Saturday, October 04, 2008

http://prudentbear.com/index.php/commentary/creditbubblebulletin?art_id=10125 DOUG NOLAND READ SHOWS WORLD WIDE CONTRACTION AND CONTAGION

commodities economic sensitive (from above)

Commodities Watch:
October 3 - Bloomberg (Glenys Sim): “Copper, corn and silver drove commodities toward their biggest weekly decline in more than 50 years on concern that the worst financial crisis since the Great Depression will push the U.S. into recession. Commodities, as measured by the Reuters/Jefferies CRB Index of 19 raw materials, have tumbled 9.9% this week…”
Gold dropped 4.7% to $837, and Silver sank 16.7% to $11.13. November Crude declined $13.97 to $92.92. November Gasoline fell 15.3% (down 10.6% y-t-d), and November Natural Gas declined 3.5% (down 1.6% y-t-d). December Copper sank 15%. December Wheat declined 10.6% and Corn fell 16.4%. The CRB index dropped 10.4% (down 9.0% y-t-d). The Goldman Sachs Commodities Index (GSCI) fell 11.2% (down 4.4% y-t-d).

BUBBLE DYNAMICS
Importantly, this historic Credit Inflation inflated asset prices, incomes, corporate cashflows/earnings, government revenues, and various types of spending throughout the U.S. and global economy. It was a self-sustaining Bubble bolstered by ongoing Credit excesses, asset inflation and resulting purchasing power gains. But NFD growth slowed sharply to an annualized $1.726 TN during this year’s first quarter and then sank to $1.127 TN annualized during the second quarter. Credit growth is now in the process of collapsing. At this point, there is clearly insufficient Credit expansion to support inflated asset markets; incomes and household spending; corporate cash flows and investment; and government receipts and expenditures. Lending markets are frozen, securitization markets broken, corporate and muni debt markets in disarray, derivatives markets in shambles, and the leveraged speculating community is engaged in panic de-leveraging. As a consequence, the over-indebted household, corporate and state & local sectors now face a devastating liquidity crisis.We are today witnessing the Acute Stage of Bursting Credit Bubble Dynamics.

*I suggest reading DOUG NOLAND'S MISSIVE EACH WEEK, NO ONE WRITES AS HE DOES!

*New market obs monthly read now available
http://contraryinvestor.com/mo.htm

*The TRUTH ALAN GREENSPAN WAS APUTZ and believed his own Bull SHIT!
http://www.ft.com/cms/s/0/32b85c72-859b-11dd-a1ac-0000779fd18c.html?nclick_check=1

The downward spiral is in full swing, and as workers get shed it will be even more difficult for economies to get traction

D
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2 comments:

Anonymous said...

Hi D -
Yes, the downward spiral which we both feared is now in full swing. I agree Noland is a genius, I've followed him for years, even as most others dismissed him as a "perma-bear". The government should hire him to help them - they are in real trouble. I'm glad we are both in treasuries, relative safety at least for now. How long will that continue to be true? It's really hard to know. This problem is global, I doubt anywhere is better off. That fact makes it especially hard to predict how this thing unwinds. It's possible we will be the "least worst off". If that's the case, in this deflationary environment, we may be able to avoid a run or the dollar or a bond collapse. However, unless the government massively cuts deficit spending and ringfences itself, at some point there will not be enough tax revenues to support the spending and interest rates will spike starving the private sector. If that happens its game over and even our treasuries will be toast. If we get to that point I don't think you would find safety anywhere else in the world. In that environment, could a global war be avoided? I hope it never comes to that. There are so many to blame for this tragedy - will justice ever be served?

jbr

1:20 AM
Anonymous said...

jbr,

At what costs is the potential for AMERICANS eyes now being open to what has been done to them and by whom?

here is email friend sent to me from another website

4 weeks to total failure (and what's next) Rasputin Lives

NEW 10/5/2008 5:14:11 AM
Exactly four weeks ago at this time (Sunday morning, September 7th, 2008) the following U.S. financial institutions existed:


Financial Firm Total Bal. Sht.
---------------------------------
1. Fannie Mae ($2.5 tril.)

2. Freddie Mac ($2.5 tril.)

3. FHLB system ($1.3 tril)

5. Merril Lynch $800 bil.)

4. Lehman Bros. ($700bil)

5. AIG ($500 bil. in CDS)

6. Goldman Sachs ($2 tril)

7. Morgan Stanley ($1.5 tril)

8. WaMu ($300 billion)

9 Wachovia ($800 billion)

Sub Total: Approximately $13.1 trillion


On that same Sunday morning, the following European financial institutions also existed:

Financial Firm
--------------
10. Dexia

11. Fortis Bank

12. Hypo Real Estate

13. All banks in Ireland

14. All banks in Greece


Sub Total: Unsure, but clearly at least several trillion fiatscos

Total: Perhaps as much as TWENTY TRILLION FIATSCOS

Now, fast-forward to today. And what is the status of each and every one of these institutions?:

EVERY SINGLE ONE OF THEM HAS FAILED OUTRIGHT, BEEN NATIONALIZED, MONETIZED, "MARRIED OFF", FILED BANKRUPTCY, AND/OR HAD THEIR CHARTER CHANGED TO ANOTHER FORM (BECAUSE THEY ALSO HAD FAILED)!


That's right folks. virtually ALL of the world's former top financial institutions have near-simultaneously failed, wiping out trillions of fiatscos of debt and derivatives positions.

In the span of four, scant, weeks. (Which was preceeded by the previous year's failures of Countrywide Financial, National City Mortgage,Bear Stearns, IndyMac Bank, and dozens of smaller mortgage firms.)

This synchronized collapse is unprecedented in the annals of world history. Never before have so many firms of such size failed so fast.

Yet, these failures don't even tell the whole story. Because it has yet to be revealed how many/which:

1. Hedge Funds
2. Pension Funds
3. Money Market Funds
4. Mutual Funds
5. Other gamblers disguised as legitimate businesses (such as G.E. and all the big traditional insurance companies)

...have also failed, so the total carnage is not at this point even tallied.

But you can bet many--if not all--of the above players have already failed/will fail due to their having deeply delved into the murky swamp of debt and derivatives, with many of them intricately involved with the list of failed financial firms outlined in the first two sections of this missive.

And their failure will add hundreds of billions more fried fiatscos to the perhaps twenty-trillion flaming heap already consuming us all.

Let us also not forget the wholesale liquidation that has been taking place in the world's stock indices, as so well-described by Doug Noland in his latest "Credit Bubble Bulletin" and excerpted below:

Exchange: % loss YTD:
====================
U.S.:
---------------------
Dow: -22.2%
Dow Transports:-9.5%
Dow Utilities: -23.6%
NASDAQ100 sank -29.5%
S&P500: -25.1%.
Banks: -17.1%

Broker/Dealers: -43.2%
Russell 2000: -19.1%
S&P400 Mid-Caps: -12.1%
MS High Tech: -30.6%
MS Cyclicals: -30.8%
MS Consumer: -13.6%

World:
-----------------------
German DAX: -28.1%.
Nikkei 225: -28.5%
Brazil Bovespa: -30.3%
Mexican Bolsa: -22.2%
Russia's RTS: -53.2%
India's Sensex: -38.3%.
China's Shanghai Exchange: -56.4%

Average Loss YTD: -27.35%

...which demonstrates that this credit and derivatives collapse is spilling over onto the laggard equity markets as well--with perhaps substantial losses continuing to pile up on the 401(k)/IRA/mutual fund crowd as the crisis worsens.

(Side note:gold us actually UP 7% YTD and the U.S. fiatsco is up 5%, showing that the flight to anything even remotely resembling "money" is underway en masse as all other financial assets collapse.)

Needless to say, the response by TPTB to this epic collapse has been impressive. As carefully documented in my "Rasipedia" updates (the latest being #8, which can be found here):

Rasipedia Update #8, The End of the World Chronicle

...the governments and CBs are literally throwing everything including the kitchen sink at the colllapse, so I won't detail it here but summarize their collective actions as swift, massive, coordinated, measured in multiple trillions of fiatscos and not anywhere near exhausted yet.

Now the question becomes: "What happens next?"

To which I reply: "I'm afraid to even contemplate"

...but I feel impelled to try and muster up a prognostication anway, so here goes:

What happens next:

1. Financial firms keep failing (duh).

2. Stock markets keep falling (double duh).

3. People start panicking and further remove funds from stock market indices and financial firms--exacerbating the collapse.

4. TPTB collectively respond by imposing "capital controls" on the flow of fiatscos out of the above institutions, perhaps even instituting official "Bank Holidays", if not de-facto ones by severly limiting withdrawals and movement of electronic digits out of the firms. Oh, and you can bet gold and silver ownership by average citizens will be outlawed. So will "cash hoarding".

5. Meanwhile, the price of McMansions keeps falling as more and more formerly-intrepid gamblers are too frightened to sign off on a death-pledge mortgage on a rapidly-diminishing-in-value particle-board-and-vinyl-siding box.

6. Yet TPTB, in their desperation to keep the housing/mortage bubble alive, will offer all manner of "sweetheart" loans/deals including no-interest, no-down-payment (And even downpayment assistance) and forty year terms. They will also lower credit standards to levels that would make even former Wall Street mortgage underwriters cringe in horror. However, these attempts will fail to entice the frightened lambs into signing off on the loans. (At which point maybe there will be a massive "rent-to-own" program instituted to keep the McMansions from rotting and to keep the millions of minions from being homeless.)

7. After Hank Paulson makes the Federal Reserve whole again by taking a couple hundred billion of dead "assets" off of the Fed's balance sheet ("assets" which the Fed took on to try to stave off the collapse during the last six months or so), perhaps the Fed will begin to monetize all the other failed "assets" that Treasury will be accepting from the mortally-wounded financial community. Or not.

8. Perhaps too, the foreign central bank debt-enablers will step up and buy another couple trillion or so fiatscos worth of Treasury debt issued to buy up all the toxic waste from the collapsed financial players. Maybe at a much higher interest rate. Or, perhaps not at any interest rate.

9. However, unless hundreds of millions of minions worldwide are willing to continue to bury themselves in debt to try to revive the "Ponzi Pyramid of Debt and Derivatives Death" then we continue to collapse into a deflationary debt debacle.

10. Wholesale liquidation of housing, autos, stocks, bonds and all related "assets" ensues, taking down prices as much as 70% to 90% in all categories.

11. Mass bankruptcies of businesses, state and local governments, colleges/universities and even K-12 educational systems, resulting in:

12. Tens of millions of people thrown into the unemployment line. Civil disobedience resulting from disruptions in credit availabilty, supply chains, and even basic services (such as electric, water, and garbage pick up) are possible.

(Ras Conclusion): The rapid, massive, worldwide, synchronized, credit/derivatives/equities collapse is continuing and will continue unabated, despite the Herculean efforts by the governments and CBs of the world to fight it. The tens and tens of trillions of fictional fiatscos of destroyed/evaporated "wealth" will ripple through to all sectors, markets, and aspects of life as we (used to) know it.

Indeed, the governments and CBs are dangerously close to pulling the "Weimar/Zimbabwe Trigger" and unleashing a flood of permanent fiat to fight the collapse, but this will only buy maybe six months to a year or so, as people continue to eschew debt and won't continue to feed the failed Ponzi Pyramid. So, even if the governments and CBs choose this option, we only precede the continuation of the collapse with a hyperinflationary hell.

Finally, at this juncture, I can see NO long-term protections for anyone as this epic credit/derivatives collapse continues to consume the planet's former financial system.

However, perhaps by positioning yourself with a supply of fiatscos, gold, silver, food, water and "protection", then at least you won't be forced into joining the first wave of chaos--assuming that TPTB don't take your assets or your neighbors loot and burn down your abode and murder you in the process.

In any event, if nothing else, having made such preparations may help alleviate the sense of dread and panic that comes with not having made any attempt to protect yourself and your family--whether or not it proves to be an exercise in futility.

But at least you can say "I tried".

4:20 AM

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