CNN:

The Dow and S&P 500 tumbled to levels not seen in nearly 12 years Monday, as investors slowly came to the realization that they have been living well beyond their means while harboring wildly inflated expectations about the viability of their future prospects.

From last November, Michael Lewis:

The era that defined Wall Street is finally, officially over.

From within the midst of the bubble:

People say to me, "Whatever it takes." I tell them, It's going to take everything.

From 2007:

Bird: Well, you have to remember two things about the markets. One is that they are made up of very sharp and sophisticated people, who ... these are the greatest brains in the world!

Fortune: Hmf!

Bird: And the second thing you have to remember is that the financial markets, to use the common phrase, are driven by sentiment.

Fortune: What does that mean?

Bird: What does that mean? Well ...

Dow and S&P 500 at '97 lows

A highly recommended interview with Ray Dalio:

Everybody should, at this point, try to understand ... that we are in a D-process. The D-process is a disease of sorts that is going to run its course.

2009 and 2010 will be the years of bankruptcies and restructurings. Loans will be written down and assets will be sold. It will be a very difficult time. It is going to surprise a lot of people. Everybody will be second-guessing everybody else.

If you think that restructuring the banks is going to get lending going again and you don't have to restructure the other pieces -- the mortgage piece, the corporate piece, the real-estate piece -- you are wrong.

There are too many nonviable entities. This is basically a structural issue. The '30s were very similar to this.

In late 2009, or more likely 2010, it is going to be a buying opportunity of the century.

From 1998, Stewart Brand:

This is a cross-generational issue. It's caring for children, grandchildren. In some cultures you're supposed to be responsible out to the seventh generation -- that's about 200 years.

From a year ago, Barry Ritholtz:

You're supposed to raise your standard of living by working harder, being clever, earning more income -- not by using your long-term savings. And now this current generation is pretty much fucked.

From 2007:

"Mom, we killed women on the street today. We killed kids on bikes. We had no choice."

Recently:

It’s hard to get people to do something bad all in one big jump, but if you can cut it up into small enough pieces, you can get people to do almost anything.

From late 2008, Peter Schiff:

We need a serious recession in this country, and the government needs to get out of the way, and let it happen.

Recession? No, It's a D-process, and It Will Be Long

Some caution that President Obama’s proposals try to achieve too many objectives at the expense of focusing tax dollars on the core issue of job creation.

In April, the recession would become the longest since the 1930s.

“We are in the thick of it now,” said Robert Barbera, chief economist for ITG Investment Technology Group.

Regarding the public:

My heart swells in my chest and while I laugh,
I feel fear, smell a faint stench of insanity.

Regarding Obama:

He has to start deciding whom to disappoint.

Recall Sequoia:

Get Real or Go Home.

Two quick reminders from Peter Schiff:

Tens of millions of people unemployed, inflation spiraling out of control, the government instituting price controls that result in shortages and blackouts and long lines for things.

I think things are going to get very bad.

We need a serious recession in this country, and the government needs to get out of the way, and let it happen.

All Under the Umbrella of Job Creation

Until David Rosenberg's recent research report is recovered (or is replaced by today's report), here's a roundup of recent media reporting in which Rosenberg appears.

On CNBC yesterday, he said:

"It’s pretty fool-hearted to believe that anything is going to reach any sustainable low until we put in a firm bottom on residential real estate valuation across the country."

He was brought in to CNBC to discuss his latest FT article:

We expect to be in recession through to the end of 2009 at the earliest, even with the help from intense monetary and fiscal stimulus before a recovery takes hold in 2010. Sustained negative wealth effects from the slide in housing and equity prices will reinforce the uptrend in the personal savings rate. This, in turn, creates a highly disinflationary environment as job losses mount and pushes the unemployment rate up towards 9 per cent in the US in the coming year.

What we probably need is a supply-side resolution, either creating regional land banks to ring-fence the inventory or a moratorium on new housing starts to prevent further corrosion in residential real estate values. Supply-demand divergences are likely to persist through 2009, in our view, and will require even further contraction in construction activity before balance is restored in the real estate market.

In a story for Reuters from earlier this week, he is quoted as saying:

"The pullback in consumer and business spending in the coming year will likely be so big that even under the latest leaks on the size of the coming fiscal package, we think it will barely offset half the retrenchment in organic private sector GDP."

Rosenberg is apparently quite vocal lately:

The [recent market] rally appears to hinge on a growing consensus view that the economy will start to rebound in the second half of 2009. And guess what? That view is almost certainly wrong, growls David Rosenberg, Merrill Lynch's North American economist, in reports published every day of the new trading year.

You see, he "growls" because he's bearish.

Here's another:

"The market may be focused less on the patient right now and more on the cure. This, in turn, means that the doctors better come up with something that is going to turn the economy around."

In the Monitor:

The US has experienced a two-decade expansion of credit availability – punctuated in recent years by phenomena such as mortgage loan... [ Read More (0.3k in body) ]

Rosenberg Roundup

My annual review is now complete. Obviously I think it's all good, but here's my take on the best of the best:

It's good to have a plan, but if something extraordinary comes your way, you should go for it.

The question to ask is not, Are we safer? The question to ask is, Are we better off?

There are great benefits to connectedness, but we haven't wrapped our minds around the costs.

I'm not saying we should stop, but I think we should at least examine which lies we tell and why.

It's not about left or right, it's about right and wrong.

Being "always on" is being always off, to something.

In our unending search for panaceas, we believe that happiness and "success" -- which, loosely translated, means money -- are the things to strive for. People are constantly surprised that, even though they have acquired material things, discontent still gnaws.

If you are contemplating a voyage and you have the means, abandon the venture until your fortunes change. Only then will you know what the sea is all about.

In all his speeches, John McCain urges Americans to make sacrifices for a country that is both "an idea and a cause". He is not asking them to suffer anything he would not suffer himself. But many voters would rather not suffer at all.

Every now and then I meet someone in Manhattan who has never driven a car. I used to wonder at such people, but more and more I wonder at myself.

A Noteworthy Year

Paul Graham just finished Outliers and figured he could turn it into a story about Y Combinator.

Let's think about what credentials are for. What they are, functionally, is a way of predicting performance. If you could measure actual performance, you wouldn't need them.

Daniel Lemire:

Paul writes good essays, but they are thin on research.

Recently:

Although merit varies widely in many fields, only a few have developed effective methods of performance evaluation.

Malcom Gladwell:

We should be lowering our standards, because there is no point in raising standards if standards don’t track with what we care about.

From the archive:

The Artemis archetype represents a capacity for resisting the fall into 'Organization Man' or the 'Organizational Society', which uses patterns of rewards, sanctions and other inducements to achieve social conformity. Symbolic management again represents an important ideological tool in the desire to inculcate images for social compliance and the internalization of corporate values and goals. The Artemis archetype, therefore, is important in the contemporary era for preserving individual integrity and difference.

From The Organization Man:

An ideal of individualism which denies the obligations of man to others is manifestly impossible in a society such as ours, and it is a credit to our wisdom that while we preached it, we never fully practiced it.

But in searching for that elusive middle of the road, we have gone very far afield, and in our attention to making organization work we have come close to deifying it. We are describing its defects as virtues and denying that there is--or should be--a conflict between the individual and organization. This denial is bad for the organization. It is worse for the individual. What it does, in soothing him, is to rob him of the intellectual armor he so badly needs. For the more power organization has over him, the more he needs to recognize the area where he must assert himself against it. And this, almost because we have made organization life so equable, has become excruciatingly difficult.

After Credentials

This collection is very interesting. Don't miss part 2 and part 3.

The year 2008 in photographs (part 1 of 3) - The Big Picture - Boston.com

Dow 4,000. Food shortages. A bubble in Treasury notes.

Fortune spoke to eight of the market's sharpest thinkers and what they had to say about the future is frightening.

Nouriel Roubini:

Things are going to be awful for everyday people.

Meredith Whitney:

I think the overall economy will be worse than people expect.

Robert Schiller:

Some people who are so inclined might go more into the market here because there's a real chance it will go up a lot. But that's very risky. It could easily fall by half again.

Jim Rogers:

I cannot imagine why anybody would give money to the U.S. government for 30 years for less than a 4% yield. I certainly wouldn't. There are going to be gigantic amounts of bonds coming to the market, and inflation will be coming back.

Bill Gross:

Twelve months of the Obama Nation will not be sufficient to heal the damage of a half-century's excessive leverage.

Sheila Bair:

We need to return to the culture of thrift that my mother and her generation learned the hard way through years of hardship and deprivation.

8 Really, Really Scary Economic Predictions

Peter Schiff:

Tens of millions of people unemployed, inflation spiraling out of control, the government instituting price controls that result in shortages and blackouts and long lines for things.

I think things are going to get very bad.

Recently, Peter Schiff:

We need a serious recession in this country, and the government needs to get out of the way, and let it happen.

Take note:

If today we are shocked by shenanigans like the Enron debacle, insider trading, mutual fund abuses and the prevalence of special interests in politics, we need to get some perspective on our history.

Here's Thoreau:

“Men have an indistinct notion that if they keep up this activity of joint stocks and spades long enough all will at length ride somewhere, in next to no time, and for nothing; but though a crowd rushes to the depot, and the conductor shouts ‘All aboard!’ when the smoke is blown away and the vapor condensed, it will be perceived that a few are riding, but the rest are run over.”

Nassim Nicholas Taleb:

Many hedge fund managers ... are just picking up pennies in front of a steamroller. And sometimes the steamroller accelerates.

Jules Dupuit, via Ross Anderson:

It hits the poor, not because it wants to hurt them, but to frighten the rich ... Having refused the poor what is necessary, they give the rich what is superfluous.

Financial doomsayer Schiff still grim on future

Peter Schiff, president of Euro Pacific Capital, predicts that many homeowners who have little or no equity will stop paying their mortgage and then reduce their income to get the biggest payment cut possible. They could stop working overtime or, if two spouses work, one could quit. After the modification, they could try to boost their income again.

"This is a once-in-a-lifetime opportunity," Schiff says. "People are going to feel like complete morons if they don't participate. The people getting punished are the ones who never made an irresponsible decision to buy a house they couldn't afford."

You can say that again.

You Might Want To Think About Stopping Your Mortgage Payments and Reducing Your Income