US Equities have entered into a Cyclical Bear Market

Our view is that US-equities have entered into a cyclical bear market and interest rate cuts will not solve the problem. The issue is not that the consumer does not have enough credit but that they have too much credit (as evidenced by the sub-prime and housing crisis). Now that the bond rating agencies such as MBIA Inc. (MBI), Ambac Financial Group (ABK) and Financial Guaranty Insurance Co. (FGIC is a closely held company part owned by Blackstone and PMI) have been down-graded from their AAA-rating, they can no longer write their book of business. Which will lead to marking-to-market more and more debt cause more right-offs from the holders of those vehicles.

Moving forward, the vehicles which created the housing bubble are going to be much more highly regulated, once the SEC gets involved. So we do not see the housing market rebounding anytime soon.

Wall Street Banks have created a virtual shadow banking system to circumvent the highly regulated official banking regulations, with all of their off balance sheet derivatives and CLO’s, CDO’s CMO other alphabet-soup vehicles. The rating agency, like Moody’s and S&P have helped them do this and are complicit!

Now, they are in the process of folding these vehicles back into the banking system. The financial problem is much deeper than anyone can tell right now. This is why the Fed has moved so aggressively in cutting the prime rate and opening the discount window. Think of it as an iceberg, what is seen, is only the tip and 90% is unseen!

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Special Investment Vehicles (SIV’s)
Off balance sheet investments – structured vehicles made up of pools of loans:

• CLO – Collateralized Loan Obligations
• CDO – Collateralized Debt Obligations
• CMO – Collateralized Mortgage obligations

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Major Financial Crisis

• LTCM – Long-Term Capital Management (1997)

• Asian Financial Crisis (1997) Black Monday (1987)

• Wall Street Crash (1929)

• Mortgage-Credit Related Losses (2007)

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