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| Anonymous Coward
User ID: 312161
10/14/2007 10:12 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Long-Short Funds Fail A Significant Early Test
October 14, 2007
Click here to find out more!
Maybe plain-vanilla stock and bond mutual funds will do the job, after all.
Long-short funds - the newfangled mutual funds designed to give common investors a hedge fund experience and protection during downturns - recently went through one of their first major tests. And they flopped.
In July and August, with investors concerned about subprime loans and a credit squeeze, the benchmark Standard & Poor's 500 stock index went down 9.4 percent. Long-short mutual funds - which are designed to hedge risk by betting on some stocks to rise and others to fall - went down 8.4 percent, according to Lipper Inc., a mutual fund tracking firm.
You would have thought long-short funds would come to the rescue of investors. That's why investors buy them.
But the funds dropped, along with their peers in the hedge fund arena, where only the rich and institutions such as pension plans are allowed admission.
"We've seen a lot of investor interest in these funds, but they are by no means a magic formula," Morningstar analyst Marta Norton said.
Hedge funds and mutual funds that act like hedge funds were rolled out in large numbers during the past few years - a reaction to the 49 percent downturn in the S&P 500 index between 2000 and 2002. Investors wanted protection from such severe conditions. They also were worried about making better returns when market forecasters were predicting that stocks would climb just 7 or 8 percent a year for the foreseeable future.
The long-short fund was supposed be an alternative that investors could drop into a typical portfolio of stock funds and bonds. Instead of simply buying stocks and holding on to them as they drop, long-short funds buy two varieties of stock - those the fund manager thinks will climb, and those the fund manager thinks are positioned to drop.
When the manager thinks he has spotted a winner, he goes "long," or buys a stock with the intention of making money as the price goes up. When the manager thinks a stock will be a loser, he "shorts" it. With that strategy, the manager borrows shares of a stock, and sells them. Eventually he will have to buy the shares to replace those he borrowed. But if he's right and the stock price falls, he will be able to buy shares at a lower price and make money. The beauty of the strategy - if it works - is that the fund can make money even when the stock market is in a downturn.
But finding the right stocks to short, and the right timing, is not easy. The funds demonstrated that when they fell between July 19 and Aug. 15 during the broader market's downturn.
Of course, one particular period can be an anomaly, but analysts and financial planners have their doubts now.
"I'm unconvinced that most investors need a long-short fund, and I'm even less convinced that most of the new long-short funds are a good value proposition," Morningstar analyst Christine Benz said in a recent report.
The flows of money in and out of the funds suggest that investors are thinking the same way. In mid-July, when the market peaked before heading downward, investors poured $527 million into long-short funds, but "when the funds did very badly, there was a huge burst of outflows," said Bob Adler, of AMG Data Services.
In August, investors pulled $776 million out of the funds, and in September another $105 million, he said.
It was the first time since December 2005 that investors withdrew money from the funds. They have about $20.3 billion in assets, and the flows have stabilized in October, Adler said.
Financial planners such as Ray Benton, of Denver, are examining now whether they can count on long-short funds.
"I am more reticent now," he said. "Rather than diversifying a portfolio, they all went down together."
Instead of the new funds helping, "it was the old-fashioned way that carried people through this; it was having bonds," Benton said.
Typically, investors are told to hold some bonds in portfolios to buffer downturns in the stock market. A classic, or moderate, mixture generally puts 60 percent of an investor's money into large-cap, small-cap and international stocks, and 40 percent into bonds.
An investor who would have followed that model with what's called an "asset allocation" fund would have lost only 5.8 percent during the July/August downturn, according to Lipper.
Since the Federal Reserve lowered interest rates, the stock market has bounced back. For the year, the moderate mixture is up 7.8 percent, S&P 500 index funds are up 11 percent, and long-short funds are up 8.3 percent.
Another type of fund aimed at hedging against downturns - market-neutral funds - is up 3.5 percent for the year after declining 3.6 percent during the downturn. Market-neutral funds tend to go half long and half short with their portfolio.
Morningstar analyst Norton said the long-short and market-neutral funds struggled in the downturn because many stocks that were declining were not fundamentally weak investments. Hedge funds, worried about investors panicking and pulling money from funds affected by subprime mortgage-related bonds, sold some of their best stocks so they would have cash on hand to pay investors wanting to get out.
Although a single downturn does not clearly illustrate how a certain type of mutual fund will perform in the future, Norton said long-short and market-neutral funds take on a lot more risk than many investors understand.
Although the idea of shorting stocks during a downturn is attractive, Norton noted that fund managers won't perform well unless they pick the right stocks to short.
"It comes down to expertise, and lots of managers aren't impressive," she said.
One long-short fund that did well in July and August was Hussman Strategic Growth Fund, she said. Although the subprime mess took many fund managers by surprise, she said the Hussman fund had noted serious concerns about the economy and stock market in early July and had "hedged away all the risk using options."
It climbed 2.28 percent during the July 19-Aug. 15 downturn, and is up 3.64 percent for the year.
The problem with going short in a stock is that (while you may be right and the stock declines and you make money) is that if it rised instead you loose. Unlike going long and suffering risking your entire investment, when a short sale rises instead your losses are unlimited. A stock can't go below zero; there is no upper limit. |
| Anonymous Coward
User ID: 313586
10/17/2007 11:19 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
since President Bush took office:
Nearly 5 million Americans have slipped out of the middle class and into poverty;
8.6 million Americans have lost their health insurance, bringing the total to 47 million.
From 2001 to 2005, as the rich getting richer and the middle class shrinks, the top 1 percent of households saw a $183,902 increase per household income while the bottom 90 percent saw a $2,071 loss of total income. The top 300,000 Americans now earn nearly as much income as the bottom 150 million Americans combined.
Over 3 million manufacturing jobs have been lost and the major auto companies are now threatening to leave the United States if workers do not take a major wage cut.;
3 million American workers have lost their pensions;
Home foreclosures are now the highest on record;
The personal savings rate is below zero, which hasn’t happened since the Great Depression;
The real earnings of college graduates have gone down by roughly five percent from 2000-2004;
Entry level wages for male and female high school graduates have fallen by about 3.3 percent and 4.9 percent, respectively; and
Wages and salaries are now at their lowest share of GDP since 1929.
In addition, the United States today has the most unequal distribution of income and wealth of any major country on Earth. In 2005, while average incomes for the bottom 90 percent of Americans declined by $172, the wealthiest 1/100th of 1 percent reported an average income of $25.7 million, a 1-year increase of $4.4 million. The top 1 percent of Americans received, in 2005, the largest share of national income since 1928. According to Forbes magazine, the collective net worth of the wealthiest 400 Americans increased by $120 billion last year to $1.25 trillion. |
| Anonymous Coward
User ID: 313857
10/17/2007 10:09 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
Japan and China lead flight from the dollar
By Ambrose Evans-Pritchard, International Business Editor
Last Updated: 12:26am BST 18/10/2007
Japan and China led a record withdrawl of foreign funds from the United States in August, heightening fears of a fresh slide in the dollar and a spike in US bond yields.
# Fears of dollar collapse as Saudis take fright
# China threatens `nuclear option' of dollar sales
# Ambrose Evans-Pritchard: This bear is not capitulating
Japan and China lead flight from the dollar
The US requires $70bn a month in capital inflows to cover its current account deficit
Data from the US Treasury showed outflows of $163bn (£80bn) from all forms of US investments. "These numbers are absolutely stunning," said Marc Ostwald, an economist at Insinger de Beaufort.
Asian investors dumped $52bn worth of US Treasury bonds alone, led by Japan ($23bn), China ($14.2bn) and Taiwan ($5bn). It is the first time since 1998 that foreigners have, on balance, sold Treasuries.
Mr Ostwald warned that US bond yields could start to rise again unless the outflows reverse quickly. "Woe betide US Treasuries if inflation does not remain benign," he said.
The release comes a day after the IMF warned that the dollar was still overvalued and likely to face "some depreciation in the medium term".
The dollar's short-lived rally over recent days stopped abruptly on the data, increasing pressure on US Treasury Secretary Hank Paulson to shore up Washington's "strong dollar" rhetoric at the G7 summit this week.
The Greenback has already fallen below parity against the Canadian Loonie for the first time since 1976 and has touched record lows against a global basket. It closed at $2.032 against the pound.
David Woo, an analyst at Barclays Capital, said Washington was happy to see the dollar slide. "They don't care so long as the fall is not disorderly. They see it as a way of correcting the deficit. " he said.
# IMF raises spectre of UK house price correction
# Market forces: stay tuned to the markets
# Hedge funds target currency pegs
Mr Woo said a chunk of the August outflows may have come from foreigners borrowing in the US during the liquidity crunch to meet needs in euros. "We think it may be a one-off," he said.
The US requires $70bn a month in capital inflows to cover its current account deficit, but the key sources of finance are drying up one by one.
BNP Paribas said America has relied on "hot money" from abroad to cover 25pc to 30pc of the US short-term credit and commercial paper market over the last two years.
This flow is now in danger after the seizure in parts of the market over the summer and after the Federal Reserve's half point rate cut, which has shaved the US yield advantage over other countries.
Ian Stannard, a Paribas currency analyst, said the data was "extremely negative" for the dollar. "It exceeds the worst fears. It is not just foreigners who are selling US assets. Americans are turning their back as well," he said.
Central banks in Singapore, Korea, Taiwan, and Vietnam have all begun to cut purchases of US bonds, or signalled an intent to do so. In effect, they are giving up trying to hold down their currencies because the policy is starting to set off inflation.
The Treasury data would have been even worse if it had not been for $60bn of inflows from hedge funds based in Britain and the Caymans, which needed to cover US positions at the height of the credit crunch. |
| Anonymous Coward
User ID: 313857
10/17/2007 10:34 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
> All
Posted On: Tuesday, October 16, 2007, 2:03:00 PM EST
August TIC Numbers Worst In US History
Author: Dan Norcini
Dear CIGAs,
Following is a visual of the Treasury International Capital Flows data compared to the Balance of Trade through August of this year. As Jim has been saying for more than 4 years now, the dollar’ fortunes are tied to foreign capital flows into or out of the US and not solely to interest rate differentials. This is something that many of today’s forex traders simply do not understand.
Regardless, August’s numbers were the WORST on record for the US as foreign capital “flowed out of” the US to the tune of leaving a massive $163 billion shortfall when using the new methodology that includes both short term and long term securities. Notice that no matter which method is used to compute the net flows, both fell far, far short of financing the negative balance of trade. We might be a bit acerbic here and simply say; “STRIKE ONE”. Another couple of months of this sort of horrific news and you can kiss the dollar goodbye. This sort of thing will not escape the notice of those who understand the gold market.
Click here for part one of today’s TIC charts with commentary from Trader Dan Norcini
Linked below is a visual of the various components that make up the international capital flows data. The categories used by the Treasury are as follows: Bonds and Notes, US Agency Debt, Corporate Bonds and Stocks. You can see that the only category that saw an increase in August was US Agency debt. The other three saw declines. Stocks and Treasuries were the hardest hit. Keep in mind that this occurred during the month of August when the subprime fallout began to surface in a big way and we had massive unwinding of the Japanese Yen carry trade taking place. You’ll recall that the bottom dropped out of the US equity markets back then. Incidentally, I recall the nonsense being spouted at the time by some analysts that bonds were benefiting during that period due to safe haven plays. Well, someone might have thought that US Treasuries were “safe havens” but I can assure you based on today’s data, that “someone” was not foreign investors. They fled Treasuries in droves.
Some of that money might have reversed course in September after operation “White Noise” was commenced so it is possible that we could see an improvement in next month’s numbers but I want to reiterate that the die is cast and spin will carry the day only so far. Even today we are seeing what happens when risk aversion becomes the name of the game. The yen pops higher on the crosses, the US equities tank and bonds blip up a bit. However, foreign investors are leaving in droves and that has serious long term implications for the health of the US financial structure.
Click here for part two of today’s TIC charts with commentary from Trader Dan Norcini
This final set of charts explains the sharp drop off in Treasury purchases that occurred in August. What is especially surprising is the data from Japan. They unloaded a significant number of Treasuries. China also was a net seller for the month. Those are the big boys on the block.
Perhaps even more ominous is the rate of buying has gone completely negative on an annualized basis. That slowdown in the RATE OF BUYING is terrible news for the dollar.
Click here for part three of today’s TIC charts with commentary from Trader Dan Norcini |
| Anonymous Coward
User ID: 313857
10/17/2007 10:47 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
[link to www.godlikeproductions.com]
Few Americans understand the Faustian dilemma awaiting their children with the federal deficit now at $8.7 trillion. Although Bill Clinton left office with a balanced budget, and precious little national debt Mr. Bush raised the federal debt level to nearly $10 trillion in seven short years.
On an individual level, if you earned $50,000.00 a year, but ran up your credit card debt to $500,000.00 a year, how would you pay for your financial liability? Answer: you couldn't. Bankruptcy becomes your only option. However, what happens when an entire country bankrupts?
The dollar's value falls world-wide. Our annual trade deficit exceeds $700 billion. Our manufacturing base vanishes with millions of U.S. jobs outsourced overseas. Our government must borrow $2 billion each and every day to keep our economy afloat. Unbeknownst to most Americans, their tax dollars pay in excess of $400 million daily to pay the interest on the federal debt. |
| Anonymous Coward
User ID: 313857
10/17/2007 10:50 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
I have long suspected that the US Gold Reserve is being used by the gold cartel as a tool to help it try capping the gold price. See for example the April 23, 2001 press release by the Gold Anti-Trust Action Committee [ [link to www.gata.org]
“Behind Closed Doors” provided compelling evidence that part of the US Gold Reserve had been swapped for gold in the Bundesbank. Gold was then removed from the Bundesbank’s vault and loaned into the market as part of the gold cartel’s price capping scheme.
We now have more evidence that all may not be well in Fort Knox. Many thanks go to Bill Rummel of Charleston, South Carolina for bringing the following to my attention.
The US Treasury quietly made a subtle change to its weekly reports of the US International Reserve Position, which includes the US Gold Reserve. This change was first made on May 14th. The differences can be seen by comparing the report’s old format release on May 8th to the new format used the following week. Here are the links:
[link to www.treas.gov]
Note the additional description of gold provided in the new reporting format. It says the US Gold Reserve is 261.499 million ounces and importantly, that the gold is now reported “including gold deposits and, if appropriate, gold swapped” [emphasis added].
This description provides clear evidence that the US Gold Reserve is in play. Gold has been removed from US Treasury vaults and placed on deposit, presumably in the couple of bullion banks the Treasury has selected to assist with its gold price capping efforts.
Gold placed on deposit gets loaned out by these bullion banks, and then sold into the spot market to try capping the gold price. The same thing happens with swaps, but the vague language in the note to the Treasury reports makes it uncertain whether they are in fact being used at the moment.
It is noteworthy that this change of accounting occurred in May. Could it be that the gold cartel had to dip into the US Gold Reserve to accommodate the big gold buybacks of hedge books that Lihir and others completed at that time?
The timing is also conspicuous because it occurred about the time GLD, the exchange-traded fund, showed a reduction of 23 tonnes of metal. Did GLD need to borrow gold from the US Treasury to replenish its stock? This was also a period when large deliveries and exchange-for-physicals were taking place on the Comex.
What does it all mean?
My friend Bill Murphy, who is one of the co-founders of GATA and also the proprietor of www.lemetropolecafe.com, has been writing for weeks about the potential for what he calls a “Commercial Signal Failure”. In his last letter yesterday he wrote: “We are getting closer and closer to that Commercial Signal Failure, so long touted here. All that means is at some point various commercial shorts will not be able to hang with their positions due to mark-to-market losses. At that point they will be forced to cover, sending the price of gold even higher, maybe sharply.” I think this Commercial Signal Failure has begun.
This new evidence provided in the US Treasury report as well as the rising gold price itself suggest to me that we are now witnessing the last scramble by the gold cartel to cap the gold price. It is a vain attempt by them, acting under the instructions of the US Treasury, to make the world think the dollar is worthy of being the world’s reserve currency when in fact everyone knows that it is not.
In short, the wheel has fallen off the truck. The dollar is heading for a train wreck. Use whatever metaphor you want, but the message is clear – the dollar is in serious trouble.
Non-US investors already got the message. Bloomberg today reported that foreigners sold a record $69.3 billion in U.S. assets in August. Including short-term securities such as Treasury bills, they sold a net $163 billion. The flight out of dollar denominated assets is gaining momentum, and gold is one of the safest places to be in a currency collapse.
Now all we need to know is how much of the US Gold Reserve has the gold cartel already put at risk? And how much more of the US Gold Reserve will be put at risk before the US Treasury finally acknowledges reality?
__________________________________________________________ ____________________
James Turk is the Founder & Chairman of GoldMoney.com. He is the co-author of The Coming Collapse of the Dollar.
-- Posted Tuesday, 16 October 2007 | Digg This Article | Source: GoldSeek.com |
| .
User ID: 317993
10/27/2007 3:17 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Jim Rogers quits dollar after declaring US recession
By Mark Kleinman in Hong Kong
Last Updated: 12:17am BST 26/10/2007
Jim Rogers, the veteran investor who predicted the 1999 commodities rally, declared that the US economy was "in recession" as he said he would take flight from the dollar and switch his investments into currencies including the Chinese yuan.
# Japan and China lead flight from the dollar
# Fears of dollar collapse as Saudis take fright
# Market Forces: Keep track of what's driving financial markets
Mr Rogers, who ranks among the world's best-known investment figures, said he was putting his faith in China's politically-sensitive currency alongside the Japanese yen and the Swiss franc.
Jim Rogers
Legendary investor calls time on the dollar
"I live in Asia. It is really not that strange that I am selling out of the US dollar," he told The Daily Telegraph. "All other things being equal during the next six months, that's the way I will go. But if the Swiss franc goes through the roof, I probably won't put money into the Swiss franc."
Mr Rogers' comments are followed slavishly by many members of the international investment communities, and his view that the US economy is in a worse state than that suggested by most economic commentators is likely to add to pessimism in some quarters about its health.
"The US economy is undoubtedly in recession," he said. "Many parts of industry are actually in a state worse than recession. If it were not for [Federal Reserve Governor Ben] Bernanke putting huge amounts of money into the market, the stock market would probably be down much more than it is."
Mr Rogers, a long-time enthusiast for investing in stocks hanging on the coat-tails of China's economic boom, said he had not altered his views about the booming Shanghai stock market.
# China beats Germany for world trade crown
# Ambrose Evans-Pritchard: Did the Fed apply the brakes too hard?
# Merrill's loss stuns investors
Earlier this year, with the benchmark Shanghai index trading at around 4000, Mr Rogers, a former investment partner of George Soros, added his voice to the chorus of warnings about an incipient bubble forming in the mainland Chinese capital markets.
With the Shanghai Composite Index closing at 5843 points, Mr Rogers said he was relaxed about the market's continued growth.
"I still feel the same way. It's not a bubble yet - if it goes past 9000 in January I'll have to sell. Bubbles always end badly," he said. "I do not want to sell Chinese stocks. I want to own them forever and I want my [four year-old] daughter to own them."
Mr Rogers' comments came as Warren Buffett, the 'Sage of Omaha', urged investors to be cautious about the Shanghai market's surge, which has seen it rise by more than 125pc this year.
Speaking to Bloomberg during a visit to China, Mr Buffett said Berkshire Hathaway, the investment company he fronts, shied away from buying into soaring stocks.
Mr Buffett has been a major beneficiary of Shanghai's growth, reaping a profit of hundreds of millions of dollars from his stake in PetroChina, one of the world's largest companies by market value. |
| .
User ID: 317993
10/27/2007 3:18 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Ambrose Evans-Pritchard
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Ambrose has covered world politics and economics for a quarter century, based in Europe, the US, and Latin America. He joined the Telegraph in 1991, serving as Washington correspondent and later Europe correspondent in Brussels. He is now International Business Editor in London.
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The sky has already fallen
Posted by Ambrose Evans-Pritchard on 25 Oct 2007 at 12:36
Tags: Economics, Business, Goldman Sachs, us dollar, Subprime market, credit crunch, Global markets, Currencies
If you are a bear, you must accept that you will always be wrong in polite society, and you will continue to be wrong all the way down to the bottom of recession. That is the cross that bears must bear.
Night sky
It's gone, whatever sceptical colleagues may say
Over the last three months we have seen a rolling collapse of speculative debt and real estate across half the global economy, yet friends still come over to my desk at the Telegraph, with that maddening look of commiseration on their faces, and jab: “so when is the sky going to fall then, eh”?
Well, excuse me. The sky has fallen. The median price of US houses has crashed from a peak of $262,600 in March to $211,700 in September. This is an 18pc drop nationwide.
Yes, the year-on-year slide is still just 4.2pc, but that will soon change as the base effect catches up.
Merrill Lynch has just confessed to a $7.9bn write down on CDO subprime debt and assorted follies, nearly double what it suggested three weeks ago.
This is what happens when a bank values its CDO debt at “mark-to-market” rather than “mark-to-myth”, as some of Merrill’s rivals are still trying to do.
Merrill’s Q3 loss of $3.5bn has cut the group’s equity capital by a fifth. This has consequences. The bank’s lending multiples will have to shrink.
In Britain, we have had the first bank run since the City of Glasgow Bank collapsed in 1878. The Fed has cut the interest rates a half point and vastly increased the pool of eligible collateral for Discount operations. The European Central Bank has injected over €400bn of liquidity in the biggest intervention since the euro was created.
Japan is in recession. Housing starts fell 23.4pc in July and 43.4pc in August.
The US dollar has fallen below parity with the Canadian Loonie for the first time since 1976, and to all-time lows on the global dollar index.
All it will take now for a full-fledged rout is a move by the Saudi and Gulf states to break their dollar pegs, which they may have to do to prevent imported US inflation causing havoc; or for the Asian banks stop buying US Treasuries – as Vietnam, Singapore, Korea, and Taiwan, have gingerly begun to do.
And for good measure, the Bank of England has just warned in its Financial Stability Report that lenders are still in serious trouble, that there is a risk of commercial property crash, and that equities are “particularly vulnerable” to a downturn. It is said there may well be a repeat of the summer crisis, “potentially on an even larger scale.”
What more do you want?
It is true that stock markets have once again decoupled from the realities of the debt markets. But they did this in the early summer, when the Bear Stearns debacle was already well under way. They caught up famously in August.
Nobody I talk to in the City credit trenches believes for one moment that the crunch is safely over. Indeed, they think that we are edging back to extreme stress levels, and the longer it goes on, the worse the damage.
Yes, Blue Chip companies can borrow money, but most of them don’t need to do so because they have bloated cash reserves.
Once you go down the chain, the picture changes fast. The iTraxx Crossover index measuring spreads on mid to low-grade corporate debt has jumped 100 basis points or so in the last week to around 360. It costs companies 1.8pc more to borrow than it did in the halcyon days of the credit bubble in February, if they can borrow at all.
The ABX indexes measuring subprime debt – those infamous CDO packages of mortgages sliced and diced, and sold to German pension funds and Japanese insurers with a lot of lipstick -- are still falling to record lows.
ABX index
As Goldman Sachs strategist Peter Berezin put it: “It’s the summer that won’t end,”
“We continue to learn that it pays to respect the sell-offs in ABX and housing-related credit. This has elements of the February and August sell-offs, where credit markets signalled problems,” he said.
From a par of 100, these indexes have fallen to (depending on the vintage):
AAA grade: 90
AA: 64
A 33
BBB 21
This means that the toxic BBB tier has lost almost four fifths of its value. Even the AA has lost a third.
Now, remember that the total stock of subprime and Alt-A (close kin) debt issued from early 2005 to early 2007 amounts to $2 trillion. Ben Bernanke’s estimate that losses would be $100bn looks wildly optimistic.
Not to labour the point, but three-month Euribor rates are still at 62 basis points over the ECB’s 4pc rate. This amounts to a de facto half point rise since the crunch for all those in the euro-zone with floating mortgage rates – 98pc of the total in Spain, the biggest property bubble of them all.
Asset-backed security (ABS) issuance peaked at €78bn in March, fell to €52bn in July, €9.8bn in August, €5.6bn in September, and €2.5bn in October. It has died. Banks no longer dare to hawk the stuff of fear of a humiliating rebuff.
As for asset-backed commercial paper in the US, it has contracted every week since August as the lenders refuse to roll over short-term loans. Roughly 25pc of the market has been closed down, cutting off almost $300bn of funding for SIVs.
These SIVs (structured investment vehicles) are `conduits’ – in City argot – that allow banks to juice profits by speculating off books on high-risk debt. They borrow short (three to six months) to invest long (five years of so), making money on the interest arbitrage. Until the game blows up, of course.
Some $370bn still needs to be rolled over, and there lies the rub. The strong suspicion is that Hank Paulson’s $75bn SIV rescue for the big four US banks is intended to cover up the problem by feeding out losses slowly, rather than allowing firesales to cause a cascade.
As the Bank of England warned, the Super-Siv should not be used to prop up fictitious valuations.
“It stinks, as does the Treasury’s sponsorship of the scheme. It seems designed to prevent price discovery.”” says Bernard Connolly, global strategist for Banque AIG.
Connolly says it resembles the slippery practices at the start of the Bear Stearns debacle, when creditors quickly abandoned attempts to force CDO sales by the Bear Stearns hedge funds as soon as they realized that prices were collapsing – exposing the awful truth that hundreds of billions were falsely valued on books.
Nauseating though Paulson’s MLEV -- `Master Liquidity Enhancement Conduit’ – may be, it probably has to be done.
Connolly says the Fed-led pack of central banks have made such a mess of capitalism by blowing credit bubbles (with low rates in the late 1990s and 2003-2006) that they now have no alternative other than to relaunch the “Ponzi Scheme”, or risk depression.
This will have political consequences, of course. “The looming threat on the horizon, or just over it, is that the socialization of risk will be accompanied, in many countries, by the socialization of wealth,” he said.
Indeed. The investors now baying for bail-outs had better be careful what they wish for. Democracy will have its way of making them pay. One recalls the 98pc tax rate on dividends in Britain in the late 1970s. Haircut now, or haircut later.
In any case, the Paulson Super-Siv has failed to calm the horses. “This rescue has back-fired. The central banks don’t want anything to do with it. There is a fear that the big four US banks are trying to hide their debts,” said Hans Redeker, currency chief at BNP Paribas.
The DOW is down 500 points or so since peaking in early October, and it looks wobbly.
Even so, equities have not begun to reflect the reality that the 2006-2007 credit bubble has popped and cannot be easily reflated at a time of stubborn, lingering inflation. Spare me the mantra that the “fundamentals” are sound. Credit is the ultimate fundamental.
Woe betide Wall Street if the Fed fails to slash rates dramatically over the Winter, starting on October 31.
Woe betide the dollar if it does.
Posted by Ambrose Evans-Pritchard on 25 Oct 2007 at 12:36 |
| Anonymous Coward
User ID: 317993
10/27/2007 3:23 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
22 comments
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cropper's avatar
A good bet
cropper 25 Oct 2007 16:45
It's naturally worrying when the solutions are now deemed political and no longer financial. Whichever way the dice fall you can bet with a far greater degree of certainty than CDO's that the taxpayer and their pensions will be picking up the bill. I long to see a system in which these two components are "ring fenced" when it comes to a market fall out. Perhaps this is something that could be worked on.
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Jusjacqueline's avatar
Hunkering Hank and $3T.
Jusjacqueline 25 Oct 2007 16:56
"Economists at Goldman Sacks are forecasting a 15% drop in the cost of houses ie $3 Trillion"beinmy real name is Robert W. Hawkinsped off the associated CDOs and SIVs.So who loses,the stupid knobs who bought the carefully packaged crap,thats who?So that would be Goldman,oh no they shorted a load after launching this summer so they are out,perhaps a few pension funds in Europe perhaps or Korea or even China.The drip drip of bad news is so contained it won't frighten the horses,but I am afraid the thundering herd is buggering off over the horizon.Those left will be wanting a lynching and not just here.German banks and pension funds will also be seeking their kilo of flesh as will the French and the Spanish.So much dross and managed "news"is dripping onto the real world no one seems to panic. The Presidients men stand ready to hose the world with money and the savers of the world are getting srewed.So where is the outrage in the media?Jounalists hopefully will convey this story before it errupts and leaves the peasants peniless.Or perhaps not,then watch as new laws across the world change media ownership structures,this may be what they want.
So how do we play this in a world of Central Bank debasement of all currencies,any ideas?
My betting is Ambrose takes a sabbatical in the USA,returns tanned and a born again Ben man,or lets not think about it.Everyone else is tight lipped about this and more.
The poltical repercussions will be painful.
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Homer Simpson's avatar
Please comment, Why is the Sterling Valued more than the Euro and the Dollar?
Homer Simpson 25 Oct 2007 17:38
I have recently read a lot of economic reasons why the Dollar falls against the other currencies. Can someone comment on the economic reasons why the Sterling is valued more than the Euro and the Dollar. I can not reason it out. Thanks.
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Andrew Huntington's avatar
homer
Andrew Huntington 25 Oct 2007 17:48
In case you didn't see, Ambrose responded to your question on the previous thread.
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alhenry's avatar
Plastic Accounting Nightmare
alhenry 25 Oct 2007 18:01
Remember 'creative accounting'? Well, the accounting basis for a lot of off-balance sheet accounting such as is being done in government PFI loans in this country is equally dodgy and uncertain as ever was the 'creative accounting' (PFI = Private Finance Initiative) But just imagine bouncing a cheque. For how long can a cheque of electronic money be bounced? In mathematical theory, there is something mathematicians call the 'axiom of choice' which affects the answer to this conundrum. Mathematicians disagree about the axiom of choice , and there is no substitute for making one's own mind up. But take 'plastic', the modern term for credit. Even in the maddest of accounting systems, there is still the cost of the plastic... I say this because one of my cards has worn thin and the sales assistant has to enter it's code manually. So even in a totally 'plastic' society one has the necessary overhead of the cost of the 'plastic'. Thus the overheads of the financial system are the absolute limiting case of a totally plastic society. Mind you, I suspect something else will break before the plastic does, but strain on the fabric of financial society is an abstract limit.
Well, in mathematics there is a strict school known as 'Intuitionism'. It is known as a version of 'Finitism'. My financial intuition says that the global economy is bouncing a very large cheque right now, but against what? I don't actually see it. I can only see that the cheque will not be honoured, so to speak, and today's wild financial escapades will only end in tears.
Ambrose, I heartily agree with you about the weakness of the economy at the moment, I cannot but think that old-fashioned prudence such as you speak will win out in the end. Despite computers and all the paraphrenalia of today's mad economic system!
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WildColonialBoy's avatar
Overkill killed off
WildColonialBoy 25 Oct 2007 18:12
Ambrose, glad to see that this Bernard Connolly fellow has made you see the light about the 'overkill' thing you went on about in your last but one piece.
You say Mr Connolly says credit bubbles were being blown by LOW rates in 2003-2006. The last rate rise to 5.25% came in June 2006, and of course dropped to 4.75% last month. There was no overkill.
Now this guy obvously has his head screwed on - what I would expect from what sounds like a fellow wild colonial boy. He's bang on about the Ponzi scheme needing to be re-kickstarted as I said as much in my last comment.
Again the bankers and authorities will have to try and sell fast and hard rate cuts whilst inflation is way over their chosen target. Did you see this week by the way that a typical grocery basket at Tescos, the nation's shop, increased in price by 18% since this time last year. 18%! Petrol/diesel's gone up about the same in the last 12 months, 85p to £1. So that's the two main outgoings besides mortgages doubling in cost every four years or so. Nice. So, lets not have more talk about 'lingering' inflation. It's hyperinflation and you know it.
Now the thing you haven't mentioned which will kick all this over is the inevitable military attack on Iran. Already last weekend with the media full of it, the dollar rebounded on Monday morning with people literally running for cover back to US Treasuries and stuff. I'm afraid the lunatics have taken over the asylum. God help us all.
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Mrs Trellis's avatar
Consumption.....
Mrs Trellis 25 Oct 2007 21:41
No, not the kind that finished off Mimi, but the kind that you see in shops and supermarkets and airports every day.
Surely the only thing that will kill that off is when everyone runs out of cash (or credit). The UK doesn't seem to be the same sort of beast as Japan - so many people (a majority?) just haven't a clue about the economy or finance - it's only if they end up without a job and income that the music will stop.
Or am I missing something?
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jon livesey's avatar
Why?
jon livesey 25 Oct 2007 21:46
"Can someone comment on the economic reasons why the Sterling is valued more than the Euro and the Dollar. I can not reason it out."
Then you should sell Sterling and buy Dollars. Good luck.
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Andrew Huntington's avatar
nice segue, alhenry
Andrew Huntington 25 Oct 2007 22:06
So, there's a school of the philosophy of mathematics called intuitionism which says that in order for a mathematical object to exist, it must be possible to demonstrate its existence by a constructive proof from simpler objects. This is in contrast to the classical approach, which says it is merely sufficient to refute its non-existence. (Look what 5 minutes on Wikipedia got me; I ain't no mathematical philosopher.)
How exactly does this exercise in philosophical taxonomy relate to your 'intuitive' sense of what the economy is going to do? My dictionary says that in philosophy, 'intuitionism' means the doctrine that knowledge rests upon axiomatic truths discerned directly. In other words, you should apply logic to arrive at conclusions from directly observable facts -- not just pure logic. This is not the same thing as the commonly-used definition of "intuition", which means to directly perceive the truth without being able to articulate the chain of logic leading to the conclusion (e.g. "woman's intuition" and so forth). Mathematical intuitionism is not a formal justification to trust your gut instincts -- if anything, it says you should believe your eyes, and whatever you can reason based upon what you see.
By the way, I share your intuition about the state of the economy... I'm only complaining about the form of your argument. You use multiple references to 'math' to lend weight to your argument, but since the mathematical topics which you reference seem to have little to do with the substance of the argument, I suspect that their role is rhetorical.
Of course, I have also made reference to math and physical science in some of my posts. I might fairly be accused of being the pot that calls the kettle black. (Indeed, I may now merit the charge of hypocrisy for earlier chastising other posters for being 'uncivil'.) In my defense, I offer this distinction: with a small amount of research, a reader could verify that when I invoke technical topics, they are directly relevant to the argument being made. My ideas may be wrong, but their supporting arguments are not an instance of "argument by prestigious jargon".
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Andrew Huntington's avatar
Consumption (Mrs. Trellis)
Andrew Huntington 25 Oct 2007 23:40
In general, I agree with your assessment. I think the only thing which might be added is specific consideration of the finance, insurance, and real estate (FIRE) segment of the economy, which generates the loans that allow workers in the production-consumption segment of the economy to consume more than they produce. Michael Hudson wrote a popular article for the May 2006 issue of Harper's Magazine which you can find by performing an internet search for "The New Road to Serfdom." In that article, he includes a nice description of how the different parts of the economy interact -- in particular how the FIRE segment recylces interest payments into new loans (that partly support consumption). Problems could come from either the FIRE segment or the production-consumption segment. The recent problems in the credit markets suggest to me that we should be looking to the FIRE segment for a first cause.
Granted that Americans (and it sounds like Britons too) will consume so long as they are able. I agree with you that if people lose their jobs and income, then most definitely the music stops. However, it should be sufficient for people to lose the margin between their income and their interest payments on debt already incurred. Sometime before debt payments grow to equal income plus absolutely necessary expenses, people have to stop discretionary consumption. Then some workers in the production-consumption segment lose their jobs. Then those out-of-work people stop paying interest on their debts. Then some workers in the FIRE segment lose their jobs too. If consumer prices and interest rates rise faster than income, and/or if credit becomes harder to obtain, then I think the music slows. Indeed, Ambrose is probably right that the music has already stopped. Central banks are scampering to get things going again, but despite some apparent optimism in the equities markets, I don't think changes in interest rate policy actually feed through the economy fast enough to head off a recession. In America, at any rate, economic stimulus will further devalue our currency, making imports of fuel and consumer goods more expensive. With a weak currency, and being dependent upon imports for cheap consumables, our main tool for stimulating consumption is blunted.
So, if I had to guess, I think maybe consumption will slacken before people start losing jobs en masse.
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Havana Brown's avatar
seen it all before
Havana Brown 26 Oct 2007 00:41
Your intro calls to mind the story of the man falling from a skyscraper, saying as he passes each floor:"So far, so good, so far so good...". Thank for sticking to your guns, as it were, Ambrose Bear!
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jon livesey's avatar
Inflation
jon livesey 26 Oct 2007 00:58
"My financial intuition says that the global economy is bouncing a very large cheque right now, but against what?"
The cheque doesn't actually have to bounce, because modern currencies are infinitely elastic. Central banks can issue as much liquidity as they like, and in the end what will result is a spike in inflation.
If you think back to the last time, the best way to handle this is to get the biggest loan you can - it will eventually be inflated away to almost nothing - and buy something concrete that will keep its value.
At the moment the trendy thing to say is "buy gold", but in fact anything will do as long as it's a hedge against those currencies which are inflating.
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HCeline's avatar
It's about the OTC derivatives
HCeline 26 Oct 2007 04:10
Excess money creation is at the heart of the currently unfolding crisis. Banks have been creating newer and more exotic financial abstractions for at least 15 years, without any government or banking regulation. Now confidence in the credit markets has evaporated and with it the exponential creation of credit needed to sustain the current credit bubble.
The Asset-Backed-Comercial-Paper market is frozen as a result of the credit crunch and other credit markets are being forced to mark to market instead of mark to model. Many of the short term credit markets roll over in 30, 60, and 90 day intervals.
Watch the dollar and financial markets on these developing waves...starting from mid august. 30 days mid sept, 60 days mid october, 90 days mid november. With each wave more debt fails to rollover, more cental bank intervention, more dollar depriciation. Each wave brings more repos and more discount window operations, ever increasing emerency credit. The FED will quickly find itself "pushing on a string" as foriegners avoid our government bonds.
Watch the news around Thanksgiving, that's when I think things will start to speed up, then the fourth wave in December should be just awful.
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Francois's avatar
A great summary
Francois 26 Oct 2007 05:47
Hi Ambrose and the select club of European bears,
Being European and bear still is a difficult social position.
I can tell you I am alone as well here when I start telling friends and family about the prevailing crisis. Even if my factual roubinian calls proved 100% correct and timely...
An aloofness that I feel does border to lunacy when I go buying physical gold Napoleons from the French Rue Vivienne in Paris to my recent vault in a nearby bank agency.
By the way Ambrose, be sure not to bash your gallic friendly readers with a relatively unfair treatment of our country's situation.
François
A great admirer of both your judgment and English style.
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Homer Simpson's avatar
Thanks for the help
Homer Simpson 26 Oct 2007 06:29
Andrew, I appreciate the help. Ambrose thanks for the reply on my question on the value of the Sterling. I read all your articles.
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straydog's avatar
D&G
straydog 26 Oct 2007 07:57
"An aloofness that I feel does border to lunacy when I go buying physical gold Napoleons from the French Rue Vivienne in Paris to my recent vault in a nearby bank agency."
I hope you will be able to gain access to that vault should finanical crisis hit the € French banking system. I'm sure there would be orderly queues as there was with Britain's Northern Rock.
My brain hurts. When you look at anything closely enough, you find it connected to everything else in the universe... and all I see is serious economical trouble, and perhaps a world-wide loss of confidence in all currencies.
BoE's latest announcement chills me. I'm still recovering from witnessing the Northern Rock run and how it came about. Yes I am D&G, but with good reason. These are extraordinary times.
Bring on the price discovery. All these Central Government money injections, interest rate cuts, rescue funds, are just papering over the chasms as far as I can tell.
I wish I was smarter. It's difficult to know how best to protect oneself and family come a serious economical crisis. Even then, are you really protected if many of your neighbours begin to financially suffer.
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Rex's avatar
Bear with us
Rex 26 Oct 2007 14:05
Apart from the obvious benefits of watching Gordo squirm and totally fail to meet mythical growth and tax targets I think recessions are a good thing.
Of course we don't want a depression; the difference? In a recession your neighbour loses his job and in a depression you loose your job!
So long as you can stay in work, you can watch inflation devour your debts while you ride out any downturn in the housing market you will have more while they have less..
Just be careful not to become a “they”
And just when the last bull turns into a bear what do you know, the Suns shining again!
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Madasafish's avatar
CDO disaster was obvious
Madasafish 26 Oct 2007 16:23
to anyone with an email account in 2004-6. Thousands of spam emails from the US offering cheap no questions asked mortgages.
It was bleeding obvious they were going down the tubes.. I am sure the buyers also read Nigerian letters and believe there is $16billion waiting for them in a Nigerian bank.
I think the US has been very clever, selling carp to idiotic foregners.. except they obviously sold them to dumb Americans as well..
I gues I'm a cynical old grumpy: I have seen the same scams over the past 30 years: Austrailan mining stocks, property booms, insurance companies... etc etc..
As for the proper recession, it will wait till 2009 -2010. ther's an Olymics and Presidential Election to lose.
But yes, we gotta bomb Iran first...They have WMD.. we have the proof.. we just lost it..
Since when have the NeoCons told the truth? Proven liars from way back...
Since when has President Bush done anything sensible and achieving anything good on foreign policy? Proven failure.
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Jeremiah's avatar
Ancient History?
Jeremiah 26 Oct 2007 16:27
straydog says:
"It's difficult to know how best to protect oneself and family come a serious economical crisis. Even then, are you really protected if many of your neighbours begin to financially suffer."
Be in a position to help your neighbours if they need it...if that is possible for you. At least be able to open a soup kitchen or something similar, and give them shelter if they lose their homes. Just a suggestion.
Hard assets are the place to be, like Francois with his gold Napoleons. Personally I choose silver because it is so out of whack in its relationship to gold...55-1, when the historical relationship is closer to 16-1. The problem is the VAT but you can get around that by not taking delivery and buying through goldmoney.com who are domiciled in Jersey (BCI that is, not USA).
There are good reasons to believe that the entire global credit system is going to fall down, exactly like the Tower of Babel. Did you know the symbolic name for the world money system is Babylon? As Wild Colonial Boy opines the trigger for the cards to begin to fall could well be the Iran affair, which I also believe.
In ancient history the Babylonian empire fell when it was overcome by the Medes and the Persians (Iran)under Cyrus the Great. Allies of the Medes were the Scythians who were none other than the diaspora of the Northern Kingdom of Israel. Of course it would be difficult to imagine that Iran and Israel would be allies in any war. But the present State of "Israel" is not really Israel. There are many descendants of those Israelites in every country of the world but the biggest concentration is in the nations of Europe, including the UK and those nations who are descended from them. Although it is doubtful that these nations would openly ally themselves with Iran, nevertheless by their actions, along with the actions of Iran, they will bring about the fall of Babylon.
The USA itself is blind to the fact of their identity and supports their ally "Israel", who is in fact Israel's old enemy, Edom, descended from Esau, Jacob's brother, who always coveted the birthright that Jacob obtained from Esau by deception. The Jews and the Edomites were united by John Hyrcanus in 126 BC so since that time Edom has been included in Jewry.
Esau has been given his long coveted control of the whole Land of Israel for the past forty years, since the 1967 Six Day War. This number forty is the number of trial or testing and Edom (Esau) has failed his test, to act justly, love mercy and walk humbly with his God. So, the stage is being set for the final resolution of the "controversy of Zion".
Many evangelical Christians believe that God will save "Israel", because they too (the Christians) have been blinded to their ("Israel"'s) true identity and misinterpret the prophecies regarding Judah and Israel because of this blindness. So what we have in that part of the world today, in the nation called "Israel", are the remnant of Judah, descended from the Pharisees who rejected, and continue to reject, Jesus as their Messiah, and Edom, both of whom will finally receive the judgement promised to them. However, as Tom Pinch says in Dicken's Martin Chuzzlewit, "There is a higher justice than poetic justice, Elizabeth". So, we would be well advised not to indulge in any schadenfreude. All these things must come to pass in furtherance of a much greater purpose that is yet to be revealed.
The picture we see in the prophet Isaiah is the destruction of Jerusalem by a nuclear explosion, while they are surrounded by their enemies. It is interesting to note that the Israeli government has as its final throw of the dice something called the "Samson Option". This refers to the Judge Samson, who was blinded by the Philistines (the Palestinians)and imprisoned by them. He then pulled down the pillars in the temple of their god Dagon, killing all the Philistines and himself along with them. It is also noteworthy that great historical heroes in "Israel" are the Jews who committed suicide rather than be taken alive by the Romans, at the siege of Masada in 73 AD.
So, although it is unlikely that Iran possesses nuclear weapons it is estimated that "Israel" has over 300 nuclear warheads.
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Madasafish's avatar
To Jeremiah your insight
Madasafish 26 Oct 2007 17:04
is marvelous.
How do you do it?
Why do not the rest of the US Christains see it?
I can't believe any of it. It's YOUR interpretation..
And btw if we have a complete collapse of credit, you will all starve... as the farmesr will go bust.
No farmers = no food.
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Mansfield Moron's avatar
Depression not recession
Mansfield Moron 26 Oct 2007 20:55
I have to admit, this is the best article I've read on the economy in ages. If I hear the phrase "soft landing" from anyone I`ll just show them this article.
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jon livesey's avatar
Sky not all fallen - yet
jon livesey 26 Oct 2007 21:12
As evidence that the all of the sky has not yet fallen, but will in time, it's worth considering the context of recent Fed actions. The Fed has been propping up financial stocks with rate cuts, and in fact if you look at a chart of the 3 month, three year and ten year yields, they are staring to look like 2001, with the short term yield falling fast through the others.
The problem is that the last time the Fed embarked on a campaign lowering short-term interest rates, the U.S. dollar index was sitting near 120, gold was near $300, and oil was near $20. Now the dollar index is under 79, gold is over $750, and oil is over $90.
That's the trouble with context. In one context a given policy move might save the economy, and in another context it might accelerate its problems.
IMHO, Greenspan's rate cuts in 2000/1 had good near-term effects on the economy at the cost of setting us up for the housing bubble. But Bernanke's rate cut just seems aimed at bailing out the financials, with very little concern about its effect on the economy in general. Low interest rates means a falling dollar, means rising oil prices, means higher domestic costs, means employment cuts, etc, etc.
To be fair to Bernanke, maybe saving the financials is the best that can be done right now. With ten plus month overhang of new housing, and a very very tight mortgage market, a serious recession may already be baked into the cake. Jim Rogers, famous investor, seems to think so.
Incidentally, financial crises certainly bring the crackpots out of the woodwork, don't they? I guess that's what worrying does to some people. |
| Anonymous Coward
User ID: 319377
10/30/2007 7:10 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Ten Facts about the Real Estate market you need to know
by Sean O'Toole
I am long overdue to give you all an update on what is happening in the foreclosure market in California. Starting a company has been all consuming, but that is no excuse; the iTulip community has been a fantastic resource for me, and updating you on what I'm seeing at foreclosure ground zero is the least I can do.
To that end, here are the top ten things you need to know.
1. September foreclosure data are way off. National headlines declared foreclosures were down 8% in September. Problem with that reporting is that there were only 19 business days in September vs. 23 in August. Using daily averages, foreclosure volume was up 5 to 28% depending on the measure you use (Notices of Default +5%, Notices of Trustee Sale +28%, Sales at auction +18% - Stat's from www.ForeclosureRadar.com.
2. Foreclosure data do not take process delays into account. There is a minimum of a 90 day, and typically a 120-150 day, delay between notice of default and the sale of a property at auction. While sales at auction are now at $200 million per day in California, they correlate with notices of default filed four to five months ago. Notices of default have increased 58% from five months ago. Expect a similar increase in auction sales in the next five months--or perhaps worse, as the percentage of defaults that end up at auction has been steadily increasing.
3. ARM resets haven't happened yet. Despite all the talk about the problems with ARM resets over the summer, if you look at the reset charts we really didn't see big increases in resets until this month. Given that CA's foreclosure process is typically a minimum of six months from the first missed payment, don't expect to see the first big wave of foreclosures from ARM resets until March or April of 2008. Note that the next peak in resets is March 2008, and the foreclosures from that won't occur until Q3 or Q4 of 2008.
4. The main stream media talk about the credit crunch in August being an indication that the worst is over. Ridiculous. Again we won't see the impact of that in the foreclosure market until Q1 2008. We are just beginning to see the impact of the credit crunch on the non-foreclosure market. New and resale home sales in CA are down to 24,460 in September, a 26.4% decrease since August, which now represent the lowest transaction volume since DataQuick began tracking it in 1988. Note: the current wave of credit tightening severely limits the ability of those in foreclosure to refinance or sell - virtually insuring a significant increase in foreclosures in four plus months.
5. Much like government employment figures, current housing inventory level data, despite being ridiculously high, are grossly understated. No doubt many people are waiting for the market to improve in the spring before selling, especially in affluent areas. The belief is that this is temporary and conditions will improve after the Fed lowers rates and we get through the winter. I've been hearing this same argument since late 2005. At some point many of the believers will lose their faith, or be put in a position where they have to sell. There is massive, pent up, un-counted supply.
6. Congress will make matters worse. Every effort on Capital Hill, no matter how well intentioned, exacerbates the problem. Tax relief for homeowners in foreclosure eliminates a final barrier for those who have struggled to keep going. Paying for the tax relief by reducing the tax breaks from the two of five year rule on secondary properties will kill demand for second homes, one area that has modestly helped keep sales up. As for government moves to tighten lending standards, that would have helped in the 2002 to 2005 period. The market has already self-corrected considerably and some of the current proposals are draconian and can only send the market crashing faster and harder.
7. Recently announced mortgage relief programs make for great headlines, but don't expect much. There is nothing the Fed can do either. Take mortgage interest rates to 0% and most of these "home owners" still either can't afford the payments or don't want to, now that they know home prices are falling. Also, a high percentage of foreclosures now are on speculative homes; why keep paying payments on a property that isn't cash-flow positive and is underwater. In much of Califorina, even in areas where we have already seen 25-35% price declines, the cost of home ownership is still 50% to 100% more then the cost of renting, even with mortgages at zero percent. What's left, 50+ year amortization schedules? Isn't that how we got here in the first place?
8. Builders continue to build. This is absolutely nuts, but there is a rush on to complete units before things get worse. I understand this from the builders' perspective - they've spent millions on infrastructure and the only way to recoup that cost is to build and sell homes. Much like GM, it is cheaper to sell cars at a loss than close the factory. But add this inventory to the resale inventory and it creates huge oversupply. Worse, builders have been the primary drivers behind declining prices. They are aggressively discounting to the point where the resale market simply can't keep up. This has been true in places like Stockton since late 2005 where discounts of 40% from the peak are not uncommon. I had a two bedroom, 1200 square foot hme in Stockton in early 2005 that I thought I'd be able to sell for $350,000. After some delays I put it in escrow for $320k. A builder put up a sign saying new homes from the high $200,000's. I lost my buyer. Finally got it sold for $280,000. I just visited those new homes. I can get a brand new 1,700 square foot, four bedroom home for $265k, and the model home has $75,000 of furniture and smells like fresh baked cookies. Builder discounts will continue to be the primary driver behind price declines, and price declines will continue to be a primary driver behind foreclosures.
9. Median home price reports in the main stream media make conditions appear much better than they are. While Shiller attempts to look at changes in individual home prices rather than the median, the bottom line is that housing data are atrocious. Note that prices could decline 20% across the board and you could still easily have a 10% increase in the median price data. In fact this is not only possible but likely. All accounts are that the low end has been hit harder than the high end. A simple shift in the mix of what is selling can have a huge impact on median prices. Add to that the fact that until recently loan standard tightening increases in fees and credits were being built into prices at an increasing rate, skewing final prices higher than the actual value of the homes.
10. Given the current trajectory of foreclosures, the current and future negative impacts to demand, pent up and continued builder supply, and the delays in the market's visibility to what is really happening, this market contraction has a long way to go. I predict at least a 50% increase in foreclosures, and likely a doubling in properties sold at auction with a peak no earlier than Q3' 2008. |
| Anonymous Coward
User ID: 319377
10/30/2007 7:26 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
When the thirteen colonies were still a part of England, Professor Alexander Tyler wrote about the fall of the Athenian republic over two thousand years previous to that time:
A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves money from the public treasure. From that moment on the majority always votes for the candidates promising the most money from the public treasury, with the result that a democracy always collapses over loose fiscal policy followed by a dictatorship.
The average age of the world's great civilizations has been two hundred years. These nations have progressed through the following sequence: from bondage to spiritual faith, from spiritual faith to great courage, from courage to liberty, from liberty to abundance, from abundance to selfishness, from selfishness to complacency from complacency to apathy, from apathy to dependency, from dependency back to bondage.
Alexander Tyler |
| Anonymous Coward
User ID: 320757
11/2/2007 11:58 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
ECON - CDS traders warn of 'blood on streets'
The mood in credit derivatives markets turned ugly on Thursday, with the cost of insuring corporate debt hitting multi-week highs on both sides of the Atlantic.
Speculation was rife that leading major investment banks were facing additional losses linked to complex mortgage-backed securities, while worries mounted over the health of major financial guarantors.
"It's scary out there - there's blood on the streets," a trader at a US brokerage said. "It's a real mess."
In the US, the perceived risk of owning corporate debt jumped to a seven-week high, with the cost to insure a $10m portfolio of investment-grade debt reaching $67,000, data from Phoenix Partners Group showed.
Confidence in Citigroup (NYSE:C) and Merrill Lynch, as measured by their credit default swaps, slumped to lows not seen since the height of the credit squeeze in August.
Five-year credit default swaps tied to Citigroup widened to 60 basis points, meaning it cost $60,000 annually to insure Citigroup's debt against default for five years. A couple of weeks ago, that figure stood at $27,000.
Contracts on Merrill Lynch, which last week posted the largest quarterly loss in its 93-year history, rose $18,000 to $103,000. CDS on UBS (NYSE:UBS) rose 10bp to 51bp, Deutsche Bank (NYSEDB) said. The contracts stood at about 6bp in May. Contracts on Credit Suisse (NYSE:CSR) rose 4bp to 52bp from 10bp in June.
Bond insurers, or monolines, were also hit hard.
"[These triple-A rated companies are] exposed to the crumbling housing market," said Gavan Nolan, an analyst at derivatives data provider Markit. "Investors in monolines will be waiting for the coming months of housing data with trepidation," Mr Nolan said.
CDS on MBIA Insurance rocketed to a four-year high, of 345bp, CMA Datavision said.
Last week the insurer posted $36.6m net loss and halted its share buy-back programme.
Contracts on the bond insurance unit of Ambac Financial climbed to a five-year high of 310bp.
Gimme Credit, an independent research term, downgraded both MBIA and Ambac this week.
In Europe, the iTraxx Crossover index of 50 mostly high-yield companies widened by 18 bp to 338bp, the biggest rise since August, according to Deutsche Bank data.
The iTraxx Europe index, which tracks 125 investment-grade companies, rose 3.75bp to 41bp. It was the biggest one-day jump since early September.
[link to dont_use_this.com] |
| FHL(C) 
Extrapolator
User ID: 321119
11/3/2007 6:43 AM
 | | Re: Watch, Its happening ,the global economic change. | Quote |
FU&FW
with thanks to the OP at this thread
[link to www.godlikeproductions.com]
Sovereign-wealth funds
The world's most expensive club
May 24th 2007 | HONG KONG
From The Economist print edition
China's investment in Blackstone shows how government investors are flourishing at the heart of the financial system
WITH $1.2 trillion in foreign-exchange reserves and the pool growing by more than $1 billion every day, China casts a giant's shadow over the global financial markets, even if it has mostly used the money to pile up American Treasury bonds. The announcement on May 21st that it would invest $3 billion of its reserves in Blackstone, a New York-based private-equity firm soon to issue shares, shows that it is prepared to barge into murky private markets as well as liquid public ones. It is not the only inscrutable country to be cosying up to the inscrutable private-equity industry. Around the world, a secretive society is emerging of governments flush with foreign assets, some of them petrodollars, that are increasingly calling the shots in international finance. The Blackstone deal is likely to stir others to invest their money even farther away from prying eyes than they do already.
Like China, whose proposed Blackstone stake is part of $300 billion that the government plans to set aside this year for investment purposes, dozens of countries have set up what are now commonly referred to as sovereign-wealth funds. They manage money drawn from reserves, natural-resource payments and the like. China is chiefly concerned to diversify its foreign reserves, but other sovereign-wealth funds own national, as well as international, assets.
The top 12 each have anything from $20 billion to hundreds of billions of dollars to invest (see table). Recently, Japan, Russia and India have reportedly been considering setting up funds along similar lines. Some estimates put the size of the funds at $2.5 trillion by the end of this year (in contrast, hedge funds are thought to have a mere $1.6 trillion), with another $450 billion in transfers from reserves being added annually. Including capital appreciation, the amount could swell to $12 trillion by 2015.
To the extent governments have traditionally held investment assets, it was to protect domestic currencies and banks from crisis. Since the funds were for emergencies, they were of a type that could be liquidated easily—initially the holdings were in precious metals, lately they have been in dollars. The idea of building up an endowment to replace shrinking natural resources did not exist.
That process may have started inadvertently in 1956 when the British administration of the Gilbert Islands in Micronesia put a levy on the export of phosphates—bird manure—used in fertiliser. The manure has long since been depleted. However, a once-tiny set-aside of money has become the Kiribati Revenue Equalisation Reserve Fund, a $520m investment portfolio that has grown to about nine times the tiny atoll's GDP.
A similar approach is now common among oil-producing countries, which, it is estimated, account for two-thirds of the assets in these sovereign-wealth funds, and are keen to diversify their national revenues, aware that their wealth is being pumped away. They have typically invested along similar lines to central banks, holding bonds, dollars and bank deposits. Temasek, a Singaporean entity created in 1974 to pool state-owned investments, started to change the mindset. It subsequently evolved into an even more complex investment vehicle. The heady combination of state-control, success and secrecy, entranced other governments.
Recently, central bankers have also begun wondering whether they have a fiduciary duty to make higher returns from the public wealth under their supervision, which could mean placing at least some part of foreign-exchange reserves in high-yielding, if less liquid, investments. In Asia this question has become increasingly pertinent in the past two years, as reserves have mushroomed.
The result has been a torrent of money into a finite pool of assets. There is no precedent for such fortunes suddenly to find their way into global financial markets, and they help explain the waterfall of liquidity that has driven up the value of risky (and less risky) assets of all descriptions around the world. The world's entire supply of shares is $55 trillion, and bonds account for a similar amount. Sovereign-wealth funds could soon become the most important buyers of such assets, and many others besides. If so, the world will witness the intriguing spectacle of its largest private companies being owned by governments whose belief in capitalism is often partial.
The last time governments were this involved in sinking money into private assets, the process tended to be called nationalisation. Now the funds are invested both abroad and domestically. A new term will have to be coined: internationalisation, perhaps.
Northern light
Of the biggest sovereign funds, only Norway's provides anything close to transparency. Each year it discloses its investment portfolios and returns. Without such a window on their investments, it is hard to fathom the interests of other funds—how they vote on shareholder motions, for example. There are likely to be questions about strategic objectives, too. What will they care about most? Economic returns, political objectives, securing strategic resources? It will be hard to tell.
Andrew Rozanov, of State Street Bank, argues that the lack of well-defined obligations and the ability to retain funds indefinitely while not having to reveal results is an investment advantage. The funds can harvest the benefits of volatility and illiquidity unavailable to the risk averse. It would not be surprising if some did particularly well. On the other hand, the same factors that could lead to higher returns could also lead to corruption and untoward political intervention.
But the kind of assets the funds invest in—big ones—can generate frictions even when run properly. Temasek has been embroiled in controversy in Thailand after it bought Shin Corp, one of the country's telecoms companies, from Thaksin Shinawatra, the country's deposed prime minister. China is no stranger to such tensions. In an event that still rankles, CNOOC, the state-controlled oil company, was blocked in America, supposedly on national-security grounds from acquiring Unocal, an oil company. It is quite possible that by purchasing a non-voting interest in Blackstone, China will be able to bypass the restrictions that might prevent it doing Unocal-style deals in Europe and America.
By choosing a private-equity firm, China will also be able to invest directly in a partner that, notwithstanding its forthcoming share offering, can keep many of its operations out of the public eye. But this is where the ironies of the deal are most apparent. “Crony capitalism? It is a marriage made in heaven—a partnership that does not want investors to ask questions with a country whose firms do not want investors to ask questions. I worry about the serious conflicts of interest this generates. More generally, government entities shouldn't be in the business of investing in private firms,” opines Raghuram Rajan, of the University of Chicago's Graduate School of Business.
Moreover, it is widely believed that by having China as a partner, Blackstone will receive preferential access to China's market (as well as providing China with experience it clearly covets on how to set up its own domestic private-equity industry). This is an advantage for Blackstone, and for its shareholders, China included, particularly so when other private-equity firms complain that the impediments to operating in China are growing.
However, providing an economic incentive to a lucky few, even if that includes the government itself, impedes China's broader need to create a fair and transparent financial market for all participants. That is what would produce the most efficient market for capital.
China still has vast holdings of state assets, and its embryonic stockmarket is bubbling over—if anything it needs more publicly traded companies. Like other countries with sovereign-wealth funds, it would appear to need more expertise in selling companies that it owns, rather than learning how to buy the ones it does not.
[link to www.economist.com]
[link to www.geocities.com] |
| FHL(C)
Extrapolator
User ID: 321119
11/3/2007 6:44 AM
| | Re: Watch, Its happening ,the global economic change. | Quote |
FU&FW
more from the above link
S&P: Seven CDOs issued "Event of Default" notices
Merril Lynch is down almost another 10% today on a WSJ article suggesting more write-downs lie ahead for the company.
[link to finance.yahoo.com]
The scale of the losses for the big banks is starting to become clear (just after Goldman Sachs hit an all-time high of 250 on complete speculative insanity).
If you look at current ABX charts of of Collateralized Debt Obligations, even the AAA CDOs are now trading below 80 cents on the dollar....which is catastrophic:
[link to www.markit.com]
The whole structured debt market is now imploding. The reverberations of this on the world economy are incalculable. Now the magic of derivatives and hedge funds might implode global stock markets as the largest financial panic in human history gets underway IMHO.
In a nutshell, many of the world's largest invesment banks are facing insolvency at this point. This includes such well known companies and Bear Stearns, Merrill Lynch, etc. It's even possible monsters like Goldman Sachs and Citigroup could be collapse.
This is why the Fed has been injecting hundreds of billions of dollars into the financial system, even at the risk of hyperinflation.
S&P-Seven CDOs issued "Event of Default" notices
Thu Nov 1, 2007 1:05pm EDT
By Walden Siew
NEW YORK, Nov 1 (Reuters) - Standard & Poor's said on Thursday that seven collateralized debt obligations tied to deteriorating subprime mortgage loans have received default notices.
Rating downgrades on U.S. residential mortgage-backed securities, or RMBS, led to the "Event of Default" notices and potentially may result in liquidation of various CDOs, S&P said.
"In short the events of default have come because of the triggers on over-collateralization," S&P analyst Patrice Jordan said on a conference call.
An event of default can occur when a predetermined ratio of collateral is breached. It also can be triggered by a bankruptcy, obligation acceleration, debt restructuring or failure to pay.
The most recent event of default came on Oct. 24 for a debt structure known as "Sagittarius CDO I". S&P last month put 590 ratings on 176 CDOs on watch for possible rating cuts, affecting $20.6 billion in debt.
The seven affected CDOs range in ratings from top-rated "AAA" to "BB-plus," the highest junk rating, according to S&P, which did not have an estimate for how many more may be affected.
"We're going to address things as they develop," Jordan said. "Shortly, there will be a more detailed analysis on this event of default topic."
All three major rating companies are reassessing ratings that investors and Wall Street had used to measure the value of subprime mortgage loans and related securities. Rating downgrades and deteriorating value of the debt have spurred massive write-downs by banks and further losses for investors.
Fitch Ratings said this week it may revamp its entire methodology for rating CDOs and may lower ratings on $36.8 billion of related subprime mortgage debt. [ID:nN30165976]
Moody's Investors Service is in the process of downgrading or reviewing for possible rating cuts debt of 500 collateralized debt obligations tied to $33.4 billion of subprime mortgage debt cut last month. (Additional reporting by Neil Shah)
From - [link to www.reuters.com]
Quote:
If you are interested in understanding where the economy is going you should rather look at the ongoing disaster in credit markets – with a severe and spreading credit crunch - that will get uglier in the next few months as financial institutions are forced to mark to market massive – still unrecorded – losses on trillions of dollars of mortgages and related MBS and CDO tranches. With the ABX index for BBB- now down to the 20s and even the AAA tranches now down from par to 79 there are hundreds of billions of losses that no financial institutions has even started to account for. When allegedly AAA tranches of CDO trade at 79 cents on the dollar you know you have a massive and severe financial nightmare ahead. So, instead of the NFP report look daily at what the ABX indices are telling you about what is happening the economy and the financial sector.
From - [link to www.rgemonitor.com]
[link to www.geocities.com] |
| FHL(C)
Extrapolator
User ID: 321119
11/3/2007 7:04 AM
| | Re: Watch, Its happening ,the global economic change. | Quote |
FU&FW
ASYLUM100
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11/3/2007 5:56 AM
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Re: The whole structured debt market is now imploding! Quote
This was predicted many years ago but no one wanted to listen. You can start by looking at the US war machine. To big for its own good. US has got itself in such a fix, because it has to be at war at any given time to keep its economy running.
Its the same old carry on, if you all just stoped one months payments on debt you would cripple the system and collapse the lendeing houses. Only problem with that is everything would fall apart so not a good idea realy.
And lets face it if you signed that bit of paper saying yes then im sorry its up to you pay it of. And i do sympathise with those who were press ganged into something that they could never afford.
It does amaze me though that there are still millions world wide who cant even afford to give their child a meal, and we are worrying about this months mortgage payment. Shit, what evil we have become.
[link to www.geocities.com] |
| FHL(C)
Extrapolator
User ID: 321119
11/3/2007 10:02 AM
| | Re: Watch, Its happening ,the global economic change. | Quote |
FU&FW
NEW YORK, Nov 1 (Reuters) - The U.S. Federal Reserve added a total of $41 billion in temporary reserves to the banking system on Thursday, the biggest single day of such injections since September 2001.
The Fed's infusions may reflect the central bank's efforts to bring the federal funds rate down nearer to its target just one day after a widely expected rate cut.
Fed funds last traded at 4.625 percent on the open market, above the Fed's target rate of 4.50 percent.
A Fed spokesman would not comment on the total size of the operations, but did say it was the largest single day of operations since a total of $50.35 billion was injected on Sept. 19, 2001, following the Sept. 11, 2001, attacks on the World Trade Center.
On Thursday, the central bank conducted $8 billion of 14-day repurchases, $21 billion of seven-day repurchases and $12 billion of overnight repurchase agreements.
The total on Thursday surpassed the $38 billion the Fed injected on Aug. 10, which was generally seen as the beginning of a global credit crisis. At the time, the Fed and the European Central Bank ramped up temporary liquidity operations with the intent of alleviating strains in short-term lending markets.
The Fed also injected a total of $38 billion on Sept. 27.
[link to www.geocities.com] |
| FHL(C)
Extrapolator
User ID: 321119
11/3/2007 10:17 AM
| | Re: Watch, Its happening ,the global economic change. | Quote |
FU&FW
Citi May Have a New Mess on Its Hands
Now, the bank could take a billion-dollar hit from bad debt tied to the CDO commercial paper market
by David Henry and Matthew Goldstein
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One of the most maddening aspects of the current credit-market crisis has been trying to get a handle on the off-balance sheet liabilities at Citigroup (C), which has already disclosed a $1.6 billion hit from exotic debt investments. In this accounting shadowland, nothing is certain. Yet a document analysis by BusinessWeek suggests that Citi may face a fresh billion-dollar exposure because of financial obligations tied to the commercial paper market, a critical source for short-term financing.
At issue are those wretchedly named collateralized debt obligations (CDOs), entities that issue securities often backed by subprime mortgages pooled in tranches and sold to investors based on their risk tolerance. These culprits exploded on Merrill Lynch's (MER) balance sheet and cost Stanley O'Neal his CEO job. However, the critical issue here is Citi's exposure through financing commitments to about a dozen CDOs, including three managed by executives of the Bear Stearns (BSC) hedge funds that cratered this summer amid the subprime meltdown. Citi garnered fees from underwriting these investments, but it also agreed to cover nearly 90% of the financing backing for the CDOs if the commercial paper market seized up—and the asset-backed segment pretty much has.
Just to be clear: This exposure by Citi is a separate matter from other arcane financial products in the news called structured investment vehicles, investment pools that also use short-term funding. Citi has a huge stake in the success of a proposed $80 billion SIV megafund to resuscitate that market. Citi set up many SIVs, yet has no clear legal obligation to cover losses.
However, this dozen or so CDOs in question could cost Citi dearly in the form of writedowns and future earnings hits. An estimate, based on the free fall in asset prices that whacked Merrill's CDOs and the hits some SIVs have taken, suggests Citi could face a $1 billion or so loss. That number assumes that the value of securities backing the $20 billion has fallen 15%. (That's conservative, given the 20% and 30% declines reported by others.) Do the math, and you get a $3 billion loss. Citi's commercial paper obligations cover the most senior tranches of these CDOs. Citi is on the hook for any losses above $2 billion, leaving the potential $1 billion exposure.
Citi declined to discuss its CDO exposure. The bank has yet to file its complete third-quarter earnings statement with the Securities & Exchange Commission, a disclosure that may shed more light. It's possible Citi might have hedged some of the risk.
It's not the only firm that may be vulnerable. A handful of other banks, including Barclays (BCS), WestLB, and Bank of America (BAC), struck similar financing arrangements. WestLB says its deal problems are resolved. Barclays and B of A declined to comment. In all, there are roughly $100 billion worth of CDOs in which banks are on the line for much of the financing, according to JPMorgan Securities (JPM)—with Citi being the biggest player. "All of [this commercial paper] is probably back on someone's balance sheet," says Kedran Garrison Panageas, a JPMorgan CDO analyst. "My guess is there's going to be some train wreck here," adds J. Edward Ketz, a Penn State accounting professor.
Estimating the value of CDOs is tricky, given that they are complex, opaque, and rarely traded. That's why many people judge them by the credit ratings on their assets, which for Citi's deals were almost exclusively AAA and AA. But "just because a CDO portfolio hasn't been hit with a lot of downgrades doesn't mean it won't in the future," says Douglas J. Lucas, head of CDO research at UBS.
A quick survey of the structured finance terrain turns up bad omens for Citi. In mid-October the Rhinebridge SIV—part of the collection that prompted the rescue fund—reported a 20% decline in the value of its assets in three days, yet some 89% of its holdings had a AAA rating, according to S&P. Meanwhile, Merrill cut the value of its AAA-rated stakes in CDOs by an average of 30%. On Oct. 30, Swiss bank UBS (UBS) increased its quarterly writedown by $700 million from what it predicted four weeks prior, citing the dropping prices of CDOs and mortgage securities.
Nonpublic trustee reports reviewed by BusinessWeek for two Citi-backed CDOs also offer a rare glimpse into the underlying assets of such portfolios. A close look at the holdings for KLIO II Funding and KLIO III—two CDOs that were run by Bear Stearns—shows that about 40% of their portfolios were invested in securities backed by subprime mortgages. These assets, and KLIO stakes in other CDOs such as Knollwood, Porter Square I, and Commodore II, could be ripe for downgrades in the future. Complicating matters, the two Bear Stearn hedge funds traded securities with at least one of the KLIO CDOs. Now, Citi may have to fight with creditors of the bankrupt Bear hedge funds over the CDOs' assets—just one more cloud over Citi's holdings.
The CDOs backed by Citi may have a better pedigree than those that hurt Merrill. They were assembled mostly in 2004 and 2005, when mortgage lending standards were stronger. However, delinquencies on mortgages from 2005 are starting to climb. S&P recently cut the ratings on 402 bonds backed by mortgages that were issued in the first nine months of 2005. The CDOs that own those bonds stand to be downgraded next—potentially setting off a chain reaction that could knock down Citi's CDOs. For example, 18% of the investments in Saturn Ventures II (a CDO that Citi underwrote in 2004 and one for which the bank agreed to provide backup financing) have been downgraded, according to UBS Research.
Citi earned substantial fees on these structured-finance products. Those KLIO deals that Citi underwrote brought in $22.3 million in underwriting fees. And the bank also collected fees of an estimated $40 million a year for offering backup funding on the CDOs that are now in doubt. Now it's payback time, and this could mean a world of earnings pain for Citi.
[link to www.geocities.com] |
| FHL(C)
Extrapolator
User ID: 321119
11/3/2007 10:39 AM
| | Re: Watch, Its happening ,the global economic change. | Quote |
THE COLLAPSE OF THE US DOLLAR
Imagine being sent forward in time from 1967 to 2007. Instead of gas costing 25 cents a gallon, it's $2.50. A decent home, intead of costing $15,000, costs $250,000 or more. Imagine your shock that the average American family owes $9000 on their credit cards. Imagine entering a society where less than 2% of the cars on the road are owned by those that drive them, and less than 1% of the homes are owned by the people who live in them. Welcome to the debt based slave state of America in 2007. It is all symbolic of how the globalists have America right where they want it, and are eager to finish it off. As the dollar continues losing strength, what will this mean to the world? Many will be deceived into believing that the economy is recovering; and then they will suddenly wake up to find their money worthless. As with the Argentina currency collapse a few years ago, so will the American dollar collapse likewise. However, the collapse of the US dollar is going to have much greater impact on the global economy and international political landscape than the collapse of the Argentinean peso ever did. The collapse of the dollar will reduce America to third world status, and it's people to a chaos they are woefully unprepared to face. It will be a period of tremendous hardship and economic deprivation. It will be a time of great tribulation.
With our money being worthless, there will no longer be the ability to import fossil fuels. The gas lines of the 70's will seem like a pleasant dream compared to what this would be like. Also, this will have a devastating effect upon the agriculture and transportation sectors. The transportation system will not be able to distribute food without gas or diesel. Industry will largely grind to a halt. No longer will the economy be able to function. It will be the end of the American global empire. As with the fall of the Roman Empire, America would be forced out of economic necessity to close its military bases around the world. There would be no money for government services, education, pensions, health care, security, etc. Society would quickly slip into lawless anarchy. The Homeland Security people would have their hands full, to say the least.
Yet even as the dollar slides downwards towards collapse, many refuse to believe that it is possible for something like this to happen today. After all, we live in an age when Governments and their Reserve Banks can support the value of currencies through intervention right? Various economists, speaking on behalf of the Federal Reserve, make soothing noises that there is nothing to worry about the dollar falling. They claim that this is going to assist American exporters, ignoring that the costs of imports will rise even more; and that the trade and current account deficits will continue to deteriorate. Some claim that while there have been collapses in the past surely this would not happen today. Sadly, the reality is that not only could this happen today, but it will happen much faster than at anytime in history. Modern communications enable billions of dollars can be switched from one currency to another at a click of a mouse today, when in the past it took weeks for speculators to switch from one currency to another. Never has been a time when currencies have been more vulnerable for speculation on their values.
The US Government is in a bind. If they lift interest rates to try and support the dollar, it will increase the size of the US budget deficit, plus the likelihood that the economy would go into a tailspin. The level of personal and corporate debt in the USA is now so high, that a sudden increase in interest rates would likely bring about an economic collapse. Either way, America is in deep trouble. What we could experience is a run on the US dollar, until it becomes completely worthless. There have been collapses of currencies throughout history. A recent example has been the collapse of the German Mark in 1923. At that time, the German economy was saddled in massive external debts, plus was being forced to repay war reparations. America is in a similar position today, as the world’s largest debtor nation. Let’s have a look to what happened to the German currency in the 1920’s. At the outbreak of WWI, the German Mark was going for 4.20 to the dollar, at the end of the war, the mark was 4.80 to one US dollar, at the end of 1919, it was 42 marks to the dollar. By Dec 1923 it had fallen to 4.2 trillion marks to one dollar.
The German people suffered severely during this time, and it set the stage for the rise of Hitler to power. What took 3 years to lead up to the collapse of the German economy would only take 3 weeks today, with the speed money is able to be transferred from one country to another. The collapse of the US dollar would remove America as a global power. There is now a shift of the balance of power from North America to Europe. THIS IS ALL BY DESIGN! The international bankers who control the US and global economy want America to collapse, in order to get the American people to accept a global currency. The Asian economies will also be severely affected by the collapse of the American dollar. Not only do these economies depend upon the US market for revenue from much of their exports, but they also hold substantial reserves in US dollars. The Chinese and Japanese banking systems would collapse, their dollar holding evaporating, and the high debt levels of Chinese corporations will cause a massive wave of bankruptcies.
The Euro will become the preferred currency of choice around the world, providing the Europeans with even greater political influence than the US has today. Behind all of this, the European based international bankers will further consolidate their power by creating a United States of Europe. The crises of the collapse of the US dollar will help speed up the creation of a United States of Europe defense force. Europe will emerge from the economic chaos that will erupt across the world as the dominating economic power bloc. Germany, as the engine economy in Europe, and the largest nation, will be in the drivers seat for the direction this new Europe goes in. Meanwhile, the nations of North America will be asked to repay their massive external debts. Having sold off much of their silver and gold, the creditors will look at other means of recovering the money they have advanced. America would be held in economic bondage to these international money lenders, even more than they are now. They are going to demand total control of our economy, reducing our people to slaves, where we will be held in economic bondage.
WHAT MONEY LOOKED LIKE WHEN IT WAS STILL BACKED BY SOMETHING
Already, America is despised around the world not only because of the Iraq situation, but also because America is generally seen as a nation that has been greatly blessed, but, partly because of the filth that Hollywood exports around the world, is seen as an incredibly arrogant, and undeserving superpower. This has left America with few friends that would come to it's financial rescue when the chips are down. God is allowing America to be humiliated and defea |
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