Articles on the behavior of financial markets and investing (or lack thereof) in the coming economic collapse.
It’s like watching a magician at work. If you want to see how the trick works, watch everything except what the magician wants you to watch.
In this case, ignore the debt ceiling dispute in Washington, DC and keep your eyes on the rapidly deteriorating situation in Europe and the Euro.
Bloomberg reports:
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Hydra was the terrifying, many-headed monster of Greek mythology. When one of the heads was cut off, two new ones sprouted. For our purposes today, class, let’s think of the problems facing the United States economy as the Hydra.
For those of you who may think the use of anything Greek in this situation is an unfortunate error on our part, feel free to go with a Whack-A-Mole analogy. You can swing that hammer all you want, because the mole is going to pop up somewhere else as soon as you do.
Either analogy works to describe the situation in which the United States currently finds itself. And Moody’s just looked down the hole we dug for ourselves and said, “Sure is deep.”
Moody’s Investors Service put the U.S. under review for a credit rating downgrade as talks to raise the government’s $14.3 trillion debt limit stall, adding to concern that political gridlock will lead to a default.
The Aaa ratings of financial institutions directly linked to the U.S. government, including Fannie Mae, Freddie Mac, the Federal Home Loan Banks, and the Federal Farm Credit Banks, were also put on review for cuts, Moody’s said in a statement today.
The U.S., rated Aaa since 1917, was put on review for the first time since 1995 on concern the debt limit will not be raised in time to prevent a missed payment of interest or principal on outstanding bonds and notes even though the risk remains low, Moody’s said. The rating would likely be reduced to the Aa range and there is no assurance that Moody’s would return its top rating even if a default is quickly cured.
“It certainly underscores the importance of passing the debt ceiling and not putting us in default status, and making sure there’s a longer term fiscal plan to contain spending and the deficit we’ve been running up over the last few years,” said Anthony Cronin, a Treasury bond trader at Societe General SA in New York, one of the 20 primary dealers that trade with the Federal Reserve. “Maybe it’s the impetus to say we’ll need more of a concession.”
Please allow us to translate the phrase “more of a concession”:
“The Americans are about to begin paying through the teeth. We just don’t know if those teeth belong to the Hydra or the mole.”
Source: Bloomberg
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Administrations in the United States always release bad news late on Friday afternoons after most reporters have taken off work a little early and lined up at their local watering holes.
Apparently Saturday morning is the Chinese equivalent.
Today China announced that inflation in June his 6.4%, solidly above the 6.2% analysts had expected, clocking in at a 3-year high (according to Bloomberg).
This is one of Beijing’s big worries, and it contradicts recent comments from Premier Wen Jiabao that inflation in China had been whipped.
If the Chinese act quickly, they can probably get a good deal on a warehouse full of “Whip Inflation Now” buttons and bumper stickers left over from the Ford administration.
On the other hand, we might want to hold on to them because it’s pretty sure that we’re going to need them soon, too.
Source: Business Insider
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Between checking the health of patients who have already achieved room temperature in Europe and trying to peer through the smoke and mirrors obscuring China’s economic health, these are very busy days for the analysts as Moody’s.
“China may have understated the debt load of local governments by Rmb 3,500bn ($541bn), a hole in public finances that is likely to inflict damage on banks, Moody’s Investors Service said on Tuesday.”
Earlier in the year, China reported that provinces, cities and counties owed Rmb10,700bn. Analysts dutifully praised the government’s authoritative reportage and nodded in agreement that the debt levels were manageable.
But now Moody’s is having second thoughts. The rating agency upgraded China’s sovereign rating just last year, but now says its audit may have missed a swath of highly “problematic” loans.
“We conclude that the potential scale of problem loans at Chinese banks may be closer to our stress case than our base case. This is clearly a negative trend for creditors,” said Yvonne Zhang, one of the authors of the report.
Three words: House of cards.
Source: Financial Times
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These are dark days in Portugal. And, unfortunately, the latest news is probably a omen of things to come for the United Sates.
Moody’s has downgraded the Iberian basket case’s long-term government bond ratings. What was Baa1 is now to Ba2. And to make matters even worse, the outlook was downgraded to negative. The government’s short-term debt rating was also downgraded to (P) Not-Prime from (P) Prime-2.
What prompted the downgrades? Two things:
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A group of financial gurus (a term that should always be accompanied by warning lights and buzzers) gathered for a recent conference sponsored by EverBank.
They doled out advice for surviving the collapse of the dollar. We thought you might appreciate hearing what the “gurus” are doing with their own money.
Frank Trotter of EverBank Direct predicts that the U.S. dollar “will see a significant decline in the next 5-10 years.” He recommends diversifying into foreign currencies and his five favorites are the Swedish krona, the Norwegian krone, the Australian and Canadian dollars the Brazilian real.
Next up was Eric Roseman of Commodity Trend Alert. He looks into his economic crystal ball and sees a food crisis within three to five years. On top of that, he foresees billions of Chinese citizens who are able to afford more food and predicts that China will become a net ag importer, which will add to price pressures around the world. His investment recommendation: JJG, the exchange-traded note for grains.
[Click to read what the other experts say...]
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Dr. Marc Faber is known as Dr. Doom because, unfortunately, he’s a contrarian whose dark forecasts have been right on the money. He publishes a pithy monthly investment newsletter called The Gloom, Boom & Doom Report.
Here are five questions and answers we plucked from a recent interview with the Daily Bell:
Question #1:
Daily Bell: Do you still expect hyperinflation?
Marc Faber: In my view, the debt level, especially in the US, if we include the unfunded liabilities of Medicare, Medicaid, Social Security and these entitlement programs, is beyond repair. And this will necessitate printing more money. Also, in my view, there is no real political will to address the issues, because who ever would cut entitlements, will not be re-elected. So we have a tyranny of the masses.
[Read the other 4 interesting questions and answers...]
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Just a week ago, we were told that releasing oil from the Strategic Petroleum Reserve was the answer to all our problems.
It would, we were told, cause oil prices to drop dramatically, giving consumers a little extra jingly in the pockets and cause the economy to rebound with a vengeance.
So much for that theory. Zero Hedge explains:
… the IEA’s action has now been fully priced in and WTI is back to precisely where it was before the IEA announcement on Thursday. Which means that what some said was a shadow QE (and don’t get us started on all the mainstream media “journalists”, among which Bloomberg and CNN, who continue to confuse QE Lite with something they call QE 2.5) had a half life of just over 3 days. Expect future intervention half lives to continue declining, as the criminal banking cartel’s ammunition is now down to just one thing, the only thing, printing.
In other words, we’re in a gunfight and we’re out of bullets.
Source: Zero Hedge
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Chuck Butler, President of Everbank World Markets, spoke at his company’s Global Currency Expo last month. We were both impressed and depressed by his remarks, but that’s just us.
The pound sterling was the world’s reserve currency until World War II. That’s when “we became the reserve currency by financing England because they couldn’t pay their debts and had diluted their currency…” Butler said. They needed assistance from other countries to service their debt and had overextended their military.”
It doesn’t take a currency wizard to note the eerie parallels in today’s world.
China started signing swap agreements in 2009. They’ve already done deals with much of Asia, the European Union, Canada, Russia, Brazil, Belarus and Argentina. Japan and Korea are coming on board soon. Rumor has it that they’re in negotiations with the oil-producing Arab nations.
What does this mean for the United States dollar. Nothing good. “The U.S. dollar will lose its reserve currency status sometime between 2014 and 2020,” Butler said. “There will be no trumpet; it will just happen.”
He thinks it’s inevitable that the dollar will lose its reserve status. So how do you protect your portfolio from the inevitable? According to Butler, “94% of investment return is based on the asset-class selection, and a low covariance with other assets.” Translation: Diversify out of U.S. dollars. “You wouldn’t buy just one stock,” Butler said, “so why would you own just one currency?”
He recommends the renminbi, the Singapore dollar, the Norwegian krone, and the Swedish krona.
We like the way he thinks.
Source: Lew Rockwell
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In case you weren’t paying attention a couple months ago when S&P warned that the United States was in real danger of losing its AAA rating, they decided say it again. In even stronger terms.
The risks of the U.S. losing its prized triple-A rating over the medium term have increased as the country faces a political impasse and nears its debt ceiling, Standard and Poor’s said on Tuesday.
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David Rosenberg bears the lofty title of Chief Economist at Gluskin Sheff & Associates.
It’s not difficult to figure out that those of us at EconomicCollapse.net put very little faith in the words of most economists. They’re like members of a barbershop quartet – one may be a baritone, another may be a tenor and a third may sing bass, but they all sing the same song.
The economists who catch our attention are the ones who aren’t afraid to go against the mainstream – the ones who speak truth to power and take positions that aren’t endorsed by the criminals in Washington, DC.
David Rosenberg, for example, expressed his heresy in an interview with Mike Shedlock at Bloomberg.com. We’re guessing that he won’t be invited to dinner with Timothy Geithner anytime soon.
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It was inevitable. It had to happen sooner or later. Consumer inflation has hit a three-year high with no evidence of economic strength to ameliorate it.
Reuters reports:
The Labor Department said on Wednesday its Consumer Price Index, excluding food and energy, increased 0.3 percent, the largest gain since July 2008, after rising 0.2 in April.
What caused the leap? Well, core inflation was impacted by jumps in motor vehicle and apparel prices. Of course, economists (the only people who do their jobs more poorly than meteorologists without getting fired) say they had expected the number to rise by just 0.2 percent last month. What the hell. They were only off by 50%, which is better that they usually do, so we say let’s cut ‘em some slack.
Over the course of the last twelve calendar months, consumer prices rose a worrisome 3.6%.
We fear that 3.6% will be a really attractive number in the years to come. We’ll long for the good ol’ days when we only had 3.6% inflation per year instead of per month.
Source: Reuters via Yahoo News
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The EU’s inability to control the Greek debt situation (“situation” being a euphemism for “crisis”) is sending tremors through the world’s currency and equities markets.
Problem is, the world’s markets fear that the Greek debt problems may spread to other countries. For example, Moody’s has already hinted that it may downgrade BNP Paribas SA and two other large French banks as a result of their exposure in Greece.
“The probability of a eurozone Lehman moment is increasing,” said Neil Mackinnon, an economist at VTB Capital in London and a former U.K. Treasury official.
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Want to know why the American financial system is teetering on the edge of collapse? Want to know why American citizens tell poll after poll that they’ve lost confidence in the future? Want to know why we think this whole financial bailout stinks to high heaven?
Read this quick excerpt from Zero Hedge. WARNING: Prepare to have your blood boil:
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A few days ago we ran a CNBC interview with Jim Rogers, the legendary investor. We thought it might we worthwhile to repeat some of the wisdom he imparted during that interview.
The $64 million question these days is, “What the hell should I do with my money?” Let’s take another look at what Rogers is doing with his:
The well-known investor believes the government won’t shut down in August if agreement isn’t reached on raising the debt ceiling, but he did say “draconian cuts” are needed in taxes and spending, especially military spending.
“We’ve got troops in 150 countries around the world. They’re not doing us any good, they’re making enemies. They’re costing us a fortune,” he said.
Is Rogers putting cash under his mattress these days? Not if the mattress is in the United States.
Rogers said he is “not long anything in the U.S.” and short on American tech stocks. He owns Chinese stocks as well as commodities and would love the world price of silver and gold to come down so he could “pick up the phone and buy more.”
He said he owns Chinese stocks, currencies and commodities, adding the Chinese yuan will be a safer currency than the dollar.
The way it’s going, Monopoly money may be a safer currency than the American dollar.
Source: CNBC
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