Who Remembers February 2007?
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2024-02-06 07:00 by Karl Denninger
in Macro Factors , 875 references Ignore this thread
Who Remembers February 2007?
[Comments enabled]

Nobody, right?

This time its different.

Uh huh.  Sure it is.

What prompted me to start writing this column was an "unexpected" very serious downward move in the Chinese stock market, for which there was no obvious (to me at the time) cause.  Of course I hadn't been paying that close of attention to it -- and when I did, what I found was that it wasn't China-local -- it was everywhere.

Go read this article.  Like all the rest its still here and this one I exempted because I had a suspicion that somewhere down the road I would be looking at the rhyme -- not the exact same thing, but a similar thing.

Powell had his nice "sit down" with 60 Minutes over the weekend.  In it he claimed that The Fed has "never" been political (ha!) and further, that fiscal policy is "unsustainable" and yet its not his wheelhouse, therefore he won't comment in detail.  I suppose that pointing out that while everyone (hello Elizabeth Warren!) screams about Social Security the MTS says that last fiscal year that was 85% funded with concurrent tax receipts.

CMS, that is Centers for Medicare and Medicaid Services, was 15% funded with current tax receipts and in fact block-granted close to double said tax receipts to the states for Medicaid!  That's right -- CMS is 85% unfunded -- and that is a trend I have written about for the entire time this page has been in publication and in fact my pointing this out in public and the trend thereof goes back to the 1990s when I ran MCSNet.

Over 100 years ago Congress came to the conclusion (on the back of the Long Depression, you know, the one nobody ever talks about) that "capitalism" was perfectly good right up until people could abuse it to force others to do as they demand by shutting down conversation and competition.  They passed a series of laws, codified in 15 USC Chapter 1, starting with The Sherman Act that criminalized (in other words, prison) monopolization, price-fixing and restraint of trade both within the US and internationally if the US was touched by same.  When firms and people claimed that they had attempted it and failed in their own defense Clayton was passed to extend the penalty to the mere attempt, removing the argument that "well, we might have tried it but lookie here, we didn't succeed as proved by a price that wasn't fixed."  Robinson-Patman followed which made clear that price discrimination when the item sought is of like kind and quality was also illegal.

I would not have even contemplated having lunch with a competitor when I was running MCSNet because that mere sharing of a beer and a bite might be seen as an attempt at collusion or divvying up a market and/or attempting to put together some cohesive element of policy to then be sold and enforced by a government edict (or even just all of us deciding "that's how it shall be!")

May I present to you the various conferences that now do exactly that and yet not one indictment is anywhere to be found.

Indeed I think its a fair assessment that virtually everything wrong with our business, economic policy and society today can be traced to the willful and intentional refusal to bring these charges and prosecute despite it being the law of the land for well over 100 years, and worse, since both political parties and all political subdivisions namely the States, all of which have similar laws to 15 USC on their own legislative books also have refused to bring said charges there is no political solution to be found at the voting booth.

Tennessee, for example, not only considers any attempt to restrain trade or fix prices a criminal felony the state goes further and claims that if a corporation does it not only do the people involved go to prison the firm's corporate charter is void (either firm's foreign registration in the state or, if registered in Tennessee, the charter itself!) in TCA 47-25-101 through 104.  So where are the criminal indictments, trials, and following convictions the revoked corporate charters and foreign corporate registrations (without which you can't do business in the state!)

The laws of thermodynamics, as I have repeatedly observed, do indeed apply to economics despite many so-called "analysts" claiming otherwise.  In 2007 we got a warning out of China, and it was about another year and a half of denial and refusal to do anything about it before it all blew up in our faces.

Well, take a look at the Chinese market over the last couple of months, and specifically in the last few days.

Oh by the way, Evergrande, the poster child for China's property bubble, has been ordered to liquidate just a few days ago and the number of commercial properties here in the US that are either in trouble or have already sold wildly below their last known values, is picking up steam.

No folks, this time is not different and the bad news is that the embedding of entire industries that treat 15 USC Chapter 1 as a joke for decades and imbue themselves into the Federal Budgetary process to the point that over 20% of GDP and roughly one third of all federal spending now implicates them, and both Congressional and State Legislature's decades-long wild-eyed refusal to deal with it, means we're in a lot of trouble -- in fact more trouble than we were in early to mid 2007.

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Comments on Who Remembers February 2007?
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Cmoledor 3k posts, incept 2021-04-13
2024-02-06 08:19:58

I repeat myself often but I still insist that finding you teaching these things (as no one else could or even would) has been damn eye opening. I dont like what I see, sure, but at least I see it now. Thats something in my view.

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The whole world is one big fucking scam
Its a big club and we aint in it. But we damn sure pay the dues. Rangeishot
God will NOT help anyone. Prayer is only worthwhile as a boost to
Flappingeagle 5k posts, incept 2011-04-14
2024-02-06 08:20:04

I believe that Powell also commented that prices do not go down. Something that everyone should take note of as it indicates how the central banks will want to handle all crises.

Based on 2007, if history rhymes closely does that mean we have a year left before the big one? Another version of history rhyming would have TSHTF in October of this year. Maybe that would be a good range, October 2024 to February 2025.

Flap

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2024. One of Trump or Biden will not be on the ballot in November.
A housing crash will occur.
Interest rates will NOT be lowered more than 1% in total unless a housing crash occurs.
Flyingscotsman 58 posts, incept 2012-02-27
2024-02-06 08:20:10

I remember it and the many posts that followed it. A friend of mine told me there was a finance/etc. site with a guy named "Genesis" posting things he wasn't hearing anywhere else. With the knowledge gained my ex and I started to completely re-think the way we approached money/debt. Helped us both out. Still grateful for that.

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post tenebras lux
Frat 14k posts, incept 2009-07-15
2024-02-06 09:06:14

Quote:
No folks, this time is not different



This is the only part I slightly disagree with.

I think it's worse.


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We're fucked. There will be no happy ending here; there is no going back to 'normal.'. There are only bad outcomes and worse outcomes. And we don't get to choose those, either.
Whossane 297 posts, incept 2018-01-25
2024-02-06 09:06:19

I remember that post. Also remember some excellent posts by Tanta at CR covering the same subject. RIP
Ocdawg 575 posts, incept 2019-03-14
2024-02-06 09:06:27

One word- AWESOME

<sarc off>

Our group has lost 4 deals THIS WEEK already, a dozen in Feb... I had a $3M "slam dunk" die ("We're going with a local European partner...")... various size opportunities ($1M-$30M+), unheard of... was on phone this morning with collegue at 630am trying to figure WTF is going on???... this kind of/maybe answers the question (WHY?)

Guess it's really, finally, time to bring our friend out:

smiley

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"Think of how stupid the average person is, and realize half of them are stupider than that."- George Carlin
GO DAWGS!!! Quietly reloading.....
smileysmiley
Mjeff87 4k posts, incept 2021-11-22
2024-02-06 09:10:38

I remember 2007 very well. That's the year I/we decided we were going to build a house and get out of the rental we were in. There was an advertising signboard at the entrance to our subdivison reading "Homes from the $300's" that got changed to "$250's". Told the wife the game was on, we just needed to wait it out a bit. Once it hit "$150's" we went to talk. We signed in December 2008 and moved in a few months later. The builder basically gave us anything we wanted plus a very attractive price as compared to the same homes they were building just a year or so earlier. Then the bottom fell out and we laughed. House will be paid off in five years.

I agree with Flap.

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Si Vis Pacem, para Bellum

You'll get less than you desire, but more than you deserve
Spitcher2 246 posts, incept 2018-05-17
2024-02-06 09:29:57

Will Bretton Woods get the nod again, or does it have to be another location like they do for the olympics? Talking with the wife this morning about this article. I asked her to imagine how she would feel to learn that her state pension benefits were not going to be paid out. Good discussion ensued. I'm starting up a bluegrass band. Calling it Hunker Down.
Rooster 83 posts, incept 2020-04-13
2024-02-06 09:33:14

@ Whossane "Also remember some excellent posts by Tanta at CR"

That's a blast from the past!

Was watching CNBS "Last Call" last night and Kyle Bass was on, but I wasn't paying that close attention to the exact numbers he was talking about, so I could be a little off... Anyway Evergrande and some other property developer have $1 trillion debt just between these 2 companies. In 2008 the US taxpayers bailed out all of Wall St for $800 million! Bass also said China has 3 1/2 times the leverage that the US had in 2008.

I've been watching the Chinese stock market and have been very surprised our market hasn't been effected so far... This is gonna be an epic collapse and most everyone is just whistling by the graveyard!
Columibiapixels 43 posts, incept 2018-02-20
2024-02-06 09:35:31

I know the tendency is to just go ahead and read the current article. I strongly suggest you read Karl's earlier article. Even if you remember the article . . . read it again. It is very illuminating. The banks, the fed, the regulators--the whole bunch have no clue about ethics. We are walking into the same thing again as the low interest loans roll over. Work for a large corporation then prepare your resume.
Abelardlindsey 2k posts, incept 2021-03-26
2024-02-06 09:41:21

All of the tech giants have built their way up by anti-competitive practices. I believe one inducement of this was the outcome of the government's anti-trust case against Microsoft in 2001 when the government pretended to loose the case in favor of allowing the spy agencies to buy information from Microsoft.

Yes, Evergrande has liquidated and the Chinese property market is in free-fall. Apparently they built enough housing in all of those ghost cities to house nearly half the world's population, around 3.4 billion people.

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Its all in the mitochondria.

Its the future and...you're not.
Invisiblesun 884 posts, incept 2020-04-08
2024-02-06 09:41:46

I remember it taking much longer for the markets to acknowledge the credit collapse that was right before our eyes. But then in late Fall 2007 the market peaked and started the long slide down.

Today? The imbalance is far worse. But we don't have functioning financial markets. The Fed can step in and buy at will, stopping any correction. The government has nationalized the credit markets and no one goes bankrupt anymore. It will eventually blow up, but it is a loser's game guessing when.

Just don't be stupid! Except I'm not sure what that means in today's world.
Jesjohn94 1k posts, incept 2019-05-07
2024-02-06 09:44:36

What will a crash look like when 10 stocks are valued close to 30% of the entire market? These are companies already valued in trillions and yet AI is supposed to make them double or triple again? What AI enhancements are going to drive the massive profit increases needed to justify that? The reason a few tech companies have got so valuable is because their #1 goal every day is to destroy competition.
Europeasant 58 posts, incept 2011-07-03
2024-02-06 09:45:52

Yes I remember 2007, 2008. I was playing that market game of buying low and selling high every day. It was working out well until one day I noticed that there was no high for that day and the following days as the market was dropping and I was caught in the downward spiral. I got out after a few days and only lost about 3, 4 thousand. Yes I was a peanuts/hobby type trader. That was a wild time. Will there be repeat? Probably as TG says it will probably happen in the CRE market.
The Medicare/health insurance industry/system is a whole different matter. I think that industry/market is ramping up because they expect many, many baby boomers to reach old age where cancers and other old age diseases predominate.
If you are old and don't have Medicare/health insurance you will be reamed as for instance a one day stay in a hospital room was about $1,000 14 years ago.
A heart valve replacement will be charged at about $250,000 but of course insurance will negotiate down to about $50,000. This from a procedure(TAVR) that lasts about one hour with two doctors and two nurses attending.
Andrew 314 posts, incept 2014-09-24
2024-02-06 09:58:31

2007...
I forget when I found your page (probably a WRSA linked article possibly), but it was likely after 2009, and well after since I had a personal crisis of liquidity, and having to take custody of the child I hadn't exactly planned upon (but as I point out...it does take Two to Tango or, uh, anyways)

So, let's go back and re-read that article.

Fack.
I'm going to hit the "wayback button" but what was the Dow in 2007, and how much bigger is the problem inflated to, now?
Oh boy.
Wagthemoondoggie 22 posts, incept 2024-01-26
2024-02-06 09:58:55

Right on Cue

Per 0 Hedge

"Chinese Stocks Soar Overnight As Regulators Brief Xi On $7 Trillion Trainwreck"
Veeger 2k posts, incept 2013-02-13
2024-02-06 09:59:01

In 2007, like @Whossane , I was over at CR and very much enjoying Tanta's posts as well. The Ticker came shortly after into my must reads.

In 2007 I had just moved to a strong retirement area with lots of waterfront views/property. I told folks there that I wouldn't buy until the prices had dropped 50%. Not only did most people think I was nuts, they actually really. didn't. want. to. contemplate. such things. By 2012, RE was down 40+% but I then bought a place elsewhere with similar benefits and less travel hassles...ferries sucked then and suck worse now....!

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I remember the Diamond Princess.


Slowly at first, then all of a sudden.
Pavolley 148 posts, incept 2016-05-25
2024-02-06 10:05:06

Welcome to Lootsville. Our latest investment and keystone to the community is a state of the art hospital with a glamorous high-rise office building to support the insurance claims department, out-patient facility and learning faculty connected Mega-University.

To help support your community and to keep your tax basis low, please eat at our many fast food restaurants and SICK MORE! /sarc
Radiosity 2k posts, incept 2009-03-05
2024-02-06 10:32:23

@Abelardlindsey "Apparently they built enough housing in all of those ghost cities to house nearly half the world's population, around 3.4 billion people."

This is the country that will pay a worker $100 to dig a hole, only to them pay another worker $100 to fill it in again the next day. It's all game playing to make it look like the economy is booming.

It'll be booming all right, but not in the way they want.

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So long, and thanks for all the fish.
Disgusted 590 posts, incept 2021-07-20
2024-02-06 11:43:44

Every single thing about clown world today points to a massive collapse. Since it's inevitable, I for one am sick of waiting. I'm as ready as one can be, so let's get on with it. The sooner the collapse comes the better, especially with Ole Pants Shitter at the helm. Of course all of them are to blame, but FJB and the insane left need to be hammered into oblivion. It'll be fun too, to watch all the illegal invaders starve and lose the fking minds when no one will be there to help them anymore. Maybe a shit ton of them will go back where they came from on their own. Just be ready, you may have to protect what's yours with whatever is necessary. It won't be pretty.
Flappingeagle 5k posts, incept 2011-04-14
2024-02-06 11:43:59

I just went back and re-read your article from 2007. There's something in there that MAY be a true nugget of forward-looking wisdom. Contained. When you start hearing the word "contained" that may be your final warning to get out of any financial investments if, it is not too late already.

Flap

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2024. One of Trump or Biden will not be on the ballot in November.
A housing crash will occur.
Interest rates will NOT be lowered more than 1% in total unless a housing crash occurs.
Margbp 277 posts, incept 2021-12-02
2024-02-06 12:03:42

I just have my spidey sense. 2007 didn't feel right to me. I didn't have the economic background to sort it out but when 2008 happened I wasn't surprised. In the years since I have thought no one has learned...When I drive around I wonder how is it people think all this is sustainable?


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It is difficult to get a man to understand something when his desires depend upon his not understanding it.
~Upton Sinclair slightly paraphrased
Jdough 304 posts, incept 2012-05-04
2024-02-06 12:03:52

@Disgusted said:
Quote:
It'll be fun too, to watch all the illegal invaders starve and lose the fking minds when no one will be there to help them anymore. Maybe a shit ton of them will go back where they came from on their own. Just be ready, you may have to protect what's yours with whatever is necessary. It won't be pretty.

Starving people are desperate, and the illegals have already proven repeatedly that our laws mean nothing to them, and they've been conditioned to believe they deserve and have a right to be here. It's a dangerous combination. Hopefully this won't be deemed tinfoil but there is some chatter in the commentariat about them shoring up the military's manpower issues, they are mainly fighting age males after all, or, more drastically, existing Americans being hit with something like an "empty room tax" that can be avoided by taking them in. Personally I think the latter is a stretch, especially when it is easier to simply make life so unaffordable for people that they willingly accept a government payment to take in illegals instead. Then it can be called voluntary, and the powers that be like to maintain some facade that this is a free country, despite all the evidence to the contrary.

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Explain it to me like I took an experimental genetic therapy for a donut - Anonymous
Quantum 1k posts, incept 2021-05-18
2024-02-06 12:04:12

The thing that really stood out in the old article is the exclamation point you put on the 1% Fed Funds rate... that was just the warmup to what was soon to come.


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Our God, will you not judge them? For we have no power to face this great multitude that is attacking us. We do not know what to do, but our eyes are on you. --2 Chron. 20:12
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