Depression in the USA - Deflation verus Inflation

Asian shares down on credit fears

http://newsimg.bbc.co.uk/media/image...ers_ap203b.jpg Traders say deeper problems remain

Shares in Asia have fallen, as optimism about central bank measures to calm the credit crisis were dwarfed by deeper recession fears.
Japan's benchmark Nikkei dropped 3.5% while Hong Kong's Hang Seng shed 3.8%.
The dollar fell to new lows against the Euro, helping push up the price of oil to a new high of $110 a barrel, further adding to market concerns.
Stock markets worldwide had earlier been buoyed by action by central banks to inject cash into credit markets.
US factors
The US Federal Reserve, the European Central Bank and central banks in the UK, Canada and Switzerland said on Tuesday they would inject more than $200bn into money markets, to ease the credit crunch.
However there were signs that the initial shot-in-the-arm that provided to global markets may be wearing off.
The benchmark Dow Jones Industrial Average ended down 0.38% on Wednesday, a day after its biggest rally in five years.
And Japan's Nikkei, which had also rallied on the initiative of the US Federal Reserve and other central banks, closed lower.
"I'd say about 70% of the selling today was based on US factors, with the other 30% coming from Japan," said Yoku Ihara, of Retela Crea Securities.
"The Fed has been doing various things to solve the credit crisis but nothing's been working."
"Buying time"
Asia is highly reliant on exports to the US, so any slowdown there would hit Asian firms.
"Perception that the Fed was just buying time with the cash injections pervades the market" said Kim Joon-kie, an analyst at SK Securities.
He said it had not solved the "fundamental problems". The MSCI index of Asian markets outside Japan fell 2.9%, with finance firms among the main fallers including Australian bank Macquarie down 8.4%. Rising oil prices hit airlines, with Japan Airlines and Singapore Airlines falling 2%.

The only thing that can save the US from financial collapse now; is clearly the US FED. This is now the second time in a few short months that a country such as the US has needed to bail out a failed financial company to limit collateral damage to the countries financial confidence. In the UK it cost the Bank of England 57 billion pounds to bail out one failed bank. How much is this latest effort going to cost the US FED? (assuming the cockroach theory)

In reality and all honesty; the US FED is unable to absorb all the losses ‘out there’ and looming. It can only hope that this rare injection of liquidity will help soothe the financial markets sufficiently to help avoid a complete market meltdown. Ben Bernanke is facing a mounting crisis, for which his options for solving easily are fading by the day.

It is now assumed that within a few short days, Ben will announce a reduction is the US cash rate by a massive 1%. To put a reduction like this in perspective; this will be a 33.3% reduction from current levels. (3-2). It can be assumed that the US dollar will tumble further on the news. In turn this will put price pressure on commodities as trader’s hedge again against the falling US dollar. The real problem is that the commodity market is currently in a state of speculation. It no longer has any basis on fundamentals. Crunch time is rapidly calling. It is only so long before a market that ignores fundamentals inevitably corrects. Markets are ultimately very primitive and always revert back to supply and demand forces.

The correction will come about not because of a wish for commodity prices to fall by the speculators. It will come about because somewhere, somebody will be unable to honour a contract at today’s high prices. In a blink of an eye, a contagion will spread like wildfire. Risk Management for even the most novice speculator will indicate to take profits NOW when this scenario occurs.
A sharp drop in prices overnight will cause serious pain to every speculator who was long. The real pain will occur in the future when prices fail to rebound due to a mounting financial crisis. The markets have become so treacherous, that buyers become less and less. As prices drift lower, those caught off guard will become more and more desperate. Losses are mounting and worse, margin calls are calling.

Another round of panic selling, although this time, there are no buyers. Shares and options become effectively worthless in this instance.

Quote:

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Originally Posted by duncan macgregor

I am mostly out the market and expect to remain so for the remainder of 2008. I think America will crash bringing our markets down to much lower points than they are now. I see the ASX being in negative territory for the year 2008 with a big crash or a series of minor corrections whatever, i wont be investing until the market shows a clear TA uptrend.
Its much safer sitting it on the outside in times like this. Macdunk

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Thats what i said in early JANUARY 2008 looks like it is coming to pass. Another bad day on the market looming up on monday to be expected, looks like plenty of road kill to pick up in 2009.
My old mate SECTA SURFER reckons i dont know how to trade a bear market which is correct i simply keep out of it. I think the worst has yet to come America is still afloat but only just the ripple effect will swamp our markets when it sinks. Macdunk

'Bear, which on Friday said it lined up emergency financing from the New York Federal Reserve and JPMorgan Chase, has been servicing hedge funds for several decades, since the early days of the industry that has grown to some 10,000 funds with $1.9 trillion in assets.' http://www.guardian.co.uk/feedarticle?id=7386388

The more I think about these figures, the more I realise the enormity of the crisis. In these early days of economic turmoil, the first major crack that has manifested since ‘subprime’ is the failure of hedge funds. This is specifically hedge funds tied back into this more risky subprime lending sector. I never realised before how huge these hedge funds had become.

In a normal market environment, any singular hedge fund failure has little economic effect apart from those personally involved. Even then losses are usually already taken into account. In most situations, the buck simply falls with ‘larger’ investors who just grin and bare it; the best they can.

Unfortunately the market today is far from normal. When economic conditions worsen, (such as mortgagee sales with negative equity) then ultimately it is the hedge funds responsibility to make up for these losses to the ‘wall street’ banks. These are the same wall street banks that secured the money for the subprime loans in the first place.

As loan books associated with subprime become a distinct liability, they are heavily discounted. The hedgefund goes bankrupt in a short period of time, especially at margin call time.

The wall street bankers in turn are likely to wipe their losses on this speculative investment if they can. This effectively passes the buck directly back to their mainstream bank supporters.

In this instance we know the first likely casualty to be the mainstream bank called JPMorgan Chase. We also know that the US FED has come to the rescue. This is a most dangerous precedent that does not bear repeating...

this is somewhat akin to LTCM*1000


its the same with these hedgies and subprime. "so long as the music is still playing......" remember that bull****? somehow, taking subprime debt and spreading it around better quality debt made it disappear? ultimate sweeping under the carpet trick.

LTCM failed because they assumed everyday was day 1 in their models with respect to economic outlying events and that developing economies werent connected. wrong indeed. we have some sort of bubble/disaster every 7 years or so. asian currency crisis, tech boom and now subprime. all within ten years, so i guess the world is getting into a bad habit of things.

Quote:

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Originally Posted by Laxmi

'Bear, which on Friday said it lined up emergency financing from the New York Federal Reserve and JPMorgan Chase, has been servicing hedge funds for several decades, since the early days of the industry that has grown to some 10,000 funds with $1.9 trillion in assets.' http://www.guardian.co.uk/feedarticle?id=7386388

The more I think about these figures, the more I realise the enormity of the crisis. In these early days of economic turmoil, the first major crack that has manifested since ‘subprime’ is the failure of hedge funds. This is specifically hedge funds tied back into this more risky subprime lending sector. I never realised before how huge these hedge funds had become.

In a normal market environment, any singular hedge fund failure has little economic effect apart from those personally involved. Even then losses are usually already taken into account. In most situations, the buck simply falls with ‘larger’ investors who just grin and bare it; the best they can.

Unfortunately the market today is far from normal. When economic conditions worsen, (such as mortgagee sales with negative equity) then ultimately it is the hedge funds responsibility to make up for these losses to the ‘wall street’ banks. These are the same wall street banks that secured the money for the subprime loans in the first place.

As loan books associated with subprime become a distinct liability, they are heavily discounted. The hedgefund goes bankrupt in a short period of time, especially at margin call time.

The wall street bankers in turn are likely to wipe their losses on this speculative investment if they can. This effectively passes the buck directly back to their mainstream bank supporters.

In this instance we know the first likely casualty to be the mainstream bank called JPMorgan Chase. We also know that the US FED has come to the rescue. This is a most dangerous precedent that does not bear repeating...

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A very informative post Laxmi Thanks

Quote:

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Originally Posted by Laxmi

Another round of panic selling, although this time, there are no buyers. Shares and options become effectively worthless in this instance.

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Shares my trade at a level near zero but that doesn't mean they are worthless. Millions of people around the world will still go about their daily lives. Despite this massive crisis Woolworths will still be selling food and toilet paper and Caltex will still be selling petrol etc. If their shares reach zero I will launch a takeover bid for both companies!

Sorry Sector, couldn't find any good news. :eek:

Markets decline on credit worries

http://newsimg.bbc.co.uk/media/image...cks_ap203b.jpg Investor confidence has been hit by Bear Stearns' problems

There were heavy losses on Asia's major stock markets as investors reacted badly to news that troubled investment bank Bear Stearns had been sold.
The Nikkei average was down 3.7%, Hong Kong's Hang Seng shed 4% and Mumbai's BSE Sensex fell 3.8%, although most markets recovered from earlier lows.
The dollar fell to 95.72 yen, a 12 year low. The euro hit a record against the dollar, buying $1.5903.
Oil prices rose to another record, with light sweet crude trading at $111.42.
Credit uncertainty
Investor confidence has been hit by the trouble at Bear Stearns.
The investment bank was forced to seek emergency funding from the US Federal Reserve last week and was sold within days to JP Morgan Chase.
The quick sale failed to calm investors' nerves who this week will receive earnings announcements from other big US investment banks including Lehman Brothers, Goldman Sachs and Morgan Stanley. "There is persistent credit uncertainty. Market players have been repeatedly let down which shows the sub-prime mortgage problems are so deep-rooted," said Atsuji Ohara, global strategist at Shinko Securities in Tokyo. "Just buying an investment bank does not solve the problem," he added.

P.S I lied! SPOT MARKET IS OPEN
closes in 13 hrs. 41 mins.Mar 17, 2008 03:35 NY Time Bid/Ask1024.60-1025.40 Low/High1022.00-1028.50 Change+22.10 +2.20%30daychg+122.90 +13.63%1yearchg+372.40 +57.10%Charts...

Shasta here is the rest of the article I sent you a snipit from. Others might want a gander too

http://www.telegraph.co.uk/money/mai.../ccview117.xml

But dont worry Bush and his advisors are getting together today for a chinwag so it should all be sorted by the morning. If not at least it will supply the Late Show with some more amusing snipits from a great leader of our time :rolleyes:

Quote:

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Originally Posted by STRAT

Shasta here is the rest of the article I sent you a snipit from. Others might want a gander too

http://www.telegraph.co.uk/money/mai.../ccview117.xml

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The chinese wouldnt screw over the US, in a bid to overtake them as a world super power would they? :eek:

Well, at least not until after the Bejing games anyways :D