Tradesense

The Financial Crisis Is Escalating Out of Control

"The toxic debt is not what people think it is, it is actually real assets owned by real people it isn't some ethereal accounting principle."

It becomes ethereal when one creates $30 to $40 out of a $1 asset. And now this mess is being attempted to be sorted out by making it more ethereal!! God Bless!!!

Why Bailouts Are Not the Answer

This was indicated more than two decades ago, but no one did anything. See - Seven Forewarnings of the Current Credit Crisis -
(seekingalpha.com/artic...) in seeking alpha.

Enjoy the Strong U.S. Dollar While You Can

Will it ($ 7 trn) not go to fill only part of the hole? At 30 to 40 times leverage the money supply must have been much larger I thought!
This will only help shore up balance sheets - I hope.

Why Oil and Gold Are Headed Much Higher

Hardsell - looks like there are still too many oil & gold longs!! Does not bode well for both of them.

Good Bank, Bad Bank: Is There Any Other Way Out of the Crisis?

Steve

To my mind what you have mentioned is the effect of not addressing the cause in a simpler and straight forward manner. The idea is to stabilize one key part of the crisis - so that it has calming effect on the others and provides confidence in the leadership. The idea is to use simpler approaches with less collateral damages (known and unknown) and that is politically expedient too...otherwise it may be too late...hopefully we are not yet beyond repair. The focus is also to try and find value of derivatives which have mortgages as the underlying. You may then create regulations that could address the do's and don’ts.


Feb 01 01:52 PM steve graves wrote:

> Yeah you're missing something - something quite incredibly obvious
> and fundamental. The root of the problem may have been sub-prime
> mortgages, it's true, but the idea that can now somehow gobble up
> this sub-prime debt and magically mend the global financial crisis
> is almost ridiculously naive. Sub-prime may have been the catalyst,
> but the contagion has spread throughout our over-leveraged financial
> system and into the economy as a whole. Commercial real estate is
> collapsing, jobs are being shed at record pace, derivative markets
> are coming unravelled, the so-called 'shadow banking system' has
> been completely obliterated, etc. It's like lighting a match to burn
> down a house; once the house is on fire the match becomes irrelevant.
> And blowing it out won't do a damn thing to save the house.

What's Cooking with the Oil Price Contango?

Jake

Consensus estimates on oil prices are still very bullish. These estimates indicate a USD82/bbl and USD90/bbl for 2010 and 2011, respectively, and even reflect a higher price assumption at USD96/bbl for 2012. Looking at the history of consensus estimates, it is found that current oil price estimates are higher than what they were one year ago. While in September 2007, the oil price assumption averaged USD62/bbl for 2009-12, the current assumption averages 43% higher at USD89/bbl. The current high oil price assumption it appears reflects high oil prices seen in 2008.

I believe further scope exists for these assumptions to come down, as oil prices continue to remain lower going forward. This is similar to what had happened after the 1979 oil shock, when oil price assumptions continued to fall with price assumptions drifting lower during 1982-97.

Historically, every recession since the early 1970s has followed a period of high oil prices. However, the excessive leverage and under-pricing of risk are also central to the current downturn. In the current down turn, oil prices played what has been described as a ‘contributing role’ by reducing consumer spending and confidence, and placing the burden on many businesses, both large and small.

In the early 1970s, the global GDP was growing at annual rates of 6-9%. The so-called first oil shock, which took place in 1973, restricted the GDP growth in 1974-75 to less than 2%. Similarly, the GDP grew at 6-7% during 1976–79, the year of the Iranian revolution and the accompanying second oil shock. For 1980–82, the average growth was again below 2%. From 1983 to 1988, it recovered to around 6%.
After 1980, oil prices began a 6-year decline, which culminated with a 46% price drop in 1986. This was due to reduced demand and over-production, which caused cracks in OPEC’s unity. Oil prices remained on a low trajectory during 1983-2003. Prices saw a small spike again in 2000. In 2001, the GDP growth registered a similar drop.

The highest average annual oil price prior to 2004 was USD36/bbl in 1980. For 2004, 2005, 2006 and 2007, the annual price of WTI crude averaged USD41/bbl, USD56/bbl, USD66/bbl and USD72/
bbl, respectively, as the GDP continued to grow at 6-7% over this period.

Oil prices remained low for 20 years after the 1981 recession.

Given the global synchronization of this slowdown of much higher severity and the lack of consumer spending power (which was a savior in the past) I would tend to believe that soft oil would prevail for a reasonably long time fluctuating between $25-30 to $50-55.

WTI's importance will remain unless US relative consumption falls drastically. It will help if Cushing can address the logistics problem.

I'am sure there will many other views which could throw more light to it.



On Jan 20 03:09 AM Jake Berzon wrote:

> Thanks for the explanation - it makes sense. I was starting to wonder
> why WTI has remained so cheap for so long vs. Brent. I have never
> seen this happen before!
>
> What is your prognosis on the price level stabilization? Will the
> price of WTI oil rise to match futures contracts, or will all this
> storage cause a further drop in prices that will spill over to Brent?

How Risky Is Quantitative Easing?

Readers can look at seekingalpha.com/artic...? to get additional grasp and implications of qunatitative easing.

Why This Isn't Financial Armageddon

There is no smoke without fire! If some have not felt the fire yet good for them...but when it touches them they should be ready. Remember when 50mn. becomes 20mn. you are still ok, but when 200000 becomess 100000 you are in a different boat. God Bless!!

Four Commonsense Clues to a Genuine Market Bottom

Don't waste your time trying to predict bottoms/tops. If ayone knew it for sure he/she wouldn't be talking about it. Speculate - you can - but that can be done at all levels...why only bottoms?

A Bailout for Berkshire?

Well! the legend that he is, he is also human!

Credit Default Swaps, Part One: Origins and Implementations

Any insurance is as good as the insurer!! The result of living beyond means.