I take an extended holiday leave, and look what happens…

… the market more than bounced back from Friday’s horrific decline: The Dow recovers upwards of 10% (900+ish points) and the Nikkei posting a staggering single day gain of over 14%.

Is this a dead cat bounce, or the beginning of general hyper-volatility exacerbated in no small way by the market’s lack of confidence in either party or in either party’s candidate?

I think this is one big dead kitty with several more bounces left to it before it settles to the pavement… and though I regret not having been in with my “truck” to load up on value stocks, patience and forebearance may make better watchwords for these days.

Parsing through my wife’s copy of Dr. Takahiko SOEJIMA’s 【副島・隆彦】　latest book, 恐慌前夜　アメリカと心中する日本経済 or Romanised as Kikyō Zenya Amerika Shinjyū Nihon Keizai (I would roughly transliterate this title in English as “The Panic Before the Nightfall: The Double Suicide of the American and Japanese Economies”) ¹ provides an interesting outside perspective.

Granted, Dr. Soejima is a bit of a doomer, and seems to think that the market will crumple significantly after the New Year… but given his track record of predictions regarding the economy (being markedly wrong only once during his long career) he might bear some listening to. In his latest book, he indicates that the Dow could crater as low as the 3,000s, and that the dollar will undergo a near-Weimar hyperinflation and devaluation to around 30 yen per dollar (the yen has traded around the 105-115 yen to the dollar average range over the past decade).

That’s pretty drastic… even in my worst case scenarios, I find it somewhat incredible that the market would break through the 1998 level supports (I believe that we will fall below the 2003 support for certain by the new year).

However, following the near-double digit volatility in the markets and the certainly double-digit swings in the Nikkei and Hang Seng indices, this gives me great pause… and leaves me wondering how or if these wonky markets will stabilise.

Considering that this bear market is just getting warmed up, and with volatility like this, the next 18-24 months could prove to be one heckuva rollercoaster ride.

[1] Published in Sept. of 2008 by Shōdensha. ISBN: 978-4396613143 in Japanese language only. This title does not seem to be circulated on either Amazon.com or its Japanese-language site as of October.

The net loss of over 7% (812 points) of the Dow Jones over three days (wiping out all gains made since the second week of November, 2005) is an effect of the US government takeovers - nationalisation - of no less than three financial entities.

The first two, Fannie Mae and Freddie Mac, were originally quasi-government owned (managed), so while it might be easy to overlook that, the takeover of AIG (American Insurance Group) to the tune of an $85 BILLION line of credit in exchange for the “taxpayers” taking over 79.9% of AIG’s assets is not so easily overlooked.

And with Dow Jones well within sight of crashing through the 10,000 floor … we may be looking at only the beginning of an economic bloodletting that could finally tip us over into the Great Depression II, which writers like Soejima Takahiko and other doomers have been gleefully awaiting to vindicate their theories.

Are we looking at a whole new era of federal nationalisations of any business that appears to be failing (providing of course, it passes the size and interest tests)…?

Looking at the Bank of America acquisition of Merrill-Lynch, and Washington Mutual (WaMu) shopping for buyers… these short-suspense cannibalisations seem to be based upon the premise that if they become “too big to fail”, then Uncle Sam will step in with loans drawn upon the taxpayer’s back, and their children’s futures.

This cannot bode well for the free markets, and if this is going on during the “green tree” of an ostensibly free-market “Republican” administration, what shall happen during the “dry tree”… if the socialism-loving, nationalisation-trigger-happy Democrats take over on January 2009?

Rep. Maurice Hinchey (D, NY-22) and Rep. Maxine Waters (D, CA-35) have made it perfectly plain that if given their druthers, they’d nationalise the oil industry in a heartbeat. Between this and these “emergency taxpayer buyouts”, a.k.a. nationalisation of private banks and insurers, these are acts undertaken only in a wartime command-style economy.

These are unprecedented actions in peacetime; even at the height of Democratic Party’s ultra liberal single-party lock on the Presidency and both houses of Congress in the 1960s, this sort of socialism was unthinkable.

The question remains, what sort of socialism are we stumbling into at a madman’s breakneck pace?

Is it the fascism or national socialism that privatises the gains of the corporate fatcats who may just have made the right donations to the right people’s campaign funds, and socialises the losses of these same fatcats when they prove to be incompetent?

Or will it be the outright socialism from the left that utterly crushes the free market, never even allowing any entrepreneurs and capitalist from having the chance to make mistakes - by preventing them from ever having a market share?

The right thing to have done would have been a laissez-faire policy that allows badly structured and irresponsible corporations to fail, and outstanding corporations that produce value for its investors and great products and services for its customers to excel.

Socialism - whether from the left or from the right - be it fascism or Marxism - is plain wrong.

This item found by my wife (who lived through the burstig of the Japanese Bubble of the early 1990s) :

At 3:30, note what Mr. Jim Rogers has to say about what Mr. Bernanke should do, and what he should do with the Federal Reserve.

I agree 100% with his assessment that at this point, the FED only serves the interest of corporate welfare, buy shuffling off hundreds of billions of dollars of bad debts and worse securities - pig swill dressed up as investments - and President Bush needs to step in and FIRE Mr. Bernanke, if he will not cease from debasing our currency and ruining our economy.

If this sort of thing is to be the order of the day, it is only a matter of time before the Red Chinese cash out their dollars, and the taxpayers find out that the Butcher’s Bill for all of this will be quite ugly indeed.