Archive for October, 2008

Upcoming Gold Default

Friday, October 31st, 2008

Full story here. Metals aren’t necessarily my big interest, but this is worth noting. When there are many people at one end of the pool (‘cos it’s such a good idea), look for the sharks to come.

“The gold & silver futures markets are each hurtling down a dangerous path toward possible default. The artificial paper price has created enormous physical demand, and hampered supply production, if not delivery. The gap between the corrupted paper price and the legitimate physical price in actual trading markets has grown sharply, enough to force a breakdown like in any distorted market. When December contracts in gold & silver are demanded to be satisfied via delivery of the metal, we could easily see the COMEX fail in delivery. A default is highly likely. (more…)

Black hole for the pension funds

Thursday, October 30th, 2008

Story here. Another piece from economist Henry C.K. Liu (must be agitated this week).

“More than three years before the current financial crisis, in a series Greenspan, the Wizard of Bubbleland that began on September 14, 2005, I warned:

Through mortgage-backed securitization, banks now are mere loan intermediaries that assume no long-term risk on the risky loans they make, which are sold as securitized debt of unbundled levels of risk to institutional investors with varying risk appetite commensurate with their varying need for higher returns. But who are institutional investors? They are mostly pension funds that manage the money the US working public depends on for retirement. In other words, the aggregate retirement assets of the working public are exposed to the risk of the same working public defaulting on their house mortgages.  

When a homeowner loses his or her home through default of its mortgage, the homeowner will also lose his or her retirement nest egg invested in the securitized mortgage pool, while the banks stay technically solvent. That is the hidden network of linked financial landmines in a housing bubble financed by mortgage-backed securitization to which no one is paying attention. The bursting of the housing bubble will act as a detonator for a massive pension crisis.

Now, in October 2008, while the US government is busy bailing out wayward banks, public pension funds operated by states and municipalities face their worst year of losses in history, exacerbating cumulative funding shortfalls of past decades of credit bubbles and putting pressure on distressed state governments to shore them up to avoid pending default.   (more…)

Fed cuts rate to 1%

Wednesday, October 29th, 2008

Full scoop here. Your order, Mr. Bernanke? OK, that’ll be the Japanese-style recession, with no personal savings on the side. Really, with fiat currency this lousy, it seems a bit on the nose to charge any interest whatsoever…

“The Federal Reserve cut its benchmark interest rate by half a percentage point to 1 percent, matching a half-century low, in an effort to avert the worst U.S. economic downturn in the postwar era. (more…)

Roubini: Significant downside risk for equities

Wednesday, October 29th, 2008

Story here. Why couldn’t this guy have been my econ teacher? I would’ve made the effort to show up to class (but I still got a B-).

“From Bloomberg:

Oct. 27 (Bloomberg) — Nouriel Roubini, the New York University professor who predicted the financial crisis in 2006, talks with Bloomberg’s Tom Keene and Ken Prewitt about the risk of “stagdeflation,” the global credit crisis and the outlook for stocks. (more…)

2009: US will be forced to selectively default/devalue its debt(?)

Wednesday, October 29th, 2008

Article here. Yup, it’s a-comin’. They’re also missing the point that credit default swaps are total garbage and shouldn’t be honored, otherwise it’s death for everyone. The smartest thing to do would be to declare them illegal and that they won’t be enforced in contract. Just hit delete.

“We have seen estimates that next year the US will have to finance a $2 Trillion annual deficit. They may be able to push it further into the next Administration than that by the forbearance of the world, but not by much. We’d expect a significant drop in Treasuries by 2011 at the latest. (more…)

Killer Touch for Market Capitalism

Wednesday, October 29th, 2008

Full story here. Second part of economist Henry CK Liu’s commentary on the current financial situation. The best way to avoid a “situation” is to be at cause. We suggest ShadowTraders as a way to ratchet up the income.

“US Treasury Secretary Henry Paulson asserts that the full resources of the Treasury Department are being used to ensure the success of its US$700 billion Troubled Assets Relief Program (TARP). The “full resources of the Treasury Department” commands the full faith and credit of the United States anchored by Treasury’s taxing authority as approved by Congress. Tax payments in the US are made to the US Treasury via the Internal Revenue Service. (more…)

I.O.U.S.A. on Steroids

Tuesday, October 28th, 2008

Post here.

“Don’t look now, but the national debt has exploded ever since Lehman Bros. blew up.

Indeed, I.O.U.S.A. has gone further into the hole over the last six weeks than it did in the entire year preceding.

Addison looked at some of the figures last week in the 5 Min. Forecast, extrapolating the figures from October 1 through October 15 to yield a hypothetical national debt of $17 trillion a year from now.  And you can play with the numbers yourself at the Treasury Department website.  But here’s some more of the story.

On Friday, September 14, 2007 â?? a year before Lehman Bros. went under â?? the national debt totaled $9,017,119,869,519.37.

On Friday, September 12, 2008 â?? the last business day before Lehman Bros. went to investment-bank heaven â?? the national debt totaled $9,683,319,152,145.35.

That’s a one-year increase of $666 billion dollars (which of course is a lot more than the officially stated “federal deficit” figure, but that’s another story) or 7.4%.  (more…)

The Final Act

Tuesday, October 28th, 2008

Article here. Down the rabbit hole we go. If you had told me 2 months ago just how much like Alice in Wonderland the markets had become, I would’ve been been a bit incredulous. But I did giggle when the public chimed “Off with his head” to Maestro Greenspan.

“Every play, movie, opera and book has a beginning, a middle and an end, and the same can be said for both the primary and secondary trends in the stock market. In the old days, it was commonly believed that primary trends could last two or three years, while secondary trends lasted three to six months. That was in the old days.1 Technology, along with the spectacular increase in the quantity of fiat currency, commonly mistaken as liquidity, has extended the life spans of both primary and secondary movements. The now defunct bull market in stocks began way back in 1982 and lasted all the way until October 2007. That is one old bull! (more…)

Meet the World’s New Currency

Tuesday, October 28th, 2008

Full story here. Who needs horror flicks to get a scare? Just read the business pages.

“Things are getting worse. Since September, $16 trillion has been erased from global stock market value. Losses in the US–where the financial turmoil originated–have been much smaller than other, more vulnerable markets. The Dow is down less than 40 percent from its peak of 14,000, whereas Hong Kong, Poland and China have all tumbled more than 60 percent. Its a bloodbath.

The Chicago Board Options Exchange Volatility Index, “the Fear Index”,  surged to 79.13 on Friday [ed.- 30 used to be considered really high], the highest in its 18-year history, The massive blow-off in stocks is mainly the result of ongoing deleveraging among the hedge funds which are dumping shares in at a record pace to cover the dwindling value of their asset base. According to the New York Times: “Hedge funds lost an estimated $180 billion during the last three months and some are near collapse. Investors are demanding their money back, and Wall Street is bracing for a shake-out in the $1.7 trillion industry.” If a large fund, like Citadel, goes down, it will create a black hole in the financial system, similar to the loss of Lehman Bros. and, once again, the US Treasury will have to come to the rescue by providing a multi-billion dollar taxpayer bailout. (more…)

The End of the American Road

Tuesday, October 28th, 2008

Full story here. Queue the Elton John hit “Goodbye Yellow Brick Road”…

“We’re an empire now, and when we act, we create our own reality. And while you’re  studying that reality — judiciously, as you will — we’ll act again, creating other new  realities, which you can study too, and that’s how things will sort out. We’re history’s  actors . . . and you, all of you, will be left to just study what we do.”  

–Bush White House aide explaining the New Reality

The New American Century lasted a decade.  Financial crisis and defeated objectives in Iraq, Afghanistan, and Georgia brought the neoconservative project for American world hegemony crashing to a close in the autumn of 2008.   (more…)