Weekend at Benanke's

Cursor, as usual, tees up the State Of The Shitpile before taking the weekend off. Former TPMer Paul Kiel reviews the unaccountable $800 Billion Man, while Jeffrey Gundlach of TCW Group warns of No Market For Old Men and puts the ugh in ugly along the way...

In the deteriorating climate he sees unfolding, Gundlach said, the Standard & Poor's "This is no market for old-school thinking." Gundlach based his assessment on a belief that housing prices still face several more years of decline, a protracted slump, he said, not seen since the Great Depression. Moreover, Gundlach said it's possible that home prices could be sluggish until 2022.

"If it's like the Depression experience -- and it sure is shaping up that way -- it could take several years. Maybe we won't see a bottom in home prices until 2014," he said.
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Expect loan default rates to rise, Gundlach said, not just in the subprime market, but among the top-drawer prime borrowers as well. The prime default rate could approach 10% from a current 2% before the carnage is over, he said.
"The current environment is maybe a little worse that what was experienced in the Depression in terms of the housing market," Gundlach said.

Accordingly, financial institutions may suffer write-offs that could surpass $1 trillion before conditions improve, he said. As of late August, credit losses and writedowns at the world's 100-largest banks and brokerages topped $506 billion, he noted.
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"I would give a very meaningful probability to the biggest, next AIG-size debacle being Citigroup," the strategist said. "I would definitely not be a buyer of Citigroup stock," Gundlach said. "If I were going to buy financial market stocks," he added, "I would be a buyer of Wells Fargo."

Other financial giants also won't escape the crisis unscathed, Gundlach said. "I don't see how Wachovia can make it as a stand alone," he said. He expressed the same sentiment about Morgan Stanley.