Economic dominos falling

Discussion in 'The Club House' started by Quasi, Oct 9, 2008.

  1. Quasi

    Quasi New Member

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    Some recent market events of concern:

    Osaka (Japan) markets just halted after going lock limit (10%) down.

    Iceland defaults on debts, currency devalued, trade halted. UK freezes Icelandic assets in UK.

    Hungary's bond market collapses on rumors the country's biggest bank, OTP was about to be taken over by the government.

    TED spread is at an all-time high, indicating that credit markets are frozen.
    http://www.bloomberg.com/apps/cbuilder?ticker1=.TEDSP:IND

    LIBOR spread is at an all-time high.

    FED - FOMC delays its release of H.4.1. balance sheet

    U.S. 10 year bond futures are up over 1 basis point tonight, which is an incredible move indicating a reluctance from foreign banks to buy our treasuries. We need to sell $2B/day of treasuries to finance our government.

    Summary:
    The most immediate threat is if the credit markets don't unfreeze, businesses that rely on credit will halt. Think of trucking companies that need to buy fuel on credit to deliver food to the groceries. This could happen within days if something is not done.

    The second, less immediate, but probably worse threat is purchases of U.S. Treasuries halt, and our government defaults on its debt. This would probably be more of a WWIII type scenario I'm guessing.


    A lot of folks much smarter than I am are now (as in *tonight*) preparing for TSHTF. I'm not making any predictions or trying to scare anyone. This is the Internet, take everything with a grain of salt, and feel free to use the info as you see fit. I have a hard time taking some of this stuff in myself.

    Hopefully things will quickly turn around, but right now things seem to be unraveling at an accelerating pace.
     
  2. Quasi

    Quasi New Member

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    Hang Seng (China) drops 1200pts / 8% in opening minutes

    Bush plans statement tomorrow to reassure nation
     
    Last edited: Oct 9, 2008

  3. Quasi

    Quasi New Member

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    RGE Monitor's Newsletter
    ALERT
    RGE Monitor
    October 9, 2008 / 10:11 PM


    On Thursday, October 09, 2008, Nouriel Roubini – Chairman of RGE Monitor and Professor of Economics at the NYU Stern School of Business – lays out his latest views on the global economic and financial crisis and the urgent necessary actions that need to be undertaken globally.

    Nouriel Roubini: The world is at severe risk of a global systemic financial meltdown and a severe global depression

    The U.S. and advanced economies’ financial systems are now headed towards a near-term systemic financial meltdown as day after day stock markets are in free fall, money markets have shut down while their spreads are skyrocketing, and credit spreads are surging through the roof. There is now the beginning of a generalized run on the banking system of these economies; a collapse of the shadow banking system, i.e. those non-banks (broker dealers, non-bank mortgage lenders, SIV and conduits, hedge funds, money market funds, private equity firms) that, like banks, borrow short and liquid, are highly leveraged and lend and invest long and illiquid, and are thus at risk of a run on their short-term liabilities; and now a roll-off of the short term liabilities of the corporate sectors that may lead to widespread bankruptcies of solvent but illiquid financial and non-financial firms.

    On the real economic side, all the advanced economies representing 55% of global GDP (U.S., Eurozone, UK, other smaller European countries, Canada, Japan, Australia, New Zealand, Japan) entered a recession even before the massive financial shocks that started in the late summer made the liquidity and credit crunch even more virulent and will thus cause an even more severe recession than the one that started in the spring. So we have a severe recession, a severe financial crisis and a severe banking crisis in advanced economies.

    There was no decoupling among advanced economies and there is no decoupling but rather recoupling of the emerging market economies with the severe crisis of the advanced economies. By the third quarter of this year global economic growth will be in negative territory signaling a global recession. The recoupling of emerging markets was initially limited to stock markets that fell even more than those of advanced economies as foreign investors pulled out of these markets; but then it spread to credit markets and money markets and currency markets bringing to the surface the vulnerabilities of many financial systems and corporate sectors that had experienced credit booms and that had borrowed short and in foreign currencies. Countries with large current account deficits and/or large fiscal deficits and with large short-term foreign currency liabilities and borrowings have been the most fragile. But even the better performing ones – like the BRICs club of Brazil, Russia, India and China – are now at risk of a hard landing. Trade and financial and currency and confidence channels are now leading to a massive slowdown of growth in emerging markets with many of them now at risk not only of a recession but also of a severe financial crisis.

    The crisis was caused by the largest leveraged asset bubble and credit bubble in the history of humanity where excessive leveraging and bubbles were not limited to housing in the U.S. but also to housing in many other countries and excessive borrowing by financial institutions and some segments of the corporate sector and of the public sector in many and different economies: an housing bubble, a mortgage bubble, an equity bubble, a bond bubble, a credit bubble, a commodity bubble, a private equity bubble, a hedge funds bubble are all now bursting at once in the biggest real sector and financial sector deleveraging since the Great Depression.

    At this point the recession train has left the station; the financial and banking crisis train has left the station. The delusion that the U.S. and advanced economies contraction would be short and shallow – a V-shaped six month recession – has been replaced by the certainty that this will be a long and protracted U-shaped recession that may last at least two years in the U.S. and close to two years in most of the rest of the world. And given the rising risk of a global systemic financial meltdown, the probability that the outcome could become a decade long L-shaped recession – like the one experienced by Japan after the bursting of its real estate and equity bubble – cannot be ruled out.

    And in a world where there is a glut and excess capacity of goods while aggregate demand is falling, soon enough we will start to worry about deflation, debt deflation, liquidity traps and what monetary policy makers should do to fight deflation when policy rates get dangerously close to zero.

    At this point the risk of an imminent stock market crash – like the one-day collapse of 20% plus in U.S. stock prices in 1987 – cannot be ruled out as the financial system is breaking down, panic and lack of confidence in any counterparty is sharply rising and the investors have totally lost faith in the ability of policy authorities to control this meltdown.

    This disconnect between more and more aggressive policy actions and easings, and greater and greater strains in the financial market is scary. When Bear Stearns’ creditors were bailed out to the tune of $30 bn in March, the rally in equity, money and credit markets lasted eight weeks; when in July the U.S. Treasury announced legislation to bail out the mortgage giants Fannie and Freddie, the rally lasted four weeks; when the actual $200 billion rescue of these firms was undertaken and their $6 trillion liabilities taken over by the U.S. government, the rally lasted one day, and by the next day the panic had moved to Lehman’s collapse; when AIG was bailed out to the tune of $85 billion, the market did not even rally for a day and instead fell 5%. Next when the $700 billion U.S. rescue package was passed by the U.S. Senate and House, markets fell another 7% in two days as there was no confidence in this flawed plan and the authorities. Next, as authorities in the U.S. and abroad took even more radical policy actions between October 6th and October 9th (payment of interest on reserves, doubling of the liquidity support of banks, extension of credit to the seized corporate sector, guarantees of bank deposits, plans to recapitalize banks, coordinated monetary policy easing, etc.), the stock markets and the credit markets and the money markets fell further and further and at accelerated rates day after day all week, including another 7% fall in U.S. equities today.

    When in markets that are clearly way oversold, even the most radical policy actions don’t provide rallies or relief to market participants. You know that you are one step away from a market crash and a systemic financial sector and corporate sector collapse. A vicious circle of deleveraging, asset collapses, margin calls, and cascading falls in asset prices well below falling fundamentals, and panic is now underway.

    At this point severe damage is done and one cannot rule out a systemic collapse and a global depression. It will take a significant change in leadership of economic policy and very radical, coordinated policy actions among all advanced and emerging market economies to avoid this economic and financial disaster. Urgent and immediate necessary actions that need to be done globally (with some variants across countries depending on the severity of the problem and the overall resources available to the sovereigns) include:

    another rapid round of policy rate cuts of the order of at least 150 basis points on average globally;
    a temporary blanket guarantee of all deposits while a triage between insolvent financial institutions that need to be shut down and distressed but solvent institutions that need to be partially nationalized with injections of public capital is made;
    a rapid reduction of the debt burden of insolvent households preceded by a temporary freeze on all foreclosures;
    massive and unlimited provision of liquidity to solvent financial institutions;
    public provision of credit to the solvent parts of the corporate sector to avoid a short-term debt refinancing crisis for solvent but illiquid corporations and small businesses;
    a massive direct government fiscal stimulus packages that includes public works, infrastructure spending, unemployment benefits, tax rebates to lower income households and provision of grants to strapped and crunched state and local government;
    a rapid resolution of the banking problems via triage, public recapitalization of financial institutions and reduction of the debt burden of distressed households and borrowers;
    an agreement between lender and creditor countries running current account surpluses and borrowing, and debtor countries running current account deficits to maintain an orderly financing of deficits and a recycling of the surpluses of creditors to avoid a disorderly adjustment of such imbalances.

    At this point anything short of these radical and coordinated actions may lead to a market crash, a global systemic financial meltdown and to a global depression. The time to act is now as all the policy officials of the world are meeting this weekend in Washington at the IMF and World Bank annual meetings.
     
  4. Angeleyes

    Angeleyes New Member

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    Thank the Elitists both past and present and the Mighty Federal Reserve!
    We've been warning people now for over 9 years but ..............
    It's all going as planned! And we all gotta deal with it now!
    BUT... I'm filthy rich cause my money is unstoppable. I've been hoarding canned food and LEAD.
     
  5. Ram Rod

    Ram Rod New Member

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    I see the DOW fell another 600 some points today. I hope we can save Christmas this year. The way I see it, investors are also worried about an Obamanation. Take their money and run. It's a sign....a bad sign.
     
  6. user4

    user4 New Member

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    Actually, a more apocalyptic view of this situation is that the world will be looking for a "messiah" to come and save them. Farrakhan calls Barack Obama the messiah, and he's a Muslim.

    [ame="http://www.youtube.com/watch?v=_4eJLVEevGk"]http://www.youtube.com/watch?v=_4eJLVEevGk[/ame]


    BTW, thanks for this thread, Quasi. Good info.
     
  7. Dillinger

    Dillinger New Member

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    Quasi, thanks for the great thread and the information. And now, *JUNK PUNCH* for scaring the hell out of me this morning. :eek:

    JD
     
  8. Dillinger

    Dillinger New Member

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    So Quasi - a 700 plus point fall, but a rebound of 600 before the closing bell on a Friday.

    How bad is it now?

    JD
     
  9. Quasi

    Quasi New Member

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    Good news:

    The stock market action felt like capitulation. We *may* be near an intermediate term bottom (and I placed a bet on this).

    G7 is meeting this weekend to come up with some new stick-save plans.

    Long-term treasury rates came back in from overnight.

    Forced liquidations (due to Lehman defaults) caused major selling in gold, silver, and oil today


    Bad news:

    LIBOR and TED spread are at extreme levels = credit markets still in very bad shape.

    More rumors of bank holidays / simultaneous closing of all world markets
    http://www.bloomberg.com/apps/news?pid=20601087&sid=aP5mpMUORBWM


    So things are still pretty dicey, but I wouldn't let it ruin your weekend. I'm sure our elected officials have things well in hand. ;)
     
  10. Dillinger

    Dillinger New Member

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    Thanks Quasi - It's not ruining my weekend, I still have plenty of food and drink.... for the time being. But I might be doing some ammo inventory over the weekend and see where the good books lie.... :rolleyes:

    JD
     
  11. Mark F

    Mark F New Member Supporter

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    Let those dominoes fall where they may...
     
  12. Mark F

    Mark F New Member Supporter

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    It's more like a bird on a wire.
     
  13. WILDCATT

    WILDCATT New Member

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    collapse

    It was worse in 1929 and no bail out.but they set up WPA_PWA AND CCC.
    as for this country.why not do as others did to use.stiff them. england never payed back the money/goods we supplied them with in WW1 or WW2 only finland payed us back in total.before we bail out this bunch change the rules of the game.the dems made the mess let them pay the piper.I can survive.I have land ,can grow all I need.plenty of meat [deer]water,I can pump by hand shallow well.plenty of wood and a fireplace or fire pit. might be a pain but can be done.:rolleyes:;)
     
  14. Mark F

    Mark F New Member Supporter

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    Maybe in this day & age we won't bear witness to a collapse similar to the one in 29'. At least I hope not.
     
  15. FALPhil

    FALPhil New Member

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    I think Vox Day says it best:

     
  16. Quasi

    Quasi New Member

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    Here's a pretty good interview with Peter Schiff on Glenn Beck, both of whom were way ahead of the curve on the economic crisis. A possible glimpse of what's coming.

    [ame="http://www.youtube.com/watch?v=5T2hK6JQJ14"]http://www.youtube.com/watch?v=5T2hK6JQJ14[/ame]
     
  17. dfe1

    dfe1 New Member

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    Thanks for the link-- just when I thought I couldn't feel any worse about the current idiocy. But it is food for thought. Seems like it would be impossible for some of the events that Schiff is predicting to occur, but just a few months ago, the current meltdown seemed like an impossibility.
     
  18. Quasi

    Quasi New Member

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    The credit spreads are easing a bit after last weekend's dramatic policy actions. Not a lot, but they are at least moving in the right direction.

    Long-term treasuries rates are increasing due to all the new debt (i.e. bailouts). This has the unintended consequence of spiking mortgage rates, which is going to further hurt the housing market.

    "We may have well passed the point where the federal government's total financial hole surpasses the net worth of all Americans."
    (http://www.normantranscript.com/opinion/local_story_292012318)

    Money seems to be leaving the equities markets, rallies are short-lived. I'm expecting another big sell-off in the next week or two.
     
  19. bkt

    bkt New Member

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    Source

    Credit Cards Could Become Next Trouble Spot in Crisis
    By Kenneth Stier

    Credit-card delinquencies are likely to become the next flashpoint in the credit crisis, though the impact on the overall economy won't be as severe as the housing slump, analysts believe.

    As the economy worsens and unemployment rises, more Americans are having trouble paying off their credit card balances. That has pushed up losses for credit card issuers, forcing them to tighten standards, which puts a further squeeze on cash-strapped consumers.

    “After mortgages and home equity, credit cards are the next in line to feel the crunch,” says Marc DeCastro, an industry analyst with Financial Insights.

    With job losses growing, credit cards delinquencies could rise to 7 percent by the first quarter of 2009, which would be a 20 year high, says Howard Shapiro, an industry analyst with Fox-Pitt Kelton.

    And because consumers no longer have the equity in the house to fall back on, they're relying even more on credit cards to pay for living expenses.
    “Now with their home equities getting shut off, people are going to start augmenting their income with their credit cards," DeCastro says. "They are going hit their limits and once they hit their limits, then they are probably going to walk away from their credit cards.”

    Though consumer spending accounts for three-quarters of the US economy, the credit-card crunch isn't likely to be as big an economic blow as the housing crisis has been.

    The reason is that credit card debt, while still large, is much smaller than the amount tied up in mortgages.

    There is roughly $1 trillion of outstanding credit card debt—compared to $14 trillion worth of outstanding mortgages—and in the second quarter of 2008, $385 billion of this had been bundled into asset-based securities, according to the Securities Industry and Financial Markets Association.

    Another reason for the smaller fallout is that credit card issuers have been working over the past year to tighten standards and limit the damage.

    “I don’t see the credit card industry facing the kind of stress that the mortgage industry has faced," says Shapiro. "They have had time to prepare, to tighten their underwriting standards which were not stretched to the same degree as they were in the mortgage industry."

    Still, that doesn't mean the growing losses aren't going to hurt.

    Credit card write-offs last year totaled $26.6 billion, and are on track to reach more than $41.4 billion this year. And that's just the beginning.

    “We think 2009 is going to be a difficult year for the credit card industry," Shapiro says. "There’ll be higher charge offs, slower growth, people are cutting back on spending. That is going to mean pressure on earnings.”

    Innovest Strategic Value Advisors forsees delinquencies rising through the next three quarters, peaking at 10 percent, with industry losses of close to $100 billion in 2009.

    That’s higher than most estimates but that's because most models do not sufficiently account for the freezing of the transfer market, in which borrowers could rollover debt into new cards with a low (or zero) introductory annual percentage rate (APR), says the investment research firm.

    That option is quickly disappearing, leaving a growing raft of people with more debt than they can repay and no place to turn. That essentially was the situation that burst the subprime mortgage bubble, when people could no longer just roll over into a new subprime or sell their house.

    The pain for the industry comes at a particularly difficult time for banks, which have long relied on credit card operations as steady, and highly lucrative, profit centers, contributing significantly to total revenues.

    American Express [AXP 23.33 -0.31 (-1.31%)] and Discover [DFS 10.74 (+4.17%)] which both have small bank subsidiaries, are better positioned to weather the storm because of tighter standards. Retailers are probably the most vulnerable, mainly because they are usually the last to get paid by strapped consumers. Target [TGT 39.37 +1.46 (+3.85%)] recently lowered its guidance because of higher than expected credit card write-offs.

    Another problem for the industry is its exposure to borrowers with less-than-stellar credit, also known as sub-prime. That’s believed to be about 20 percent industry-wide (more than 30 percent at Bank of America [BAC 23.24 -1.01 (-4.16%)] and Capital One [COF 39.92 +1.22 (+3.15%)]) but the scale of the problem is far smaller than in mortgages and much of that has been shifted off company balance sheets.

    Tightened credit terms will help card issuers, but it also will mean fewer options for borrowers who have stumbled into trouble. Instead of transferring balances to a new card, often a new low introductory rate, they may end up defaulting.

    This just makes a bad credit situation worse and is “unsustainable” argues Laura Nishikawa, an analyst with Innovest, who says issuers need to work with consumers to encourage "healthier use of credit," not the orgy of the past decade.

    She says Discover is showing the way, by offering convenient loan calculators, allowing customers to choose payment days, and offering cash back rewards for being on time.

    “There is some cause and effect here….but [as an issuer] you don’t want to the last one in the line” to get repaid, responds Dennis Moroney, research director for bank cards industry at TowerGroup, a wholly owned subsdiary of Mastercard [MA 156.75 +0.07 (+0.04%)] which operates with editorail independence.

    That’s precisely the risk retailers run by issuing store-specific credit cards, as he expects retailers will feel compelled to do to boost holiday shopping revenues.

    Since these cards can only be used in the stores issuing them, they are typically the last to get repaid, raising the chances of charge-offs, especially as the economy weakens.

    Even if consumer spending retains its holiday sparkle, the real test for the credit card industry, he says, will come in early summer, when families’ ability to stay current on bills rolled over from the holiday binge, and when delinquencies typically pick up.

    If the recession we are sinking into proves deep and prolonged it will probably force painful consumer change.

    "People are basically spending far more than they earn and that is just going to have to change, especially if banks are not willing to indulge that kind of behavior any more, that’s going to have big repercussions in the economy,” says Gregory Larkin, a senior Innovest analyst.

    That may mean the days of carrying card balances of ten of thousands of dollars may be over if banks have doubts about your ability to catch up.

    The new economic reality may bring some rude moments, cautions Larkin. “You may have that embarrassing moment when you are out with your wife and the guy says, ‘Sorry, you are maxed out’ – you are going to get a lot more of that happening, your card not letting you charge dinner tonight.”
     
  20. Quasi

    Quasi New Member

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    It's here..overnight futures are lock limit (500 Dow points) down. 79 years to the day after the 1929 crash. This looks like the big one, folks.

    Someone hold me..
     
    Last edited: Oct 24, 2008