Global financial system implosion begins

[ferrelhadley]

I cant work out if this is a serious piece or a comdedy one, but its getting alot of spin on the bloggosphere.

Warning: Crash dead ahead. Sell. Get liquid. Now.


The P/E ratios do look scary as hell mind. 22.5? The counter argument runs that these take into account 2008/9 and they are not indicative of future earnings. Now people may be wondering why the state of the stockmarket matter much. It should be a relatively narrow indicator for traders and investors. But in the US through the 401(k) scheme a great many people are direct investors in the market. It is being said to the point of inane boredom that one of the major 'headwinds' the economy will face for the next ten or more years is the need for the western middle aged people to begin saving like mad. Big dip in stock values only increases that need to save as the housing bubble blew what little they had tucked away.

Saving reduces the velocity of money in an economy. Although it seems some people doubt that I know what an economy is

 

[kyser_soze]

I cant work out if this is a serious piece or a comdedy one, but its getting alot of spin on the bloggosphere.

Warning: Crash dead ahead. Sell. Get liquid. Now.


The P/E ratios do look scary as hell mind. 22.5? The counter argument runs that these take into account 2008/9 and they are not indicative of future earnings. Now people may be wondering why the state of the stockmarket matter much. It should be a relatively narrow indicator for traders and investors. But in the US through the 401(k) scheme a great many people are direct investors in the market. It is being said to the point of inane boredom that one of the major 'headwinds' the economy will face for the next ten or more years is the need for the western middle aged people to begin saving like mad. Big dip in stock values only increases that need to save as the housing bubble blew what little they had tucked away.

Saving reduces the velocity of money in an economy. Although it seems some people doubt that I know what an economy is

Bizarre as it sounds, it's a very serious piece, advising retail investors (i.e. you and me if we had portfolios) to ignore recommendations to buy from investment managers who's clients tend to already be millionaries.

Re P/E ratios, p4 of this document shows P/E ratios from 1900-2010...

http://www.crestmontresearch.com/pdfs/Stock PE Report.pdf

but yeah, even historically, 22.5 is high - not quite as high as the .com stocks from the start of the decade tho!

 

[ferrelhadley]

If you can get past the first couple of paragraphs of whining about how put apon the poor markets are.... good article.

These tensions illustrate a contradiction at the heart of the market’s rally from the lows of March 2009. Governments and central banks have supported the recovery with huge fiscal deficits and near-zero interest rates. Yet the sheer scale of these measures should have given investors cause for concern, as they indicate how fearful the authorities had become.

At some point, if the economy recovers, the stimulus will have to be withdrawn, leaving the markets facing higher interest rates and tighter fiscal policy. And if the stimulus fails to work, market hopes of future profits growth (double-digit gains are expected in 2011 and 2012) would clearly be disappointed. Governments have shown they can support consumption in specific areas, such as the cash-for-clunkers subsidy in cars or the homebuyers’ tax credit. But sales have fallen back quickly once the subsidies end.

The latest market setback has given heart to those bearish commentators who were looking out of touch towards the end of last year. Albert Edwards of Société Générale has long believed in an “ice age” in which deflationary pressures drag down equity valuations, as they have in Japan over the past 20 years. He believes the recovery will be short-lived. “Renewed recession awaits,” he says. With core measures of consumer-price inflation in both America and the euro area below 1%, “the icy tentacles of outright deflation are now just within reach.”

Bears would also argue that shares do not look cheap. This may seem remarkable, given that profits are close to a 50-year high as a proportion of American GDP and the S&P 500 index is back at levels it first reached in March 1998. But chart 3, from a website updating “Irrational Exuberance”, a book by Robert Shiller of Yale University, shows the best long-term valuation measure, the cyclically adjusted price-earnings ratio. On this indicator, which smooths profits over a ten-year period, shares are still trading at 20 times earnings, more than double the ratio of the 1930s or early 1980s. “These types of brutal downdraughts coupled with intense volatility are generally the hallmark of overvalued markets as we saw in 1990, 1998, 2000 and again in 2007,” says David Rosenberg of Gluskin Sheff, a Canadian asset-management firm.

Volitility is back as well.

http://www.economist.com/business-finance/displaystory.cfm?story_id=16212764&source=features_box1

 

[ferrelhadley]

The Telegraph finds someone to tell them M3 money supply is contracting, that is 'broad money'. (wikipedia has decent articles on it, well its how I learnt what M3 was anyway a few years ago) M3 became a huge issue about 05 when the fed stop reporting it and every blogger and their granny stroked beards about the Iran Oil Bourse.

IMHO I think this could be very significant, others though will disagree. This could indicate widespread deflation, especialy as debts are not repayed and money destroyed (well thats one theory, no doubts others will claim money is destroyed when debt is repayed.... economics can make astrology look sane and credible some days).

Still good for a couple of weeks of anaphylacticshocks on the bear and doomer blogs.

BUY GOLD GUNS AND FOOD

 

[kyser_soze]

Good article, but it blows it's load (I've just been posting on a porn thread and it's affected me mentally) in the 3rd paragraph:

It’s frightening," said Professor Tim Congdon from International Monetary Research. "The plunge in M3 has no precedent since the Great Depression. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. This is why the US is not recovering properly," he said

Which was also my first thought when I read the headline - that it was capital base rebuilding above anything else that was causing the issue.

 

[goebfwai]

From James Howard Kunstler's blog (author of 'The Long Emergency'): "By the way, the FDIC agents told him they are doing this [calling in his developer loan] because they now expect that virtually all commercial real estate loans in the USA will fail in the months ahead." http://kunstler.com/blog/2010/05/out-of-darkness.html

Interesting. I would treat the above quote as uncorrobarated unless confirmed elsewhere, but kinda makes you wonder what could be round the corner that they believe such a scenario could happen. I've got a few suspicions - and it's probably no single event, but a confluence of current events and 1 or 2 wildcard imminent ones [both planned & unplanned] - but make up your own mind.

 

[kyser_soze]

Is that article worth persevering with? I couldn't get past the 2nd paragraph where a middle aged white man writes 'My homeys...' and still take him seriously.

 

[goebfwai]

It's just his writing style. His regular Monday post was particularly bad for it (and certainly the worst I've read in a while) but beneath that there are a few useful snippets.

 

[ferrelhadley]

Is that article worth persevering with? I couldn't get past the 2nd paragraph where a middle aged white man writes 'My homeys...' and still take him seriously.

Kunstler is ok if taken with cardiac inducing amounts of salt.


Maimi officials seem to be hoping for bankruptcy.

The city of Miami is in such financial dire straits that commissioner Marc Sarnoff is using the "B" word, bankruptcy.

"We are not the only city, municipality to be going through this. It looks like Los Angeles sometime next week or the week after will be going bankrupt. It looks like there will be 30 more cities following suit."

Increases in public worker salaries is one of the main reasons why the budget is so tight. The average salary for a Miami city employee is $76,000. The average salary for a Miami city resident is $29,000.

Employee pensions are choking the budget too. In 2000, pension payouts cost taxpayers $16 million. In 2009 that number spiked up to $70 million.

Should the city go into bankruptcy, the commissioners and their politics would no longer be in charge of city finances, the judge would be.

[Sarnoff] "You no longer have 5 people making political solutions. You now have one person who is looking after the best interest of the taxpayer of the city of Miami, without any politics getting into his or her way."

The Judge could order union contracts be renegotiated. He or she could decide what creditors get paid or not get paid.

Here is the heart of the matter

I look forward to the day one of these big cities finally tells their public unions where to go.

Public sector terms and conditions have not globalised like the private sector ones. When the real estate bubble brought huge amounts of money into city coffers all was well in America, almost morning like.

Then the bells tolled and the tallies were reckoned and it turned out all manufacturing jobs offshored and were not compensated for by the cheaper cost of manufactured goods. Property prices were a house of cards that were not paid for by increased earnings but in increased risk taking on cheap credit and limits to what a person could earn. Those property price increased brought a windfall to cities and states in taxes but now that house of cards has fallen as the gap between debt and earnings hit home (first and harderst in the subprime market for the worst off who could buy a house). And now while private sector debt and losses are being shifted onto state debt books, private sector wage deflation is now being shifted onto the state sector.

But China will save us.

Well the magic of the market will deliver a new plan forthwith.

 

[Falcon]

Japan has started stockpiling supplies of 7 rare earth metals it says are essential to modern life and industry, including many necessary for renewable energy technology, amid growing fears of shortages. China has introduced restrictions on exports of 9 raw materials which are essential for steel production. The UK government has ordered an audit of the UK's vulnerability to global resource shortage. (Guardian, 31 May 2010)

 

[ferrelhadley]

The "jobless recovery" continues.

after the nation added fewer jobs than economists estimated in May, spurring concern the recovery in employment isn’t as robust as forecast.

Futures on the Standard & Poor’s 500 Index expiring this month slumped 1.8 percent to 1,083.8 at 8:33 a.m. in New York. Dow Jones Industrial Average futures sank 169 points, or 1.7 percent, to 10,089.

Payrolls rose by 431,000 last month after a 290,000 increase in April, figures from the Labor Department in Washington showed today. The gain was smaller than the 536,000 median forecast in a Bloomberg News survey and reflected a 411,000 jump in government hiring of temporary help for the 2010 census. Private payrolls rose a less-than-forecast 41,000. The unemployment rate fell to 9.7 percent as Americans dropped out of the labor force.

Now a strengthening dollar and weakening growth prospects in Europe will add further pressure.

Big cuts in state, city and federal employment are still to come, these jobs are funded by deficit spending.

Grim times whatever the happy happy joy joy people on bubble vision tell us.

Glad to have my job, but for how long. Get saving and stay the hell out of debt.

Edited to emphisis this.

The unemployment rate fell to 9.7 percent as Americans dropped out of the labor force.

How grim a life that must be to no longer be an active job seeker in the socialist paradise of 21st century America.

Edited as Hungry spooks markets.

Credit-default swaps on sovereign bonds surged on speculation Europe’s debt crisis is worsening after Hungary said it’s in a “very grave situation” because a previous government lied about the state of the economy.

The cost of insuring against losses on Hungarian sovereign debt jumped 83.5 basis points to 391.5, according to CMA DataVision prices. Swaps on France, Austria, Belgium and Germany also rose, sending the Markit iTraxx SovX Western Europe Index of contracts on 15 governments 10 basis points higher to 163, and close to the all-time high of 167 on May 6.

“Are we on the brink of something more serious?” Deutsche Bank AG strategist Jim Reid wrote in a note to clients today. “We’ve little doubt that the authorities have no appetite for imminent peripheral defaults but we do see the situation getting worse before it gets better. This leaves markets vulnerable until there is more certainty surrounding the structure of the peripheral funding bail-out.”

http://www.bloomberg.com/apps/news?pid=20601087&sid=a_7KXkg.hkYU&pos=3

 

[ferrelhadley]

Duration of Unemployment in U.S. Rises to Record 34.4 Weeks

Unemployed Americans are facing the longest wait on record to find work, a sign faster economic growth is needed to reduce the jobless rate from close to a 26- year high.

The average duration of unemployment jumped to 34.4 weeks in May from 33 weeks the prior month and 16.5 weeks in December 2007, when the recession began, a Labor Department report showed today in Washington. The number of unemployed has almost doubled to 15 million since the start of worst slump since the 1930s.

“We need faster growth, because without it, we won’t get the jobs,” said Henry Mo, an economist at Credit Suisse in New York. “We are working in that direction, but it’ll take a very long time to resolve the long-term unemployment problem. The Federal Reserve acknowledges that the labor market will take time to fully recover.”

Private payrolls rose by 41,000 in May, today’s Labor Department report showed, trailing the 180,000 gain forecast by economists. Including government workers, employment rose by 431,000, boosted by a jump in hiring of temporary census workers. The jobless rate fell to 9.7 percent from 9.9 percent as Americans discouraged by the lack of available jobs dropped out of the labor force.

While in the UK housing stalls.

One has to think the looming cuts in the public sector must hang heavy over many households. Interest rate rises to fight CPI linked inflation (weakening pound will be a big part of that) and the threat of a looming recession will also begin to take its toll as the year ages.

Where are my green shoots?

 

[Barking_Mad]

Where are my green shoots?

We're not in recession, we're in recovery! Green shoots everywhere....

 

[elbows]

Here come the inflation & interest rate woes:

http://www.bbc.co.uk/blogs/thereporters/stephanieflanders/2010/05/time_to_worry_about_inflation.html

The Organisation for Economic Co-operation and Development said in its latest economic outlook that the UK authorities, almost alone among the OECD, needed to be wary of losing their credibility on inflation. It even gave the Bank of England some free advice - to raise the bank rate to 3.5% by the end of 2011, starting "no later than" the last three months of this year.

 

[ferrelhadley]

http://tpmlivewire.talkingpointsmem...iest-job-chart-ever-just-got-even-scarier.php

Check out the two red lines at the bottom. The solid one includes Census hiring, while the dotted line doesn't include it.

What's clear is that while we still have a rebound including Census hiring, we're already flattening out on the dotted line. This is a shape not seen on the other lines. suggesting that the fall is extremely deep, and the recovery is shallow.

 

[ferrelhadley]

MADRID, June 9 (Reuters) - Spanish banks are being frozen out of the European interbank market, and only the biggest Spanish entities are managing to finance themselves, according to a report in newspaper Cinco Dias.

"Only the biggest Spanish banks are managing to get funding, but backed by bonds from other countries such as Germany, with our national bonds they are not managing to get anything," an executive at a Spanish savings bank was quoted as saying.

The situation had worsened since the start of this week, the report said.

"No foreign banks are funding us in the interbank market," an executive at one of Spain's medium-sized banks was quoted as saying.

Link

Every country for itself

Both countries have to cope with the exposure of European banks to declining bonds – even more so given the lack of information about who holds the estimated $2.6 trillion outstanding to institutions in Greece, Spain and Portugal. The European Central Bank is thought to have bought Greek bonds whose value is equivalent to more than half its capital: how could it pile in to help others? Greek debt rescheduling would be simple enough, if the political will were there, without incurring a formal default – which is why market operators unload Greek debt to Frankfurt, knowing they will not be able to cash in on credit default swaps. But what would be the contagion effect of Greece rewriting its laws to reduce its exposure? Spain and Portugal are bogged down not only by their state finances but by low growth prospects and, in Spain's case, high unemployment. Moral hazard on a continent-wide basis could become inevitable. And then who would pay, given the level of indebtedness of the richer nations and the shortage of funds in international institutions?

The chain of repercussions is threatening to unravel the euro, aggravated by the way in which the lubricating mechanism of interbank lending has seized up. As the crisis mounts, banks are becoming 100% risk-averse, and nobody with capital to invest would think of directing it towards the eurozone.

 

[Captain Hurrah]

Looks like the underground railway planners were pissed at the time.

 

[kyser_soze]

When I saw the title of the graph I originally read it as 'Clusterfuck'

 

[Barking_Mad]

'Collapse' worry over Japan debt

Japan's economy is at "risk of collapse" under its huge debt mountain, the country's new prime minister says.

 

[kyser_soze]

That's been a long time coming TBH. Goes to show that merely pumping money into your mates pockets the national ecnonomy isn't enough to create growth.

 

[goebfwai]

A few useful snippets from recent articles:

James Howard Kunstler (author of 'The Long Emergency'): "What banks and governments have been doing for the past eighteen months is a dumbshow meant to distract the public from the fact that the world financial system has been effectively destroyed." http://kunstler.com/blog/2010/06/say-what.html

*

"Andrew Roberts, credit chief at RBS, is advising clients to read...[an 8 year old Ben Bernanke text 'Deflation: Making Sure It Doesn’t Happen Here']...very closely because the Fed is soon going to have to the pull the lever on "monster" quantitative easing (QE)". "We cannot stress enough how strongly we believe that a cliff-edge may be around the corner, for the global banking system (particularly in Europe) and for the global economy. Think the unthinkable," he said in a note to investors." http://www.telegraph.co.uk/finance/...er-money-printing-by-the-Federal-Reserve.html

*

The latest from Nobel Prize winning economist Paul Krugman on the global economic collapse: 'The Third Depression' (New York Times, 27/6/10) "We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense." http://www.nytimes.com/2010/06/28/opinion/28krugman.html
[N.B. Viewed historically & considered logically, global socioeconomic & geopolitical collapses almost inevitably follow global economic collapses.]

 

[elbows]

The gloom certainly seems to be growing well this year, does feel a bit like we could be building to another moment of acute crisis but cant be sure.

The European bank debt refinancing that required this week as a result of the expiration of the special 1-year loan is certainly making things extra-wobbly right now, I was reading about this stuff last night and sure enough the markets have been falling quite badly today.

http://news.bbc.co.uk/1/hi/business/10444577.stm

I wasnt sure whether to make anything of the UK GDP data publishing delay thats due to 'potential error' either:

http://news.bbc.co.uk/1/hi/business/10450518.stm

A "potential error" has forced the Office for National Statistics (ONS) to delay the publication of the latest GDP figures, due on Wednesday.

The very rare move was caused by concerns over the reliability of some of the figures, the ONS said.

It was due to publish the latest revision to the GDP data covering the period between January and March.

 

[Giles]

I think that all this business of bailing out companies and countries that are in too much debt by lending them more and more funny-money is not, in the end, going to solve anything.

Giles..

 

[goebfwai]

Yeah, I think whatever way you look at it, I think the global financial crisis and economic collapse is going to end up with something very revolutionary happening. As significant perhaps as the dropping of the gold standard when this type of thing kicked off 80 years ago.

We could very well end up be looking at the end of the fiat currency standard. Some sort of moves to back it up with something more tangible. Some sort of innate guarantee, to all the confetti of paper and digital currency floating about, over and above that of the issuing govt or central bank. It's anyone's guess.

Confidence in the existing system while not quite at as rocky a bottom as it was 2 years ago, is certainly very shaky. The atmosphere reminds me somewhat of the critical mass/tipping point of grains of sand in an hourglass.

 

[Dr Jon]

Just spotted this piece, which quotes a senior Fed economist, Kartik Athreya, in his condemnation of bloggers as "chronically stupid and a threat to public order"

Another blah-blah man who's all but disappeared up his own arse.

So, is it time to start to excise money-juggling Ponzi schemers from the world economy and shut down the Fed?

 

[elbows]

If I worked for the Fed then I would get pretty fed up with all of the drooling anti-fed bullshit that goes with certain popular political stances in the USA. The Fed make mistakes and they are one piece of a broader system which I dont like, but meaningful change requires far more than getting rid of the federal reserve, and those who want to blame & kill the fed as a simple solution are usually driven by pretty ugly ideologies themselves.

As for what that nipple said about bloggers, seems like a typical arrogant elitist stance, I doubt we have heard the last of that sort of things as the stakes have been raised and its certainly easier to blame individuals & opinions than to properly consider the stupidity of modern economic wisdom and its priests.

 

[kyser_soze]

TBH the actual article is standard Telegraph cant that basically ignores about 90% of everything that's gone wrong in order to score some kind of bizarre moral point.

 

[goebfwai]

Bit concerning when the normally placid economists at the BofE start having sleepless nights:

: "Bank of England interest-rate setter Adam Posen said that the economy could be at a tipping point. Mr Posen commented in a speech that he had "laid awake for a number of nights" worrying about the state of the economy. He said: “The UK economy is potentially switching between two states – a recovery, which we are now in, albeit perhaps an initially weak one ... and the renewal of a severe recession if not outright deflation.”
http://www.telegraph.co.uk/finance/...greater-difficulty-in-getting-a-mortgage.html

 

[Barking_Mad]

US sheds 125,000 jobs in May

 

[Macadamia]

I thought this video gave a nice, to the point, explanation for why we are in the global dire straights that we are.

From:
http://www.advicegoddess.com/goddessblog.html

World Economy Collapse Explained In Three Minutes Flat