Joe the miner wrote:For all you bulls out there that think we are at the bottom, look at the following link - lots
of great information that puts things into a realistic perspective. If I could figure out how to paste some
of these charts here I would...
http://www.financialsense.com/Market/pa ... /0326.html
Please be carefull on this Dead Cat
It is difficult to predict when this strong “no-insurance” undercurrent will emerge, and be acknowledged, as a dominating factor in determining the status
of the global economy. But, quite clearly, the ongoing dramatic reduction in the size
of the risk insurance business will start to erode the quality
of credit (higher yield spreads and higher upfront fees) within the first half
of 2009; that erosion will, in turn, result in depressed asset values (even from this juncture), and in historical business contractions in the US and elsewhere. The basic ingredient (i.e. the end
of non-actuarial risk underwriting)
of another Great Depression is firmly in place.
http://seekingalpha.com/article/111208- ... sb_popular
Loan portfolios are fallen far faster than deposit rates. Between what the Federal Reserve has done to distort the yield curve, the TARP, and the likely reforms to mark-to-market accounting, the regulators and the accountants are effectively "begging" banks to sell anything with a gain. While in the short run, this will generate capital, future net-interest margins will only be pressured more (as banks can only deploy the sale proceeds at lower rates). Worse still, banks are responding to margin pressure by raising borrowing costs (absolute-rate floors) in many floating-rate commercial. Net-interest margins - not credit losses may be the most important indicator
of sustainable financial-system strength. Net-interest margins represent systemic capacity and the ability
of the system to exist. Until margins expand, bank’s ability to withstand losses on their own is severely limited. Banks are about to trade immediate capital for long-term earnings is the thought
of the moment but that is only what they want you see. As conveyed, The most exposed countries to fallout in Eastern Europe are Austria, France, Italy, Belgium, Germany, and Sweden. Austria alone made loans
of $297 billion to Eastern Europe, according to Josef Pröll, the Finance Minister in Vienna. This is the equivalent
of 70%
of the country's GDP.
Needless to say we see that we know who is bring there A game to the table. What I am saying is Volume and Volatility is what they need and not the market as such for there market to date and most will survive the customer's demands.
One (fundamental) interpretation is that The Great Pump-Up, which lasted over thirty years, is finished and the Age
of De-Leverage is fast upon us. Though I don't expect the latter to last as long as the former (economic declines being swifter than expansions), I nevertheless think that the de-leveraging process will last more than most people believe. And this, despite the (un)heroic efforts by Fed and Treasury to rapidly pump trillions
of fresh debt into the system. All they are achieving so far is to replace a portion
of the debt going terribly bad (eg sub-prime mortgages and speculative trading leverage) with government debt. Banks are very simple businesses: borrow - lend - repeat. The crucial word being repeat, because if the cycle stops banks almost immediately start losing money. When principal is repaid (or defaulted) and is not re-lent net interest margins (NIM) decline and high fixed costs hit the bottom line hard. Therefore, as banks go into capital conservation mode and shut lending down they create a negative boomerang effect for their own earnings. In more ways than one, banks are like sharks: they have to keep swimming in order not to sink.
Banks striving to preserve capital (i.e. to maintain capital adequacy ratios) are in effect winding down their core business and we know why. This is another reason - beyond loan defaults and trading losses- that banking stocks have been pounded into the dust. The KBW banking index is down a whopping 80% in two years. They know this game so we can Hedge this by A. Taxpayer.
The technical term that economists use for the third option is rent-dissipation. It describes what happens when possible investment capital is invested in the political class rather than on customers as we see unabated. When this happens, the wealth creation process is hampered considerably. So can we agree to disagree on the current path but observe how we can and could (and probably should) bounce. It might even be worth a trade, getting long this afternoon into the selling mania. But you better have an exit plan and the discipline to stick with it or you will remember why the above all apply’s.
"Revenue neutrality" has turned fiscal policy into, at best, a pointless exercise; at worst, a deeply dishonest shell game. We cheer when they propose a low tax, but look at the fine print. It's accompanied by higher taxes elsewhere to date unfettered. The real agenda
of the G20 should be helping save Europe from itself, for example by encouraging the creation
of a €2-trillion European emergency economic stabilizations fund, funded primarily by richer Eurozone countries, and a major relaxation
of Eurozone monetary policy. Without such measures, we are likely on the path to a bigger slowdown in global growth and a more difficult recovery. Simon Johnson, former chief economist
of the International Monetary Fund
The financial sector globally is shrinking, and this will lead to significant job losses in countries like the UK and Switzerland. It gets worse. The US has banks that can plausibly claim they are Too Big To Fail, and this is bad enough because it lets them get big bailouts. But Europe has banks that may be Too Big to Rescue, ask Iceland or, more recently, Ireland. Far from being able to afford government expansion, European economies with big banks see the prospect
of budget cutbacks – to persuade the financial markets that their governments are still good credit risks. European countries face two types
of future. On the one hand, countries that still control their own currencies can engage in creative monetary measures, pushing down the exchange rate and raising inflation; the Bank
of England leads the way in this regard. Inflation will reduce debt burdens but
of course comes with other costs. Think
of it as the worst
of all possible policy choices, apart from the alternatives. And those most unpleasant alternatives are faced by Eurozone countries. Their economies are slowing dramatically as is ours
http://www.federalreserve.gov/releases/ ... 11_rev.htm
Their banks are impaired, their budgets are constrained, and their monetary policy is in the hands
of the European Central Bank (ECB). These countries face the prospect
of falling wages and prices. Most central bankers would recoil in horror as this deflation threatens further defaults and a deeper recession, but Jean-Claude Trichet, head
of the ECB, is actually welcoming this development in Ireland and elsewhere. Back in the 1990s, much
of east central Europe put itself on a high risk debt-fuelled growth path, egged on by Brussels. European Union accession countries were told that they could afford to import far more than they export – and that this difference would be financed by capital coming in from Western Europe. This was true, for a while, but now the crash in Eastern Europe threatens to bring down banks in Austria, Greece, Italy and other places that bet big on Hungary and its neighbours getting rich quick. As Eastern Europe has plummeted into crisis, the West European response has been further bad advice. Countries with fixed exchange rates, such as Latvia, are told to cut wages and prices by 20-30pc, rather than devalue their currency. Never mind that this is political suicide and bad economics. Brussels considers it better for the West European banks with capital at risk. Almost all
of Eastern Europe is in trouble and will need to borrow from the IMF; the massive over-representation
of Western Europe on the IMF's board suggests that this will end badly.
http://www.g20.org/
Mises observed:
When pushed hard by economists, welfare propagandists and socialists admit that impairment
of the average standard
of living can only be avoided by the maintenance
of capital already accumulated and that economic improvement depends on accumulation
of additional capital. History does not provide any example
of capital accumulation brought about by a government. The consumers are merciless. The corruption
of the regulatory bodies does not shake his blind confidence in the infallibility and perfection
of the state; it merely fills him with moral aversion to entrepreneurs and capitalists. No one should expect that any logical argument or any experience could ever shake the almost religious fervor
of those who believe in salvation through spending and credit expansion. The final outcome
of the credit expansion is general impoverishment.
In the overall context
of time who learned the lessons? Needless to say is it not in today’s terms from Capital Hill. John's post is relavent and history will bear this out.
