Markets Brace For The Worst

[Fade the Butcher]

http://www.telegraph.co.uk/money/main.jhtml;jsessionid=OHHRTBUEOA4CFQFIQMGCFF4AVCBQUIV0?xml=/money/2006/05/15/cnmarkets15.xml

By Ambrose Evans-Pritchard (Filed: 15/05/2006)

Global markets are bracing for turmoil today after an ominous slide in the US dollar and a slump in equity and bond prices late last week sent tremors through the global financial system, evoking memories of the 1987 crash.

Emerging economies have led the sell-off as investors recoil from risky assets, pummelling stocks and bonds in Turkey, Hungary, Iceland and much of Latin America.

The currencies of Brazil, Mexico and South Africa all suffered their sharpest falls in two years as foreign funds rushed for the exits.

In New York, the Dow Jones industrial index fell 262 points over Thursday and Friday to 11381, setting off contagion in Japan and Europe. The FTSE 100 had its worst drop in three years on Friday, falling 129.9 points, or 2.2pc, to 5912.1.

Analysts said there were now clear signs that monetary tightening by the world's central banks was starting to crimp growth. Lombard Street Research warned the US was now heading into outright recession, with China also facing a hard landing.

"Stock markets in the middle of 2006 are confronting a tight Federal Reserve and European Central Bank, sharply higher bond yields, and a downswing in potential profits," it said.

It raised the risk of "an impending financial crisis" caused by excess credit and leverage across the global economy. The group advised investors to liquidate stocks and move into cash yen until the storm has blown over.

The dollar has slumped 6pc against the euro and 8pc against the yen this year as the markets anticipate an end to interest-rate rises by the US Federal Reserve, switching attention back to America's debt mountain and current account deficit of 7pc of GDP.

Volkmar Hable, chairman of Samarium Technology, said the world was now on the brink of a dollar crisis.

"The crash in the autumn of 1987 started with a massive dollar and bond decline in the spring. We are experiencing exactly the same now," he said.

Ominously, bonds are no longer viewed as a safe haven, a sign of fear that inflation is gaining a foothold in the major economies.

Interest rates on 10-year Treasury bonds have jumped from 4.36pc to 5.19pc since February, in part because Asian investors are demanding a higher premium for holding risky dollar investments. The 10-year bond is the benchmark for economic activity in the US, setting corporate borrowing rates and the cost of most mortgages.

The bond slide is exacting a toll on the US property market, where the price of new homes has fallen for five consecutive months. A half-year inventory of unsold houses now hangs over the market.

Goldman Sachs, however, is sticking to its optimistic forecast, banking on a seamless "hand-over" from a slowing US economy to a re-awakening Europe and Japan, while China will continue to be an engine of global growth. The IMF is also bullish, forecasting roaring growth of 4.9pc in 2006, one of the highest rates in half a century.

[Spitfire]

For every dollar lost by average investors, somebody somewhere collects that dollar.

If there is a collapse, it'll be manufactured. Average investors will suffer, the monetary elites will gain. These panics and tremors are created by massive selling of stocks and bonds. The prices collapse because the buyers aren't there to take up the risk of the stock or bond losing more value. China is going to kill the US dollar when they make their adjustment. They keep the yuan weak to keep Chinese goods flowing for cheap onto American shores, but it can't keep up. The backlash for this unpopular war and global hatred of the USA is going to manifest in people getting out of the dollar and into the new Euro and ever stable Yen.

It's more complicated than this and I find economics to be a very complicated issue (and I'm really not smart enough to understand it much), but my point is that one man's collapse is another man's windfall. That's all I'm saying.

All fiat systems are doomed to fail. They're based on government promises. Governments promise and rarely honor that promise. The cash we spend is nothing more than fancy paper that states "this note is legal tender for all debts public and private". When faith in the government dries up, that paper is going to seem rather ridiculous. I could be dead wrong. Who knows.

[Felix the Cat]

They're based on government promises.
They're based on government threats

(Try to establish your own currency and see what happens to you.)

So long as the State and Army are strong, the banknotes they endorse will remain strong

But if either weakens...

[Ravenheart]

For every dollar lost by average investors, somebody somewhere collects that dollar.

There's a Dutch saying that "one man's death is another man's bread".

[Niko Bellic]

Lombard Street Research warned the US was now heading into outright recession, with China also facing a hard landing.


That's where I stopped reading. America and China are in terrible shape, riiiiiiight.:rolleyes:

[Petyr Baelish]

That's where I stopped reading. America and China are in terrible shape, riiiiiiight.:rolleyes:

Of course, as we were all taught in Macroeconomics, expansion and propserity are permanent features of the stock market. It's not like the market ever crashed in in 1929 or the Dot-com bubble ever burst in 2001 :rolleyes: .

You are a complete dubmass. It looks like your list of cognitive deficts extends far beyond your inability to do simple algebra

[Niko Bellic]

Of course, as we were all taught in Macroeconomics, expansion and propserity are permanent features of the stock market. It's not like the market ever crashed in in 1929 or the Dot-com bubble ever burst in 2001 :rolleyes: .

You are a complete dubmass. It looks like your list of cognitive deficts extends far beyond your inability to do simple algebra

Good one! Rep for that.:D

It's also not like the American economy slowly slid into a recession 2000-2001, then plunged into deep recession following the destruction of the WTC, which included, what was it, a 3000 or something point drop in the DOW, followed by the corporate collapse of Enron, and a few others that eventually landed their CEOs in jail for destroying the retirement accounts of their employees, which cast doubt on the whole 401k system.



GOSH, IT'S A FUCKING MIRACLE ANY OF US ARE ABLE TO EAT AFTER ALL THAT!!

But doom and gloom nutjobs like you are just sitting out there, NOT PREDICTING, but hoping and praying that the American economy will collapse so that you can go on a message board and say

(self-edited for filthy content)

and I didn't hide anything with white text.:)

[Helios Panoptes]

That's where I stopped reading. America and China are in terrible shape, riiiiiiight. :rolleyes:

Please explain why it is absurd that these economies could be headed towards recession. You have not done this. When it was pointed out to you that the US has been in recession before, you launched into a rambling diatribe about how it is "a fucking miracle any of us are able to eat after that." I'm left wondering if you know what a "recession" is. It seems not.

[Der Sozialist]

Please explain why it is absurd that these economies could be headed towards recession. You have not done this. When it was pointed out to you that the US has been in recession before, you launched into a rambling diatribe about how it is "a fucking miracle any of us are able to eat after that." I'm left wondering if you know what a "recession" is. It seems not.

Recessions are a normal part of the economy—the important aspect is if the economy is growing (ignoring all these short term cycles).

The figures that I have seen indicate that the economy, in the long run, is still growing (if it is growing faster than inflation is another story).

[Helios Panoptes]

Recessions are a normal part of the economy

That is why I do not understand the reason The Ugly American thinks the US economy heading towards recession is a near impossibility.

[Niko Bellic]

Please explain why it is absurd that these economies could be headed towards recession. You have not done this. When it was pointed out to you that the US has been in recession before, you launched into a rambling diatribe about how it is "a fucking miracle any of us are able to eat after that." I'm left wondering if you know what a "recession" is. It seems not.

It's not absurd. If this little drop continues for a month, then I'll worry. Right now it's just enough to draw out the kooks.

[Keystone]

But doom and gloom nutjobs like you are just sitting out there, NOT PREDICTING, but hoping and praying that the American economy will collapse so that you can go on a message board and say

HA!!! I WAS RIGHT!!!

Peak Oilers are good for this.

[Petyr Baelish]

That is why I do not understand the reason The Ugly American thinks the US economy heading towards recession is a near impossibility.

Deductive analysis (among other mental processes) does not seem to be one of his strong suits.

Notice how he dismisses me as a 'doom and glood nutjobs' for simply pointing out that the U.S. economy is not immune to recession.

[Petyr Baelish]

It's not absurd. If this little drop continues for a month, then I'll worry. Right now it's just enough to draw out the kooks.

Lombard Street Research is obviously nothing but a group of kooks, and you're far more of an authority of the stock-market than a bunch of fancy-pants financial analysts with their PhDs, gloom and doom nutjob-theories about so-called "recessions" (who ever heard of a "recession", anyways?) and other such meaningless crap, and their knowledge of calculuus and useless maths (who the hell needs to know more math than the multiplication tables supply, anyway?). Instead of people with MBAs and PhDs in economics, we need more people like you, who never progressed past eighth-grade algebra, to do our stock market analysis for us; then we can sleep easier knowing how optimistic the prognosis is.

[Keystone]

Lombard Street Research is obviously nothing but a group of kooks, and you're far more of an authority of the stock-market than a bunch of fancy-pants financial analysts with their PhDs, gloom and doom nutjob-theories about so-called "recessions" (who ever heard of a "recession", anyways?) and other such meaningless crap, and their knowledge of calculuus and useless maths (who the hell needs to know more math than the multiplication tables supply, anyway?). Instead of people with MBAs and PhDs in economics, we need more people like you, who never progressed past eighth-grade algebra, to do our stock market analysis for us; then we can sleep easier knowing how optimistic the prognosis is.
Instead of "trading" things, maybe we should be "making" things? How long can a country run on a service economy? The only things we make are weapons. They are made by only a handful of companies whose only customer is the government.

[Niko Bellic]

Lombard Street Research is obviously nothing but a group of kooks, and you're far more of an authority of the stock-market than a bunch of fancy-pants financial analysts with their PhDs, gloom and doom nutjob-theories about so-called "recessions" (who ever heard of a "recession", anyways?) and other such meaningless crap, and their knowledge of calculuus and useless maths (who the hell needs to know more math than the multiplication tables supply, anyway?). Instead of people with MBAs and PhDs in economics, we need more people like you, who never progressed past eighth-grade algebra, to do our stock market analysis for us; then we can sleep easier knowing how optimistic the prognosis is.

Yes, we do need more people like me. For the past 4 years at least, everytime good news about the economy is reported, i.e. jobs created, unemployment rate dropping, inflation rate staying low, trade deficit dropping, consumer confidence index rising, etc. etc., the news media always throws in a phrase like this "...which is higher/lower than the EXPERTS predicted". Who are these experts? I can't name them, but I bet they have MBAs and PhDs, and they seem to always be WRONG. That's because these ups and downs of the economy are moved by emotion, which can't be predicted by mathematics.

I live in a rust belt state, which is about to have thousands of union members at GM put out of work. My favorite entertainment is rennaissance fairs, which are always in some relatively remote rural area. My girlfriend has a small business selling fairy wings, and I have many friends who make and sell other forms of frivolous crap for their primary source of income. Even with gas prices at near record levels, I see thousands upon thousands of people, mostly in the lower end of the middle-class spectrum, willing to drive hours to these fairs and spend their money on beer, art, funny clothes, swords, and FAIRY WINGS. It costs an average of $15 just to walk through the gate at these fairs. Next weekend, we're going to a sci-fi convention that costs $50 just to walk through the door, which is attended by about 3000 geeks, the usual assortment of artists, and people selling funny clothes will be there earning a living. We're trying to produce as many wings as we can to be sold at a music festival in Tennessee, and to build up stock for the Ohio fair in September, and we might run into an inventory crunch.

I'm telling you that if a recession was anywhere on the horizon, I would not be seeing this. People get jumpy with their disposable cash if there's even a hint that a downturn is coming, and this little dip in the market isn't even enough to create that little bit of panic. The reporting on this is being driven by people who are desperately searching for any reason to blame it on Bush, and tell everyone to vote for democrats and raise taxes.

[Spitfire]

Keep spending. Everything depends on the average American buying food, drinks, and assorted stuff. This is a consumer-service-retail society we live in. The big fish do bigger things.

Forget about saving. It isn't going to happen. Spend, spend, spend. But don't get into too much debt.

Thus America ever onward goes.