Forbes sends me their magazine for free. I guess I’m worth more counted in their advertising demographics than it costs to print and mail another copy. So I do pick it up and glance through it, although I really don’t care who the “nth. richest person” is nor do I care for their promoted mutual funds or whatever. The theme of the most recent issue is that the “subprime mess” is much overblown. Therefore blue skies are here, we’re only down 5%, things are looking good for blast-off.

And, by the numbers, they’re quite right. This is a point I’ve made before. But that’s unimportant because the “subprime mess” is just the trigger. That’s what Forbes and the bulls don’t understand. All that was needed to kick off the deleveraging process was the resumption of volatility and the loss of confidence in highly leveraged lending. And we got that. So the unwinding will follow as surely as night follows day. And there is very little that the Fed can do about it.

IHT: “‘The last couple of years we always used to say, ‘Gee, isn’t it crazy, we’re seeing top-of-market behavior and this can’t be sustained,’ Marshella said.  ‘It did go on longer and we were wrong. You always thought there’d be an inflection point and, finally, an inflection point came,’ he said.”

Apple announced an iPod today which appears to be simply a crippled iPhone and drastically cut prices on the iPhone itself. $299 gets you an iPhone, with no phone (i.e., the 8 GB iPod Touch); for another $100 (total $399, was $599), you can have the phone or another 8 GB (total 16 GB).

Ah, I think we ordered a few more parts than we’re actually gonna need, Steve. After the early adopters bought their phones, looks like it turned out that there weren’t all that many mainstream folks wanting a $599 phone with a big monthly bill to boot. Whacking the price by a third looks a little panicky to me. Added to which the other announcements were boring. Ringtones? Yawn.

At the end of the day, it’s down to a mature iPod concept and computers. Fortunately Windows Vista is such a POS that the computer business is doing well. But that doesn’t justify the huge stock price, I think. Also it might be a while before some of those flash makers that have been bid up huge on the basis of iPhone demand get another order, don’t you think?

Now as to the other horsemen – Amazon is selling at a 116 P/E in the face of an impending consumer recession, Google likely to be missing more than a bit of revenue from its mortgage pusher customers while continuing to spend money like water, and RIMM by all accounts busy stuffing the channel. What a joke. Just my opinion, of course.

Excellent analysis from John Dizard in the Financial Times. (Moi? Agreeing with a financial journalist? Look out…): “A good strategy for the months ahead is to identify forthcoming liquidations of credit securities baskets, do the value analysis in advance, and wait for the afflicted institutions to do the dumping.I say fixed income because the cash flows can be more easily determined in advance than with value equities, and you can be paid to wait for the prices to come back – if you’re right.

Late last week, a credit investor friend of mine was looking at a list of $4bn (face value) of securities being offered by some large fund being liquidated, apparently in London. There were single-A floating rate home equity securities being offered at 37.5 and 20 cents in the dollar. That is, a so-far performing bond, rated at the same level as many banks, being offered with a coupon of 35 per cent.

Nobody was buying it.

Let’s say you liked the value of the underlying collateral. Even with a very high default rate, this bond could well be covered by its collateral.

However, cheap though it is, the problem is that it could get cheaper. So professional credit investors, most of whom depend on bank lines, could be required to mark it down. Then, in a margin-call event, they could be at risk of not meeting the call, which is what happened to the previous owner.”

This is a neat “real-time” illustration of what Minsky observed to cause abrupt deleveraging after a long period of low volatility. Everyone gets so highly leveraged that they don’t have the capability to withstand big movements without risking a margin call. Something causes volatility to increase and it causes a few people to get margin calls. So they must reduce their leverage. And, of course, that causes prices to decline, which eats into their capital – and everyone else’s capital, and increases their leverage again… Then some more folks get calls and have to reduce their leverage and so on and on.. Oh and it gets ugly somewhere in there.

Of all the irritating real estate idiocies that I see in the press, the one that really takes the cake is the frequently repeated phrase “Below Market Value”. This is usually used either in an accusatory tone – as in “the developer sold houses for less than we paid after he promised us that he wouldn’t sell below market value” or with pride “we bought five houses below market value”. Hello. The market price is what someone is willing to pay. That the property may have sold for more or appraised for more in the past is interesting, but has nothing to do with the current market price. In a market, there is a bid price and an offer price. When the bid meets the offer, a deal is done (usually). Then the bid and the offer move apart again, as the next lower bidder and the next higher offeror eye one another to see who will weaken. The market price is the bid price, because that’s the price that you will get if you need to sell. It makes no sense to say you bought below market. You were the market. Nor is it likely that the developer willfully ignored a higher bid to sell at a lower price.

John Hussman’s weekly letter: “I expect that in the next year or two, we will observe at least one quarter, and more likely a full year, in which the entire profit of the U.S. banking sector is consumed by loan losses.”

Oh, and by the way, if your mortgage is priced off LIBOR, watch out. It is up to 5.698% this morning, according to Reuters (I don’t have a direct quote feed for it). WIth the Treasury bill discount at 4.110, looks like the TED spread has blown out again to 158 bps.

Also a blast from the past, Bill Gross’ Plankton Theory, is worth a visit. “It may be a while before the Fed accepts and recognizes this, waiting for these Minsky style debt-deflation dynamics to become evident in broader measures of the economy’s health, notably job creation. But make no mistake: A Minsky Meltdown in the most important asset in most Americans’ asset portfolio is not a minor matter. Bill Gross’ Plankton Theory ain’t just a theory, but a reality.”

Note: LIBOR corrected – the BBC gave the sterling LIBOR, not the dollar. Sorry. But the TED spread is still wide compared to a normal 20-60 bps.