Global Correction

[sonicdragon]

This is the ETF for long dated US Treasuries:

http://stockcharts.com/charts/gallery.html?tlt

Here's a better look:

http://stockcharts.com/h-sc/ui?s=TLT&p...id=p35367687897

As you can see it's been rallying for quite a while already.

i appreciate your reply (and all your posts on this thread), but i was asking about international bonds not US. again, i don't know much about international finance, so perhaps i'm so daft that i'm misunderstanding your post. let me try to rephrase....if the US markets go through an even larger correction (and if there is a recession) would this eventually force international bonds to rise in value---meaning wouldn't an international bond ETN be worth more?

I tried to address this point in my post above. The outlook for bonds is mixed. In a recessionary environment short term rates would be expected to fall (prices would rise) for 2 reasons - a flight to quality and central banks lowering short term rates. However, long term rates could easily rise (prices would fall) - because inflation expectations increase due to central bank easing. The foregoing applies to governement bonds. For corporate issuers, yield spreads would likely increase, meaning that prices would fall relative to government bonds as the risk associated with them is seen to increase in a recession / time of crisis.

Reading some of the posts in this thread I think that many investors are missing the bigger picture...

Namely that while the outlook for bonds and stocks remains unclear at best - we are clearly in a bull market for commodities.

Anyone who has been investing in bullion this year has done very nicely and if you have been in some of the fancier commodities such as oil you have done even better.

I cant help but feel the situation is similar to 1970-1980 where commodity investment dramatically outperformed stock investment.

I expect these trends to continue for some time driven principally by the weakening dollar.

i've been reading about rogers and his perspective, but if someone is not already invested in commodities (particularly oil and gold) wouldn't it be wise to wait for a a minor pull back before getting in? for example, i've read that oil will almost certainly go back into the 80s within the next few months...and how much higher could gold actually go?

thanks to all on this thread for your replies (and your patience in dealing with this rookie)

If you adjust the historic price of gold in US$ for inflation, it's around $2400. That's my medium term (5-15 year) expectation.

[fletchsmile]

Reading some of the posts in this thread I think that many investors are missing the bigger picture...

Namely that while the outlook for bonds and stocks remains unclear at best - we are clearly in a bull market for commodities.

Anyone who has been investing in bullion this year has done very nicely and if you have been in some of the fancier commodities such as oil you have done even better.

I cant help but feel the situation is similar to 1970-1980 where commodity investment dramatically outperformed stock investment.

I expect these trends to continue for some time driven principally by the weakening dollar.

Of course you can be forgiven for not reading the entire thread, but I have been harping on about commodities in this thread (and others).

However I would add a little caution on the commodity story - if there is to be a global slowdown/recession it will be bad for some parts of the commodity space - industrial materials in particular. You wouldn't want big exposure to copper and zinc in that scenario. And of course oil would underperform. I favour bullion and some agricultural commodities.

Pretty much agree with Sonic's assessment. For zinc, I'd also add I think it's a little late anyway. A year or so back demand exceeded production. With new mines brought on line this year and reopening old ones, I think zinc prices have peaked. That said China and India will continue to be big users for cars. China also has large supplies. 2008 supply is forecast to exceed demand.

For the industrial materials it also depends how much you think a recession would be global or confined to US. The BRIC countries are often touted to overcome the US, and then G6 in the coming decades. Brazil and Russia broadly speaking have large commodity supplies, and India and China have strong demand. i.e a "natural fit" in some eyes. If you think US will drag down rest of the world into recession with them, then industrial materials won't be the safe haven you're looking for. If you think US will simply slow down other countries a little, and accelerate the rise of other countries, the picture may be better.

As for oil, the interesting one for me over the coming years, is at what point the US will/can put it's signifcant Shale Oil resources into play. At the moment, it seems to just go along with the rest of the world, and it's worries on conventional oil supplies, knowing full well no doubt, that it has a back-up plan. US seems to largely keep quiet about the trillion barrels of Shale oil it's potentially sat on.

To put into perspective that's more than the Middle East put together. They quite happily let ideas like crises/ Peak Oil (BTW disagree with this happening this century myself), etc float around and be dicsussed, while keeping quiet. Maybe it's their strategy to use up most of the conventional oil first, and then dominate the market? Whatever the US strategy is, they have a very large card to play when they choose/are able to in the oil market.

For me while I have some oil exposures, I find it too unpredictable. Worth holding some exposure though, just to diversify portfolios.

[sonicdragon]

Reading some of the posts in this thread I think that many investors are missing the bigger picture...

Namely that while the outlook for bonds and stocks remains unclear at best - we are clearly in a bull market for commodities.

Anyone who has been investing in bullion this year has done very nicely and if you have been in some of the fancier commodities such as oil you have done even better.

I cant help but feel the situation is similar to 1970-1980 where commodity investment dramatically outperformed stock investment.

I expect these trends to continue for some time driven principally by the weakening dollar.

Of course you can be forgiven for not reading the entire thread, but I have been harping on about commodities in this thread (and others).

However I would add a little caution on the commodity story - if there is to be a global slowdown/recession it will be bad for some parts of the commodity space - industrial materials in particular. You wouldn't want big exposure to copper and zinc in that scenario. And of course oil would underperform. I favour bullion and some agricultural commodities.

Pretty much agree with Sonic's assessment. For zinc, I'd also add I think it's a little late anyway. A year or so back demand exceeded production. With new mines brought on line this year and reopening old ones, I think zinc prices have peaked. That said China and India will continue to be big users for cars. China also has large supplies. 2008 supply is forecast to exceed demand.

For the industrial materials it also depends how much you think a recession would be global or confined to US. The BRIC countries are often touted to overcome the US, and then G6 in the coming decades. Brazil and Russia broadly speaking have large commodity supplies, and India and China have strong demand. i.e a "natural fit" in some eyes. If you think US will drag down rest of the world into recession with them, then industrial materials won't be the safe haven you're looking for. If you think US will simply slow down other countries a little, and accelerate the rise of other countries, the picture may be better.

As for oil, the interesting one for me over the coming years, is at what point the US will/can put it's signifcant Shale Oil resources into play. At the moment, it seems to just go along with the rest of the world, and it's worries on conventional oil supplies, knowing full well no doubt, that it has a back-up plan. US seems to largely keep quiet about the trillion barrels of Shale oil it's potentially sat on.

To put into perspective that's more than the Middle East put together. They quite happily let ideas like crises/ Peak Oil (BTW disagree with this happening this century myself), etc float around and be dicsussed, while keeping quiet. Maybe it's their strategy to use up most of the conventional oil first, and then dominate the market? Whatever the US strategy is, they have a very large card to play when they choose/are able to in the oil market.

For me while I have some oil exposures, I find it too unpredictable. Worth holding some exposure though, just to diversify portfolios.

Good point about shale oil. Doesn't the US have around a third of all known deposits ? I seem to remember that $100 was the level at which production makes economic sense, but of course it would have to be sustained ABOVE that level for a LONG TIME in order for it to actually happen on a big scale. I suppose it acts as a long term buffer for the oil price.

[fletchsmile]

Good point about shale oil. Doesn't the US have around a third of all known deposits ? I seem to remember that $100 was the level at which production makes economic sense, but of course it would have to be sustained ABOVE that level for a LONG TIME in order for it to actually happen on a big scale. I suppose it acts as a long term buffer for the oil price.

Not sure eactly how much the US has. I've heard quoted between 1/3 and 2/3 's of total on recoverable amounts of 3-4 trio. Seems to be difficult to quantify exactly how much could be recovered.

In terms of cost, that's where it gets interesting. In 2005, thinking was around $75 - $100 as you say. There is supposed to be a learning curve where it's then exepected to drop to around $40 after several years. There has been a lot of research put into it in the last 20 years or so, and some developments in recent years. Royal Dutch Shell in particular seem to be leading the way with new methods. I've heard they may be able to do around $25 to $30/ barrel.

I believe Royal Dutch Shell have a technology announcement on 4 Dec. Not sure if this is to do with Shale Oil or not. I don't invest much in individual shares now, but have followed Royal Dutch Shell for this very reason. Shale Oil is discussed on their website under Mahogany Project

[fletchsmile]

Interesting perspective on China. Bear in mind Neptune as fund managers would be bullish about their own fund. Hargreaves Lansdown are brokers, so will be less biased.

http://www.h-l.co.uk/fund_research/fund_ne...rticles/1173.hl

Personally agree with a lot of it, particularly about the idea of now needing to think and be a bit more selective about what sectors in China.

Neptune China - research update 26 Nov, 2007 We recently contacted Neptune for some information about how their China Fund is currently positioned.

It remains invested in companies that stand to benefit from infrastructure development and increased spending by domestic consumers. These sectors have been the key drivers of the funds performance since launch and the manager continues to be optimistic about their potential.

Exposure to consumer spending is obtained through sectors such as mobile telecoms and retail goods. An example of the latter is milk, which is perceived by the Chinese a luxury good but is now available to far larger sections of society. Yoghurt is experiencing similar growth and Neptune believe that market leading companies like China Mengniu Dairy should be well placed to benefit.

Another consumer play in the fund is hotels, which are thriving as a result of increasing levels of business and tourist travel throughout China. The Neptune China Fund is invested in Shangri-La, a Hong Kong hotelier with extensive operations on the mainland.

The potential for an economic slowdown in the US is giving some investors cause for concern, as this is seen as bad news for global growth generally and Chinese exports in particular. However, Neptune is of the opinion that it would not affect Chinese exports as strongly as many commentators expect. China's exports are well diversified and the prime growth areas are Europe and other emerging economies.

The market's concerns have led to a period of profit-taking in the Hong Kong market, resulting in a fall over recent weeks. We believe that this need not concern genuine long-term investors, as the emergence of China as a world power has many years left to run. In fact bold investors may consider the current weakness as an opportunity to top up their holding in what remains a high risk, but potentially lucrative, investment area.

Click here to view the Key Features of the Neptune China Fund.

Stuart Goodwin, Investment Analyst

Edited November 27, 2007 by fletchsmile

[fletchsmile]

Another reasonable article. The last para rings true. The volatility lovers like Lanna must are probably being reborn every minute at the moment

http://www.h-l.co.uk/fund_research/fund_ne...ticles/28222.hl

Global markets judder as US falters 27 Nov, 2007 Downbeat economic data from the US threw global markets into a spin last week and intensified investors' fears about the wider impact of the credit crunch and financial crisis.

The first blow came on Tuesday 20 November when the Federal Reserve slashed its forecasts for US economic growth for next year from between 2.5%-2.75% to 1.8%-2.5%.

A day later the US Mortgage Bankers Association said US mortgage application volume slumped by 3.6% in the previous week. The Conference Board poured fuel on the fire by warning the slowdown in the US economy could worsen in the coming months.

Throw in the crisis in the sub-prime market, surging oil prices and a slump in 10-year US treasury yields to below 4% for the first time since 2005, and US investors were looking forward to the Thanksgiving holiday on Thursday.

With the outlook so gloomy the Fed is expected to cut US interest rates from their current level of 4.5% next month.

This prospect increased the pressure on the dollar, which traded well above $2 against the pound and touched record lows against the euro and two-year lows against the yen.

Worries over the health of the world's biggest economy hit world stockmarkets last week.

The FTSE 100 fell by 2.5% last Wednesday to 6,071, its lowest level since mid-August, reflecting the 210 point decline on Wall Street. European and Asian stockmarkets also dropped heavily.

Mark Smith, a senior analyst at Andrews Gwynne LLP in Leeds, said emerging stockmarkets are better equipped to cope with a slowdown in the US than developed markets.

Smith said: 'Emerging Asia and emerging Europe have avoided the sub-prime problems because they are not as developed or mature and therefore did not buy sub-prime products and so have less exposure.'

Meanwhile, Thames River Capital fund of funds manager Rob Burdett said the risk of a US recession had escalated but that the impact on markets was still being assessed.

'The markets are in the process of pricing in that recession risk into markets. Markets are juggling whether the problems are just in the financial sector or in the wider economy,' he said.

Burdett added: 'We are in a no-man's land phase. There is no-clear leadership and every word the Fed utters is being hung upon. We'll see more volatility and you have to be careful about what you do with your money on a daily basis.'

Edited November 27, 2007 by fletchsmile

[bingobongo]

if support of 1406 on SPX is violated, next stop is 1370 (with some dead cat bounces along the way).........sell on all bounces, the global correction is coming and will be quite nasty.....as this is the Thai forum, the SET will soon be circling the bowl as well

Edited November 27, 2007 by bingobongo

[samran]

if support of 1406 on SPX is violated, next stop is 1370 (with some dead cat bounces along the way).........sell on all bounces, the global correction is coming and will be quite nasty.....as this is the Thai forum, the SET will soon be circling the bowl as well

samran SET fund up 56% since April as of this morning.

Some of my fund have taken a hit, but there appears to be a flight to quality, shoring up others. Swings and roundabouts. I must admit though, it was up around 80% on paper in October when there was a bit of euphoria, so it has slipped back.

ING Good corporate governance fund up 26% YOY

I'm staying put.

[bingobongo]

if support of 1406 on SPX is violated, next stop is 1370 (with some dead cat bounces along the way).........sell on all bounces, the global correction is coming and will be quite nasty.....as this is the Thai forum, the SET will soon be circling the bowl as well

samran SET fund up 56% since April as of this morning.

Some of my fund have taken a hit, but there appears to be a flight to quality, shoring up others. Swings and roundabouts. I must admit though, it was up around 80% on paper in October when there was a bit of euphoria, so it has slipped back.

ING Good corporate governance fund up 26% YOY

I'm staying put.

not sure what your point is samran, with global liquidity at an all time high, lax credit standards, and inflation rampant, any schmuck could have closed their eyes and had a good return this year in a country that was not experiencing a coup such as:

Gold up 27% YOY

Oil up 90% YOY

short countrywide or indymac 80% and 120% respectively

Shanghai up (then down off of highs) 150%

Short $ 25% YOY

Long yen 17% YOY

Short Google via out of the money Puts 75% YOY

point is samran SET will soon circle the bowl as will other global bourses and your portfolio performance is hardly "extraordinary"

remember bears and bulls make money, pigs get slaughtered

Edited November 28, 2007 by bingobongo

[samran]

if support of 1406 on SPX is violated, next stop is 1370 (with some dead cat bounces along the way).........sell on all bounces, the global correction is coming and will be quite nasty.....as this is the Thai forum, the SET will soon be circling the bowl as well

samran SET fund up 56% since April as of this morning.

Some of my fund have taken a hit, but there appears to be a flight to quality, shoring up others. Swings and roundabouts. I must admit though, it was up around 80% on paper in October when there was a bit of euphoria, so it has slipped back.

ING Good corporate governance fund up 26% YOY

I'm staying put.

not sure what your point is samran, with global liquidity at an all time high, lax credit standards, and inflation rampant, any schmuck could have closed their eyes and had a good return this year in a country that was not experiencing a coup such as:

Gold up 27% YOY

Oil up 90% YOY

short countrywide or indymac 80% and 120% respectively

Shanghai up (then down off of highs) 150%

Short $ 25% YOY

Long yen 17% YOY

Short Google via out of the money Puts 75% YOY

point is samran SET will soon circle the bowl as will other global bourses and your portfolio performance is hardly "extraordinary"

remember bears and bulls make money, pigs get slaughtered

my point is I'm still waiting for the sky to fall in. I'm by no means a bull, I'm just not entirely convinced that there will be a huge trainwreck.

As for my performance being 'extrodinary', to be honest, I'm conservative, so 10% is extrodinary for me. But that is just me.

As for being a shmuck, some may very well argue that is the case.

[Abrak]

Short Google via out of the money Puts 75% YOY

Yeah right!!

Google has gone from 440 to a peak of 740 and is currently standing at 680 over the past year and someone made money shorting this thing?

[LaoPo]

if support of 1406 on SPX is violated, next stop is 1370 (with some dead cat bounces along the way).........sell on all bounces, the global correction is coming and will be quite nasty.....as this is the Thai forum, the SET will soon be circling the bowl as well

samran SET fund up 56% since April as of this morning.

Some of my fund have taken a hit, but there appears to be a flight to quality, shoring up others. Swings and roundabouts. I must admit though, it was up around 80% on paper in October when there was a bit of euphoria, so it has slipped back.

ING Good corporate governance fund up 26% YOY

I'm staying put.

not sure what your point is samran, with global liquidity at an all time high, lax credit standards, and inflation rampant, any schmuck could have closed their eyes and had a good return this year in a country that was not experiencing a coup such as:

Gold up 27% YOY

Oil up 90% YOY

short countrywide or indymac 80% and 120% respectively

Shanghai up (then down off of highs) 150%

Short $ 25% YOY

Long yen 17% YOY

Short Google via out of the money Puts 75% YOY

point is samran SET will soon circle the bowl as will other global bourses and your portfolio performance is hardly "extraordinary"

remember bears and bulls make money, pigs get slaughtered

my point is I'm still waiting for the sky to fall in. I'm by no means a bull, I'm just not entirely convinced that there will be a huge trainwreck.

As for my performance being 'extrodinary', to be honest, I'm conservative, so 10% is extrodinary for me. But that is just me.

As for being a shmuck, some may very well argue that is the case.

You did very well with your funds Samran; 80% at one point, down to 56% since April. What are you waiting for to take profits ?

It's hardly noticed that Japan and now China have entered a bear market with slipping 20% down from their highest point since the sub prime crisis started. It's called a Bear market when a stock market slips more than 20% within a year.

I know Thailand's stocks aren't overvalued as China's but if the snowball starts rolling downhill it's difficult to stop. It will probably not be a huge train wreck but a slow one also hurts...

LaoPo

[samran]

You did very well with your funds Samran; 80% at one point, down to 56% since April. What are you waiting for to take profits ?

It's hardly noticed that Japan and now China have entered a bear market with slipping 20% down from their highest point since the sub prime crisis started. It's called a Bear market when a stock market slips more than 20% within a year.

I know Thailand's stocks aren't overvalued as China's but if the snowball starts rolling downhill it's difficult to stop. It will probably not be a huge train wreck but a slow one also hurts...

I got into them with a 3 year time frame - and for the ones I picked, that perspective still makes sense.

In any case, if I had the time to do some of the charting that some of you do, then I might buy and sell more regularly, but I don't (and not about to start trying, even though some of you are very skillful at it) I follow my SET shares closely enough to know how the businesses are doing...and they are continuting to do fine. The 80% was a bubble, I am happy that it is gone. For me, it is good that people a realising China is over valued.

Plus, it is only a small amount of money (seriously small), so I can afford to lose it. Not that I think I will though. Most of my other earnings are going to "sensible" things, such as a mortgage, savings and education savings for my daughter.

[sonicdragon]

Short Google via out of the money Puts 75% YOY

Yeah right!!

Google has gone from 440 to a peak of 740 and is currently standing at 680 over the past year and someone made money shorting this thing?

75% could have easily been made with OTM puts on google this year, IF you got the timing right. "any schmuck" (to quote BingoBongo) could only do such a thing with copious amounts of luck.

[fletchsmile]

if support of 1406 on SPX is violated, next stop is 1370 (with some dead cat bounces along the way).........sell on all bounces, the global correction is coming and will be quite nasty.....as this is the Thai forum, the SET will soon be circling the bowl as well

samran SET fund up 56% since April as of this morning.

Some of my fund have taken a hit, but there appears to be a flight to quality, shoring up others. Swings and roundabouts. I must admit though, it was up around 80% on paper in October when there was a bit of euphoria, so it has slipped back.

ING Good corporate governance fund up 26% YOY

I'm staying put.

not sure what your point is samran, with global liquidity at an all time high, lax credit standards, and inflation rampant, any schmuck could have closed their eyes and had a good return this year in a country that was not experiencing a coup such as:

Gold up 27% YOY

Oil up 90% YOY

short countrywide or indymac 80% and 120% respectively

Shanghai up (then down off of highs) 150%

Short $ 25% YOY

Long yen 17% YOY

Short Google via out of the money Puts 75% YOY

point is samran SET will soon circle the bowl as will other global bourses and your portfolio performance is hardly "extraordinary"

remember bears and bulls make money, pigs get slaughtered

You did very well with your funds Samran; 80% at one point, down to 56% since April. What are you waiting for to take profits ?

It's hardly noticed that Japan and now China have entered a bear market with slipping 20% down from their highest point since the sub prime crisis started. It's called a Bear market when a stock market slips more than 20% within a year.

I know Thailand's stocks aren't overvalued as China's but if the snowball starts rolling downhill it's difficult to stop. It will probably not be a huge train wreck but a slow one also hurts...

I got into them with a 3 year time frame - and for the ones I picked, that perspective still makes sense.

In any case, if I had the time to do some of the charting that some of you do, then I might buy and sell more regularly, but I don't (and not about to start trying, even though some of you are very skillful at it) I follow my SET shares closely enough to know how the businesses are doing...and they are continuting to do fine. The 80% was a bubble, I am happy that it is gone. For me, it is good that people a realising China is over valued.

Plus, it is only a small amount of money (seriously small), so I can afford to lose it. Not that I think I will though. Most of my other earnings are going to "sensible" things, such as a mortgage, savings and education savings for my daughter.

Samran

You seem to know yourself pretty well. Pretty good returns too, so no doubt you'll be sticking to the style that suits you for a while.

BTW I recall another guy who started small. He now attracts comments like the following:

"Most money managers obsess over a company's most recent earnings and day-to-day shifts in its stock price. They're quick to dump a company that falls short of their expectations over the past quarter. But Buffett thinks such fast-twitch buying and selling is silly. He believes successful investors think like business owners rather than traders. To Buffett's way of thinking, you shouldn't dream of owning a stock for 10 minutes that you're not prepared to hold for 10 years. Day-to-day movements in the stock price are irrelevant; so are ups and downs in a company's quarterly earnings. "An investor should act as though he had a lifetime decision card with just 20 punches on it," Buffett says. That means buying a few good companies and sticking with them for the long haul."

"The most radical thing about Buffett is that once he chooses a stock he hangs on to it. Selling a stock you had held for a long time, Buffett said, was "like dumping your wife when she gets old." In short, Buffett highlighted the difference between the true investor and the 'trader'."

Personally, my view is along the lines of "time in the market not timing the market". I'm not quite as successful at it as WB though

Also: With the comment about wives, I'm not so sure how often he's been to Thailand

Edited November 28, 2007 by fletchsmile

[Naam]

As for my performance being 'extrodinary', to be honest, I'm conservative, so 10% is extrodinary for me. But that is just me.

As for being a shmuck, some may very well argue that is the case.

shall we form a club?

[samran]

As for my performance being 'extrodinary', to be honest, I'm conservative, so 10% is extrodinary for me. But that is just me.

As for being a shmuck, some may very well argue that is the case.

shall we form a club?

I think we should. Lets call it "we'll all be roooooned" club.

(roooooned = slang for "ruined", for our Deutsche speaking doctoral cousins)

[bingobongo]

we arent in kansas anymore dorothy........

and this is just the beginning, the bounce on the DOW is just that a bounce, the downtrend is still in place

Chinese Stocks Face Worst Month Since 1995 as Bubble Deflates

http://www.bloomberg.com/apps/news?pid=206...&refer=home

Edited November 28, 2007 by bingobongo

[johnnyk]

Here's an opinion I found on counterpunch.org....

Even Larry Summers Predicts Doom

A Dollar the Size of a Postage Stamp

By MIKE WHITNEY

Lately it seems as though everyone wants to take a poke at the dollar. Last week, it was the Brazilian supermodel who demanded euros for her jaunts on the catwalk instead of USD. The week before that, hip-hop impresario, Jay-Z, released a video dissin' the dollar and praising the euro as the 'baddest Dude in the 'hood'.

Lambasting the greenback has become trendy. It's a favorite pastime of politicians, too. At the November OPEC meeting in Riyadh, Iran's president Mahmoud Ahmadinejad asked the assembled finance ministers to "study the feasibility of selling oil in another currency." Ahmadinejad disparaged the dollar as "a worthless piece of paper".

The fiery Venezuelan President, Hugo Chavez, followed Ahmadinejad's lead predicting that the demise of the dollar would mean the "end of the Empire."

Hugo may be on to something. The dollar is America's Achilles heel; if the dollar tanks, so does the empire. That means the taxpayer will have to foot the bill for Bush's bloody-interventions in Iraq and Afghanistan, rather than the Chinese. That also means that the US will have to export something of greater value than Daisy Cutters and gulags. That could be a tall-order, now that Bush has boarded up the factories, hollowed out the industrial base, and outsourced 3 million manufacturing jobs. We'll have to scrape the rust off the machinery and get back into the widget-making business like we were before the Free Trade fiasco.

Central banks across the globe are trying to figure out how to ditch their dollar reserves without triggering a stampede for the exits. No one wants to see that. But, then, nobody wants to be stuck with vaults full of Uncle Sam's green confetti either. So, the question arises; What is the best way to divest oneself of $5.6 trillion (total USD held overseas) before the Lusitania capsizes?

Kuwait, Venezuela, Iran, Russia, and Norway have already opted to ignore the destabilizing effects of "conversion" from dollars and are in some stage of divestiture. Others will follow. The UAE, Bahrain, Qatar, Oman and Saudi Arabia are considering switching from the dollar-peg to a basket of currencies so they can hedge against the inflation that's battering their economies. It's only a matter of time before the Petrodollar System---which links the dollar to petroleum sales and creates a de facto "international currency"---unravels completely, precipitating the final collapse of Breton Woods.

Talk of America's impending currency disaster is no longer relegated to the Internet blathershere. Mainstream journalists have joined the chorus and are sending up their own red flags. The UK Telegraph's economics's editor, Liam Halligan, made this grim observation in his recent article, "Bet Your Bottom Dollar Tensions Will Follow":

"The importance of "dollar divestment" cannot be overstated. At the very least it means the greenback has much further to fall - plunging the US into recession. But it begs a bigger, more alarming, question. How will Washington react to the end of the US hegemony?"

The dollar was savaged by the monetary policies of the Federal Reserve. The Fed's policies were designed to coincide with Bush's Middle East Crusade. They were supposed to work like two wheels on the same axle. The administration believed that, by 2007, the military would need only 30,000 or so troops to maintain security in Iraq. That would give Bush's legions the chance to turn east and push on to the next target-state, Iran. If things went according to plan -- and no one thought the high-tech US war machine could be stopped -- the US would control two-thirds of the world's oil. This would allow America to keep writing bad checks on green paper for the next century.

But then, of course, the plan hit a snag. The Iraqi resistance mushroomed, the US got bogged down in an "unwinnable" war, and the once-mighty dollar shriveled into nothingness. Now we're at a turning point and our leaders are in a state of denial. Bush is still playing Teddy Roosevelt, while Paulson and Bernanke are just plain shell-shocked. They probably know the game is over. As the dollar continues to wither; the frustration is beginning to mount in Europe. Liam Halligan sums it up like this:

"Europe has finally had enough of America's "benign neglect" dollar policy. As a large economic area, with a floating exchange rate, the eurozone suffers most. Over the past seven years, the single currency has risen by a shocking 82 per cent against the greenback. That's hammered eurozone exports - provoking serious trade disputes between the EU and US, the world's two biggest trading blocks. No wonder French President Nicolas Sarkozy describes America's drooping dollar as "a precursor to economic war". (UK Telegraph, "Bet Your Bottom Dollar tensions Will Follow")

Sarkozy is leading the charge for "intervention"; the buzzword for shoring the greenback through exchange controls and buying up billions of dollars. But it's a risky business; especially when net capital inflows -- which are the monthly purchases of US-backed securities and Treasuries --have gone negative for the last two months. That means the US isn't attracting enough foreign investment to finance its trade deficit. So the dollar will have to fall to compensate.

So, how much loot is Sarkozy willing to put up to keep the dollar from slumping further -- $100 billion, $500 billion, $1,000 billion? And where's the bottom?

The fact is, the greenback took a "header" down the stairwell and by the time it picks itself up, it could be eye to eye with the peso. Who knows? Maybe its time we all learned Spanish?

More than two-thirds of all sovereign foreign exchange holdings are denominated in dollars. When those dollars are converted into back into foreign currencies and start recycling into the US; we're in deep trouble. Inflation will soar. Surely, the Fed must have known this day would come when they were pumping trillions of dollars into subprime mortgages and complex debt-instruments which served no earthly purpose except to fatten the bottom line for rapacious bankers and hedge-fund managers. The Fed also knew that the nation's wealth was not being "efficiently deployed" for capital improvements on factories, technology or industry. Oh, no. That would have ensured that America would remain competitive in the global marketplace into the new century. Instead, the money was shoveled into the bottomless sinkhole of stucco homes with composition roofing and toxic credit default swaps.

The stock market lost another 237 points yesterday; the third 200-plus slide in a week. Now all three indexes are down more than 10% since their record high on Oct 9. Treasury yields are plunging as investors flee the stock market looking for safety. That means the Fed will have to slash rates again at its December 11 meeting to provide more low interest crack for the investor class. Traders see an 82% chance that Bernanke will cut the Fed Fund's rate by another quarter point to 4.25%. All that is likely to do is put the dollar into free fall and send food, oil and gold prices to the moon. It won't pay off the overdue mortgage payments and it won't remove the billions of dollars of debt from the banks' balance sheets. It's pointless. The US is headed for a "hard landing" and its dragging the rest of the world along with it.

Harvard Economics professor, Lawrence Summers offered this sobering warning yesterday in an article in the Financial Times, "Wake up to the dangers of a deepening crisis":

"Three months ago it was reasonable to expect that the subprime credit crisis would be a financially significant event but not one that would threaten the overall pattern of economic growth. This is still a possible outcome but no longer the preponderant probability. Even if necessary changes in policy are implemented, the odds now favor a US recession that slows growth significantly on a global basis. Without stronger policy responses than have been observed to date, moreover, there is the risk that the adverse impacts will be felt for the rest of this decade and beyond. Several streams of data indicate how much more serious the situation is than was clear a few months ago."

Summers is not the smartest guy on the block. If he was he wouldn't have said men are smarter than women and he'd still be president of Harvard. But he's a capable economist and he can sniff disaster as it comes stampeding round the corner.

[Firefan]

A good read. Again; it begs the question; what do one do? Sell out all USD at current level? Diversify into other currencies instead? Sell all US based equities/bonds Etc.? And probably reduce equity exposure internationally too, as all markets will be hit if the US economy stalls.

Personally I am diversified across many asset classes & currencies Incl. commodities(futures ETF: DJP) and real estate but wonder whether anything (but gold bars, canned foods and armor piercing ammo ) will be "safe" in the case of a serious default of the US economy.

Another challlenge I have is that I use US brokers for most of my assets. I.e. while I invest in foreign asset classes(and thereby currencies as unhedged ETFs/funds) the final settlement/calculation is STILL in USD - and while I might get more of them when foreign currencies strengthen, it does not matter if the USD goes to ZERO... or if, as mentioned in above article, the US implements currency restrictions making it hard/impossible for me to access my own US based money.

Cheers!

Edited November 29, 2007 by Firefan

[fletchsmile]

we arent in kansas anymore dorothy........

and this is just the beginning, the bounce on the DOW is just that a bounce, the downtrend is still in place

Chinese Stocks Face Worst Month Since 1995 as Bubble Deflates

http://www.bloomberg.com/apps/news?pid=206...&refer=home

I guess I need to join the Schmuck club above, along with Samran and Naam. I've been quite happy the way things have been turning out. I haven't been making the large 100%+ gains on all my investmenst that some parties have been claiming, but the big bad wolf hasn't blown my house down yet, and if anything I've added enough for the odd extension or two since he came huffing and puffing.

I haven't been significantly in Kansas or US investments for 6 years or so either. Although I thought you told Dorothy and the rest of the workd to click their heels and get out 3-4 months ago.

For those of us largely outside US investments that didn't click our heels and panic back then, life has continued to be quite kind. Most mature markets are up slightly in 3-4 months, and Through the (Asian) Looking Glass, we're still up very nicely, since some people clicked their heels and left the yellow brick road a few months back.

I still keep hearing Chicken Little calling. To be honest I'm not quite sure whether the sky is supposed to have fallen on my head and I missed it, or if it's someone else who's living in fairy tales.

[fletchsmile]

A good read. Again; it begs the question; what do one do? Sell out all USD at current level? Diversify into other currencies instead? Sell all US based equities/bonds Etc.? And probably reduce equity exposure internationally too, as all markets will be hit if the US economy stalls.

Personally I am diversified across many asset classes & currencies Incl. commodities(futures ETF: DJP) and real estate but wonder whether anything (but gold bars, canned foods and armor piercing ammo ) will be "safe" in the case of a serious default of the US economy.

Another challlenge I have is that I use US brokers for most of my assets. I.e. while I invest in foreign asset classes(and thereby currencies as unhedged ETFs/funds) the final settlement/calculation is STILL in USD - and while I might get more of them when foreign currencies strengthen, it does not matter if the USD goes to ZERO... or if, as mentioned in above article, the US implements currency restrictions making it hard/impossible for me to access my own US based money.

Cheers!

I think it comes down to 2 choices:

1) You think the world is still as it used to be in the 20th century, and the US will revert to its previous strong empire, and the US will continue to lead, while the rest of the world follows.

In this case, USD is fitting a profile where every man and his dog is bearish on it. That's traditionally not long before recovery starts. The fact that governments are selling USD currency reserves, and moving out is also another traditional signal that the currency is past its worst. Government currency reserves are often some of the last to realise what is happening. Similar to when they changed their view on gold as a reserve last time round.

2) You think a new era is dawning. US will no longer be the dominate force it was, nor will its currency. People will look more at spreading their assets and currencies. Governments will hold wider baskets. Think about it logically, in terms of number of people, resources, land, etc, why should one country be so dominant. A safe haven was perhaps valid after 2 World Wars last century, but as the world becomes more global, countries will adjust naturally towards their resources and means. As China, India, Brazil, Russia, Africa, rest of Asia grow, they will become more significant. That means something has to become less significant. To me that's the US, and it's currency.

My view is more in line with the second. Traditionally if the world was as it was, I would be looking to hold and start buying dollars soon. However, I think the world economies are changing and the balance of power shifting according to more natural factors. The US leads the world in military might, for the moment. But on other factors, the US and its currency will fall in line with resources, number of people, talents etc. It will become just another large country like any other, and lose the premium it had in the 20th century for other reasons.

Edited November 29, 2007 by fletchsmile

[Abrak]

The economist in its latest issue called the devaluation of the dollar the 'greatest default in history' - the US government as the largest US dollar borrower has been the biggest beneficiary and the likes of China (and Thailand) have borne the costs through their forex reserves.

Being the 'world reserve' currency is a privileged position because it enables you to spend profligately without real consequence. The pain of US domestic excesses have been borne by US creditors who have seen the value of their reserves collapse. (The pain of Thailand's domestic excesses were by domestic consumers as all foreign borrowings were repaid in full.

The problem with being the world reserve currency - as the Brits found before and the US finds now - is that it encourages you to spend beyond your means because the costs of your actions will be borne not by your voters (either domestic consumers) but by external participants.

It is interesting to note that there are a number of participants that are calling for a return to the gold standard because of the fiscal discipline it brings. However, they fail to realize that everyone in the US should be thankful that the bulk of the costs for the US living beyond its means for so long will be borne by foreign investors - that is a reflection of the US ability to print money to escape their financial problems.

[bingobongo]

hello dear readers, the DOW rally 500+ points in two days (nov 27 and nov 28), because the FED greased the wheels some more (dark blue line - sloshing bar), and for the astute among you, you may notice that it is taking more dough to get the desired effect yet the DOW is still 800 points below 14000, so more pumping is having diminishing returns, sort of like a crack addict needing more drug to get a high......you can only stop the dam from breaking with bandaids for so long.......the trend is still down, with bounces along the way.......SET is bouncing as well, but the result will be the same

and the lull in the debt market is temporary.....

Edited November 29, 2007 by bingobongo

[Abrak]

Bingobongo, I understand the second chart (which shows a 'valuation' of triple A mortgages) - incidentally one that I cant believe is sutainable (nothing to do with sub prime).

But what does the first chart show. I mean it looks interesting but I have no idea what it is.

P.S. If the second chart bears a semblance to reality then the world really is coming to an end. Losses from the mortgage market could exceed US$2trillion!!

[shochu]

If everything we read in terms of facts and figures were true then much of the stuff said above would be plausible - unfortunately there are too many unknowns due to manipulation, agendas, etc.

There are so many things happening behind the scenes that we will never know about - that in these discussions about what might or might not happen - can only be that - discussions.

Who knows who is behind what and what the reasons are.

Some things that we can probably surmise to be somewhat true are - there are many big players that can affect the markets; the world is awash in fiat and electronically instantaneous (what I will here call) money until it is used. The world is either being manipulated in a manner that is pre-determind OR it is so big and complicated that nobody can now control it even though they are trying. I believe it is a combination of both but the latter will prevail.

When we play a game of monopoly - we have a set of rules and a limited amount of paper money, land and property. We know the rules yet most of it ends up in the hands of one. What happens when we don't play by the rules - who then has the advantage - and is there any way to circumvent this - well maybe if your lucky you can catch a ride eh!

The world is much like this monopoly game in that the few are becoming increasingly wealthy, while the rest of us are becoming less able to put food on the table. We living an existence life where we work to live, not the other way around. I realise this is a very simplistic take on things - but I believe it explains the nature of things in a simple but succinct manner.

So getting back to the above - yes - if we knew the facts you guys are using were true and we had all the correct info. then much of the above could be plausible.

BUT, and I say BUT,

We do not have all the info and if anybody actually believes the numbers regarding, inflation, employment/unemployment, etc. well what more can I say.

Well to add to everything - I can say next year will be interesting when the first of the baby boomers starts receiving their bennies and health care starts taking a hit and....

Why only focus on the basics and leave other important data from the equation? AHHH yes the media hype. Please don't tell me their tactics are working. I just hope you guys are not representative of the majority otherwise we in shit man.

Anybody remember all the guys who lost their shirts in the last dotcom bust - now working into their retirements.

There is so much fiat looking for a home - hence the building boom - but everywhere I go in asia - I see new empty buildings and I can not imagine who will occupy all this new stuff. I myself am buying things I don' need just to diversify out of too much cash into things I think will have some value. Things I think will maintain some value in this race to the bottom.

[Abrak]

shochu, I always think a guy who uses the word 'fiat' is long gold!

[shochu]

ha ha,

abrak

you got me - and in my defense I love the stuff

but only enough to diversify...

[Naam]

For those of us largely outside US investments that didn't click our heels and panic back then, life has continued to be quite kind. Most mature markets are up slightly in 3-4 months, and Through the (Asian) Looking Glass, we're still up very nicely, since some people clicked their heels and left the yellow brick road a few months back.

that's a matter of perspective Fletch. if i look at my performance -when doing accounting in USD- i am up ~12.50% but that mainly because until recently i kept on selling forward USD against €UR and because i have reduced my USD positions from >50% to <30% in favour of €UR, NZD and AUD during the last 12 months. if i measure the performance of my portfolio in €UR i see RED

p.s. got rid of all NZD and AUD last week, buying €UR although i think that the €UR has seen its best days and that the USD has seen its lows. just my personal opinion, NOT a prophecy!

edited for addendum:

portfolio performance 2007 = worst since 1998

Edited November 30, 2007 by Naam

[sonicdragon]

Bingobongo, I understand the second chart (which shows a 'valuation' of triple A mortgages) - incidentally one that I cant believe is sutainable (nothing to do with sub prime).

But what does the first chart show. I mean it looks interesting but I have no idea what it is.

P.S. If the second chart bears a semblance to reality then the world really is coming to an end. Losses from the mortgage market could exceed US$2trillion!!

Your understanding is mistaken. The 2nd chart shows the quoted levels of credit default swaps for the AAA tranche of securitised sub-prime mortgages, which is very different from the value of AAA mortgages.

The first chart is a summary of the Fed's recent open market operations whereby the Fed injects cash into the financial system using repurchase agreements (repos) with qualified financial institutions for various financial instruments (treasuries, federal agency obligations and mortgage backed securities). This is the main way in which the Fed controls the actual Fed Funds rate to be as close to the target rate as possible. The "sloshing bar" that BB is reffering to is the the excess of repos that have been accepted but haven't yet matured.

Edited November 30, 2007 by sonicdragon