So Then, Bonds for the Long Run? … P/E Ratios at 200? Really? … Mark-to-Market Slip Slides Away… Housing Sales Improve?  Not Hardly

Last Tuesday the Wall Street Journal published an op-ed by my friend Gary Shilling and Richard LeFrak. They offer a simple solution for the housing crisis: give foreigners who will come to the US and buy a home resident status, green cards).

Warren Buffett says buy. Jeremy Grantham says it will get worse. Both are celebrated value investors. Who is right? It all depends upon your view of the third derivative of investing. Today we look at valuations in the stock market. This is the second part of a speech I have given in the past few weeks in California and Stockholm. I am updating the numbers, as the target keeps moving.

This week I am in California giving two speeches to the Financial Planning Associations of San Diego and Orange County. This and next week’s letters will be the broad outline of the speech. We will look at how the retreat of the American consumer will affect the stock market. Has the recent drop (can we say crash, gentle reader?) in stock market valuations given us an opportunity to find value? We look at some very powerful evidence that suggests that may be so.

For Europe, this is more than just a banking crisis. Unlike in the US, it could develop into a monetary regime crisis. A systemic banking crisis is one of those few conceivable shocks with the potential to destroy Europe’s monetary union.

The “Bailout Plan” was passed. Will it work? The answer depends on what your definition of “work” is. If by work you mean no more government intervention and no further costly programs and a functioning market, then the answer is no. But there are things it will do.

Do government bailouts in times of banking crises work? Crises like this are manageable. They’re expensive and painful to resolve, but even more expensive and painful when left to fester.

All eyes are on the drama being played out on Wall Street today. But the cause of all the bloodshed was the downturn in the US housing market. This left banks and financial institutions with exposure to toxic subprime loans with a load of worthless securities on their books. This led to writedowns and losses. And the rest is history. Shockingly, given the scale of the crisis, John Maudlin says the housing crisis has a ways to run yet. Alt-A mortgages may the next to fall…

It’s All About the Spread… The Coming Bank Credit Crunch… More Thoughts on Fannie and Freddie… Who Is Holding the Old Maid?… When is the credit crisis going to end? How will we know?