Financial Crisis

[flying]

Job Loss report out today.

If they say 9.8% you can count on it actually being closer to 18%

WASHINGTON (MarketWatch) -- The nation's job losses accelerated in September, driving the unemployment rate to a 26-year high of 9.8% and casting a cloud over the incipient recovery, economic data showed Friday.

http://www.marketwatch.com/story/us-job-lo...mber-2009-10-02

Also interesting to note they are not including in this number the 571,000 folks that dropped out of the labor force

http://www.dailymarkets.com/economy/2009/1...-than-it-looks/

Edited October 3, 2009 by flying

[BEENTHEREDONETHAT]

Job Loss report out today.

If they say 9.8% you can count on it actually being closer to 18%

WASHINGTON (MarketWatch) -- The nation's job losses accelerated in September, driving the unemployment rate to a 26-year high of 9.8% and casting a cloud over the incipient recovery, economic data showed Friday.

http://www.marketwatch.com/story/us-job-lo...mber-2009-10-02

Not to worry, Obama is planning to extend unemployment benefits another 79 weeks.

[Naam]

I post this article in the Precious Metals forum because, currently, between Goldman Sachs and J.P. Morgan Chase, over 250 million ounces of silver are being sold short. This is silver that, not only do they not have (hence the term "naked short selling ") but is silver that doesn't even exist. When this practice is curtailed, the price of silver will "go to the moon".

Article here..........

http://www.silverbearcafe.com/private/10.09/inside.html

and one silver dollar will buy a butchery

[flying]

and one silver dollar will buy a butchery

I dont care about no sausage factories

When one silver dollar breaks 50 usd I retire ,,,,because gold will be $3000

Edited October 3, 2009 by flying

[flying]

Not to worry, Obama is planning to extend unemployment benefits another 79 weeks.

That was before Copenhagen said no to Chicago

Now he will just hire a Olympic Czar & call it a day

[Naam]

and one silver dollar will buy a butchery

I dont care about no sausage factories

When one silver dollar breaks 50 usd I retire ,,,,because gold will be $3000

how will you manage all those bakeries?

[flying]

how will you manage all those bakeries?

I dunno but I will need a place to store all that dough anyway...may as well be a bakery

[midas]

Merkets are inherently dysfunctional. That is why behavioural economics is so popular today. However while these economists like say Shiller do a very good job of showing that markets do not equate to their equilibrium, they dont do a particularly good job in explaining why.

To me the 'why' is best explained by George Soros who is more of a trader and has a theory he calls 'reflexivity'. Essentially equations that go into making investment decisions are non-independent equations so that the end results can be self-reinforcing movements away from equilibrium.

BTW despite all that 'rational economics' stuff 'chaos theory' etc the idea that markets 'can' be irrational has been around forever. Soros's theory which admittedly has little academic support is that markets are 'inherently' irrational - that they naturally move from boom to bust rather than equilibrium.

Abrak as a person who obviously has an in-depth appreciation of economics, I assume past studies of subjects such as ' rational economics' stuff 'chaos theory' etc

are based on an assumption people are expected to act within certain parameters ? I would be interested in your view as to how or if economic theory ( not stock markets but everyday business activity ) is capable of factoring in a situation where due to stress of everyday living and loss of income etc., the tendency for people to act dishonestly in business transactions starts to becomes prevalent in society i.e. corruption becomes an epidemic ?

Does this merely result in the theory of inherent irrationality being compounded several times ? If in other words for one reason or another people started thinking

on a very short term such as I don't see any bright prospects in the future so I'm going to lie, steal and cheat in every activity I do and to hel_l with everyone else?

How can economic theory or economic modelling take account of such behaviour and if it cannot surely theory based on past conditions is meaningless today ?

Edited October 3, 2009 by midas

[flying]

If in other words for one reason or another people started thinking

on a very short term such as I don't see any bright prospects in the future so I'm going to lie, steal and cheat in every activity I do and to hel_l with everyone else?

I know this was directed at Abrak but, when I saw this I thought of all the posts I see on the web today. These posts are basically from folks who claim they have been nose to the grindstone till now. Suddenly these folks are of the mind that if the F_cking banks can get bailed how dare they raise my CC card interest now when they know we are having a tough time. Yet give almost zip on savings.

Screw them I am walking on the unsecured debt.

Same on the housing forums....The banks set me up with this ARM & now they can eat it too, But first we will live here as long as possible & by eviction time have a nice nest egg & start over.

Now I don't believe two wrongs make a right & these folks charged up their cards buying toys. They could have read the CC agreement & seen that the bank reserves the right to raise interest & you have the right to cancel the card (paying in full) if you dont like the new terms. Yet they dont see it that way at all. I have argued a few times with these folks & they say F the banks.

They also signed in good faith that ARM knowing they may or may not get a refi later. Nor did they have a guarantee of employment. Also who told them to treat their homes the biggest investment of their lives like ATM machines? But it does sound like what your describing. There is a moral bankruptcy occurring here in the US daily.

It is as if the kids have seen the parents doing immoral acts & say well....If they can....

I don't know how old these folks are but think a persons word/signature should still be worth something. They also are shooting themselves in the foot if they are young & screwing their credit. But they are having none of it. They think there is some kind of giant reset occurring soon or who knows what.

But to me I just wonder where it is all going & how it will affect the whole. It is true what we see of how the bailout not TARP not recovery fund etc but BAILOUT was just that. They bailed their buddies & it has done squat for the rest. But still I wonder where is it going this bankruptcy of morals.

Edited October 3, 2009 by flying

[midas]

Screw them I am walking on the unsecured debt.

That lady on the youTube video telling the Bank of Amercia to get f_cked comes to mind

[midas]

Do you need to see the elimination of national debts to achieve that? It is a noble, yet somewhat idealistic goal and definitely one worth shooting for, but is zero debt strictly necessary to achieve economic growth of the type I'd like to see?

I don't think so, but I know that balanced books is usually preferable (unless you can make the debt work for you!)

well how about just not spending any more ?

And this is what is worrying - The U.S. government has guaranteed loans to Fannie May, Freddie Mac and the FHA

to the tune of 6 trillion dollars. This strategy will only work if there is a meaningful recovery in housing prices in the short term.

If there is a further serious leg down and house prices in USA fall even further ( and the unemployment trends

don't look promising ) then USA is up the creek without a paddle

[Abrak]

Abrak as a person who obviously has an in-depth appreciation of economics, I assume past studies of subjects such as ' rational economics' stuff 'chaos theory' etc

are based on an assumption people are expected to act within certain parameters ? I would be interested in your view as to how or if economic theory ( not stock markets but everyday business activity ) is capable of factoring in a situation where due to stress of everyday living and loss of income etc., the tendency for people to act dishonestly in business transactions starts to becomes prevalent in society i.e. corruption becomes an epidemic ?

Does this merely result in the theory of inherent irrationality being compounded several times ? If in other words for one reason or another people started thinking

on a very short term such as I don't see any bright prospects in the future so I'm going to lie, steal and cheat in every activity I do and to hel_l with everyone else?

How can economic theory or economic modelling take account of such behaviour and if it cannot surely theory based on past conditions is meaningless today ?

Well I think Flying touches on the most important issue here namely 'moral hazard'. If a bank can lend badly (or riskily) and be bailed out or someone can borrow imprudently and be bailed out then there is an incentive for people to act dishonestly 'namely to borrow and lend monies with no intention of repayment'. This seems a fundamental problem with capitalism in that it becomes ever more dependent on increasing 'moral hazard'. Note here that dishonest behavior becomes rational.

This issue is 'sort of' on the agenda with talk of reregulation of banks. For instance by law in Canada you cannot lend more than I think 70% of the capital value of property. Now if the Government is going to guarantee the bank that sounds fairly sensible (actually it just sounds fairly sensible.)

Economics is based on transactions taking place that are win-win for both buyer and seller. So how is buying a house at twice what its worth win-win? First you have the moral hazard issue the buyer believes that losses will not be borne by him. Secondly you have what is called in economics 'Hahn's rational disequilibrium' (better known as 'the greater fool theory') in other words he is paying too much because he believes there will be another buyer who will pay even more. (Midas might believe this is Zorro's current approach to investing for instance.)

Also you have to bear in mind that honesty lies in different places with different people. A politician that might 'invest' to get elected may believe he is entitled to a return on his investment whether it is in the interest of his electors or not - they have received upfront. The company that does a US$1.5bn contract with sales commissions of US$500m simply sees them as an additional cost of doing business - where the US$500m goes is really not a major concern. And to some extent even the local community who elected him are unconcerned because a proportion of it will make its way back to them - Banharnville like.

(Obviously as Marx pointed out capitalism is designed for the priveleged few to take advantages of the masses. So that a transaction that involves Goldman Sachs getting US$1bn, Putin getting US$1bn and Abromavich getting US$10bn happen because it is win-win-win between the three parties while Russia's oil reserves are used to keep John Terry as captain of Chelsea.)

Finally you have 'bad will' where through one means or another a transaction is made to look good which isnt. This gets tended to be referred to as 'lack of transparency' 'cronyism' 'legging over minority interests' etc. Ultimately all the investor does is add a substantial risk weighting to the investment and increases their cost of capital. In other words, in the absence of 'good faith' capitalism fails to happen.

BTW, in theory, the concept that all transactions are win-win or mutually beneficially is quite central to capitalist economics. Often in Asia I find this concept very difficult to get across. It often seems - to the Chinese in particular - that every transaction must involve a winner and a loser.

[lannarebirth]

Abrak as a person who obviously has an in-depth appreciation of economics, I assume past studies of subjects such as ' rational economics' stuff 'chaos theory' etc

are based on an assumption people are expected to act within certain parameters ? I would be interested in your view as to how or if economic theory ( not stock markets but everyday business activity ) is capable of factoring in a situation where due to stress of everyday living and loss of income etc., the tendency for people to act dishonestly in business transactions starts to becomes prevalent in society i.e. corruption becomes an epidemic ?

Does this merely result in the theory of inherent irrationality being compounded several times ? If in other words for one reason or another people started thinking

on a very short term such as I don't see any bright prospects in the future so I'm going to lie, steal and cheat in every activity I do and to hel_l with everyone else?

How can economic theory or economic modelling take account of such behaviour and if it cannot surely theory based on past conditions is meaningless today ?

Well I think Flying touches on the most important issue here namely 'moral hazard'. If a bank can lend badly (or riskily) and be bailed out or someone can borrow imprudently and be bailed out then there is an incentive for people to act dishonestly 'namely to borrow and lend monies with no intention of repayment'. This seems a fundamental problem with capitalism in that it becomes ever more dependent on increasing 'moral hazard'. Note here that dishonest behavior becomes rational.

This issue is 'sort of' on the agenda with talk of reregulation of banks. For instance by law in Canada you cannot lend more than I think 70% of the capital value of property. Now if the Government is going to guarantee the bank that sounds fairly sensible (actually it just sounds fairly sensible.)

Economics is based on transactions taking place that are win-win for both buyer and seller. So how is buying a house at twice what its worth win-win? First you have the moral hazard issue the buyer believes that losses will not be borne by him. Secondly you have what is called in economics 'Hahn's rational disequilibrium' (better known as 'the greater fool theory') in other words he is paying too much because he believes there will be another buyer who will pay even more. (Midas might believe this is Zorro's current approach to investing for instance.)

Also you have to bear in mind that honesty lies in different places with different people. A politician that might 'invest' to get elected may believe he is entitled to a return on his investment whether it is in the interest of his electors or not - they have received upfront. The company that does a US$1.5bn contract with sales commissions of US$500m simply sees them as an additional cost of doing business - where the US$500m goes is really not a major concern. And to some extent even the local community who elected him are unconcerned because a proportion of it will make its way back to them - Banharnville like.

(Obviously as Marx pointed out capitalism is designed for the priveleged few to take advantages of the masses. So that a transaction that involves Goldman Sachs getting US$1bn, Putin getting US$1bn and Abromavich getting US$10bn happen because it is win-win-win between the three parties while Russia's oil reserves are used to keep John Terry as captain of Chelsea.)

Finally you have 'bad will' where through one means or another a transaction is made to look good which isnt. This gets tended to be referred to as 'lack of transparency' 'cronyism' 'legging over minority interests' etc. Ultimately all the investor does is add a substantial risk weighting to the investment and increases their cost of capital. In other words, in the absence of 'good faith' capitalism fails to happen.

BTW, in theory, the concept that all transactions are win-win or mutually beneficially is quite central to capitalist economics. Often in Asia I find this concept very difficult to get across. It often seems - to the Chinese in particular - that every transaction must involve a winner and a loser.

Good post and the only thing I would add is that a significant portion of the "victims" of these policies are those that enable the same policies. The thinking being "I'll get mine before it all blows up". Or maybe it's some kind of Stockholm Syndrome.

[samuibeachcomber]

and to put it very simply,if you have moral decay at the top,the general public will say"if they can do it and get away with it,so can i" and then we see the moral boundaries go further and further out.

[Abrak]

and to put it very simply,if you have moral decay at the top,the general public will say"if they can do it and get away with it,so can i" and then we see the moral boundaries go further and further out.

Well I have a theory. Not an original one by any means and it may not be correct. But to an extent Chinese culture places 'the family' at the top of the hierarchy. If a deal is in the interests of their 'family' they are unconcerned if it is not in the best interests of people in general. So take the stockmarket for example. The basic concept is that it is a means of allocating capital to generate returns that benefit all shareholders equally. Often Eastern cultures look at it as a way of selling off their capital at the best price and once listed see that the economic returns only accrue to the major shareholder. So in their own mind they are doing what is best for their family.

But its 'value creation' that seems such a difficult concept to get across.

[midas]

(Obviously as Marx pointed out capitalism is designed for the priveleged few to take advantages of the masses. So that a transaction that involves Goldman Sachs getting US$1bn, Putin getting US$1bn and Abromavich getting US$10bn happen because it is win-win-win between the three parties while Russia's oil reserves are used to keep John Terry as captain of Chelsea.)

Finally you have 'bad will' where through one means or another a transaction is made to look good which isnt. This gets tended to be referred to as 'lack of transparency' 'cronyism' 'legging over minority interests' etc. Ultimately all the investor does is add a substantial risk weighting to the investment and increases their cost of capital. In other words, in the absence of 'good faith' capitalism fails to happen.

BTW, in theory, the concept that all transactions are win-win or mutually beneficially is quite central to capitalist economics. Often in Asia I find this concept very difficult to get across. It often seems - to the Chinese in particular - that every transaction must involve a winner and a loser.

Interesting Abrak !

Yes when I think of good old-fashioned capitalism, I imagine a system like in the old days just after the Industrial Revolution. I don't believe the menial factory floor worker had any deep-seated resentment towards the owner -the system i believe worked on the basis everyone understood there could only be one privileged family. The workers were happy to receive a salary to pay for the bare essentials. The accountants did their job, the banks did their job and were highly respected institutions because they stuck rigidly to predetermined rules and standards. The unions had their place and were powerful but I don't believe in those days they would involve themselves with fraudulent activities such as the SEIU today.

It is this order of truth and honesty that I feel has been permanently lost. It was a set of values throughout society based on respect and comparing it today-I feel sometimes I'm on a different planet.

Yes it is precisely the 'bad will' that I'm referring to and in my mind this has now permeated all levels of society-private enterprise and government institutions.

even sport is dishonest -horses dogs and humans being drugged to enhance performance.

" in the absence of 'good faith' capitalism fails to happen " -so what happens next ? Are the seeds of anarchy being sown?

[cloudhopper]

Another great Max Keiser piece on derivatives and the coming deflationary burst -

[Abrak]

Interesting Abrak !

Yes when I think of good old-fashioned capitalism, I imagine a system like in the old days just after the Industrial Revolution. I don't believe the menial factory floor worker had any deep-seated resentment towards the owner -the system i believe worked on the basis everyone understood there could only be one privileged family. The workers were happy to receive a salary to pay for the bare essentials. The accountants did their job, the banks did their job and were highly respected institutions because they stuck rigidly to predetermined rules and standards. The unions had their place and were powerful but I don't believe in those days they would involve themselves with fraudulent activities such as the SEIU today.

It is this order of truth and honesty that I feel has been permanently lost. It was a set of values throughout society based on respect and comparing it today-I feel sometimes I'm on a different planet.

Yes it is precisely the 'bad will' that I'm referring to and in my mind this has now permeated all levels of society-private enterprise and government institutions.

even sport is dishonest -horses dogs and humans being drugged to enhance performance.

" in the absence of 'good faith' capitalism fails to happen " -so what happens next ? Are the seeds of anarchy being sown?

Actually I think the old fashioned capitalism you are referring to would generally be regarded as 'paternalism'. Namely the employer kept the employee on during the bad times and he didnt jump ship for a 20% pay rise in the good times.

At one stage it was considered the key to Japanese success. BTW the Japanese still have it - production down 60%, unemployment 5.4%.

I dont think honesty has been lost it is more faith and trust. Adam Smith who founded modern economics pointed out that 10 labourers in a pin factory produced 48,000 pins while each one working alone would only produce 1 (or something like that). Now that spirit is lost and people work solely in their own self interests largely because management are prepared to discard them anytime for theirs.

And in the face of globalization what else can they do?

[Abrak]

This is a great chart posted originally by someone from Thaivisa. It shows employment numbers and the percentage fall during a recession.

It is obviously a very pretty chart - all the colours in the rainbow.

But a couple of things have happened - first because of births and deaths data the BLS has overstated employment by 824,000 this year or 0.6%. The second point is this both the last recessions employment fell by less than 2% but were the longest to recover to the same number of employed. The longest before that was the previous recession.

So now we have a 6% fall in the number of employed how long will it take to get back to the same number of employed - say 10 years. By which time the number of employees will have risen by 10m. Bit of a bummer.

http://1.bp.blogspot.com/_pMscxxELHEg/SsdK...2007Revised.jpg

[flying]

So now we have a 6% fall in the number of employed how long will it take to get back to the same number of employed - say 10 years. By which time the number of employees will have risen by 10m. Bit of a bummer.

Yes that is a bummer chart

You know that site has all kinds of info.

http://www.calculatedriskblog.com/

Fairly depressing

Good site

There is a reason for the new employment going this way

http://www.goarmy.com/JobDetail.do?id=292

Edited October 4, 2009 by flying

[flying]

Derivatives

Janet Tavakoli

Part two follows

Derivatives 600 trillion =10x the GDP of the world

[midas]

Derivatives 600 trillion =10x the GDP of the world

When I innocently asked a question about this much earlier in this thread ( quoting $ 593 trillion ) , Naam inferred that by me

mentioning such an enormous figure, I could indirectly be held responsible for a suicide of someone if they read it and

decided it is all too much so dont be surprised if you get flamed by a klingon

[Naam]

Derivatives 600 trillion =10x the GDP of the world

When I innocently asked a question about this much earlier in this thread ( quoting $ 593 trillion ) , Naam inferred that by me mentioning such an enormous figure, I could indirectly be held responsible for a suicide of someone if they read it and decided it is all too much so dont be surprised if you get flamed by a klingon

there is no reason for flaming. not only me but others too have tried repeatedly to explain that putting a total number on existing derivatives does not mean anything as the lion share of derivatives are not devil's inventions but normal future transactions which belong to the daily finance business.

[12DrinkMore]

Derivatives 600 trillion =10x the GDP of the world

When I innocently asked a question about this much earlier in this thread ( quoting $ 593 trillion ) , Naam inferred that by me

mentioning such an enormous figure, I could indirectly be held responsible for a suicide of someone if they read it and

decided it is all too much so dont be surprised if you get flamed by a klingon

Does anybody know how these derivatives have been given this "value" of 600,000,000,000,000 USDs? That's an absolute shedload of zeros. But what exactly are we talking about?

Anyway here is Roubini

http://www.bloomberg.com/apps/news?pid=206...id=aGDRFBUdT3iY

“In the short run we need monetary and fiscal stimulus to avoid another tipping point and to avoid deflation, but now this easy money has already started to create asset bubbles in equities, commodities, credit and emerging markets,” Roubini said. “For the sake of achieving growth stability again and avoiding deflation, we may be planting the seeds of the next cycle of financial instability.”

Just what GS and Wall Street want.

I wonder just who, in fact, wants to introduce stability into the financial world? It is certainly NOT those who earn billions out of instability, with stable markets they would all be joining the ranks of the unemployed. If those in power really want to create a stable world, where the asset values of the people, stocks, cash, houses, pensions, are not destined to ride the roller-coaster forever, then they have to simply get rid of the majority of traded financial instruments and restrict transactions to buying/selling stocks. Derivatives are simply a leveraged side-bet and should be banned outright in the financial centres of the world and their use restricted to the gambling shops where they belong, with the participants having no recourse to any form of government bailout.

As Roubini says

“The real economy is barely recovering while markets are going this way,” Roubini said. If growth doesn’t rebound rapidly, “eventually markets are going to flatten out and correct to valuations that are justified. I see a growing gap between what markets are doing and the weaker real economic activities.”

Stand by for the next ride down.

The financial world has basically decoupled itself from the real world, but is unfortunately allowed to use real word money. Maybe it should be issued a new currency such as several multiplayer computer games have developed? There can, of course, be an exchange rate to "real currencies", but this would have to be strictly controlled. The financial trading environment has surely degenerated into a computer game and should be relegated to such.

The harm and destruction these game players inflict on the "real" world is far too great.

[flying]

I wonder just who, in fact, wants to introduce stability into the financial world? It is certainly NOT those who earn billions out of instability, with stable markets they would all be joining the ranks of the unemployed. If those in power really want to create a stable world,

But that to me is the problem ...They are in fact one

Lets face it GS et al are the ones in power & run this country if not the world.

My solution can not be printed on the internet

[flying]

Another good article.....

Krugman and the pied pipers of debt

http://blogs.reuters.com/rolfe-winkler/200...pipers-of-debt/

Today, private debt is a suffocating 300 percent of GDP, making more public debt that much harder to pay down.

We know how this movie ends. Look at California — or Argentina.

[Naam]

views and opinions

Overview

A strong global growth accompanied by an extended period of low interest rates in the G3 economies. Historically, such environment is bullish for financial markets.

US equities

Merrill Lynch expects the S&P 500 to reach 1200 in 12 months. This implies a 17x forecast P/E for 2010 and 15x 2011. The forecast is based on EPS growth and not P/E expansion. Driving that EPS growth will be a combination of declining credit costs, higher oil prices and healthy foreign markets.

US profit outlook in particular is brightened by the record declines in unit labor costs. This factor is worth considering in more detail because it suggests significant upside earnings surprises for US firms. We think the US equity market will perform in next the 12-18 months although it may not be the best performing market. To play the market via an asset allocation framework, ETF (iShares iyy for DJIA or ivv for S&P 500, fact sheets enclosed) is a recommended way to gain exposure for investors who expect a better US performance but do not want to pick stocks or expose to single stock risk.

<<iyy.pdf>> <<ivv.pdf>>

Non-US equities - Europe and Emerging Markets

A more bullish outlook in the US is a positive for non-US equity markets, particularly if stronger US growth goes hand-in-hand with a weaker US dollar. The correlation between US and international equity markets has been over 72% in the past 20 years and non-US equities have historically performed well when US growth forecasts are upgraded. Also the environment of near zero interest rates means that savings are being slowly forced out of cash and into riskier asset classes. Invest in the broad Emerging Markets and increase weightings in Europe.

As economic recovery continues its pace, active stock selection can play a larger role in performance going forward. To expose to the emerging markets themes, one may use active management via mutual funds investment. Exposure should be more broad based, covering various regions such as Latin America, Eastern Europe and Asia instead of a single region.

In Europe, economic recovery appears gaining traction. Germany may surprise on the upside in terms of the speed of recovery. Trading on 1.5x book value and offering a 4.1% dividend yield, European ex-UK equities look attractive on valuation grounds. Vehicle to invest is through ETFs (available in Euro or USD, factsheet enclosed). On the other hand, one may consider active managers to play on such themes as small caps or broader Europe including the UK and Eastern Europe.

<<ETF-FEZ_20090630_092150.pdf>> <<iShares_DJ_EURO_STOXX_50_DE_e.pdf>>

China and HK equities

The heavy IPO pipelines in this quarter and concerns on tightening measures in China will continue to be the factors driving down the markets. We remain positive on China but at this juncture would wait for a better entry point for new allocations. Both Hang Seng and the H-share indices could again fall below 20,000 and 11,000 respectively in the coming days. But these levels represent good valuation support. We have added a few defensives names such as China Mobile and China Life Insurance into our focus list. The recent market weakness, if extended, should provide opportunity to introduce more cyclical names into the list. Please kindly pay attention to the coming updates.

[sokal]

Derivatives 600 trillion =10x the GDP of the world

When I innocently asked a question about this much earlier in this thread ( quoting $ 593 trillion ) , Naam inferred that by me mentioning such an enormous figure, I could indirectly be held responsible for a suicide of someone if they read it and decided it is all too much so dont be surprised if you get flamed by a klingon

there is no reason for flaming. not only me but others too have tried repeatedly to explain that putting a total number on existing derivatives does not mean anything as the lion share of derivatives are not devil's inventions but normal future transactions which belong to the daily finance business.

hahahaha, that was a good one. Tim Giether could use a speech writer. Maybe this was already posted but.....

Some of the State Owned Enterprises that stated their potential intentions to default were Air China. China Eastern and Cosco. Mainly in part because they took major derivatives losses over the past year but also, concerns are arising that the derivatives that they were sold by these foreign institutions are garbage, underwater and may never see the light of day. So why continue to pay for them? So the concern in the financial world is that holders of these losing products may just walk away, not unlike a home owner with a $600,000 mortgage on a home valued at $475,000 deciding to just hand in their keys. However, read on...this has nothing to do with morgtgage backed products. This time, the concern may be over Oil.

Here is the looming problem. These products are worth billions. One report that a good friend of mine did showed that if Goldman Sachs for example were to take this one up the rear, they could stand to lose 15 billion dollars. (This number is by no means confirmed)

An important history lesson is needed here. “Potential default” was the concern that sparked and prompted the most recent economic crisis. These intricately weaved products along with highly speculative CDOs and CDSs began to fall apart when the bubble that was in large part significantly contributed to and created by the financial institutions that were packaging this junk started to fall apart.

Imagine the impact for a brief moment if you will, on the impact to the financial landscape if China were to say “we are walking away” from those products. I would imagine that China, being the biggest purchaser of US debt, could surely collapse the US institutions that were at one point deemed too big to fail if they decide to go ahead with this plan.

This is why I don’t take tonight’s news that China purchased 50 billion dollars of IMF bonds lightly. In fact, I take it very seriously. This is why I take the buzz on the floor over the past two days very seriously as well as I do the incredible spike in Gold today. Most importantly, I do not take lightly the recent 25% correction we have seen in the Chinese Stock Market. Can all these events be interconnected some how? Is the Chinese stock collapse giving us a hint?

Edited October 5, 2009 by sokal

[Penefattore]

for Dr.Naam

what do you think of this bond ?

http://anleihen.onvista.de/snapshot.html?I...RUMENT=16908359

http://21.com.ua/files/5/XXIC_CFS_1H2008.pdf

any hope to gain something buying now at 10 ?

[flying]

Roubini, HSBC issue financial crash warnings

After US unemployment data last week that confirmed the economic slump is ongoing and that talk of a recovery is premature, two global icons have issued their own warnings on the present overvaluation of financial markets.

‘Markets have gone up too much, too soon, too fast,’ said Professor Nouriel Roubini who first spotted the US sub-prime crisis more than three years ago. ‘I see the risk of a correction, especially when the markets now realize that the recovery is not rapid and V-shaped, but more like U-shaped. That (correction) might be in the fourth quarter or the first quarter of next year.’

HSBC warning

Meanwhile, the Financial Times features an interview with Michael Geoghegan, the chief executive officer of HSBC who is convinced that there will be ‘a second global economic slump’ and as a result ‘doesn’t want the bank to grow too fast’.

Roubini’s warning is well timed as financial markets have been uneasy for almost a week and with the S&P up more than 50 per cent from its March bottom of 666 there is a general view that a correction is overdue.

It is also something of a mystery where the buyers have come from in this rally. Small investors have largely missed it and parked 13 times more money in bond funds. Recently share price rises have been concentrated into a few large stocks suggesting bigger players have been driving the market up.

Goldman Sachs wildly inaccurate unemployment number forecast last week, which was altered at the last minute, it considered by some insiders to have been an attempt to break the market rally by making Friday’s jobs data appear much worse than expected.

However, the big debate is now moving on to whether we will experience a correction that will quickly reverse back and then continue the rally, or whether a downward plunge will follow like in the 1930s (see chart comparison below). The bullish rally camp is looking emptier by the day but optimists will not give up that easily.

Liquidity trap

It is hard to see why a rally would resume apart from excess liquidity in the system. But that assumes liquidity is going to get into the economy and not sit on bank balance sheets, ironically waiting for the recovery that only it could produce.

In the meantime, a global economy still starved of credit for private consumption and investment combined with a collapse in global trade not seen since the 1930s points to a continued recession and much lower stock prices. And if the plunge is deep enough then leveraged investors will be extinguished and small investors frightened off stocks for life.

Is history repeating the 1930s or will it be more like the wild gyrations of the 70s? Only time will tell, and it seems The Day of Reckoning is in town.

http://arabianmoney.net/2009/10/05/roubini...-crash-warning/