Re: World Finance Watch
Good points all Bubbu. Let me give you my take on things from some of your post.
Yes, "we", as in the world economy, are ripe for a financial crisis like the world has never seen. If the Fed raises the discount rate to something like 5% (currently 2.25%) a good percentage of "homeowners" are screwed. Something like 35% of all new mortgages over the last 3 years are adjustable rate mortgages (ARM's). This doesn't take into account the home equity lines of credit (HELOC's) that are at historic proportions. ARM's and HELOC's are ALL adjustable rate loans. As the Fed raises rates, the rates on these loans goes up. Most mortgage rates are set by 10 yr. Treasury bond rates, which are set by the market, not the Fed. As you stated, the majority of the available Treas. debt is held by foreigners. They start getting antsie about the US's ability to repay its debt and 10 yr. Treasury yields will spike, despite what the Fed tries to do. They're already getting antsie. Russia, China, So. Korea, India and a number of So. American foreign central banks have already made public declarations about "diversifying out of 'dollar assets'" That means they're slowly dumping dollars in their reserves and Treasury debt. The Fed is not in control anymore and they know it. They're prayin' and hopin' they can hold this house of cards together while waiting on a miracle. Miracles do happen, so anything is possible. The dollar appears to be in a multi-month oversold bounce. The next BIG move will be to the downside HARD. That's when the herding impulse kicks in and everybody heads for the exit door at the same time. Flush goes the mortgage, bond, real estate and stock markets. Some decent sized player defaults in the derivatives market and its TEOTWAWKI (the end of the world as we know it). Greenspan himself has testified before Congress on several occasions that a "serious dislocation" in the derivatives market could seize up the world financial and banking systems in a matter of hours. The Congressional panel yawned and moved on to the next question. Of course Greenspan reassured Congress that the derivatives market was "well disciplined" a week before the LTCM debacle in 1998, where the world financial system was on the brink of seizing up. If he hadn't pulled off a bail out with 7 of Wall St.'s biggest players at the time, it would have happened. Enough about derivatives, but the series of bubbles out there could all collapse at the same time now. They're almost too interconnected not to. But we're "sitting on a corn flake, waiting for the van to come" (my shameless Beatles reference to lyrics from "I am the Walrus").
The price of crude is a matter of supply and demand. China, India and the "developing countries" are buying oil like it won't be here tomorrow. Well, not tomorrow, but in the next few years. Demand is up, supply is maxed out. $40/bbl will look cheap in the years ahead. "Detroit" as in US automakers is on its death bed. GM and Ford especially. I've had people look at me like I was certifiable two to three years ago, when I said that these companies probably wouldn't make it to 2010. They'll go through the airline Chapter 11 dance for a while, but eventually one or both will be liquidated or have to move all operations to China. Foreclosures will happen because of a credit crunch in a debt collapse. Lenders won't want to lend, and credit worthy borrowers won't want to borrow. The only people looking to borrow will be those desperate enough to try in an attempt to pull off a financial miracle of salvation. Interest rates for borrowers will skyrocket despite the efforts of the Fed. A lot more than low income people will be "forced out."
I hope I don't come across as lecturing, but I've been accused of as much. LOL Just trying to show people what's coming, and it can't be "fixed" by the Fed, the tooth fairy, Santa Claus, or the Easter Bunny. A great book to read about our current and future situation is "Conquer the Crash" by Robert Prechter, Jr. He published it in 2002, and has a 2004 update to it. Some of it is a little technical, but it's written for the layman to understand. If you read that, you'll see a lot of what I'm trying to get across and then some. I'm not the best writer or conveyor of what's happening. Prechter does an outstanding job. The last time we had something this "bad" economically was the 60+ yr. depression of the the 1700's. Google "South Sea Bubble" and "John Law". Basically bankrupted France and England. Sir Issac Newton lost 1 million pounds sterling in the South Sea Bubble. That'd be like Bill Gates losing into the billions. Yeah, it's gonna be that bad.
Man, all I got to say is thanks to everyone participating in this thread. I can't tell you what a release it is for me to be talking about all this. I've been like "a crazy man screaming in the desert" (wife's assessment) for the last several years. Most people don't want to hear the "bad news." Disrupts their "happy, shiney people" outlook being fostered by the Fed, the govt., and the bubble heads on CNBC. At the bottom, you'll see corporate and Wall St. scandal exposed like never before. Accusations and recriminations will be widespread. Lots of folks will go to jail. The current "crime wave" on Wall St. and corporate board rooms will pale in comparison. Here's a prediction, and it isn't all that prophetic. Next big "crime wave" this year will involve AIG (American Int'l Group) and the GSE's (Fannie, Freddie and the FHLB's). Gonna be some major jail bird action and "perp walks" going down just with those two. Herb Greenburg (AIG) and Franklin Raines (Fannie Mae) will garner a lot of the limelight.
Okay, I'll shut up here. Thanks again.
Cary
Good points all Bubbu. Let me give you my take on things from some of your post.
Yes, "we", as in the world economy, are ripe for a financial crisis like the world has never seen. If the Fed raises the discount rate to something like 5% (currently 2.25%) a good percentage of "homeowners" are screwed. Something like 35% of all new mortgages over the last 3 years are adjustable rate mortgages (ARM's). This doesn't take into account the home equity lines of credit (HELOC's) that are at historic proportions. ARM's and HELOC's are ALL adjustable rate loans. As the Fed raises rates, the rates on these loans goes up. Most mortgage rates are set by 10 yr. Treasury bond rates, which are set by the market, not the Fed. As you stated, the majority of the available Treas. debt is held by foreigners. They start getting antsie about the US's ability to repay its debt and 10 yr. Treasury yields will spike, despite what the Fed tries to do. They're already getting antsie. Russia, China, So. Korea, India and a number of So. American foreign central banks have already made public declarations about "diversifying out of 'dollar assets'" That means they're slowly dumping dollars in their reserves and Treasury debt. The Fed is not in control anymore and they know it. They're prayin' and hopin' they can hold this house of cards together while waiting on a miracle. Miracles do happen, so anything is possible. The dollar appears to be in a multi-month oversold bounce. The next BIG move will be to the downside HARD. That's when the herding impulse kicks in and everybody heads for the exit door at the same time. Flush goes the mortgage, bond, real estate and stock markets. Some decent sized player defaults in the derivatives market and its TEOTWAWKI (the end of the world as we know it). Greenspan himself has testified before Congress on several occasions that a "serious dislocation" in the derivatives market could seize up the world financial and banking systems in a matter of hours. The Congressional panel yawned and moved on to the next question. Of course Greenspan reassured Congress that the derivatives market was "well disciplined" a week before the LTCM debacle in 1998, where the world financial system was on the brink of seizing up. If he hadn't pulled off a bail out with 7 of Wall St.'s biggest players at the time, it would have happened. Enough about derivatives, but the series of bubbles out there could all collapse at the same time now. They're almost too interconnected not to. But we're "sitting on a corn flake, waiting for the van to come" (my shameless Beatles reference to lyrics from "I am the Walrus").
The price of crude is a matter of supply and demand. China, India and the "developing countries" are buying oil like it won't be here tomorrow. Well, not tomorrow, but in the next few years. Demand is up, supply is maxed out. $40/bbl will look cheap in the years ahead. "Detroit" as in US automakers is on its death bed. GM and Ford especially. I've had people look at me like I was certifiable two to three years ago, when I said that these companies probably wouldn't make it to 2010. They'll go through the airline Chapter 11 dance for a while, but eventually one or both will be liquidated or have to move all operations to China. Foreclosures will happen because of a credit crunch in a debt collapse. Lenders won't want to lend, and credit worthy borrowers won't want to borrow. The only people looking to borrow will be those desperate enough to try in an attempt to pull off a financial miracle of salvation. Interest rates for borrowers will skyrocket despite the efforts of the Fed. A lot more than low income people will be "forced out."
I hope I don't come across as lecturing, but I've been accused of as much. LOL Just trying to show people what's coming, and it can't be "fixed" by the Fed, the tooth fairy, Santa Claus, or the Easter Bunny. A great book to read about our current and future situation is "Conquer the Crash" by Robert Prechter, Jr. He published it in 2002, and has a 2004 update to it. Some of it is a little technical, but it's written for the layman to understand. If you read that, you'll see a lot of what I'm trying to get across and then some. I'm not the best writer or conveyor of what's happening. Prechter does an outstanding job. The last time we had something this "bad" economically was the 60+ yr. depression of the the 1700's. Google "South Sea Bubble" and "John Law". Basically bankrupted France and England. Sir Issac Newton lost 1 million pounds sterling in the South Sea Bubble. That'd be like Bill Gates losing into the billions. Yeah, it's gonna be that bad.
Man, all I got to say is thanks to everyone participating in this thread. I can't tell you what a release it is for me to be talking about all this. I've been like "a crazy man screaming in the desert" (wife's assessment) for the last several years. Most people don't want to hear the "bad news." Disrupts their "happy, shiney people" outlook being fostered by the Fed, the govt., and the bubble heads on CNBC. At the bottom, you'll see corporate and Wall St. scandal exposed like never before. Accusations and recriminations will be widespread. Lots of folks will go to jail. The current "crime wave" on Wall St. and corporate board rooms will pale in comparison. Here's a prediction, and it isn't all that prophetic. Next big "crime wave" this year will involve AIG (American Int'l Group) and the GSE's (Fannie, Freddie and the FHLB's). Gonna be some major jail bird action and "perp walks" going down just with those two. Herb Greenburg (AIG) and Franklin Raines (Fannie Mae) will garner a lot of the limelight.
Okay, I'll shut up here. Thanks again.
Cary
