Is today start of perfect financial storm? (caused by "6L cycle")

More proof of my POV - predictions that the brief rally in US Treasury issue was due to "habbit" of thinking of the dollar as "sound" when the sub-prime problem surfaced in August, but would be temporary after investors had time to think:

" ... Treasury investors basking in the biggest rally in four years have reason to fear for their profits: The largest owners of U.S. government debt are heading for the exit.

Two-year Treasuries returned 1.09 percent in August, the best monthly performance since 2003, according to indexes compiled by Merrill Lynch & Co. At the same time, holdings of U.S. bonds by governments and central banks at the Federal Reserve fell 3.8 percent, the steepest decline since 1992.
The dollar's slump to a 15-year low against six of its most actively traded peers is turning the gains into losses for international bondholders, prompting China, Japan and Taiwan to sell. Overseas investors own more than half of the $4.4 trillion in marketable U.S. government debt outstanding, up from a third in 2001, according to data compiled by the Treasury Department. ..."

FROM:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aNgW4Fu_8.tI&refer=home

EXACTLY WHAT I PREDICTED HERE AND EXPLAINED WHY IT WOULD HAPPEN - See earlier post of this and several other of my "black cloud is approaching US and EU" threads.

WARNING .................. WARNING .................. WARNING
Do not read the rest of the above Bloomberg link unless you have "nerves of steel" or a couple of stiff drinks first - It is confirming most of what I have been predicting.
Perhaps to some readers it will be a little bit reassuring that I am still (as in post 1) also predicting that the central banks will again get the world economy out of this "6L cycle" by launching the next and final one. I.e. deep depression in US and EU not before 4 + or - 3 years.

 

Log in or Sign up to hide all adverts.

A tiny hint of things to come:

"... Hundreds of Northern Rock Plc customers crowded into branches in London today to pull out their savings after the mortgage-loan provider sought emergency funding from the Bank of England.

``It's scary,'' said Peter Pye, 60, a retired university lecturer standing in a line of about 30 people outside the Moorgate branch in the financial district. ``I have my life's savings in Northern Rock.'' He said he would withdraw a ``six- figure'' sum and leave 5,000 pounds in the account.

The Bank of England said it will provide emergency cash to Northern Rock,* Britain's third-largest mortgage provider, in the nation's biggest bailout of a financial institution in 30 years. The rising cost of credit left the lender unable to make new loans and stoked concern among customers about their money.

Northern Rock, which has 1.4 million retail depositors and 800,000 mortgage customers, hasn't imposed any special limits on withdrawals, spokesman Don Hunter said. The Newcastle, England-based company, which traces its roots back to 1850, had to restart its Internet banking site ``over a period of time'' today after unusually high usage froze the service, he said. ..."

FROM:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aZqoCZV5vC70&refer=home

Billy T comment:
*Note the BoE guarantee did nothing. When faith in US's fiat money, the dollar, collapses not all the central banks in the world acting together and promissing to print more money will do any good. The coming run on the dollar will send US and EU into a depression much worse than the 1929 one as the global finance system is a much taller "house of cards" now. However, I still think, despite the above and global spreading of the sub prime problem (Austrian and New Zeeland dollars hit hard yesterday) that the central banks will pull the financial system thru this "6L cycle" by launching the next one, which will end differently - in the run on the dollar and depression, the worst in history.

China will still control its currency and those who supply it with food stocks, raw materials, and energy will be only sent into a recession by the dollar collapse.

 

Log in or Sign up to hide all adverts.

Didnt they cut it by 0.5%?

 

Log in or Sign up to hide all adverts.

Yes, in fact they did.

Please Register or Log in to view the hidden image!

Of course Billy hasn't seen fit to comment on that because he clearly said they could NOT do it. That, plus the fact that it doesn't fit with his old gloom-and-doom vision of the U.S. economy and monetary system.

One would think that somehow, someday he would realize that is a very old song that many have been singing for several decades. Yet the U.S., especially through the vigilance of the FED and other practical means has ALWAYS dodged the bullet. But he'll never admit to it and will keep his favorite personal fantasy alive until the day he dies

Please Register or Log in to view the hidden image!

 

Of course when I said "they can not do it" I did not mean they were powerless to cut the rate or that if done such action would be illegal. Certain they can do it (and did).

What I ment would be that such action would have very bad consequences for the US - and we are beginning to see them already. Consequences so bad that I though the FED would be responsible and not be able to cut the rate. All these "bad consequences" stim from the fact that a rate cut makes the dollar less attractive to foreigners - reduces the demand for dollars.

For example:
(1) price of oil imediately shot up (last I saw was approximately $84/barrel. - an all time high.)
(2) dollar immediately fell with respect to ALL other currencies (Euro at 1.40+ a historic high. Canadian dollar more valuable than US$ - first time in 30 years, In Brazil the dollar dropped 3% in one day, etc all over the world as everyone now wants out of dollars.)*
(3) government sovern funds closed deals of several billion dollars value to get out of Treasury bonds**
(4) longer term Treasury bonds dropped in value as shorter term were increasing - tending to (or has?) inverted the yield curve - often associated with recession a few months later.
(5) Even Greenspan up his estimate of pending recession from "less than" to "at least" 30%
(6) Bank of England, reversed itself (dropping the "moral hazard" concerns) and is now pumping out $20 billion more - starting the next "6L cycle" just as I predicted in post 1 of this thread. (I.e. I said the central banks would get global economy thru this "6L cycle" by starting the next, which is the final one as it terminates in deep depression for US and EU. (Everyone trying to get deposits out of banks at same time etc. - Northern Rock, as I said in recent post, was just a "taste of things to come.")

Furthermore, here is some very-ominous, just breaking this hour, indication of why 0.5% rate cut was a disaster (that "could not be done"):

"...futures contract on the 30-year bond (US/Z7 – 110'08) dropped
1-16/32 yesterday. Treasurys continued to sell off on inflation concerns as
the dollar showed historic weakness against its foreign rivals. Investor
jitters were multiplied by the fact that Saudi Arabia's central bank voted
to hold its interest rates steady, marking the first time it has not
responded to a rate cut by the U.S. Fed. The unprecedented decision
suggests that Saudi Arabia may abandon the U.S. dollar as a peg for its own
currency. ..."

From Schaefer's morning letter today

If Saudi switches to the Euro, (or just even just stops buy US Treasury bonds), watch dollar lose 10 or 20% of its value in less than a week!

SUMMARY:
The rate cut was two days of euphoria to be followed by disaster. Thus, it not only fits with my "gloom-and-doom vision of the U.S. economy and monetary system" it has accelerated the date the run on the dollar begins. That run on the dollar ends in deep depression!
------------------------
*Gold is also at historic high, but that will not last long as there is so much gold in vaults and the need for funds so great by owners of it that they will take advantage of the high price and dump some on the open market. For example, England needs 20 billion more funds now and will sell gold. Many lesser government financial centers, which also own gold, are being hit by the "credit crunch" much harder than England is and will be seller of gold also.

Please note also - I support my POV with current trends and facts. It is not just an opinion. Those who can not see what is coming are doomed to suffer the consequences of their blindness.

** " ...The pace of international investments by Gulf states, which earn $1.2 billion a day from oil exports, is quickening as they seek to diversify beyond energy. The nations have already spent a record $68 billion on overseas acquisitions this year, the Bloomberg data show. They are not just putting their money in bank deposits and government bonds any more, said Eckart Woertz, chief economist for the Gulf Research Center in Dubai. They are after strategic assets.' ...'
FROM:
http://www.bloomberg.com/apps/news?pid=20601109&sid=alL94pj_Vq4c&refer=home

From more related see post in thread "Sovern Funds..." of "World" forum.

 

To understand what "moral hazard" is (if you do know) and why the currect FED chairman will continue to be called "Helicopter Ben'' and for some "gallows humor" in first paragraph, see:

http://www.bloomberg.com/apps/news?pid=20601039&sid=aHXx6w8XdzxY&refer=home

 

Once the correction is finished will we be out of the woods and back to business as usual?

 

I predicted what will happen in first post of this thread and elsewhere, but now with the foolish rate cut, it will just happen sooner.

I.e. I predicted the lower value dollar will make the DOW hit 15,000 "buy the end of 2007 or early in 2008" and defined "early in 2008" as in the first quarter of 2008. I can now confidently cut some off the end of that prediction so now change that predictions to: "before the end of 2007 or the first 50 days of 2008."

Let me make an analogy, built on the FED's role as the "firemen of the economy" to explain what the 0.5% rate cut really is:

There is a big fire. The firetruck comes screeching around the corner. Every one cheers. They dismount, connect the hoses and turn the stream onto the fire - but it is gasoline, not water coming out of the hoses.
My "FED can't cut rate" was the same as "firemen can't do that." (Not stating that it was impossible.)

The bad effects I mentioned as already occuring were of course already in progress before the FED's announcement and accelerating as "Decision Tuesday" approached, bucause everyone anticipated that the FED would cut the rates. - There will be the normal fluctuations but as the new "6L cycle" get under way expect:

(1) Generally rising stock prices (not much value increase -just reflecting the lowering value of the dollar - more required to buy all share in the DOW etc.)
(2) Treasury to sell longer term bonds at a discount as everyone knows that inflation is coming.
(3) Not exactly "price controls" but increasing regulations on lending, mortgage foreclosures, foreign investments, etc. - I.e. everything that tends to adversely and directly effect the voting public as the elections near. Inflation of food prices, in large part do the GWB's corn from alcohol program, is especailly painful to Joe American. Rent increase as fewer can afford homes and must rent also hurts Joe. Thus I would not be surprized to see some special legistion in these areas. Perhaps some "only phase it in" limits on price hikes instead of open price controls - lots of "jaw-bone" action and calls for the manufactures to be "responsible" with not very vailed threats that the IRS can give a "close look" at those who are abusing the public, etc.
(5) The dollar to continue dropping of course - probably at 3 dollars to buy 2 Eruos when the DOW hits 15,000.
(6) The oil price to continue rising of course - probably at $100/ barrel or 66Eruos/barrel when the DOW hits 15,000.
(7) Sovern Funds to accelerate their buying of real assets and their owning governments to greatly reduce the buying of US treasury issue. (2nd part of this is main factor causing (2) above. The "yield curve" will invert and stay that way for many consective quarters - for first time in history! (I do not think it has been inverted for a full quarter before, but could be wrong on this.)
(8) "Stagflation" will be everyones prediction by mid the "6L cycle" just now starting. - I.e. in the increasing "Liquidity" Step 1 of the 6 steps discussed in post 1 of this thread.

IN more direct answer to your question: Yes but that does not mean a sound economy. It means bigger profits for the already rich, less real income for Joe American in tha final "6L cycle" before the run on the dollar hits. I.e "Yes" is still "deep in the woods" but "back to normal".

It is very hard to predict when confidence in the dollar will collaps. Thus I must stick with my "in 4 + or - 3 years," which I recently did move a year closer. (I.e. it was "in 5 + or - 3")

 

Any specific ADRs you recommend?

 

No. I like most solid companies with most of their income outside of US and Europe but avoid China and Russia as do not trust them not to confiscate eventually. Most of mine are in Indai and Brazil. I will not go more detailed than that as I hate to tell specific companies as changes are there are better ones than I would pick.

 

India, just like Brazil, is getting a flood of dollars now:

"... MUMBAI, OCTOBER 3: With foreign investors raining dollars in Indian market, bulls are on a mad scramble taking the superfast Sensex just 47 points away from the 18,000 level in highly volatile trading on Wednesday. ...However, the Sensex euphoria was not shared across the broad market spectrum. Hundreds of small and medium companies remained subdued or showed only a marginal rise. {Dollar holders never heard of them.} ..."There is apparently a lot of interest from foreign institutional investors, ... “Why should we not welcome it?” The finance minister also said that in case the Reserve Bank of India (RBI), the country’s central bank, approaches the Government, it would review the ceiling on Market Stabilisation Scheme (MSS) bonds, a mechanism to suck out the liquidity that flows into the market when the RBI intervenes in the forex market. The current MSS bonds’ ceiling is Rs 1,50,000 crore per annum. Out of this, the Government has sucked out liquidity of Rs 1,42,000 crore so far this year.

...The S&P CNX Nifty was up 141.85 points, or 2.8 per cent at 5,210.80, an all-time closing high. {Brazil also hit all time the same day} ...
“The Sensex surge is driven by liquidity provided by foreign investors. They have been pumping money into India. Some hedge funds, which lost money in the recent liquidity crisis are also said to be moving funds to India, and other emerging markets to recover their losses. This money is going to into top blue chip shares. They might pull out any time after making decent profits,” said BSE dealer Pawan Dharnidharka. ... FIIs have invested a record $4.15 billion in Indian stocks since September 18 when the US Fed cut interest rates to tackle the US economic slowdown and subprime crisis. ... nearly $2 billion has come in the last three trading days. The Indian market has never seen FII inflows of this magnitude, observe fund managers.

The Sensex which crossed the 16,000 level on September 19 took only five trading sessions to cross the 17,000 level on September 26. With no let-up in FII inflows, marketmen are sure that the index will hit the 18,000 level in the next one or two trading sessions. ..."

FROM:
http://www.indianexpress.com/story/224180.html

You should have listened to me a few years back when I told you to buy Indian and Brazilain ADRs. - You would now have at least four times as many dollars if you had.

 

10,000 years of financial crises: http://www.amazon.com/Doomsday-Myth-...1529587&sr=8-3

 

To Quadphonics et al:

Does any of the following seem Like what Billy T was posting two or more years ago?

"…America’s challenge is not just to reduce its current-account deficit to a level which foreigners are happy to finance by buying more dollar assets, but also to persuade existing foreign creditors to hang on to their vast stock of dollar assets, estimated at almost $ 11 trillion. A fall in the dollar sufficient to close the current-account deficit might destroy its safe-haven status. If the dollar falls by another 30 percent as some predict, it would amount to the biggest default in history: not a conventional default on debt service, but default by stealth, wiping trillions off the value of foreigners’ dollar assets.

The dollar’s loss of reserve-currency status would lead America’s creditors to start cashing those checks – and what an awful lot of checks there are to cash. As that process gathered pace, the dollar could tumble further and further. American bond yields (long-term interest rates) would soar, quite likely causing a deep recession. Americans who favour a weak dollar should be careful what they wish for.** ..."
FROM:
The Economist 4 December 2004 issue, page 9. – The cover article called: “The disappearing dollar.”

---------------------
*While there seems to be no limit on how stupid American voters can be, Central Bankers only took the last few months to learn that the surest way to lose purchansing power (in terms of how much of their local currency the dollar will buy) by the billions in months is by buying US Treasury promisses printed on pieces of paper, instead of ownership of real physical assets that tend to appreciate like oil - part of why $100/ barrel oil is now essentially here.
**Quad tell me again (and The Economist) that oil will not get anywhere near $100/ barrel in the foreseeable future and the the dropping dollar will boost exports so system is self correcting.
PS - I thank SouthAmerica, another Brazilian poster, at EliteTrader.com for calling this equally old prognostication to my attention.
Fact that they too could see this coming two years ago blows my law suit for "plagerism" of my recent posts to hell.

 

Don't be ridiculous. There are a slew of currencies that are pegged to the dollar.

 

Whereever I said that, I meant the standard basket of 16 other currences. I bet in that post at some other point I did refer to those 16, but may just have been imprecise, not "ridiculous." Even some not pegged to the dollar may have risen if one wants to be "ridiculous careful." (I bet there are several hundred currencies, if cattle, shells, etc. are all included.)

Much better if you were to comment on something significant in my posts rather than call me names over a trivial lack of exact accuracy. I.e. comment on things like my projecting $100/barrel oil which you also thought ridiculous in a post I am too lazy to did up now unless you force me too.

 

No, you didn't.

The word is "inaccurate." Imprecise would be to say "15 currencies" when the actual number is 16. Saying "ALL" (caps yours) when many significant dollar reserve holders employ fixed exchange regimes is a gross mischaracterization.

The looseness with facts, misleading rhetoric and overall intellectual dishonesty is the most significant aspect of your posts.

 

Perhaps to you. It is a judgement call, but I think the point of my posts is more important than the style or inaccuracies that I admit do appear occasionally as my "facts" come mainly from memory. (For example, I recently incorrectly remember GM's quarterly loss announced yesterday as 32 BILLION whereas the correct figure is 39 BILLION. To me, and I think many others reading here, the point is GM lost a lot of money, is in deep trouble, but if you want to call that sort of thing "looseness with facts, misleading rhetoric and overall intellectual dishonesty" I can not stop you. I think you still are missing the point I have been making for several years. (Too many trees are bloocking your view of the forest, I think. - yes your are well informed about the facts - just do not see the same big picture I do. Only time will tell who has the correct view, but none of the present is consisten with any thing you were seeing a year ago. In only one quite recent recent post did you slightly change your tune to admit you could see a possible recession coming.)

The essence of my point, which you miss or ignore with trivial corrections and comments about style, honesty etc., is that the change in US policy when GWB replaced Clinton has been a disaster for the US - One which has progressed so far now that a deep depression following the coming run to get out of dollars is now UNAVOIDABLE. - I have abandon my initial "warning efforts" to avoid that fate and now mainly post miles stones on the path to hell, adding a few comments, usually explainatory, and never of "I told you so" type.

 

You're the only one hazarding predictions here. I'm just trying to inject some reality into your self-reinforcing worldview. When I leave you alone for too long, you start to get loopy and do things like invent facts to back up your views (for example, Chrysler going out of business).

It would be easy enough to make that case without also predicting the end of the world, or pretending that the state of exchange rates or the auto industry is other than it is. You're starting with an idea that has some merit to it, and then driving it off the end of the pier.

 

I am not predicting the "end of the world," only a radical re-alignment of the global economy. I.e. the current "engines" (US and EU) will be replaced by Asians one, lead by China and India. (I admit that may seem like the "end of the world" if you happen to live in US or EU.) Some parts of the world, like Brazil, will have their economies transformed, but still have some growth in GDP. They will become "economic colonies" of Asia.

Brazil is now with growing industrial exports in some high tech areas (like Embaraer's airplanes, flex-fuel cars, even some drugs and computer services) but losing other lower tech industries, like shoes, textiles, etc. - Some have already closed their factories. (Called "de-industrialization" here and part of why government continues to buy dollars far beyond any rational reserve requirements, especially being a major exporter of commoditites.* -I.e. FDI and high commodities prices have the Real much too strong, for me**, but it looks like it will stay that way for a long time.)
----------------------------
*Just yesterday, Petrobras made public the discovery of gigantic new oil field off the coast. - increased Brazil's known reserves by about 60% and shairs in Petrobras (My second largest Brazilian ADR. Sao Paulo state's water & sewer Co. SBS is largest.) jumped 14% in the day when DOW etc. were significantly falling. Unfortunately it is deep - 2Km of water & 6 Km of earth, but it is higher quality than most of the already known reserves.

**I still have about half a million invested in about 40 small US early stage drug developers, as they have such high risk already factored into their prices that the additional risk of near term dollar collapse in a run I thought was small additional risk. (Not so sure now, but continue to predict the run begins in the 6 year window starting in Oct 2008. -I.e. has not just started. It is too soon for China to trigger it. They still need US and EU buyers.)

 

I thought you said people would be breaking down doors to get the cans of food in your basement.