1. Bridgewater Associates, the world's second-largest hedge fund, has estimated likely asset writedowns at $1.6 trillion, i.e., a 6 percent overvaluation of $26.6 trillion of risky credit-based U.S. assets (mortgages, credit receivables and credit-card receivables). Some bankruptcies are predicted.
2. David Rosenberg, Merrill's Chief North American Economist, argues in a July slide show that more bad news is in store:
- A recession? We're in it. Just a question of how bad it gets and for how long.
- Asset values? Not yet priced low enough to reflect the recession.
- Housing prices? Could fall another 20 percent.
He therefore believes that while stagflation is the problem today, tomorrow it will be deflation and Fed policy must therefore remain accommodative.
Recent declines in the Dow are closing the disconnect I noted on Nov. 8 between the debt and equity markets. But the months ahead will be challenging for private investors and government officials at all levels.
