End of an Epoch?

The dollar may decline to a record low against the euro in the next six months because U.S. economic growth will slow, forcing the Federal Reserve to cut interest rates, according to Goldman Sachs Group Inc.

From the current level of $1.3568 per euro, the U.S. currency will weaken to $1.43 per euro in the next three to six months, Goldman Sachs said in a research note yesterday. New York-based Goldman, the world's biggest securities firm by market value, lowered its dollar forecast from a prior estimate of $1.35. The dollar set a record low of $1.3852 per euro on July 24.

Concern about losses in investments related to mortgage securities has bolstered expectations the Fed will cut its benchmark interest rate from 5.25 percent at its Sept. 18 policy meeting. Traders are certain the Fed will cut its key rate to at least 5 percent by Sept. 18, futures show.

``Financial conditions are tightening at a time when clearly there's some downside risk to the growth, said Jens Nordvig, a senior currency strategist at Goldman Sachs in New York. Fed rate cuts ``will drag the dollar lower.

The Fed will lower its benchmark interest rate by 0.75 percentage point to 4.5 percent by year-end, according to Goldman Sachs.

The dollar will fall also because foreign investors will reduce purchases of higher-yielding corporate bonds, said Nordvig.

Goldman also said the dollar will decline to 110 yen in the next three to six months, from 116 yen at present, compared with a previous forecast of 118 yen.

Dealing With a Crash

There are two ways to deal with a system crash.

You can either liquidate all cash and buy gold or the like to trade and ride over the problem

or

Borrow mega millions and buy goods that will go up during a crash.

I know someone who spent mega on dunny-paper, old lady it was, she made five times the investment in 12 months when all the dunny-paper ran out.

The Great Crash of 2007-2008

This article is quite revealing of the troubles that we are facing.

The causes of the M1 decline are two-fold. One is the weak purchasing power of American consumers, at least half of whose decently-paying manufacturing jobs have been eliminated by the outsourcing, mergers, and productivity improvements during the past two decades. The other is that while many of the U.S. corporations not connected to housing have been doing all right, their success has been tied to overseas investments and sales, such as GE and GM who are heavily invested in China.

During a crash, when every man is for himself and the odds are down, if you haven't fully prepared to survive at least 4 years on your own while everyone else is dying, and you turn up here looking for a hand out, there will be an exchange of heavy metals ... either you will pass over gold or silver or we will pass over lead.

It's that simple ... during a crash gold talks ...

USA Update

Stocks Plunge on Credit Concerns. The Dow Jones industrials extended its series of triple-digit swings, this time falling more than 380 points. The Federal Reserve added a larger-than-normal $24 billion in temporary reserves to the U.S. banking system. This means more cash, more liquidity, more paper printing and therefore

MORE US DOLLAR DEVALUATION AND THUS MORE INFLATION.

In any case THIS INJECTION OF CASH from the USA Feds and the ECB are JUST A DROP IN AN OCEAN WHAT WE ARE TALKING HERE SCORES OF TRILLION OF DOLLARS PRINTED OUT OF THIN AIR AND USED NOT IN INFRASTRUCTURES, INDUSTRIES OR MACHINERY OR R&D BUT IN FINANCIAL SCAMS LIKE SUBPRIME LOANS, DERIVATIVES, OPTIONS, MERGER & ACQUISITIONS FRAUDS AND SCAMS THAT ARE NOW STARTING TO UNWIND FASTER AND FASTER!


more info at
http://www.forbes.com/feeds/ap/2007/08/09/ap4005516.html

Financial Pessimism

The most devastating news of all:

August 3 - CNBC (Diana Olick's blog):

"They're pulling themselves out of the market to regroup," is what one of my mortgage broker buddies told me on the phone this morning when I asked how in the heck Wells Fargo could raise rates on a 30-year jumbo fixed rate mortgage from 6 7/8% to 8% overnight. A jumbo is anything over $417,000, and given today's home prices, that's going to hit an awful lot of borrowers."

Endowment Funds Sinking

Money Matters blog has a very good in depth analysis of how the endowment funds of our nations major research universities, Harvard in particular, are falling victim to the current chaos with funds.

Scarily enough, the author of this analysis points to a worrying fact that has become a part of life:

All the world stock markets except for China, fell today. This wasn't a tremor of fear, it was a near universal panic. A classic panic. Friday, it will either be resolved via a soupcon of lies and funny number crunching or it will continue. I think the need to pretend nothing is wrong is still very strong. Everyone will clutch at straws so the tiniest good news like the Apple iPhone, will cause hysterical outpouring of joy.

Bear Sterns Collapse

Part of the reason why the Great Depression was so Great was because people that trusted banks etc with their money, lost their money to the institutions who were supposed to be able to return a persons investment. Fast forward to today, and we hear about the case of the Bear Sterns hedge fund:

The value of the Bear Stearns Asset-Backed Securities Fund has fallen amid a flurry of mortgage markdowns, the Wall Street Journal reported, sparking fears the bank will have to close the fund as it has done to two others.

Bear Stearns (Charts, Fortune 500) has delayed paying back investors' money in the hope that the values of the fund would rise again, a source told the Journal.

The asset-backed fund's value was up 5 percent from Jan.1 to the end of June, the source told the newspaper. The troubled fund reported holds a range of mortgages with only a sliver being of the subprime category, the Journal reported.

Things are going to get much worse. They'll get better because of the Long War

Global Systemic Crisis

Globalization could be imperiled by events that have not been predicted by those high paid financial wizards that seem to not be able to predict anything right nowadays. Or, they are just good at covering their tracks. This latter option is apparently what is going on.

During the first quarter of 2007, the U.S. economy has gone into a recession:

Thus, as anticipated by LEAP/E2020 in February 2007 (GEAB N°12), the month of April 2007 marks the tipping point of the phase of impact of the global systemic crisis, and signals the objective entry of the US into recession, even though official US figures are still trying to conceal the trend. Besides, in relation to this fundamental piece of information, April 2007 was also a turning point on a number of key-factors of the global systemic crisis whose evolution will experience a new acceleration. In this month's issue of GEAB, LEAP/E2020 enters into the details of the two following analyses:

- Aggravation of the US consumer's insolvency, profit reduction for companies depending on the US market and massive layoffs contribute to a negative retroactive loop

- Acceleration of dollar collapse, imported inflation, increase in balance of payment deficit and trade tensions with Asia and Europe smash the Fed's consensus and thrust the US into the « very great depression »

It seems those that the government hires to analyze the economy are doing a better job at hiding the facts from this great nation that is in debt.

Poverty Business

One of the biggest concerns arising from the scandalous subprime fiasco (which is still occuring) was the revelation that creditors often prey on those who do not have the money. These impoverished people could never hope to earn the money needed to repay debts that were agressivley marketed to them. No offense, but a lot of people did not even have the brain capacity to really understand what they were agreeing to in the contract they signed with the creditors.

Along come BusinessWeek. In its recent article
The Poverty Business Inside U.S. companies' audacious drive to extract more profits from the nation's working poor, the magazine does a good job in covering this depressing scene.

In recent years, a range of businesses have made financing more readily available to even the riskiest of borrowers. Greater access to credit has put cars, computers, credit cards, and even homes within reach for many more of the working poor. But this remaking of the marketplace for low-income consumers has a dark side: Innovative and zealous firms have lured unsophisticated shoppers by the hundreds of thousands into a thicket of debt from which many never emerge

.

THIS MUST STOP NOW. One can consider this as a violation of human rights. Being hunted down by abusive creditors is not what America's working poor need. They need their rights protected.

As America diplomats are running around the world asking for countries (which are in debt themselves) to forgive the debts of various African states, Iraq, and other countries, a blind eye is turned to American citizens who are themselves in need of debt forgiveness.

Of course, the reader of this blog should not for a second think that debt forgiveness will come along any times soon. It is always up to you to work hard and get out of debt yourself.

Dealing with the abusive creditors is another topic for another post.

More Signs of the Times

Junk bonds have become a pressing problem, and are similar to the financial mistakes made by bankers prior to the last great depression. To be exact, a junk bond is not a bond that is junk, as the name might suggest. A junk bond is the same thing as a regular bond. It is an IOU written by a corporation to another entity (be it another person or another corporation) which simply states that the corporation owes a set amount of money to the recipient of the bond. It has its own principal, maturity date and interest which will be paid back to you.

So, what's the worry? Junk Bonds May Repeat Crash of 2002 on LBO Credits

The following will give you a better idea as to why:

The last time junk bonds tumbled was in 2002, when companies defaulted on $166 billion of their securities, according to Moody's Investors Service. Merrill Lynch & Co.'s High Yield Master II Index fell about 2 percent that year as yields on the securities rose to a record 11.2 percentage points over Treasuries. Speculative grade, or junk, bonds are rated below Baa3 by Moody's and BBB- by Standard & Poor's.

Severe Downside

``The downside is likely to be very severe,'' Fridson, who led Merrill's high-yield strategy group until he left in 2003 to start his own firm, said in an interview from his office in New York.

Fridson predicts that in the next few years the default rate may reach or surpass the 2002 level, when WorldCom Inc. in Jackson, Mississippi, and Adelphia Communications Corp., then based in Coudersport, Pennsylvania, filed for bankruptcy.

More and More Bad Mortgage

The subprime news has past, but the bad news on mortgage has not. Some have suggested that it could be the case that the collapsing mortgage market is enough to tip the boat of stability. We'll see but consider this.

The trapped money will be written off at the end of the year. The effect on stock market and dollar can be very severe. The stock market’s presumed liquidity will be in the negative, as people demand redemption of funds at the end of the year.

1987

The market has not only crashed once in history, but a few of the crashes, or slides, have had great impacts on the markets. Warning signs are known with hindsight. History can forewarn us all of the perils that might come when certain events happened. These ideas should have been going around your head as you've been reading this blog, and I'm sure that you've done a little investigation on your own.

Here is a comparison to 1987, another black year for the U.S. economy.

This Day of Reckoning can not be far away, and a sudden reversal of confidence by foreign investors could crash the US stock market for reasons very similar to what happened in 1987: equities riding too high on a cheap dollar.

However, the level of leverage in the capital markets is generally acknowledged to be very much higher than in 1987, beyond even what produced the Wall Street crash of 1929. So the fireworks, when they start, will truly light up the sky.

Leading the leverage boom is the hedge funds followed by the private equity funds. Nobody is exactly sure how much leverage is in the system from the derivative structures erected by these financiers but it is a house of cards that will come crashing down in a stock market correction.

Spending Rose Less Than Forecast, Price Gains Ease

Things do not look too good when your economists fuddle forecasts.

Economists had forecast a 0.5 percent rise in spending, which accounts for two-thirds of the economy, according to the median of 58 estimates in a Bloomberg News survey. Estimates ranged from gains of 0.3 percent to 0.8 percent.

The yield on U.S. Treasury securities fell and the dollar partially reversed earlier gains. The yield on the benchmark 10- year Treasury note fell to 4.66 percent at 8:55 a.m. in New York from 4.69 percent on April 27.

This can cause bad things to occur. Economic globalization assures that there will be ripple effects felt. This will create other ripple effects that will bounce off and become a new ripple, or a ripple that causes another ripple (etc etc) to come back and affect us.

Crash Coming?

People are claiming that today is too much like back in 1929, before the Great Depression and the stock market collapse. One prudent observer has noticed that many people, like then, are not really paying attention to the significant shifts in how the financial systems work.

People may be conditioned to think that economic events in developing countries pale in significance to economic events in the US, and may fail to see how what happens “way over there” in China would have any significant impact on their economic well-being. But how different the truth really is. I think most people even now after the February 27^th turn of events, fail to grasp why the US stock market sold off so sharply after the Chinese stock market sell off occurred first. The idea that a foreign stock market could dictate what happens in the US stock market almost offends the American sense of national pride (so the event is casually dismissed as “market irrationality”). A word of advice: you better get used to it, as there is much more of that to come. The crash is coming.

While not pleasant to think about, parallels to 1929 exist.

Ready for the Ride?

Things at the IMF don't look so great for Mr. Wolfowitz. This is a big blow to this yes man.

This is not the first time that the way the IMF handles things by forcing someone out. Good minds, like Joseph Stiglitz have understood where they stand in the whole scheme of things in this and similar organizations.

Stiglitz left the World Bank upset that the organization did not heed his calls for reform because if the organizations did not reform its policies would crash. They did. He has predicted that the current way that these policies are leading the world, the only end result possible is that of a global economic crash.

Ready for the ride?

Great Debt Coming

So, the days of the dust bowl appear to be coming back. Hope you are enjoying your bread. IN the end you won't really have to tell anyone you were not forewarned. This is not to say that you should stock up on spam and other canned foods and head for the hills. Other options exist, like hoping that the droughts are not global, and globalization is at least good for securing the food supply. If the recent Chinese escapades of killing our pets is anything to say, not even that is certain.

First, a link to the story causing concern.

And this blogger nails the grape on the fence with a wrath:

The implications for agriculture and cities in the Southwest are serious and staggering.
"There are going to be some tough decisions on how to allocate water," said Richard Seager, the lead scientist in the study. "Is it going to be the cities, or is it going to be agriculture?"
More evidence that warming is hitting close to home and can’t be ignored by Kansas policymakers.

Revisting Korea?

In an apparent move, convieniently times with the latest Iranian move against the British, North Korea has decided to pack its bags and head home. Looks like the negotiations there too have failed.

China called a halt to four days of deadlocked talks on Thursday, after North Korean negotiators refused to discuss nuclear weapons until the frozen funds were transferred to an account controlled by North Korea in the Bank of China. U.S. and Chinese officials said the transfer from Banco Delta Asia in Macao had proved to be more complicated than expected.

"As soon as we get this bank transfer done, we probably will put our heads together and decide whether we need to have another six-party meeting," Hill said.

Optimism and appeasment are the roots of war loss. While people are asking, can we fight a war in Afghanistan, Iraq and Iran...they should ask themselves, can we fight North Korean...it was the nightmare of military planners to do so before the Iraq war and tensions with Iran. It's getting worse.

Remeber, It's Iran in the Crosshairs

Waking up to this news sure isn't pleasent. In addition to having a bad financial situation, we're about to go to war. Read on:

BASRA, Iraq (Reuters) - Iranian forces seized 15 British servicemen on Friday in the mouth of the waterway that separates Iran and Iraq, triggering a diplomatic crisis at a time of heightened tensions over Tehran's nuclear ambitions.

Britain said two boatloads of sailors and marines from the naval frigate Cornwall had searched a merchant vessel in Iraqi waters on a U.N. approved mission when Iranian gunboats encircled and captured them.

British Foreign Secretary Margaret Beckett said she was "extremely disturbed." Britain summoned Iran's ambassador in London and protested through its embassy in Tehran.

With this move, Iran appears to be reciprocating the US move of kidnapping or effecting defections of its military officers and leaders.

Global Warming, A Part of a Cycle

Its time to get to the bottom of this global warming business. It is not the case that we should be soafraid of the consequences of producing consumer goods. Creating products to satisfy consudmers should be done in ways that do not degrade the environment, but it is not the time to hype about the global warming catastrophe. There are more dire events that could affect out lives in a manner which can be devastating. It will also be more sudden than global climate change.

Watch some interesting evidence.

The Great Debt

Bloomberg reports:

March 22 (Bloomberg) -- The Federal Reserve could have acted faster to prevent a meltdown in the subprime-mortgage market by curbing the lax lending standards that contributed to the crisis, the Fed's chief bank supervisor said.

``Given what we know now, yes, we could have done more sooner,'' Roger Cole, the Fed's director of banking supervision and regulation, told the Senate Banking Committee in Washington today, as regulators testified for the first time before Congress on the market rout.

It cannot be said that they did not know about it then, but only that they did not care to do much about itbecause of their own itnerests at the time. This is not the case, since the Federal REserve did not want to cause panic. Perhaps it is a sign of the times, however, since we might be on the verge of the wave collapsing into a new era of depression. Perhaps, this one will be called The Great Debt. America has persevered through troubled times, but in those were not days of interconnections and complexities.

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