That's a credible take on alternative currency positions. However, in my opinion, it is better to stick with strength against the dollar rather than currencies that might show weakness. It's a numbers game. There are many more currencies that will continue to outperform the dollar rather than underperform it. I think your strategy might be more suitable for experienced currency traders.
To forgive any remaining principal for those facing the potential threat of foreclosure would be an assualt on our free market system; a system that is already broken for many industries (eg. oil and healthcare). Such a move would cause further damage. How can one justify bailing out those who can't make payments on homes while neglecting others who have borrowed funds from relatives, savings, and made other concessions?
It makes no sense to reward the most financially irresponsible while punishing those who tightened up their belts. Certainly, the mortgage industry along with Wall Street is to blame for this mess. But everyone must be treated fairly. Otherwise, homeowners might stop making payments on their mortgage in order to get a writedown on principal, causing even more problems.
As far as the Fed loosening the capitalization requirements of Freddie and Fannie, that is simply irresponsible. Already they have been undercapitalized and this will serve to increase the risk of further devastation. The Fed will keep printing money causing even more devaluation of the dollar. Either way you slice it, there is no way out of this mess. Trying to avoid the pain will only make the devastation worse, maybe not now but most certainly down the road.
Greenspan tried to mitigate the effects of the Internet bubble by collapsing rates, and that led to the current real estate and banking crisis. What crisis will Bernanke create? I do not know what it will be but if he keeps acting in this irresponsible manner, we could be looking at a problem even worse than we face now in a few years.
Current Financial Crisis Going Into Extra Innings [View article]
To be a bit more cut and dry, we have a long way to go; and the direction will be a downward spiral unlike anything ever seen. Pickaroonwyo and SeriousBull are right on track.
Before it's all said and done, this fiasco is going to make the S&L crisis look like a walk in the park. There will be several bank failures. But the Fed will pump money into the system via auctions (collateralized with junk bonds). The FDIC is already beefing its staff up to handle the coming mess.
Banks won't close their doors like in the 1930s. You'll get your cash. The only problem is that this measure will continue to destroy the dollar. And it's going to result in many many corporate bankruptcies outside of the financial sector.
Don't fall for these sucker rallies. If anything, take the opportunity to set up your short positions.
Warning Signs of a Modern Depression: See 1990 Japan [View article]
Very nice article. One thing I'd like to point out, as a former employee of BSC is, although it's spoken of as the 5th largest investment bank, BSC has a much larger impact during the current crisis. One could argue that it has the largest impact of any other bank for the following reasons:
1) It's prime brokerage unit handles the largest amount of hedge fund assets of any bank. How will hedge funds deal with the uncertainty of its prime brokerage unit during a time when many funds have massive leverage?
2) It's clearing unit is the best in the world. Certainly it's not going to disappear, but integrating the unique culture of BSC employees into another bank with prove very challenging.
3) It's derivatives and collateralized securities business, which serves as a key player with institutions. The total derivatives oustanding is approaching $200 trillion, for a growth of around 500% since 2000. On a net basis we do not know what this exposure is. But we do know that over $30 trillion of this is in credit default swaps. Because of the loss of confidence in the financial system, institutions that have used CDS to hedge against interest rates cuts have gotten burned.
Down the road, it might actually improve the financial system to have butchered the one of the top players in derivative and MBS. But that will be a small concession for the devastation that will only continue to increase. The risk of a global financial meltdown due to derivatives alone is high and increasing by the day. At the very best of scenarios, the unwinding process is going to be destructive for many funds and financial institutions. The Fed is going to have to bail them all out. And of course that means the dollar will sink further.
There is no way out of this mess. The Fed can continue to print money and exchange it for worthless MBS debt as collateral (as announced during its meeting yesterday). But that will only hasten the dollar's decline. And while it is doubtful that banks will close their doors due to lack of dollars, at some point, our currency might not be worth the paper it's printed on. You should expect a further 20-30% decline in the dollar at minimum. Regardless, the dollar will remain quite low for many years.
And if you think the economy will get better in a few years, you will be wrong. Only the government's twisting of data will make things look better; the same charade we have witnessed since the Internet correction. What happened to all of the "experts" who were preaching how the economy was so strong? "Just look at the data-unemployment is under 5%, GDP is 3%" etc. These individuals should be holding their heads in shame. You know who they are-teh Fed, Washington officials, journalists, TV hosts. In fact, they should all resign and apologize to the people.
In my estimation, inflation and interest rates will reach double digits over the next few years. The real inflation numbers are already around 8% if they were calculated correctly.
Ask yourself these questions:
1) Why did the Fed stop reporting the most critical indicator of inflation last spring, M3?
2) Why won't Washington disclose more transperancy on the asusmptions it uses for hedonics?
3) Why did Washington shut down the website clearing house for economic data in March, economicindicators.gov?
4) Why is the FDIC increasing its staff and why have they increased FDIC insurance fees to banks?
At the end of the day, America needs good jobs, wage increases in excess of inflation and solid employee benefits. Only then will household savings materialize. This implies a restructuring of free trade policies and healthcare. This mandates a full understanding of the problems and leadership to execute change. The Fed can provide banks with liquidity, but that isn't a real solution. It's desperation. What is needed is more accountability and transparency in the financial system.
Credit Market Mayhem and the S&L Crisis: Drawing Parallels [View article]
Nice article. And it was especially good of you to point out the leverage firms have dug themselves into, as many still do not realize that virtually every US bank has excessive leverage. The unwinding process is just beginning. Will we see many more situations like Caryle before it's over. I think to compare the current meltdown to the S&L crisis is a huge understatement. Already, the losses due to mortgage-related writeoffs have exceeded $200 billion. Finally, together with the European Central Banking System, the total amount of cash released to banks in less than a year as a result of the subprime debacle is in excess of $1.2 trillion. In order to provide adequate liquidity over the next year, I estimate another $1-$1.5 trillion will be needed in order to keep banks solvent. In total, I am expecting direct losses due to the real estate-banking meltodown of $600-$800 billion.
Fannie and Freddie Get a Little Breathing Room [View article]
10 Reasons Why Gold Has Further to Run [View article]
1) Gold also serves as a hedge during a crisis
2) The Gold-DJIA ratio
3)
Time To Go Long The Dollar? [View article]
To forgive any remaining principal for those facing the potential threat of foreclosure would be an assualt on our free market system; a system that is already broken for many industries (eg. oil and healthcare). Such a move would cause further damage. How can one justify bailing out those who can't make payments on homes while neglecting others who have borrowed funds from relatives, savings, and made other concessions?
It makes no sense to reward the most financially irresponsible while punishing those who tightened up their belts. Certainly, the mortgage industry along with Wall Street is to blame for this mess. But everyone must be treated fairly. Otherwise, homeowners might stop making payments on their mortgage in order to get a writedown on principal, causing even more problems.
As far as the Fed loosening the capitalization requirements of Freddie and Fannie, that is simply irresponsible. Already they have been undercapitalized and this will serve to increase the risk of further devastation. The Fed will keep printing money causing even more devaluation of the dollar. Either way you slice it, there is no way out of this mess. Trying to avoid the pain will only make the devastation worse, maybe not now but most certainly down the road.
Greenspan tried to mitigate the effects of the Internet bubble by collapsing rates, and that led to the current real estate and banking crisis. What crisis will Bernanke create? I do not know what it will be but if he keeps acting in this irresponsible manner, we could be looking at a problem even worse than we face now in a few years.
Current Financial Crisis Going Into Extra Innings [View article]
Before it's all said and done, this fiasco is going to make the S&L crisis look like a walk in the park. There will be several bank failures. But the Fed will pump money into the system via auctions (collateralized with junk bonds). The FDIC is already beefing its staff up to handle the coming mess.
Banks won't close their doors like in the 1930s. You'll get your cash.
The only problem is that this measure will continue to destroy the dollar. And it's going to result in many many corporate bankruptcies outside of the financial sector.
Don't fall for these sucker rallies. If anything, take the opportunity to set up your short positions.
Warning Signs of a Modern Depression: See 1990 Japan [View article]
1) It's prime brokerage unit handles the largest amount of hedge fund assets of any bank. How will hedge funds deal with the uncertainty of its prime brokerage unit during a time when many funds have massive leverage?
2) It's clearing unit is the best in the world. Certainly it's not going to disappear, but integrating the unique culture of BSC employees into another bank with prove very challenging.
3) It's derivatives and collateralized securities business, which serves as a key player with institutions. The total derivatives oustanding is approaching $200 trillion, for a growth of around 500% since 2000. On a net basis we do not know what this exposure is. But we do know that over $30 trillion of this is in credit default swaps. Because of the loss of confidence in the financial system, institutions that have used CDS to hedge against interest rates cuts have gotten burned.
Down the road, it might actually improve the financial system to have butchered the one of the top players in derivative and MBS. But that will be a small concession for the devastation that will only continue to increase. The risk of a global financial meltdown due to derivatives alone is high and increasing by the day. At the very best of scenarios, the unwinding process is going to be destructive for many funds and financial institutions. The Fed is going to have to bail them all out. And of course that means the dollar will sink further.
There is no way out of this mess. The Fed can continue to print money and exchange it for worthless MBS debt as collateral (as announced during its meeting yesterday). But that will only hasten the dollar's decline. And while it is doubtful that banks will close their doors due to lack of dollars, at some point, our currency might not be worth the paper it's printed on. You should expect a further 20-30% decline in the dollar at minimum. Regardless, the dollar will remain quite low for many years.
And if you think the economy will get better in a few years, you will be wrong. Only the government's twisting of data will make things look better; the same charade we have witnessed since the Internet correction. What happened to all of the "experts" who were preaching how the economy was so strong? "Just look at the data-unemployment is under 5%, GDP is 3%" etc. These individuals should be holding their heads in shame. You know who they are-teh Fed, Washington officials, journalists, TV hosts. In fact, they should all resign and apologize to the people.
In my estimation, inflation and interest rates will reach double digits over the next few years. The real inflation numbers are already around 8% if they were calculated correctly.
Ask yourself these questions:
1) Why did the Fed stop reporting the most critical indicator of inflation last spring, M3?
2) Why won't Washington disclose more transperancy on the asusmptions it uses for hedonics?
3) Why did Washington shut down the website clearing house for economic data in March, economicindicators.gov?
4) Why is the FDIC increasing its staff and why have they increased FDIC insurance fees to banks?
At the end of the day, America needs good jobs, wage increases in excess of inflation and solid employee benefits. Only then will household savings materialize. This implies a restructuring of free trade policies and healthcare. This mandates a full understanding of the problems and leadership to execute change. The Fed can provide banks with liquidity, but that isn't a real solution. It's desperation. What is needed is more accountability and transparency in the financial system.
Credit Market Mayhem and the S&L Crisis: Drawing Parallels [View article]