Really great links - Recession warning - Ice Age - Black Friday - TARP

John Hussman - Recession warning - "Based on evidence that has always and only been observed during or immediately prior to U.S. recessions, the U.S. economy appears headed into a second leg of an unusually challenging downturn."

Albert Edwards - Ice Age - "We are at the most dangerous stage in the Ice Age – the ‘post-bubble cycle’. For although it is clear that leading indicators have turned downwards, the choir of sell-side sirens is singing its song of reassurance. The lesson from Japan was that once the cyclical rally is over, any downturn in the leading indicators should find you stuffing beeswax in your ears to block out that lilting melody so as to avoid the jagged rocks of recession.
        My views on the outlook could not be clearer. They may be wrong, but at least they are clear. We still call for sub-2% 10y bond yields and equities below March 2009 lows.
        I have for a very long time likened events now unfolding with what we saw in Japan a decade ago. Of course there are some major differences, but one can still draw clear parallels to see how extreme equity overvaluations unwind in a post-credit bubble world.
        I have long maintained that even within a structural bear market, there are huge returns to be made in equities from participating in short-lived cyclical rallies like the one we have just seen. The Nikkei regularly used to enjoy 40-50% rallies as policy stimulus drove pronounced cyclical upturns in both GDP and profits. You had to remember however that you were still in a structural bear market and you had to get out when the cycle began to top out. A downturn in the leading indicators proved to be a very useful sell signal for equity investors."

Craig Pirrong - Black Friday, 24 September, 1869 - "I have long been fascinated by Black Friday, 24 September, 1869. On that day, a massive corner in gold collapsed, throwing the American financial system into chaos.
        My initial interest in the subject stemmed from my interest in corners <..>. The episode shows how corners work; how they can fail; and interestingly, illustrates some of the game theoretic aspects of corners. Specifically, Fisk and Gould were in a prisoners’ dilemma, and in the event, Gould ratted out on Fisk, selling when prices were driven up at the end by a surge of Fisk buying. When Fisk stopped buying, the price collapsed, leaving Fisk with a boatload of losses, and Gould with a nice gain. (Gould was actually selling to his erstwhile partner Fisk in some of his trades.)
        But Black Friday also relates to one of my other obsessions–clearing. Since about 1997, I’ve used the story of Black Friday to show that (a) clearinghouses can fail, and (b) that the consequences of said failure are catastrophic."

Tweet of the day - Garett Jones - TARP - "U.S. Stock Mkt Cap: $15T. Fall in stocks when House rejected TARP: 7%=$1T. P(PermReject|Vote)=1/3. So value of TARP=$3T."