Below are the developments that could take the US market into abyss next year, or the economy for that matter.
(1) More writedowns from banks.
(2) Commercial properties going downhill with the residential market.
(3) Unemployment reaches 10% or above.
(4) Non-stop Deflation, even with so much stimulus thrown in by Uncle Sam.
(5) No sign of economic upturn, even with the new,newest New Deal.
(6) Treasury bubble bursts, with no one wanted to finance the "trillion dollars" deficit of the US government, including China.
(7) Finally, emerging market debt default is a possibility.
Monday, December 29, 2008
Federal Reserve is obsolete?
http://articles.moneycentral.msn.com/Investing/JubaksJournal/5-reasons-the-fed-is-obsolete.aspx
Another of my favorite author from Moneycentral, Jim Jubak, is arguing that the US Fed Reserve has failed as a regulatory institution in the biggest economy in the world. With the powers that the Fed has, it has failed not once, but twice in preventing the bubble to burst in 2000(dot-com) and 2008(housing).
For instance, the Fed could have raised the margin and reserve requirements for both stock purchase and banks respectively, but it failed to do so. The worst thing is that other central banks are taking the lead role in preventing the bursting of bubble to take down their financial system with them.
Bottom line: the FED should not have let both the shadow and non-shadow banks to leverage up to the hilt.
The world is looking specifically to the US for leadership during this financial crisis, but it looks like it has to look elsewhere for it because the Fed has wasted the opportunity to create a more "sound" financial system for the world.
Another of my favorite author from Moneycentral, Jim Jubak, is arguing that the US Fed Reserve has failed as a regulatory institution in the biggest economy in the world. With the powers that the Fed has, it has failed not once, but twice in preventing the bubble to burst in 2000(dot-com) and 2008(housing).
For instance, the Fed could have raised the margin and reserve requirements for both stock purchase and banks respectively, but it failed to do so. The worst thing is that other central banks are taking the lead role in preventing the bursting of bubble to take down their financial system with them.
Bottom line: the FED should not have let both the shadow and non-shadow banks to leverage up to the hilt.
The world is looking specifically to the US for leadership during this financial crisis, but it looks like it has to look elsewhere for it because the Fed has wasted the opportunity to create a more "sound" financial system for the world.
Sunday, December 21, 2008
Fed Funds Rate near 0: Path of No Return??
An interesting development last week where Federal Reserve has decreased Federal Funds Rate to a range of 0 to 0.25%. Even though the move is hardly surprising at all given all the facilities that the Fed has implemented, however, Bernanke has asserted that the Fed will use all tools necessary to maintain growth and price stability. No doubt, the market zoomed after the announcement.
However, to me, they have embarked on a path of no return because they had exhausted their powerful weapon, and now left with one less tool to fight the recession. It smacks of desperation, and on this massive scale, it might backfire on the economy if it fails. No one will know the consequences because "quantitative easing" has only been tried, in Japan, and we knew they went through an "L" shaped recovery.
Another worry is the impending inflation and dollar collapse that might happen down the road with the Treasury bubble that is going on. Also, since US consumers are already saddled with too much debt, they might not be able to re-finance even with mortgate and credit card rates at historic lows. These are the consequences of the classic definition of "liquidity trap", which could feed upon the economy and causes a self-fulfilling negative feedback loop.
An article that I found from RGEmonitor that elaborated on this topic for interested readers:
http://www.rgemonitor.com/us-monitor/254798/trepidation_about_quantitative_easing_version_20
However, to me, they have embarked on a path of no return because they had exhausted their powerful weapon, and now left with one less tool to fight the recession. It smacks of desperation, and on this massive scale, it might backfire on the economy if it fails. No one will know the consequences because "quantitative easing" has only been tried, in Japan, and we knew they went through an "L" shaped recovery.
Another worry is the impending inflation and dollar collapse that might happen down the road with the Treasury bubble that is going on. Also, since US consumers are already saddled with too much debt, they might not be able to re-finance even with mortgate and credit card rates at historic lows. These are the consequences of the classic definition of "liquidity trap", which could feed upon the economy and causes a self-fulfilling negative feedback loop.
An article that I found from RGEmonitor that elaborated on this topic for interested readers:
http://www.rgemonitor.com/us-monitor/254798/trepidation_about_quantitative_easing_version_20
Saturday, December 13, 2008
Bernie Madoff "Ponzi" scam revealed
http://clusterstock.alleyinsider.com/2008/12/how-bernie-madoff-could-have-lost-50-billion
It was revealed this week that Madoff has swindled clients up to $50 billion dollars over a few decades through an elaborate "Ponzi" scam cooked up by him. To me, this scandal is the worst that could happen in modern times. Rich folks are enticed by the steady returns they could get from investing with Madoff, but because of greed, now they have to pay the price. To me: the common folks will never entrust their hard earned money to Wall Street ever.....
Once more details are uncovered, it would have ripple effects throughout the hedge fund industry, and threaten to pull down the world markets down with it, as redemptions are going to pile on top of one another. Deleveraging is still alive and healthy, lest people has forgotten.
Again, this has shone a bad light on the ineptitude of the SEC, specifically Chris Cox, who has repeatedly failed to safeguard investors' interests, through the short-selling ban fiasco and now Madoff. He will certainly go down in history as the worst financial regulator "ever". And to think that US taxpayers are footing his salary and bonuses, this is OUTRAGEOUS, bar none.
It was revealed this week that Madoff has swindled clients up to $50 billion dollars over a few decades through an elaborate "Ponzi" scam cooked up by him. To me, this scandal is the worst that could happen in modern times. Rich folks are enticed by the steady returns they could get from investing with Madoff, but because of greed, now they have to pay the price. To me: the common folks will never entrust their hard earned money to Wall Street ever.....
Once more details are uncovered, it would have ripple effects throughout the hedge fund industry, and threaten to pull down the world markets down with it, as redemptions are going to pile on top of one another. Deleveraging is still alive and healthy, lest people has forgotten.
Again, this has shone a bad light on the ineptitude of the SEC, specifically Chris Cox, who has repeatedly failed to safeguard investors' interests, through the short-selling ban fiasco and now Madoff. He will certainly go down in history as the worst financial regulator "ever". And to think that US taxpayers are footing his salary and bonuses, this is OUTRAGEOUS, bar none.
Russia Devaluation Gathers Pace as Central Bank Loosens Control
http://www.bloomberg.com/apps/news?pid=20601087&sid=aRhI2KitimCs&refer=home
I believe Russia is the next trouble spot that is going to drag the world financial markets down with it. Remember Russia debt default 10 years ago? It is widely rumored that it might happen again...
It it were to happen, some hedge funds might blow up big again.
I believe Russia is the next trouble spot that is going to drag the world financial markets down with it. Remember Russia debt default 10 years ago? It is widely rumored that it might happen again...
It it were to happen, some hedge funds might blow up big again.
Wednesday, December 10, 2008
The Good & Bad of Treasury yield approaching 0%
By Aaron Task,
Dec 10 2008
Dec 10 2008
One of the most shocking developments in a shocking year occurred yesterday when the Treasury auctioned $30 billion of four-week notes with a yield of 0% (yes, ZERO, as in nada).
Incredibly, demand for the zero-yield notes was so strong the government could have sold four times as much, and previously issued four-week notes traded with negative yields Tuesday. In other words, investors were content to suffer a quantifiable loss of 0.1% to 0.2% vs. risk bigger losses in other assets.
This is "good news" because it means the government can finance the massive stimulus package necessary to aid the economy, says James Galbraith, economics professor at the University of Texas at Austin and author of The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too.
But the reality of zero-yield Treasuries is also "very disturbing news [because it] says there's a wholesale flight from the private credit markets into the safety of public bonds," adds Galbraith, the son of famed economist and author John Kenneth Galbraith.
It is because of this "collapse of the [private] credit mechanism" and "violent decline of private sector activity," that Galbraith believes the economy needs as much as $1 trillion of fiscal stimulus, as detailed here.
"Every which way it is up to the capacity of the U.S. government to step up and act," he says. Otherwise, the causes of the mass layoffs announced to date (and the impact of the layoffs themselves) will spill over into other sectors of the economy and cause "much, much more complicated problems in a few months."
Tuesday, December 2, 2008
Decoupling is a myth.....
http://www.bloomberg.com/apps/news?pid=20601039&sid=aiFx.vaF6eXs&refer=home
Another of my favorite Bloomberg author has stated today that China and India (2 of BRIC countries) are not really decoupling from US's economic woes. The initial thought was that China and India should be able to chug along fine with high GDP growth even though US and Europe are entering recession. But, China's economy is too dependent on US consumer whims, and that is the biggest problem here. And US consumers account for 2/3 of the economy.
As Americans are cutting spending like crazy, so too will China's GDP which is decelerating to 7% or even lower next year.
My prediction: All 4 BRIC countries will have to do more from now to counter the recession and possibly deflation.
Another of my favorite Bloomberg author has stated today that China and India (2 of BRIC countries) are not really decoupling from US's economic woes. The initial thought was that China and India should be able to chug along fine with high GDP growth even though US and Europe are entering recession. But, China's economy is too dependent on US consumer whims, and that is the biggest problem here. And US consumers account for 2/3 of the economy.
As Americans are cutting spending like crazy, so too will China's GDP which is decelerating to 7% or even lower next year.
My prediction: All 4 BRIC countries will have to do more from now to counter the recession and possibly deflation.
How much are Citi's troubled assets really worth?!
http://clusterstock.alleyinsider.com/2008/12/how-much-are-those-assets-at-citi-c-worth-
According to my favorite Clusterstock author, questions have come out regarding the true worth of Citi's troubled assets. The fed govt is putting a backstop of $306 billion, but experts are only estimating the assets to be worth $230 billion only. US taxpayers are already on the hook for $40++ billion for starters.
My prediction: More financial institutions including JPM would go to Uncle Sam begging for similar financial bailout in the next few months.
According to my favorite Clusterstock author, questions have come out regarding the true worth of Citi's troubled assets. The fed govt is putting a backstop of $306 billion, but experts are only estimating the assets to be worth $230 billion only. US taxpayers are already on the hook for $40++ billion for starters.
My prediction: More financial institutions including JPM would go to Uncle Sam begging for similar financial bailout in the next few months.
AIG is a financial BLACK HOLE!
http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=OBR&date=20081202&id=9417688
Today, AIG is asking for federal guaranty for its counterparty collateral requirements, further draining funds from Fed Reserve. The company is not allowed to go bankrupt, however, it will continue in its present form requiring government funds to cover its obligations. It needs to shed assets in order to raise funds.
Otherwise, when will this "suckin" vortex stop?
Today, AIG is asking for federal guaranty for its counterparty collateral requirements, further draining funds from Fed Reserve. The company is not allowed to go bankrupt, however, it will continue in its present form requiring government funds to cover its obligations. It needs to shed assets in order to raise funds.
Otherwise, when will this "suckin" vortex stop?
Stats for today
TED Spread= 2.17
Financial institutions are still fearful of lending to each other. The spread has been around 2 ish for a few weeks already.
Baltic Dry Index= 700
Down 95++% from mid-year high. World shipping(trade) is slumping.
1USD=Yen93.7
Trend is that Yen keeps making high againt almighty Dollar. Yen carry trade is unwinding at a furious pace.
Financial institutions are still fearful of lending to each other. The spread has been around 2 ish for a few weeks already.
Baltic Dry Index= 700
Down 95++% from mid-year high. World shipping(trade) is slumping.
1USD=Yen93.7
Trend is that Yen keeps making high againt almighty Dollar. Yen carry trade is unwinding at a furious pace.
Starting to blog today
This is my first attempt to blog about my favorite topics, economy and investing. I will share clippings from my favorite websites.
First sharing:
On Dec 1, US stock markets plummetted. S&P500 (my favorite index) has tanked 9% to around 816 from an NBER report which stated that recession has started since Dec 07. Subsequently, global stocks dropped as well. US Fed Chief has rubbed salt into wound by saying the economy would be under "considerable stress" for some time. Certainly, President Bush did not help by saying "I'm sorry this is happening" to the public.
My prediction: The direction for the market this week would mostly depend on US automakers' bailout outcome from Congress.
First sharing:
On Dec 1, US stock markets plummetted. S&P500 (my favorite index) has tanked 9% to around 816 from an NBER report which stated that recession has started since Dec 07. Subsequently, global stocks dropped as well. US Fed Chief has rubbed salt into wound by saying the economy would be under "considerable stress" for some time. Certainly, President Bush did not help by saying "I'm sorry this is happening" to the public.
My prediction: The direction for the market this week would mostly depend on US automakers' bailout outcome from Congress.
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