th... I'm telling you, it's looking better and better. The nightmare started with house price depreciation, and it will end with house price stabilization.

The Fed's also addressing credit cards, student loans, auto loans... all of these new asset-backed programs... they always seem to have the word, "term" and "loan"... and only (CNBC's Steve) Leisman seems to know what they stand for, but that's okay... I get the point. And, you know, these give guarantees to investors who take risks to buy bonds backed by the stuff, and that should help consumer credit. They're guaranteeing bank debt. They're printing money... They can throw it at this major problem. That's a major difference, by the way, from '29 or even '32. They didn't know to print money. They thought to raise rates.

Unlike the Great Depression, or even the stagflation situation in 1979, we actually know how to solve this problem. The government needs to spend like a drunken sailor!... Or maybe even a drunken carrier group...

A high-quality problem versus the inflation of the Carter pajama years... which no one believed we could stop at the time... and don't you feel better that the man who did stop inflation, Paul Volker, has the new President's ear? I sure do.

Also, anytime someone mentions the Great Depression... from now on, they're going to have to answer to me... They should be required to mention all the things we kept from the New Deal to make another depression much less likely... FDIC, Social Security, unemployment, FHA... all these things. We didn't have them in '29.

So, is FDR right this time around?... Is it true that the only thing we have to fear is fear itself?...

No. You've heard the litany of what could go wrong... why we still need to be weary... but not "blow out our brains, depressed" weary, because of what we're doing to fix things... to take the depression scenario off the table, and out of the mouths of countless, wrong TV commentators.

Here's the bottom line...

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The Bottom Line!:     I'm not telling you to go buy stocks here in this rant... not anything... except the usual recession-resistant names which did good today... accidental high yielders... and the stocks that are trading at or near cash. But I am saying enough with the hysteria... including people like me, okay... you know, guys on TV... Enough with the hysteria. There are legitimate reasons to be afraid. But we're also doing plenty to solve our problems... enough that I think it's time to zip it up about another Great Depression, before we end up creating one ourselves with all this endless and overdone gloom.

[verbatim recap]

Read Jim's next Segment here