Don Coxe has always said that the news that is worth trading is on page 16, not the front page. Today’s page 16 news that could have serious consequences is the outbreak of fighting between Russia and Georgia. The Belfast Telegraph:

A convoy of Russian tanks and troops is reportedly moving toward South Ossetia’s capital as Russian Prime Minister Vladimir Putin declares ‘the war has started’.

Tech stocks are being jammed today, well, because they can be. Ostensibly, because the price of oil is falling. I suppose it is dumb to point out that tech stocks have rallied anyway since oil broke out above 100 in March. However, this kind of violent action has a tendency to feed on itself, as over-leveraged players blow up or are forced to liquidate positions by margin calls. Watch out, as usual.

My suspicion is that the collapse of commodities is the beginning of the end. It shows that the liquidity crunch and economic slowdown have gone global.

Don Coxe’s May Recommendations. Don’t blame me, blame him.

One can speculate about what’s going on in markets by putting interpretation on the various technical measures of the market, like sentiment - put-call ratios and so forth. And I have. But I’m not a technician, I’m really a fundamentalist because that is my edge, in my view. I believe I have a better understanding of the “big picture” of what is going on in the economy than most people. I’m not a contrarian - I don’t get bullish because others are bearish, for example. I see myself as a seeker after truth and understanding. Unfortunately this means I have a great deal of difficulty dealing with bubbles, which by definition are built on irrationality. They are manias, when people rush into investments - trades - falling over one another in their rush to own whatever is the current hot idea. I know they are going to burst, and so I’m afraid of them. One of the markers of bubbles is the unanimity of sentiment. Everyone had to own tech stocks, everyone had to own real estate.

Even after the publicity and the harsh reality of foreclosures and lost 401(k)s, real estate and tech stocks are still bubbles. Don Coxe talks about the “Triple Waterfall“, where the bursting of a bubble goes through three phases - Sudden Shock, Last Chance and Long-Term Collapse. I don’t think the anatomy is anywhere near as neat and consistent as he makes out, but the basic principle is right. It takes a long time to wring the bubble psychology out of people. The folks riding around in tour buses inspecting foreclosures for speculative purposes. The eager bottom-callers in the stock market. These are bubble dwellers. Only when they are all gone is there a true bottom in these asset classes and, as Don observes, it takes a long time to squeeze all hope out.

Perhaps the biggest bubble of all is the belief in borrowing as a means to wealth, that leverage makes everything better. This may be the one that dies the hardest of all. But that belief died in the Great Depression, and it will die again in this one. And, of course, eventually be resurrected.

And this is where I have such trouble. I see that my economic forecasts are pretty much accurate so far. The real estate bubble went much further that I thought it would, but that just makes the fall harder. I’m really in no doubt about where the economy is headed, and the evidence is clear for anyone to see. Even ECRI finally figured it out, for heaven’s sake. Yet denial is Pervasive, Pronounced and Persistent. To coin a phrase (not). Amazing.

Don Coxe of BMO on his weekly institutional client conference call, mentioned that after the recent rally in financials, clients have been asking if it is time to buy the banks. Don’s comment: “This is like setting out on a drive across the U.S. from San Diego to Boston with a four-year-old. Before you get to Denver the child has asked three times “Are we there yet?”

He also dished the Negative Basis trade. “The practices that were engaged in during this period of easy credit got sleazier and sleazier.”

At Davos, the World Food Council observed that the inventories normally used to provide relief for earthquakes and other natural disasters had disappeared, as food produced was being sold immediately.

Plenty of good stuff as I catch up on my web surfing. First of all, “Maxed Out” is available for viewing online. This movie is an indictment of the credit card industry and is a must view before you brandish that plastic.

Bill Moyers interviews John Bogle. “Well, let me say it very simply. The rewards of the growth in our economy comes from corporate, largely - from corporations who are a very important measure, from corporations that are providing goods and services at a fair price innovating and bringing in new technology — providing a higher quality of life for our society and they make money doing it. I mean, and the returns in business in the long run are 100 percent the dividends a corporation pays and the rate at which its earnings grow. That still exists. But, it’s been overwhelmed by a financial economy. The financial economy, which is the way you package all these ways of financing corporations, more and more complex, more and more expensive. The financial sector of our economy is the largest profit-making sector in America. Our financial services companies make more money than our energy companies — no mean profitable business in this day and age. Plus, our healthcare companies. They make almost twice as much as our technology companies, twice as much as our manufacturing companies. We’ve become a financial economy which has overwhelmed the productive economy to the detriment of investors and the detriment ultimately of our society.

BILL MOYERS: By the financial sector, you mean?

JOHN BOGLE:Banks, money managers, insurance companies, certainly annuity providers. They’re all subtracting value from the economy. They have to subtract. To be clear on this now — I don’t want to overstate it. To be clear on this, they have to subtract some value. But, the question is–

BILL MOYERS: What do you mean they subtract some value?

JOHN BOGLE:In other words, — you’ve go to pay somebody something to provide a service. It’s just gotten totally out of hand. My estimate is that the financial sector takes $560 billion a year out of society. Five hundred and sixty billion.”

A good summary from the Financial Times of where we are: ”

If the economy – above all the job market – takes a serious turn for the worse, the risk of fresh turmoil would increase substantially.

The macroeconomic data are still cloudy, with weak figures on housing, soft durable goods orders and lower confidence set against yesterday’s resilient consumer spending report.

It is possible for improvement in market functioning to co-exist with increasing concern about the economy – but not for long. Either the economic data will point upwards, in which case the market healing process should speed up, or they will point downwards and then markets are likely to take another turn for the worse.”

Brian Milner of the Globe&Mail and Don Coxe on the TED spread: ”

As the U.S. dollar plumbed new depths yesterday against the euro and other major currencies and woes stemming from the U.S. mortgage mess continued to mount, the question in the marketplace was not if, but when the next major financial crisis would hit.

To which we would add: Will we have enough warning to take cover from the coming storm? And what form should that shelter take?

It’s certain that we can’t rely on central bankers or other government officials to clue us in. Most are still reassuring the public that all is right with the world and that there will be little economic spillover from the turmoil in the credit and currency markets.

…But for all that, if the good old TED spread widens again beyond, say, 1.75, it’s a safe bet that the system has yet to repair itself. “