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In reply to: Sav on Tuesday 28/08/07 06:08pm

Flight to safety in a panic


The episode in the US treasury market early this week, where yields dropped 1 to 2% in a panic flight to safety in US T bills/bonds/notes was quite something. In fact, it was almost never seen before. Well, as stocks seem to calm down, that is not a good sign at all that things are done unwinding. Rather, it just shows the fragility of the situation.


One quote in an article stated, as I recall, ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¹Ãƒƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“people just wanted to get out of Money Market Funds and into Treasuries'. I don't remember the link. It's been a big rush of data and articles, and I have been a very busy bee trying to keep up. I'm sure that you have too, as have the banks and Fed and ECB and practically everyone.


I want to comment on the UST market and stocks, but first another thing about how bad this credit crisis is. It is NOT over. The commercial paper market (short term credit for companies like 30 to 90 days) is swapped between banks and companies and institutions to cover short term funding needs. The market in the US alone is $2trillon. $50 billion has to roll over each week.


Well, in the last two weeks, a backlog of $90 trillion has accumulated and NOT rolled over. This is the next set of dominoes to fall. The EU is having similar trouble, and one German banker said there is the making of a serious German banking crisis ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ because short term paper is not rolling over. So what does everyone do now? The system is collapsing right before our eyes.


If a company, bank, whoever, cannot roll over their short term paper, they are insolvent. This is a very big deal. I could go on and on about other sectors of the credit market being dead in the water right now. The efforts of the Fed to save things with the discount window appear not to be working. I have said before that Central banks are really trying to get ahead of this mess, but they are not really succeeding. Get ready for phase two of the developing liquidity/credit crisis. One guy said the unwinding will not be denied. Probably, we have only seen the beginning of it, and what a beginning it was/is. The scale of this is just huge.

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In reply to: Sav on Tuesday 28/08/07 03:08pm


Thanks for the China US trade info


So roughly 1/3 of China's total output is exports and 1/3 of that goes to the US,

or 1/9-11% of total output goes to US.


Doesn't sound a lot if you look at it that way but China's exports to other countries would also be affected by a US slowdown.


In practice, I suppose a US led slowdown in demand for China's exports, and in turn, China's demand for our resources, may not be such a big deal percentage wise,

but we could get some nasty share market fallout before everyone realizes that





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In reply to: Sav on Tuesday 28/08/07 06:33pm

Sav. They need to blame this on something or someone. Any scapegoats?


China trade war?

Terrorist attempt?


Oil prices? etc.


Whatever the perceived remedy it is inflationary (more money supply). The money has got to find a home. Where to? Equities, commodities, plasma TV's? At some point the drug addict needs to recover - I'll start tomorrow, just one more dose of amphetamines. Could there be one more round of recovery before a perfect storm say 2009-11.

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My guess for the storm to hit the US is early 2009. Just after a new government takes office and is able to lay the blame for a recession (which they now desperately need) on the Bush administration.


Until then, I think you can assume that Bernanke will be instructed to do absolutely everything to avoid excessive consumer (voter) pain.


This means pumping out more money (lowering interest rates).


No politician ever loses votes through giving away money.



Lower interest rates means more inflationary pressures to follow and increasing pressure on the US$.


They will solve the inflation problem by redefining the basket of goodies upon which GDP is calculated. Already food and energy have been excluded. I can't see that there can be much left in that basket to jettison.


What a nonsense!


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  • 4 weeks later...

I thought I would share with all of you an email I received this morning from my best friend in America. It concerns her 14 year old son. They live in an upper middle class neighborhood in the San Francisco Bay Area where home prices range from $650,000 - $900,000. This is not a ghetto story.


I share it with you to help you understand what has happened to the Culture over there. The culture effects the economy, which in turn effects the stock market.


I find it very distrubing. As traders we get all caught up in CPI, fed speak, quarterly results, etc., etc. But the stories from the ground often tell the real story about the health of the nation.


Well, for those of you who don't know today at Nathan's school 5 gang members decided to go after Nathan and a couple of his friends. They threatened him and two of them had knives and the word around school was that they intended to stab Nathan and his friend Eric. Nathan had been walking by himself in the quad when these kids first approached him, suddenly a huge group of Nathan's friends and other students ran up to Nathan's side to warn him and to stay with him while another friend ran to tell a teacher. One of the kids flashed the knife at Nathan and threatened him and his friends. A teacher came out and the police were called. Two of the students (the ones with knives) were arrested and are now in juvenile hall, two others are suspended for having alcohol on them, and the last one who claims to be a friend of Nathan's got 5 days suspension for knowing about the weapons, handling them and being with this gang. Nate had been trying to make sure everything was 'cool' with this gang, but unwittingly he had his 'blue' P.E. shorts hanging out of his pocket. When you 'fly' gang colors you do so by sticking a rag, cloth, or bandana of your 'colors' in your pocket. I was informed that one of Nathan's friends is legitimately affiliated with a gang that claims blue which has been causing him to become a target. He is not going to school tomorrow and I may not allow him back at all. I don't want to make a decision out of emotions.

There was a stabbing at a different high school around the corner two weeks ago and last night I woke up and felt that I needed to pray, I felt that the previous stabbing would 'enbolden' other kids to copy cat and I felt that Nathan would be a target. I was praying for his protection at about 3 or 4 this morning. The sad thing is that I found out today that the person who stabbed another student at school at the other high school is the cousin of one of Nathan's good friends. In fact he and Nathan know each other and have had a good relationship. Both of these incidents are unrelated but both are over 'colors'.

That is our current situation. I still haven't spoken with the police, I believe they will be calling me tomorrow. We need to make a good decision for Nathan's safety. We take him out of school that will be fine, but what about our neighborhood? retaliation for someone snitching? He was very on edge today when he and I went to the local 7-11, nearly jumped when he thought he recognized an enemy. I think he is trying to be brave, but I believe he is pretty shook up. We would appreciate everyone's prayers!



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In reply to: Danville on Saturday 22/09/07 01:01pm

Hi Danville,


Don't want to stray off-topic for too long, but I find it ironic that people criticize home-schooling on the grounds that home-schooled kids supposedly miss out on socialisation with their conventionally-schooled peers.


What they actually miss out on is an experience that is often shockingly deficient in safeguards, personal empowerment, and choices compared to adult social environments.


I don't know about you, but if I as an adult learned that anyone I was within 10m of on a daily basis was carrying illegal concealed weapons, I would not spend another day in that place.


If I further learned that the person was carrying those deadly weapons with a view to using them on me, I would be gone - never to return - within seconds.


And there were five of them. And he's only 14. And he might have to keep attending?

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  • 10 months later...

Downturn may be 'the big one'

Chris Zappone

July 29, 2008 - 12:26PM

The risk of a Great Depression-style global debt-deflation cycle is one in three, according to an investment bank economist.

Beyond an anticipated cyclical slowdown in the next six months, Morgan Stanley economist Gerard Minack has raised the possibility of a substantial structural risk caused by lower asset pricing, high household debt levels, and a cash shortage.

"I think that for many Anglo economies the risk of a pronounced deleveraging-deflation cycle is higher now than it has been since the Great Depression," Mr Minack said in a note to clients.

"What makes this cycle different - and elevates the risk of a major unravelling - is the extremes that those trends have now reached."

In the United States, where the implosion of subprime debt values has affected other debt and asset markets, a number of economic gauges have risen to levels not seen since the time of the Great Depression, Mr Minack said.

Total US debt compared to the gross domestic product has surpassed levels seen in the mid-1930s. US household gearing is at an all-time high, as were US house prices before their fall in the wake of the subprime crisis.

Because of the tight links between the world's financial markets, a prolonged slump in the US could weigh down the global economy.

"The time is coming when we will all have to take a view on whether this cycle downturn is 'the big one'," Mr Minack wrote.

"That is, whether the virtuous forces that sustained the Anglo world's inter-linked boom in debt, leverage, and asset prices are turning vicious, leading to sustained debt reduction, asset price weakness, and, as a by-product, sharply lower rates and inflation."

Falls in home prices, employment levels and consumer spending give some suggestion about the magnitude of a possible slowdown in the months ahead, Mr Minack wrote.

He's not alone in his views that the slowdown we're seeing may not be of a cyclical, garden variety.

The International Monetary Fund released a report overnight warning that global markets remain fragile and face systemic stress one year after the subprime market crisis first emerged in the US.

The financial organisation noted there is no bottom in sight for the falls of the US housing market.

Looking ahead, the IMF expects global growth to stall, declining from 5% in 2007 to 4.1% in 2008 and 3.9% in 2009 amid an environment of "negative interaction between banking system adjustment and the real economy."



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  • 1 month later...

heres a recent news headline from The New York Times to calm everyone down.......................


Stocks collapse in 16,410,030 share day,

but rally at close cheers brokers,

bankers optimistic, continue aid

(& in the smaller print you can see)..........

Bankers believe liquidation has run its course,

and advise purchases









apologies for my terrible sense of humor


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