So we head into the usually bullish Thanksgiving Day, light volume, Black Friday trading session. The day after Thanksgiving is often referred to as "Black Friday" because it is the day many retailers actually go into the black (profitable) for the year and is often accompanied by rising stock prices. But Black Friday Eve has quite a different feel this year. Black Friday may actually take on more ominous meaning this year. In my last missive about a week ago, I proposed that the Federal Reserve is in fear of actually firing another bullet out of fear for how immune markets have become to their devices. The Dow Jones Industrials, S&P 500 and Nasdaq Composite are all solidly in negative territory since the Fed's October rate cuts in both its discount and Fed finds rate. Just a few weeks removed from said cuts, this is almost unheard of in modern Fed history. Scared yet? You should be. The great unwind of the worlds biggest collective bubble in all of history is nigh. Up until a few weeks ago, we were told that either subprime won't spread or that its only 10-percent of all outstanding mortgages in the U.S. and its highly chronicled problems was being overplayed. But where in the hell would one expect problems to first emerge? General Electric (GE) bonds? Again, the most toxic forms of debt issuance is simply where a credit spiral would start. It doesn't matter that just 10-percent of mortgage debt is subprime. What matters is that collectively, in recent years, world financial markets issued more debt relative to the world's GDP (Gross Domestic Product) ever; and a good portion of this debt had no productive value at all. Much of it was debt piled on top of debt. Or debt sliced and diced so many ways that no one really knew from where it came or to which its fortunes, or eventual demise, were dependent upon. And its not just debt, its also derivative products that were supposedly sold as insurance against potentially defaulting debt. But these insurers apparently mispriced the amount and toxicity of both subprime, low prime and yes, even prime debt. Now much of this insurance against all kinds of potentially defaulting debts is called into question. And then you had the moral hazard of credit rating agencies being paid by the very companies whose credit was being rated. What, you say I'm a BB-? I happen to think I'm BBB+ and I think a different credit rating agency other than you just might agree with me. Wink, nod. But who will insure the insurers? Monoline insurers like Ambac (ABK), MBIA (MBI) and MGIC Investment (MTG) don't have more than 50-percent of their equity disappear in a matter of just a 60-days without there being serious questions about their ability sufficiently cover client losses. Folks, get ready, the storm has just begun.
