Posts Tagged ‘Financial Crisis’

The Next Financial Crisis Will Be Even Worse

By Brett Arends

The last financial crisis isn’t over, but we might as well start getting ready for the next one.

Sorry to be gloomy, but there it is.

Why? Here are 10 reasons.

1. We are learning the wrong lessons from the last one. Was the housing bubble really caused by Fannie Mae, Freddie Mac, the Community Reinvestment Act, Barney Frank, Bill Clinton, "liberals" and so on? That’s what a growing army of people now claim. There’s just one problem. If so, then how come there was a gigantic housing bubble in Spain as well? Did Barney Frank cause that, too (and while in the minority in Congress, no less!)? If so, how? And what about the giant housing bubbles in Ireland, the U.K. and Australia? All Barney Frank? And the ones across Eastern Europe, and elsewhere? I’d laugh, but tens of millions are being suckered into this piece of spin, which is being pushed in order to provide cover so the real culprits can get away. And it’s working.

2. No one has been punished. Executives like Dick Fuld at Lehman Brothers and Angelo Mozilo at Countrywide , along with many others, cashed out hundreds of millions of dollars before the ship crashed into the rocks. Predatory lenders and crooked mortgage lenders walked away with millions in ill-gotten gains. But they aren’t in jail. They aren’t even under criminal prosecution. They got away scot-free. As a general rule, the worse you behaved from 2000 to 2008, the better you’ve been treated. And so the next crowd will do it again. Guaranteed.

Read the rest here: The Next Financial Crisis Will Be Even Worse – SmartMoney.com.


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Video: Talking Wall Street With Democracy Now!

Via Matt Taibbi at Rolling Stone


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GRAPES OF WRATH – 2011

Excellent article comparing current situation with lead up to the Great Depression.  Well worth reading. – Ilene 

Courtesy of Jim Quinn at The Burning Platform

“And the great owners, who must lose their land in an upheaval, the great owners with access to history, with eyes to read history and to know the great fact: when property accumulates in too few hands it is taken away. And that companion fact: when a majority of the people are hungry and cold they will take by force what they need. And the little screaming fact that sounds through all history: repression works only to strengthen and knit the repressed.” – John Steinbeck – Grapes of Wrath

  

John Steinbeck wrote his masterpiece The Grapes of Wrath at the age of 37 in 1939, at the tail end of the Great Depression. Steinbeck won the Nobel Prize and Pulitzer Prize for literature. John Ford then made a classic film adaption in 1941, starring Henry Fonda.


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“If These Allegations Are Correct, It Appears To Have Been A Direct Transfer Of Wealth From The United States Treasury To Goldman Sachs Shareholders”: Josh Rosner

Courtesy of The Daily Bail 

"If These Allegations Are Correct, It Appears To Have Been A Direct Transfer Of Wealth From The United States Treasury To Goldman Sachs Shareholders": Josh Rosner

 

 

 

Our favorite quotes so far from today’s FCIC report and reaction from analysts…

  • "Less than a 3 percent drop in asset values could wipe out a firm." – FCIC Report
  • "The AIG counterparty bailout, which was spun as necessary to protect the public, seems to have protected the institution at the expense of the public." – Josh Rosner
  • "The total was for proprietary trades," the report asserts. "Unlike the $14 billion received from AIG on trades in which Goldman owed the money to its own counterparties, this $2.9 billion was retained by Goldman."
  • "At the time, the idea was the sucker could go down because there wasn’t enough liquidity in the system, money wasn’t moving, and you could see a domino effect," said Ann Rutledge, a principal at R&R Consulting in New York, which specializes in structured finance.  In reality, she contends, those fears were overblown: There was ample money in the financial system.  Rather, individual institutions did not have enough cash on hand to survive their losses, she asserts. But the fear of a broader liquidity crisis was used as justification for what now appears to have been a backdoor means of bailing out Goldman, said Rutledge.
  • The details in the commission’s report leave Goldman "naked," she added. "It doesn’t have the fig leaf of a systemic risk argument. Normally what happens when you have a sophisticated institution that’s doing stupid credit stuff is you let them eat it, but that didn’t happen in the bailout."
  • "If these allegations are correct, it appears to have been a direct transfer of wealth from the Treasury to Goldman’s shareholders." – Josh Rosner

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What Most People Don’t Realize About The Fed’s Superpowers

Bob Prechter’s Conquer The Crash reveals whether the Fed really can rescue the US economy 

By Elliott Wave International

Since its creation in 1913, the primary intended role of the U.S. Federal Reserve Bank has been that of protector. In theory, the central bank was bestowed with the power to shape monetary policy in a way that would keep both booms and busts in check. The two main tools at its disposal — interest rates and money creation — would provide a "ceiling of normalcy" above expansions AND a "net of safety" below contractions.

To this day, the financial mainstream holds great faith in the Fed’s ability to fulfill its save-the-day duties — as these recent news items make plain:

  • "Why Raising Fed Funds Rate Is Positive For Equities." (Seeking Alpha)
  • "Fed’s Moves Lift All Asset Classes." (Associated Press)
  • "US Stocks Erasing Losses: The aggressive moves of the Fed have been an important driver for the stabilization of stock prices." (Bloomberg)

But of all the variables the Fed creators took into account, there’s one glaring factor they neglected to consider: Namely, it cannot force consumers to spend, creditors to lend, or businesses to borrow. The events of 2007-2009 "credit crunch" and the subsequent "Great Recession" made that obvious. Remember how the government was upset at banks for sitting on the bailout funds instead of lending them out to consumers? And consumers weren’t exactly lining up on the street to get a loan, either.

The Fed’s inability to change social mood is the central theme in Chapter 13 of EWI President Bob Prechter’s NY Times business bestseller book Conquer the Crash. There, Bob describes the Fed’s strategy of lowering the federal funds rate to stimulate spending to be as effective as "pushing on a string." Writes Bob:

"The primary basis for today’s belief in perpetual prosperity and inflation with an occasional recession is what I call the ‘Potent Directors Fallacy.’ It is nearly impossible to find a treatise on macroeconomics today that does not assert or assume that the Federal Reserve Board has learned to control both our money and our economy. Many believe that it also possesses the immense power to manipulate the stock market. The very idea that it can do these things is false."

And so begins one of the most groundbreaking studies into the very real INABILITY of the Fed to fell the great bears of economic declines, or…
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12 Economic Collapse Scenarios That We Could Potentially See In 2011

Courtesy of Michael Snyder at Economic Collapse 

What could cause an economic collapse in 2011? Well, unfortunately there are quite a few "nightmare scenarios" that could plunge the entire globe into another massive financial crisis.  The United States, Japan and most of the nations in Europe are absolutely drowning in debt.  The Federal Reserve continues to play reckless games with the U.S. dollar.  The price of oil is skyrocketing and the global price of food just hit a new record high.  Food riots are already breaking out all over the world.  Meanwhile, the rampant fraud and corruption going on in world financial markets is starting to be exposed and the whole house of cards could come crashing down at any time.  Most Americans have no idea that a horrific economic collapse could happen at literally any time.  There is no way that all of this debt and all of this financial corruption is sustainable.  At some point we are going to reach a moment of "total system failure".

So will it be soon?  Let’s hope not. Let’s certainly hope that it does not happen in 2011. Many of us need more time to prepare. Most of our families and friends need more time to prepare.  Once this thing implodes there isn’t going to be an opportunity to have a "do over".  We simply will not be able to put the toothpaste back into the tube again.

So we had all better be getting prepared for hard times.  The following are 12 economic collapse scenarios that we could potentially see in 2011….

#1 U.S. debt could become a massive crisis at any moment.  China is saying all of the right things at the moment, but many analysts are openly worried about what could happen if China suddenly decides to start dumping all of the U.S. debt that they have accumulated.  Right now about the only thing keeping U.S. government finances going is the ability to borrow gigantic amounts of money at extremely low interest rates.  If anything upsets that paradigm, it could potentially have enormous consequences for the entire world financial system.

#2 Speaking of threats to the global financial system, it turns out that "quantitative easing 2" has had the exact opposite effect that Ben Bernanke planned for it to have.  Bernanke insisted that the main goal of QE2 was to lower interest rates, but instead all it has done is…
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Stock World Weekly

Here’s the latest Stock World Weekly Newsletter, New Year’s Edition.

Feedback welcome — please leave comments, we value your input. - Ilene

BEN DEVIL

Picture credit: William Banzai7


For Stock World Weekly archives, click here.   


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One Investment Strategy for Q1 2011: Cash, Baby, All the Way

Charles Hugh Smith agrees with us on the wisdom of cash: One Investment Strategy for Q1 2011: Cash, Baby, All the Way  - Ilene 

Piggy bank with crumpled dollar bills

Courtesy of Charles Hugh Smith

In response to readers’ requests, I disclose my own amateur’s Investment Strategy for Q1 2011: cash is king, and the U.S. dollar looks good simply because almost everyone expects it to collapse. 

Despite my oft-avowed amateur-market-observer status, readers often ask me for advice or opinions on where to put their capital. This is not advice (please read the HUGE GIANT BIG FAT DISCLAIMER below), it is a disclosure of my own personal opinion, what we might call "one investment strategy of many possible investment strategies" for the first quarter of 2011: cash, baby, cash all the way.

Why am I in cash? Because I don’t trust the parallel rallies, and I am extremely skeptical of the various "stories" which are driving the rallies. Why am I skeptical? Because everybody and their sister has bought into the stories, and a one-sided trade is rarely the winning one.

Yes, it’s my contrarian nature: when everyone is a believer in a "story" that is too good to be true, then I become skeptical. This often gets me in trouble. When everyone was buying GM at $50, I was shorting it. When everyone was buying Fannie Mae at $60, I was shorting it (via puts). Both GM and FNM were obviously, painfully insolvent, but it took practically forever for reality to intrude on the fantasy/narrative that each firm was a "solid blue chip" investment with numerous analyst recommendations. In the meantime, I lost money treading water for quarter after quarter.

So even though the market is clearly top-heavy, the short-side trade may yet be ground down by the Fed’s prop-job and the Wall Street/Central State partnership’s desperate desire to use a rising stock market as a propaganda proxy for the "recovery."

(Hey, just borrow and squander roughly 13% of GDP, year after year after year (roughly 45% of the entire Federal budget), and you might stimulate a modest "recovery," too.)

So let’s examine each of the "stories" driving the rallies.

1. The global recovery is solid, and Central State stimulus and quantitative easing will keep growth rising and interest rates low. This narrative drives capital into "risk assets," i.e. stock markets, commodities, FX carry trades, Chinese real estate, junk bonds, etc.

I’m not really sure…
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2011 – What’s Coming

Courtesy of Bruce Krasting

Oh boy is 2011 going to be an exciting year! Some things that I think might happen:

  • -Volatility is going up across the board. If you have the stomach for the swings that are coming across all markets there is a ton of money to be made; balls and timing are all that are necessary. The markets will create dozens of opportunities to make and lose.
  • -There will be 50 days with a swing in the S&P greater than 1%. There will be 10 days where gold swings $50. There will be two days with a drop greater than 100 bucks. Most of the big moves will be down moves. Bonds will not be spared the volatility.
  • -Gold will be higher a year from now but off its peak. At some time in the fall, gold will be near 1,800 and the New York Times will do a front-page story that gold is on its way to 2,000. That will be the high point of the year.
  • -Copper will continue to rise. This metal will benefit as the poor man’s gold. Why buy an ounce of something for $1,600 when you can have a whole pound of something else for only $5? The logic is compelling only because there is no logic. Increasingly, it will become understood that money does not hold value. Copper will do a better job of storing value then a Treasury Bond.
  • -The US bond market is in for a heck of a year. The 30-year will trade at BOTH 3% and 5%. Higher rates will come early in the year, then the deflation trade will come back into vogue.
  • -Spain will be the next sovereign debtor that falls prey to the market. This will happen before the end of the 1st Q. The package to bail them out will exceed $500b. This will exhaust the EU resources. There will be very high expectations that contagion will then move to Italy. That will not happen in 2011 (2012?) The European Central Bank will step up to the table (finally) and support the market for Italy. Sometime between March and June Italian bonds will be a great buy.
  • -The IMF will contribute $125b to the Spanish bailout. The US portion


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WE ARE NOT REPEATING THE MISTAKES OF JAPAN….YET

Pragcap explains why "WE ARE NOT REPEATING THE MISTAKES OF JAPAN….YET".

Cherry blossom festival

Courtesy of The Pragmatic Capitalist 

When confronted with a balance sheet recession the math regarding economic growth gets relatively simple – either the government spends in times of below trend private sector spending or the economy contracts. For several years now I have maintained that we are in a balance sheet recession – an unusual recession caused by excessive private sector debt.  Although this balance sheet recession created the risk of prolonged weakness I have been quick to dismiss the persistent discussions that compare this to anything close to a second great depression - as I showed in 2009 the comparisons were always ridiculous.  The much closer precedent was Japan, where the economy actually expanded throughout their balance sheet recession, but a persistent malaise left a dark cloud over the private sector as they paid down debts.

Over the last year I have consistently expressed concerns that the USA was going to suffer the same fate as Japan, which consistently scared itself into recession due to austerity measures. At the time, most pundits were comparing us to Greece and attempting to scare us into thinking that the USA was bankrupt, on the verge of hyperinflation and general doom. I wrote several negative articles in 2009 & 2010 berating public officials who said the USA was going bankrupt and that the deficit was at risk of quickly turning us into Greece, Weimar or Zimbabwe.  Nothing could have been farther from the truth.  The inflationists, defaultistas and other fear mongerers have been wrong in nearly every aspect of their arguments about the US economy.

US government default was never on the table, the bond vigilantes were not just taking a nap and now, with the passage of the most recent stimulus bill it’s likely that we’ve (at least temporarily) sidestepped the economic decline that was likely to accompany a decline in government spending.  Richard Koo, however, believes we are repeating the mistakes of our past.  In a recent strategy note he said:

“The situation in Europe is no different from that in the US. I therefore have to conclude that the western nations have learned nothing from Japan’s lessons and are likely to repeat its mistakes.”

I have to disagree here.  The most important factor impacting economic growth in the prior year…
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Phil's Favorites

What is an inverted yield curve? Why is it panicking markets, and why is there talk of recession?

 

What is an inverted yield curve? Why is it panicking markets, and why is there talk of recession?

Markets know what has happened each time the yield curve has turned negative. The idea of a negative curve without a a recession would take some getting used to. Shutterstock

Courtesy of Mark Crosby, Monash University

Since President Trump tweeted about imposing new tariffs on China, global equity markets have gone into a tailspin.

Trump’s more recent announcement that the new tariffs would be ...



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Zero Hedge

Morgan Stanley: "The Global Economy Is Deteriorating Faster Than Offsetting Policy Action"

Courtesy of ZeroHedge View original post here.

Sunday Start, submitted by Jonathan Garner and James Lord of Morgan Stanley

As regular readers know, Morgan Stanley is pretty bearish on global risk assets. This applies to emerging markets (EM) too, where we've been calling for wider credit spreads, weaker EM currencies, particularly in Asia, and lower equity prices. However, not so long ago the narrative guiding investors ran something like this: The Fed was ahead of the curve, EM bond yields looked attractive in a world of negative interest rates and a US-China trade deal seemed within reach...



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The Technical Traders

Negative Yields Tell A Story Of Shifting Economic Leadership

Courtesy of Technical Traders

Negative yields are becoming common for many of the world’s most mature economies.  The process of extending negative yields within these economies suggests that safety is more important than returns and that central banks realize that growth and increases in GDP are more important than positive returns on capital.  In the current economic environment, this suggests that global capital investors are seeking out alternative solutions to adequately develop longer-term opportunities and to develop native growth prospects that don’t currently exist.

Our research team has been researching this phenomenon and how it relates to the continued “capital shift&rdq...



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Insider Scoop

Heavy Volume Drives Low-Float Stock Plus Therapeutics Up 200%

Courtesy of Benzinga

Plus Therapeutics Inc (NASDAQ: PSTV) is the latest and one of the most extreme recent examples of the powerful combination of low float and heavy trading volume.

Plus shares traded higher by more than 215% on Friday. The biotech stock more than tripled after the company reported ...



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Lee's Free Thinking

Long Term Stock Market Chart Perspective

Courtesy of Lee Adler

After a big day like yesterday, I like to get a little long term stock market chart perspective. (Yes, this stilted verbiage is for search engine optimization ).

We do that with a monthly bar chart, which I update when relevant in Lee Adler’s Technical Trader. That’s in addition to the regular daily bar/cycle charts covering the past year, and a weekly cycle chart covering the past 4 years.

I wrote on July 14, in reference to the price and indicator patterns on the weekly chart:

The market has overshot a 3-4 year cycle projection in terms of both price and time. There are no long term projections. A 4 year cycle high is ideally due now. A 4 ye...



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Kimble Charting Solutions

S&P About To Decline 14%, Catching Up With The Crude Oil Declines?

Courtesy of Chris Kimble

This chart looks at the performance of the S&P 500, Crude Oil and the Yield on the 10-Year note over the past 4-months.

Crude Oil has declined around 14% more than the S&P during this time frame. Yields have declined, even more, around 36%. The is a huge spread between these assets over this short of a time period.

A few importa...



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Chart School

Bitcoin 2019 fractal with Gold 2013

Courtesy of Read the Ticker

Funny how price action patterns repeat, double tops, head and shoulders. These are simply market fractals of supply and demand.

More from RTT Tv

Ref: US Crypto Holders Only Have a Few Days to Reply to the IRS 6173 Letter

Today's news from the US IRS has been blamed for the recent price slump, yet the bitcoin fractal like the gold fractal suggest the market players have set bitcoin up for a slump to $9000 USD long before the IRS news hit the wire.

Get the impression some market players missed out on the b...

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Digital Currencies

New Zealand Becomes 1st Country To Legalize Payment Of Salaries In Crypto

Courtesy of ZeroHedge View original post here.

Bitcoin and other cryptocurrencies have been on a persistent upswing this year, but they're still pretty volatile. But during a time when even some of the most developed economies in the word are watching their currencies bounce around like the Argentine peso (just take a look at a six-month chart for GBPUSD), New Zealand has decided to take the plunge and become the first country to legalize payment in bitcoin, the FT reports.

The ruling by New Zealand’s tax authority allows salaries and wages to b...



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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

...

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Biotech

DNA testing companies offer telomere testing - but what does it tell you about aging and disease risk?

Reminder: We're is available to chat with Members, comments are found below each post.

 

DNA testing companies offer telomere testing – but what does it tell you about aging and disease risk?

A telomere age test kit from Telomere Diagnostics Inc. and saliva. collection kit from 23andMe. Anna Hoychuk/Shutterstock.com

Courtesy of Patricia Opresko, University of Pittsburgh and Elise Fouquerel, ...



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Members' Corner

Despacito - How to Make Money the Old-Fashioned Way - SLOWLY!

Are you ready to retire?  

For most people, the purpose of investing is to build up enough wealth to allow you to retire.  In general, that's usually enough money to reliably generate a year's worth of your average income, each year into your retirement so that that, plus you Social Security, should be enough to pay your bills without having to draw down on your principle.

Unfortunately, as the last decade has shown us, we can't count on bonds to pay us more than 3% and the average return from the stock market over the past 20 years has been erratic - to say the least - with 4 negative years (2000, 2001, 2002 and 2008) and 14 positives, though mostly in the 10% range on the positives.  A string of losses like we had from 2000-02 could easily wipe out a decades worth of gains.

Still, the stock market has been better over the last 10 (7%) an...



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Promotions

Free eBook - "My Top Strategies for 2017"

 

 

Here's a free ebook for you to check out! 

Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

This chapter isn’t about risk or leverage. Phil present a few smart, practical ideas you can use as a hedge against inflation as well as hedging strategies designed to assist you in staying ahead of the markets.

Some other great content in this free eBook includes:

 

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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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Ilene is editor and affiliate program coordinator for PSW. She manages the site market shadows, archives, more. Contact Ilene to learn about our affiliate and content sharing programs.

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