Interesting Economic Times - What is going on with the economy?

[StreetsofSilver]

As I write this, the price of gold is $773/oz (the lowest that I have seen it since 2006). Just six months ago, it was peaking at about $1000/oz. The value of the dollar has gone up. The price of gas has gone down. Yet, banks are failing left and right (not to mention the Fannie/Freddie bailout) and the unemployment rate is at its highest.

Countrywide announced that they (again) will do 100% financing for home loans as long as the buyer is purchasing a foreclosed home that is owned by Countrywide. (In other words, Countrywide is the lender and the seller). I hear that Citi is about to roll out a program that gives 100% financing to qualified buyers with a credit score above 730.

What do you think are the reasons for this "economic turbulance"? Is it related to the economic stimulus checks (fiat money), speculators selling off commodities, etc.? Also, which direction do you think that the country is headed in (both short and long term)?

 

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[MJ DeMarco]

Re: Interesting Economic Times - What is going on with the econom

This is a great topic ... unfortunately, I cannot answer as my response would be political. I can't break my own rules.

 

[hakrjak]

Re: Interesting Economic Times - What is going on with the econom

I think it all comes down to confidence. Whether people are answering that they are not confident or whatever in these "Consumer Confidence" reports that come out -- Overall, Americans are confident that the economic problems will get worked out, because in recent memory they always have been worked out. They are also probably getting the feeling that things have been bad for a long time now, and it's time for them to turn around in the near future (i.e. We're due some good luck!)

I think it's great that they are starting to loosen up lending again. There is no reason someone should have to have 10-20% to put down to purchase a home.... I always thought 5% was more than fair, and 0% was just ridiculous, but ok if you have a perfect fico score and can qualify.... With mortgage rates approaching 5.5% this week, we should see some life back in the real estate market which is what I've been praying for for years now! I only wish I had more properties to sell when the boom hits again ... I'll obviously be loading up for bear this Winter, ready to make some key moves in the spring time!

My predictions:
- If all stays healthy on the horizon, Gold goes back to $500 within 12 months.
- If interest rates come close to 5%, we get another REI speculative boom
- If lending loosens, it adds to that boom -- if it tightens, it squelches it...
- The US dollar will continue to strengthen, especially after we get out of Iraq & get our country's financial house in order over the next couple of years.
- There will be more real estate millions made in the next 2 years than were made in the last 10 years.

Cheers,

- Hakrjak

 

[NotesRog]

Re: Interesting Economic Times - What is going on with the econom

For the most part I agree with HakrJak on is forecasts. The lending arena is where my expertise lies, as I have been on the commercial lending end for the past ten years.

The crux of the issue with lending right now, both on the residential and commercial ends is this: during the past 10-20 years, standards have been loosened to allow for ever greater profit and ownership of assets. While I do not believe that 20% is a magic number when it comes to residential, every one has to have some skin in the game. I think 5% would work for most circumstances on the residential side. The issue became debt ratios with which borrowers had to qualify were ever expanding. When I was in the residential market, over 10 years ago, debt ratios were already approaching 50% of the borrower's income. Put creeping healthcare costs and skyrocketing energy costs into the mix and something had to give.

Lending was great when a bank could originate a mortgage, commercial and/or residential, earn an origination fee, sell off most or all of the loan at profit and repeat. This happened to snowball with looser lending standards and when the market came to a screeching halt, they were no longer able to sell their risk off while pocketing the profit. Consequently, loss reserves had to quickly be boosted, thus triggering an avalanche of capital calls.

These institutions are aware of the loans they are stuck with and cannot sell off and are very wary of other institutions they know are in the same boat. However, the elephant in the room is no one is revealing how bad their asset pool is (they are waiting for the FDIC or some other agency to quietly enlist a competitor to buyout their positions).

So this brings us to "We the People"..... owning Fannie and Freddie because they are "too big" to fail.

My view is:
+ The dollar will continue to strengthen as we work our way through this if we adopt a pro-growth policy in DC
+commodities will continue to decline, though I don't see the bottom dropping (I have been saying since April/May the smart play would have been to short oil - though sadly, I have not taken my own advice)
+once the population can see on the horizon a pro-growth agenda, which will create jobs and wealth is apparent, confidence will again be back
+Real estate is where the big $ will be made in the next 3-7 years with banks and now the govt shedding assets a pennies on the dollar (any one remember the RTC?)

Roger

 

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[NoMoneyDown]

Re: Interesting Economic Times - What is going on with the econom

I agree WRT to the real estate market, however, I see a worsening in the 6-9 month time frame in the residential side. We're already experiencing the effects of the subprime fallout and I see that continuing WRT non-subprime loans that are defaulting an an increasing rate. The drop in oil has helped lessen the brunt a little, but I've heard some people say that it may rise again in the coming months. Not good for those who also rely on oil to heat their homes. To make matters worse, new guidelines are going into affect on October 1st that will further stagnate buying in the residential space. I've personally noticed new home builders scrambling to lure customers in with more and more incentives, and these new rules - coupled with foreclosures - will bring the prices down further, IMO. I just hope our elected officials don't pass knee-jerk legislation to try and "fix" this problem. What may be another pillar to watch is the coming holiday season. If its bad, the gloom may filter over into more layoffs for retail and financial companies, who are already struggling to stay in the red.

Of course, my big fear is the powder keg better known as consumer debt buries any hope for a recovery in the next few years. Or worse, sets this country back so far we'll be talking decades instead of years for recovery.

 

[Russ H]

Re: Interesting Economic Times - What is going on with the econom

anyone remember the RTC?

Assuming you mean Resolution Trust Corporation.

-Russ H.

 

[Sid23]

Re: Interesting Economic Times - What is going on with the econom

+Real estate is where the big $ will be made in the next 3-7 years with banks and now the govt shedding assets a pennies on the dollar (any one remember the RTC?)

Roger

Agreed.

 

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[randallg99]

Re: Interesting Economic Times - What is going on with the econom

As I write this, the price of gold is $773/oz (the lowest that I have seen it since 2006). Just six months ago, it was peaking at about $1000/oz. The value of the dollar has gone up. The price of gas has gone down. Yet, banks are failing left and right (not to mention the Fannie/Freddie bailout) and the unemployment rate is at its highest.

Countrywide announced that they (again) will do 100% financing for home loans as long as the buyer is purchasing a foreclosed home that is owned by Countrywide. (In other words, Countrywide is the lender and the seller). I hear that Citi is about to roll out a program that gives 100% financing to qualified buyers with a credit score above 730.

What do you think are the reasons for this "economic turbulance"? Is it related to the economic stimulus checks (fiat money), speculators selling off commodities, etc.? Also, which direction do you think that the country is headed in (both short and long term)?

Desperation is ugly... these new programs aren't available because they have money to burn again, but because they are running out of money

This is a great topic ... unfortunately, I cannot answer as my response would be political. I can't break my own rules.

it doesn't matter which party comes into office.... we're all screwed with a shrinking economy in conjunction with a shrinking asset base. It won't be long before USA debt will have a lowered rating.

There is no reason someone should have to have 10-20% to put down to purchase a home.... I always thought 5% was more than fair, and 0% was just ridiculous, but ok if you have a perfect fico score and can qualify.... With mortgage rates approaching 5.5% this week, we should see some life back in the real estate market which is what I've been praying for for years now! I only wish I had more properties to sell when the boom hits again ... I'll obviously be loading up for bear this Winter, ready to make some key moves in the spring time!

My predictions:
- If all stays healthy on the horizon, Gold goes back to $500 within 12 months.
- If interest rates come close to 5%, we get another REI speculative boom
- If lending loosens, it adds to that boom -- if it tightens, it squelches it...
- The US dollar will continue to strengthen, especially after we get out of Iraq & get our country's financial house in order over the next couple of years.
- There will be more real estate millions made in the next 2 years than were made in the last 10 years.

Cheers,

- Hakrjak

if all stays healthy? where? what??? Lehman brothers and Wamu are on brink of collapse and the FDIC has reported it does not have enough to cover the aniticpated bank failures....

I don't know about gold. I've been smack wrong on this one... so you're probably right

IF lending loosens... IF. IF. IF. If our economy didn't rely on the housing market so much, we wouldn't have the problems we're in....

While I do not believe that 20% is a magic number when it comes to residential, every one has to have some skin in the game.
Roger

you better believe it. The people who are most successful during these trying times are the ones who have skin in this game.... lets face it, the whole economy is upside down because many people didn't want to have skin in the game...

if more people have "skin in the game" this thread would have been a nonexistent topic...

bank of america just announced today some prime commerical loans are showing higher rates of default. and this is where people sought a haven and the "big money" said the problems were isolated only to residential...

if commercial arena starts buckling, we ain't have seen nothin' yet.

Of course, my big fear is the powder keg better known as consumer debt buries any hope for a recovery in the next few years. Or worse, sets this country back so far we'll be talking decades instead of years for recovery.

bingo - unemployment will be the driving factor for the economy.... it's trailing worse with each announcement.

my prediciton is that it will get worse before it gets better... the fed is not going to bail out anymore investment brokerage houses... could be wrong, but I think the fed needs to hoard the $ to support the FDIC when the Wachovia/Wamu/Wells comes a knockin`

I don't think we'll see people selling apples for 5 cents, but there are a lot of loose links within the economy that has too many dire ramifications unless the circumstances change.

until that happens, I am holding tight and rather buy on an upswing than try to pin point the bottom. Whether that's 1 week, 1 year, 1 decade... I'll monitor closely.

 

[EasyMoney_in_NC]

Re: Interesting Economic Times - What is going on with the econom

I heard a comment the other day that interested me. It was suggested that the dollar is being propped up by the feds in an effort to cover the fallout that will ensue when the financial market just completely implodes. The dollar will fall with that implosion and to start from where we were would be catastrophic, but if propped up high enough, at worst we'd get back to the levels of months ago (early 70's).

B of A just announced today that they have agreed to settle with the feds to buy back...... I think it was like 4 Bil in crap securities (loans gone bad sold to unsuspecting investors). That's got to be just the beginning, the next year is going to be nasty in my opinion. I hope we don't see what happened in Japan a few years ago happen here! We may all be in trouble.

 

[hakrjak]

Re: Interesting Economic Times - What is going on with the econom

Man, reading the above 2 posts, I would start believing that Armageddon is about to kick in, and we're all going to hell in a hand basket. hehe

So a couple of banks have failed, and the government has bailed out a bunch of fat cats that probably didn't deserve to be bailed out in the first place....

But still....

Unemployment is relatively low, home prices are starting to gain traction, mortgage rates are dropping, oil is down, gold is down, the stock markets are starting to gain traction....

There have always been problems that we've had to deal with. I remember the S&L Scandal, Junk Bonds, Runaway inflation in the 70's, Insanely high mortgage rates in the 70's & early 80's, high unemployment, trade defecits, huge federal budget problems... But somehow as a nation, we always seem to pull through.... Americans are (Dare I say?) a resilient breed of people... I wouldn't bet against them over the long term

- Hakrjak

 

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[StreetsofSilver]

Re: Interesting Economic Times - What is going on with the econom

Thanks for the comments. I agree with Roger that real estate is where the money is to be made in the next few years. Also, the internet and technology industries are going to continue to grow.

Easy Money said,
"I heard a comment the other day that interested me. It was suggested that the dollar is being propped up by the feds in an effort to cover the fallout that will ensue when the financial market just completely implodes."

Without getting into politics (because I know that is banned from the board) it sounds like this comment implies that the bank failures, high unemployment rate, Fannie/Freddie bailout, etc. show the "real" economy. While the strengthening of the dollar has more to do with the fact that this is an election year.

Any thoughts?

 

[michael]

Re: Interesting Economic Times - What is going on with the econom

Man, reading the above 2 posts, I would start believing that Armageddon is about to kick in, and we're all going to hell in a hand basket. hehe

-Hakrjak

Better believe it they are about to launch the second big bang in Switzerland.

I think I'll go board up the windows now

 

[randallg99]

Re: Interesting Economic Times - What is going on with the econom

there is just too much compelling data flashing in front of us telling us the credit crunch will get worse before it gets better

Man, reading the above 2 posts, I would start believing that Armageddon is about to kick in, and we're all going to hell in a hand basket. hehe

So a couple of banks have failed, and the government has bailed out a bunch of fat cats that probably didn't deserve to be bailed out in the first place....- Hakrjak

the ramifications of the "couple of banks" failing are much larger than most people realize. The amount of money to keep FRE/FNM alone from failing, <<these funds are not jumping their biz or beefing their reserves, but simply enough to keep them liquid to continue operations as normal>> is equaling so far approximately 2 years worth of war in Iraq. And this is "only" FRE/FNM....

much more money has already been spent on Bear Stearns, reform and other injections.

and I would agree with you that saving these banks and injecting the cash is "no big deal" but delinquencies and foreclosures continue to increase!!! ( I posted the default rates on another thread )

but even more seriously, as more money is raised to fund these injections via treasury auctions, the dollar is consequently becoming more and more diluted

Unemployment is relatively low, home prices are starting to gain traction, mortgage rates are dropping, oil is down, gold is down, the stock markets are starting to gain traction....- Hakrjak

yes unemployment is low by historical standards, but it is also increasing on a monthly basis. This trend to me is probably one of the most important and real-time indicators to get the pulse of the economy.... the underlying consumer has become the backbone of our economy and their purchasing power is weakening and the commercial/industrial sector is losing steam thus laying off people

stock markets are absolutely, positively NOT gaining traction. Long term charts are sinfully ugly and the gyrations represent a lot of nervous nellies out there

and.... oil is down to what? we are still at levels that were breaking average American pocketbooks. When gallons of gas went over $2-$2.50, that's when people started breaking piggy bank savings.... we are still at 33% above those levels. Also heating prices at these levels have not set in...

gold pricing is nothing more than a reflection of the economy - not the other way around.

There have always been problems that we've had to deal with. I remember the S&L Scandal, Junk Bonds, Runaway inflation in the 70's, Insanely high mortgage rates in the 70's & early 80's, high unemployment, trade defecits, huge federal budget problems... But somehow as a nation, we always seem to pull through.... Americans are (Dare I say?) a resilient breed of people... I wouldn't bet against them over the long term

- Hakrjak

you and I agree that our country will get out of this mess. but unfortunately, it won't be as soon as many would like to hope.... that's my point.

some of the CNBC commentators and guest speaking analysts have counteracted when the oil markets were breaking the consumer for us not to worry because job markets were strong.

and that the housing market was strong...

and that consumer spending was strong...

and that confidence was strong...

and that the commercial loans are unaffected by any market slow down...

as each one of these have broken down, there's something else that will stay stong according to CNBC

a large concern is that exports played a large part of the American economy rebounding during the 1970s inflationary crisis and now we don't have the manufacturing capacity anymore.

the markets tend to overshoot on the positive side but react more realistically on the negative side.

I am just cautious at this juncture.... maybe more so than necessary, but capital preservation is very important during market slow downs....

here's a good read-
Minyanville - Market Commentary, Investing Ideas, Global Finance, The Economy

gotta finish some work... buenos noches amigos!

 

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[andviv]

Re: Interesting Economic Times - What is going on with the econom

gold pricing is nothing more than a reflection of the economy - not the other way around.

I always believed it was the other way around... cheap gold means strong economy. Expensive gold means trouble and people hedging against it by holding a "hard" currency. (disclaimer: I think I was sleeping in that Economic class in college, so I'm not 100% sure of this)

the markets tend to overshoot on the positive side but react more realistically on the negative side.

Really?
Every time I see the news I get that bad news usually create an exaggerated sell and massive drops, while positive news only create a small run up, so I take this to mean the exact opposite of what you just said. (disclaimer: I don't invest in the market --other than my 401(k) because I have no choice-- so I really don't follow it that close)

 

[randallg99]

Re: Interesting Economic Times - What is going on with the econom

Really?
Every time I see the news I get that bad news usually create an exaggerated sell and massive drops, while positive news only create a small run up, so I take this to mean the exact opposite of what you just said. (disclaimer: I don't invest in the market --other than my 401(k) because I have no choice-- so I really don't follow it that close)

every bubble is created by a large overshooting.... daily trends are much harder to follow than longer trends. Keep your eye on the big picture and the bubbles and "overshooting" theory is much more clearer

R


by the way - job data report today is absolutely miserable. the trend is worsening and we are flirting with 5 year highs.... this to me, again, is the ultimate indicator of the health of our economy.

 

[randallg99]

Re: Interesting Economic Times - What is going on with the econom

and by the way... the negative news coming out regarding banks is very, very negative. The very basis of our fiscal system is in jeopardy of falling apart...

all of the price declines in financial sector are completely justified:

FNM and FRE are going to be worth $1+/- per share. the preferreds were taken out back and shot, so the 99% (or whatever it was) drop in share price is not an "overshoot"

WAMU is speculated to go to the Fed. Their share price will be much lower and this is not an over-reaction

same with Bear Sterns, when they became $2

and Lehman who is apperantly one step away from life support, whose share price declined xx%, is not an over shoot if the unconfirmed info in fact becomes reality

 

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[NotesRog]

Re: Interesting Economic Times - What is going on with the econom

The commercial arena is already beginning to take hits. I don't believe we will see the bloodbath similar to the writedowns of sub-prime residential, but there are billions of $ lined up and ready to pounce. Reading the tea leaves, says it is still too early.

Commercial lending had gotten so crazy, loans were being underwritten with "promised" projections, not in place income to support the debt. The first liens were 80% LTVs based on these projections, but more likely 90%+ based on actual in place income. Additionally, borrowers were adding 5-10% in mezzanine financing.

So we were approaching, if not exceeding, 100% ltv commercial deals. Add on to that the very liberal use of interest only financing (10 years) and a lot of deals underwritten and closed circa late 2005 to mid-2007 are underwater.

These lenders deserve to fail not get bailouts. FNM/FRE should have gotten broken up long ago. The fact of the matter is if they were truly private companies similar to what Ma Bell/AT&T was back in the days, they would have been. They were political playgrounds.

I am not looking through rose colored glasses, as I do see some more pain in the near term.

If gov't would get out of the way instead of continuing to offer hand outs, there are literally tens if not hundreds of billons of $ waiting in the wings to swoop in. The trick as Randall stated, knowing where the bottom is.

Roger

 

[Edge]

Re: Interesting Economic Times - What is going on with the econom

Wow, seems like everyone is either turn around and shoot straight to the moon bullish, or all hell is going to break loose bearish. Nobody thinks the RE market could just be range bound sideways for the foreseeable future? Well, I do.

I think the only way we could’ve possibly bottomed and started to turn around is if FNM/FRE would have been allowed to fail so that we could get the blood in the streets. Then entrepreneurs and capitalists would invest in lending solutions, not our government. Open market capitalism is the best answer; we just went the opposite direction. Imagine the transfer of wealth that would have taken place.

Now, I can’t see any reason to do anything but grind sideways. Like one of my favorite bloggers says, “if they don’t scare you out, they’ll wear you outâ€.

I’ve been trying to bite my tongue around here lately on this subject because it feels like people that are bullish on the markets are positive doers and anyone bearish on the markets is pessimistic or overcome by fear. I don’t buy into any of that thinking, there are ways to make money in any market no matter which direction it is headed just as long as you are correct about the direction. Pick your direction (up, down, or sideways) and go do it.

 

[HCBailly]

Re: Interesting Economic Times - What is going on with the econom

I’ll throw in my two cents. I’d say there are two fairly obvious reasons for the economic turbulence:

1) Gas prices. Pretty simple. When gas prices went up, people had less discretionary income, and were forced to... <gasp>... manage a budget.

2) Mortgage market collapse. The reasons for this happening have already been stated in the above posts.

In my adult life (<10 years), I’ve only seen the economy go down, so I haven’t seen first-hand how an economic cycle works. As a result, I cannot see how the economy can possibly ever turn around. Of course, it will, but I don’t see how. Let’s look at what it would take for a turn around in the economy to occur.

1) Gas prices get cut in half. It’s called supply and demand. Since demand will always go up, supply will always go down, and no new refineries are being built, I cannot see gas prices ever going down more than 10%. Though, I would be happy to hear how this could happen. Maybe a new technological breakthrough, but that would take decades to take effect.

2) Lenders loosen their lending requirements as before. This seems more likely, as it is already happening a little bit. However, I cannot see the economic boom of the 90s ever happening again. There might be a few private lenders or banks that will give financing to people who are clearly unqualified, but I doubt the major players would go back to their old practices. How could they? They would end up in the same mess that we are in now. I doubt that mortgages will ever be nearly as easy to obtain as before.

3) The median income increases significantly greater than the rate of inflation. Has this ever happened since we left the gold standard of currency in 1971? Without a solid backing to our currency, I cannot see people gaining more relative discretionary income. They’re certainly not going to manage their budgets any better.

I don’t mean to sound cynical. Rather, I’m seeking understanding as to how this economy can ever turn around. Then again, does it really matter? Whether you know what you’re doing or not, you would get the same results in any economy.

 

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[hakrjak]

Re: Interesting Economic Times - What is going on with the econom

I don’t mean to sound cynical. Rather, I’m seeking understanding as to how this economy can ever turn around. Then again, does it really matter? Whether you know what you’re doing or not, you would get the same results in any economy.

When you put it that way, it makes me want to start hoarding canned food, and oiling my AR-15 in the basement.

You know though -- fact is, before the tech boom of the late 90's -- nobody foresaw things getting much better anytime soon, and then we sure didn't predict that directly after that crash there would be a housing boom.... So I think we'd all be pretty off base to rule out another boom of some kind in the economic future.

Like someone said above -- all booms go bust, and then go boom again Money will be made whether it's a good economy or bad economy.

On a personal level, I know I've made more money in the last 2 yrs than in the past 8 before it, and supposedly the economy is worse now than ever!? I never made a dime during the dot-com boom off of stocks -- I just speculated like everyone else at the casino, and eventually lost it all -- and those were supposedly some of the best times to get rich in stocks. I also never made a dime during the best years of the housing boom... If anything, I paid too much for houses then. *shrug*

- Hakrjak

 

[EasyMoney_in_NC]

Re: Interesting Economic Times - What is going on with the econom

Thanks for the comments. I agree with Roger that real estate is where the money is to be made in the next few years. Also, the internet and technology industries are going to continue to grow.

Easy Money said,
"I heard a comment the other day that interested me. It was suggested that the dollar is being propped up by the feds in an effort to cover the fallout that will ensue when the financial market just completely implodes."

Without getting into politics (because I know that is banned from the board) it sounds like this comment implies that the bank failures, high unemployment rate, Fannie/Freddie bailout, etc. show the "real" economy. While the strengthening of the dollar has more to do with the fact that this is an election year.

Any thoughts?

No, I think the implications (from what I was listening to) is that the only way the Fed's will be able to bail everyone out is to print money. Doing so, reduces its value. If its been propped up, then the crash that may ensue may not be quite as bad. Foreign investors will bail out if the dollar really slides, so to combat, the fed props the dollar up.

I'm no economist, but this all made sense to me (I tend to be a conspiracy theorist ).

 

[StreetsofSilver]

Re: Interesting Economic Times - What is going on with the econom

HCBailly said:

"1) Gas prices get cut in half. It’s called supply and demand. Since demand will always go up, supply will always go down, and no new refineries are being built, I cannot see gas prices ever going down more than 10%. Though, I would be happy to hear how this could happen. Maybe a new technological breakthrough, but that would take decades to take effect."

Demand would go down if the U.S. were less dependent on gasoline. It's hard to believe that cars have been around for over a century and alternative fuels have only recently begun to be researched. Also, as more people continue to buy hybrid/electric cars - the demand for gas will go down. I wonder who will be the first country to release a car that runs on something entirely different than gas, diesel, or ethanol.

 

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[max momo]

Re: Interesting Economic Times - What is going on with the econom

Hi,

ECONOMY
As far as the economy, it all comes down to the bond market IMO. The bond market in the US is almost 10x the size of the metals and equity markets combined. All Fed actions undertaken are to expressly support the bond market. Once that fails the real troubles begin. I have kept a Bond blog on RDPD going for four years now, so I won’t repeat the information herein.

However, I will pose this: Why did the dollar lose over a full percentage point on Friday (9.12.08)? You could say technical reasons. Look at the 20 year USD chart and see 80 as a very critical support/resistance line.

However, you could also say fundamental reasons rule. Look at how the 30-yr mortgage rate dropped 50-60 basis points this week when the US Treas. Sec. announced the nationalization of FNM/FRE.

The Fed CANNOT support a strong dollar here, no mater how many times Bernanke/Paulson and the other mouthpieces state it as policy. Should they truly support the USD the bond yield rises, and China/Japan stop buying the 10-year USTreasury Note. Since the US has run on debt since 1973 (default on Bretton Woods agreement) the powers in charge NEED international financing. Otherwise there is no more foreign capital infusion which is what enables serial bubbles, and then the debt bubble collapses completely. Of course, to some degree that has already started.

The short term view is that the lowered 30-yr mortgage is bullish for us housing as expressed by some here in this thread. However, why would the Japanese/Chinese continue to by collateralized debt obligations, and feed the middleman AND trust the failing CDO market (ala Bear Sterns and Lehman AND their underwriters such as AIG?) when they can lower their risk and continue to buy the 10-yr UST which is complicity supported by the FED. Answer is, they won’t – they’ll continue to by the 10-yr until they don’t.

And then it gets real interesting…

Street of Silver
Interestingly enough, 100 (well, more like 108) years ago the cars did run on alternative energy: biodiesel. Refined gasoline took a number of years to replace that original fuel. And there are countries who are already energy independent on alternative fuels. Brazil is a primary example via sugarcane derived fuel.

 

[randallg99]

Re: Interesting Economic Times - What is going on with the econom

it's a bad scenario when the US gov't is the only participant in picking up the dead weight.... merrill couldn't completely sell it's prefered offering just a couple of months back. Lehman has been all but advertised for sale and nobody has taken it....

WSJ online article excerpts:

>>>>"Everybody is hoping there will be a Wall Street solution to deal with Lehman's toxic assets," said one senior executive at a major bank. "It is a cheaper alternative than having everything unravel."

With it unclear whether the gap between the federal government and potential buyers can be bridged, a second group at the New York Fed is focusing on the possibility that there might be no alternative to liquidating Lehman and winding down its operations in an orderly fashion.

On Saturday afternoon, the credit-trading heads of major investment banks gathered at the meeting to discuss how to deal with their exposures to Lehman in the intertwined credit-default-swap market. The lack of a central clearinghouse in this market means that dealers, hedge funds and others are directly facing each other in insurance-like contracts that are tied to trillions of dollars in debt instruments.

Credit derivative traders at some firms were asked to come to work over the weekend to help quantify their exposures to Lehman and compile lists of outstanding contracts they have with the investment bank.

One person familiar with the matter said large dealers contemplated showing each other all of their credit default swap trades with Lehman. Disclosing their positions may enable dealers to find ways to offset their positions with each other wherever possible. Later in the day, some traders were told that Lehman -- with the help of Federal Reserve officials -- will try to figure out which of its counterparties have CDS trades that can be offset. Those counterparties would be informed of the offsetting positions, following which they can unwind their respective swaps with Lehman and concurrently enter into new swap contracts with each other. For example, if one dealer has bought a swap from Lehman and Lehman sold a similar swap to another bank, the two banks could agree to face each other directly.

Such moves could help prevent individual firms from scrambling to find new counterparties to rehedge their positions with when the markets reopen on Monday, potentially unleashing turmoil across the credit markets. They could also help facilitate an orderly wind-down of Lehman's derivative positions, if that becomes necessary. Still, sorting out the firm's CDS positions promises to be a difficult and time-consuming task, because many of the contracts have different terms and maturity dates.

It is not known how much in CDS contracts Lehman has. In a survey last year by Fitch Ratings, Lehman was listed among the 10 largest CDS counterparties by number of trades and the amount of debt to which the contracts were tied. <<<<


so a couple of things stick out-
1. nobody really wants Lehman unless it comes with immunity from risk
2. CDS amounts are not only unknown at Lehman, but within the entire financial industry
3. nobody wants to show their cards in this game fearing they have the worst hand and will be laughed out of the room, but the reality is that they're all going to be worthless if the mortgage and credit markets don't stop imploding

 

[hakrjak]

Re: Interesting Economic Times - What is going on with the econom

Ok, this does look pretty grim after AIG and Merryl, etc this week... People are panicing, and I wondering how many days until we see some runs on banks...I'm going to revise my estimates and say that:

- Gold is going to head back to $1200 sooner than later. People don' trust banks, and will be buying gold coins to stick under their mattresses now.

- I think Real Estate will be impacted by tighter lending, but values shouldn't decrease. I think a lot of people will put their money into their homes (i.e. pay down their mortgages rather than sit on it in the banks right now, where they could lose it all if FDIC fails...) -- May even still increase over time.

- Stocks are going to continue to be a good place to keep your money, if you can pick the right ones, and get out before any sudden crash, etc that could occur at any time. Companies that are fundamentally sound, and have good world exposure come to mind.

Cheers,

- Hakrjak

 

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[MJ DeMarco]

Re: Interesting Economic Times - What is going on with the econom

Money funds are even faltering ... one money fund suspended redemptions and broke the $1 barrier.

It's like one big Ponzi scheme that is imploding. This is really scary.

 

[randallg99]

Re: Interesting Economic Times - What is going on with the econom

just got back from lunch with a friend who personally knows a development group who is defaulting on $50mil loans and can't find anyone else to roll into.... I'll refer back to this scenario in a moment...

this is whats gonna happen in my view. I've been right about a lot, but note that I have been sideswiping wrong too. Really, it's true: I have been known to be wrong so take this with a grain of salt:

the past month's action of the US Gov intervening ...

I'll finish up in a bit... forgot about a meeting...

 

[hakrjak]

Re: Interesting Economic Times - What is going on with the econom

Money funds are even faltering ... one money fund suspended redemptions and broke the $1 barrier.

It's like one big Ponzi scheme that is imploding. This is really scary.

Are you buying gold bars with your millions and using them to prop up the bed yet? I figure I'll get some more coins just for security. Now I have to invest in a huge safe though to keep all the valuables in. LOL

- Hakrjak

 

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[MJ DeMarco]

Re: Interesting Economic Times - What is going on with the econom

Are you buying gold bars with your millions and using them to prop up the bed yet? I figure I'll get some more coins just for security. Now I have to invest in a huge safe though to keep all the valuables in. LOL

- Hakrjak

Not yet, but that looks like the safest place to have millions. Sitting around in banks and money funds now seems like a huge risk.

Some of my brokerage holdings have been affirmed to be "safe" ... I don't believe any of these people. Right before these things blow-up, there's always some talking head saying "We are solvent and safe" ... then weeks later, bankruptcy.

In times like these, trust no one ... I have several million in Fidelity and despite their assurance that they are solvent/safe, I'm looking to move the money. Why? A company talking-head said their exposure was "minimal" which in corporate-speak doesn't mean minimal. On their website, they make no mention of the recent money-fund runs ... this tells me they are hiding something and far more vulnerable than they are leading on.

Remember Bear Stearns? CEO Alan Schwartz went on CNBC to tout the strength of his firm. Weeks later, they went belly up.

TRUST NO ONE.

 

[hakrjak]

Re: Interesting Economic Times - What is going on with the econom

Not yet, but that looks like the safest place to have millions. Sitting around in banks and money funds now seems like a huge risk.

Some of my brokerage holdings have been affirmed to be "safe" ... I don't believe any of these people. Right before these things blow-up, there's always some talking head saying "We are solvent and safe" ... then weeks later, bankruptcy.

In times like these, trust no one ... I have several million in Fidelity and despite their assurance that they are solvent/safe, I'm looking to move the money. Why? A company talking-head said their exposure was "minimal" which in corporate-speak doesn't mean minimal. On their website, they make no mention of the recent money-fund runs ... this tells me they are hiding something and far more vulnerable than they are leading on.

Remember Bear Stearns? CEO Alan Schwartz went on CNBC to tout the strength of his firm. Weeks later, they went belly up.

TRUST NO ONE.

I've got $50k sitting in a 401k money market account with Fidelity. I guess my smartest move would be to find a way to get that out in the near future.

On CNBC right now they are saying today is the largest 1 day gain in GOLD in history.... Silver is also up 15%.... Looks like the storm in coming -- Is it 1929 all over again?

Cheers,

- Hakrjak