World Markets Continue their Slide

Ok, let's suppose the Market Crashes all around the world, US Dollar breaks down, etc. What will happen all over the world?

I mean, I'm from South America and as far what I know, South America's economy system reflects what happens with the global market. So, if the markets break down, so will the entire world economy system?

Sorry if I'm being silly, but I really have no idea how's the market bahaviour, how does it work, etc. And, after seeing so many predictions about, all these signs, I'm starting to think a little bit more about it.

I find it highly suspicious that only a week or two after the latest Davos meeting (where derivatives were a hotly debated topic), the markets started going a little crazy.

Davos and Goliath

Let's start with the most recent data from the keepers of the global numbers - the BIS (the Bank for International Settlements). ... As you can see, the BIS data covers half-year periods. For the latest data ended 1H 06, the prior six month growth in worldwide OTC notional derivatives outstanding was a little in excess of $72 trillion, standing at $370 trillion as of 6/30/06, up from $298 trillion at 2005 year end.

For a bit of perspective, total planet Earth did not have $72 trillion in total derivatives outstanding eight years ago, and now we're growing by that total amount in six months. Incomprehensible.

The chief cause of growth in the most recent period was credit derivatives as well as the old standby, interest rate related derivatives vehicles. Again, hard to believe we're seeing this type of growth. Is the global credit cycle in its supernova stage at this point?

The one and only place I’ve found were we get some type of true dollar at risk cash estimates for derivatives, as opposed to notional values, is in the BIS report. As is clear above, these folks are estimating that real cash exposure at risk in this market is $10 trillion as of 2Q 2006 period end.

Today, we live in a world of MCGCF – mouse click global capital flows. This is no longer your father’s (or mother’s) global financial system anymore. Not by a long shot.

And so at Davos this year we have real world decision makers such as those mentioned above at least seeming to sound the need for some type of meaningful assessment and understanding of risk in terms of the recent explosive growth in global financial derivatives. Alternatively we have voices from Wall Street suggesting these worrywarts “just relax.”

Many mortgage assets like credit swaps, default insurance etc. are traded in the derivatives market. Derivatives have exploded onto the financial scene in the last couple of years ($370 trillion in notional value : $10 trillion in cash exposure!? ).

It's a big game of musical chairs with other people's debt and the movers and shakers at Davos apparently had lots to say about it at this year's meeting.

I have a feeling that somewhere, somehow, a plug has been pulled and that giant sucking sound that can be heard around the world is the economy slowly draining away.

I hope I'm wrong, but I have a sinking feeling I'm not.
.

[edit on 3/5/2007 by Gools]

What I am worried about is the American banking sector,

Correct me if I am wrong, but is it true that most American banks are not making a profit anymore i.e the banks themselves are heading into debt?

US economy and dollar balancing act

Good reading for those that want to know what the future holds. . .

www.marketoracle.co.uk...

That we are having a problem is not a myth or something to think about . . . is a reality sugarcoated by the feds to keep the illusion of a strong economy.

We are all aware of the reasons for the long-term negative outlook for the U.S.D. There is the trade deficit mandating we entice foreigners to commit 2 billion dollars per day into our markets in order to maintain dollar stability. In addition, the total U.S. debt is now over $8.6 trillion. This debt has allowed China to hold $1 trillion in foreign reserves (70% of reserves in U.S. dollars).

The excuses given last week for the littler bad ride we have . . . was nothing more than a band aid to keep the people hopeful of a successful recovery sometime in the next weeks . . .

But as predicted this was coming sooner than later and this year is no going to get better is just going to get worst. . . as predicted . . .
This time the economy will not be able to get away from the recession that is heading our way . .

US economy has not been strong just the illusion of being strong but at its deepest is nothing but weak and sick.

Risk and Return in Subprime Mortgages

www.aei.org...

Then we have the trade deficit that is now on the fifth consecutive annual record.

The Commerce Department reported Tuesday that the gap between what America sells abroad and what it imports rose to a record $763.6 billion last year, a 6.5 percent increase from the previous record of $716.7 billion set in 2005. For December, the deficit rose a bigger-than-expected 5.3 percent to $61.2 billion.

apnews.myway.com...

I found this article interesting because it brings the issues of how the markets may be affected by the new Democratic congress . . .

Trade tensions worry tech
VALLEY FIRMS NERVOUS AS DEMOCRATS TACKLE GLOBALIZATION ISSUES

Democrats are forcing the Bush administration to file a complaint against China at the World Trade Organization over tax subsidies for exports and are calling for increased pressure on China to revalue its currency, which they say gives it an unfair trade advantage.

www.mercurynews.com...

Originally posted by titian
[...]

The recent housing market is a classic example of a hype-fed bubble. Everyone had to get a house that they could resell in a few years for 40% more. Yet, not everyone had the funds to put 5-20% down. They wanted to get into a new house for nothing down because they either planned to flip the house, or, worse yet, a family wanted to upgrade their living standards yet had no liquidity due to high debt and/or bad credit.

So, lenders offered 100% interest loans.

and other creative financing!


sure the buyers were motivated by a pie-in-the-sky dream.

but the real-estate agents wanted continuous 4-6% sales commissions
the brokers wanted their cut of the sales too
the loan originator,
the lender who sells the mortgage to others
etc, etc

so 'requirements' flew out the window and mortgages and 2nd mortgages to finance the downpayment were processed, so the fees & costs & commissions could be made on those sales & loans of the overproduced & overpriced housing,
Everyone in the interwoven network of the housing & vacation home industry, was busy creating wealth on paper by also leveraging the equity loans, so that a $50k income could buy/speculate on $1m properties.

I believe that frm Fed chairman Greenspan, gave a speech on Feb 26th
that an economic tightning & possible recession is conceiveably in the future because of shrinking corporate earnings/profits in 2007-08.
Only days later the Sub-Prime mortgage collapse starts,
the Fed & central banks serverly restrict the exotic type loans which began in the Sub-Prime arena & is expected to spill over into the earnings of
Prime Banks & Lenders & also create massive losses in some hedge funds,

i expect an extended period of mortgage industry/ housing failures & losses, but very few fraud convictions,
as the bad news, layoffs, bankrupt financial institutions ,
is dribbled out so as to not panic the nation about this 'controlled collapse'
that began as Greenspan warned (in couched & cryptic language) on 26 Feb, to last starting 5 March 2007 through sometime in 2008

Originally posted by titian

On an aside, a bad sign of the times is that the association of payday lenders is now advertising during market hours on CNBC. It's urging a responsible use of payday loans.

I think the "Payday Loans" issue is unrelated. These, ahem, lenders have done so much damage to young military personal that many can not be sent to theater due to credit issues. There is a move to outlaw them entirely through federal legislation and it has backing. They swarm around military bases side by side with the rent to owns and interest rates run in the 250% (or higher) range. The Pentagon is up in arms about this as well. I found someones slip from one down the street blowing in the wind last week. The listed APR on the contract was 258% Not to mention the service fee's listed on the form.

Link to thread -

I'm glad to see this discussion. As you might know, I follow the political side of things in a Conspiracy Master forum. Bad policy means bad economics. The decision that was made so many decades ago to gamble with the U.S. economy for the benefit of a select few is something we're all going to pay for when the scheme falls apart.

Originally posted by Gools
I have a feeling that somewhere, somehow, a plug has been pulled and that giant sucking sound that can be heard around the world is the economy slowly draining away.
[edit on 3/5/2007 by Gools]

I think your right, This isnt normal is it?
Continue slides day after day of quite large quantities.. and no one can definitivley say
its because of this, that or the other.
Its like in a dark room some where, someone signed a piece of paper that turned everything on a downward bend... exponentially, it will just get faster.

I love how the market pundits on CNBC (including Jim Cramer) are saying "BUY BUY BUY!!!!" after that recent drop last week. What happened to recommendations based on valuations as well as the forward looking outlooks? They all kept saying "nothing has changed since....so therefore this is an opportunity to buy."

I've seen more than a few economic bumps in the road during my lifetime. Each time, the analysts tell us to buy. then, as now, they're hoping to jump-start the good stuff by conning us in to buying when we should be getting out.

There's a lot of bad debt out there that needs to go away. It won't go until the companies floating it are forced in to bankruptcy. the overall trend is not encouraging when you've got companies like Bank of America trying so desperately to scoop up money that they're willing to offer credit cards to anyone with a pulse.

Pay off your plastic, and put some currency in your brief case. As the easy credit dries up, interest rates will go sky high. Anyone with an adjustable rate mortage will be toast. Sad to say, but we're in for a hard time, and we brought it on ourselves.

Yep, Negative equity is going to hit home over here in Aust.

8 yrs ago, a house was worth $250,000-$350,000

Thats a good 4x2 brick n tile.

Now, they can be upwards of $450,000
Infact thats the MEDIUM House price.

So all these people with $540,000-$500,000 mortgages are going to SUFFER, because the house price WILL Drop as significantly as it rose, interest rates will go up, next thing you know, you are living in a house worth $250,000 - $300,000,. which you got a loan of $400,000 for, and are paying a greatly increased intrest rate on.

We bought this on ourselves, and we are going to have some hard days.......

Originally posted by tyranny22
I'm not real big on religion, but has anyone heard of Herbert Armstrong?

My dad has been trying to get me to read his books for years. I think I'll finally take a look at them now. My dad explained to me about ten years ago how this man wrote several books that predicted the rise of the Euro as well as China in the global economy and the decline and eventual crash of the US dollar. Many of this man's predictions have or are currently being realized. I never paid much attention to what my dad told me so long ago, but I do remember making a mental note when the Euro took off about 6 year ago. I'm not sure how easy these books are to find because they were distributed by the Worldwide Church of God so long ago. But, I've got a whole slew of them I think I'll dig up and start reading. I'll keep you posted.

go to www.pcog.org,and then go to the literature library. they've got all kinds of his books online.

I just posted this on another thread about the same topic.

We have only begun to see the beginning of the housing collapse.

The value of the housing market is many times greater than that of the dot bomb stocks in 2000.

The implosion of the sub prime lenders is going to cause a server liquidity crises around the world.

The low interest rates and lack credit standards for borrowing fueled the meteoric rise in housing up till last year.

This was all by design by the federal reserve (the fed) to help ease the pain and loss of the wealth effect caused by the dot bomb crash.

In other words the fed just transferred the bubble from on asset class to another.

Unless the fed has another asset class to transfer the bubble to the game is over....and for other reason that would be to lengthy to get into right now I do think the game is over as far levitating and transferring the bubble to other asset classes.

Its not only the american markets that are all selling off its been a global market melt down...just look at japan and the other asian markets the last week.

This is all a sign of a global liquidity crises and the massive speculative derivative trades unwinding and no one knows how far down the rabbit hole it will go.

The problem is . . . that the fed may not have any more tricks in their bags to Save the economy for the time being. . .

See . . . when things get a littler bit to bad . . . we have the good oil prices to go down and buy us more time and save the good ole economy . . .

But . . .this problem has been on and off since last year . . . but we hardly feel the fluctuations . . .

Now . . . everything seems to hit at once . . .and the one suffering is the housing that still have not been able to recover since their slump started . . .

The problem is that the good oil prices has not come to the rescue and the last few weeks of cold are not going to help the energy bills either, so the oil is going up . . .

Oil can not bail the economy this time. . . or can they?

Three Scenarios
www.aei.org...

It seems that three scenarios have about an equal chance of unfolding. Under the first, oil heads up toward $80 a barrel, and the pressure from that price shock pushes the economy to the brink of recession.
Under the second, the price of oil stays about where it is, and we continue to struggle along with 2 percent to 2.5 percent growth, all the while worrying endlessly about any bad news.
In the third scenario, we get another happy oil shock, and end up with a significantly stronger economy than investors now expect.

What the feds to do to help with the problem ?. . .

If they wait to long expecting a miracle . . . we will be looking at last week as nothing compare to what may be heading our way. . .

Which way are we headed? When it comes to asset prices, I have always been a "random walker." The best model going forward for oil prices is to imagine that the fates toss a coin each day, and give us higher prices if the coin shows heads, and lower prices if it shows tails.

Will our luck be that bad?

Originally posted by marg6043
Oil can not bail the economy this time. . . or can they?

Funny I was just thinking of this just a couple of hours ago as I was driving home from work. I noticed the gas prices dropped a bit again here down to about 2.35. And how that was awesome compared to the 2.55 it was as a week and a half ago. Then I read this thread and remembered that it was under 2 bucks a month ago.

My point is twofold: one, as others have said, small decreases in price (or increases in value) will trick people into thinking things are ok when things were really in a bad situation to begin with. And two, dropping oil prices could in theory pacify the public as well as the public's perception (yea the housing market sucks, but damn the oil market is doing well!!!). Too bad that oil can't hold this big of a bubble.

Those of you who have read my stuff know that I've been making the case for this turn of events for more than a year. My one real concern here is that U.S. politicians will use this crisis to increase the extent of Federal power. As this crisis unfolds, there will be any number of opportunities for law makers to expand government power to "save us" from what they've done "to" us.

The bigger question on my mind at the moment is, how much of what's coming have they already made up their minds to exploit? You've heard the cosnpiracy theory of Planned Chaos. How much truth is there to that, in light of what's happening now?

I'm not entirely sold on the idea that they would crash the economy to enslave us, but I do think they'd put us in danger to save us from the crisis they created. Consider that under the Bush administration, we've seen more expansion of Federal authority than has occurred under any past President--including Abraham Lincoln or FDR. Stop and think about the moves made by the chairman of the Federal reserve to do things that are clearly not in our best interest.

Hey, this is ATS. I'd be a bad CM if I didn't bring this up.

I think it is regardless of how the Fed plans to save the economy..... for one reason..

Americans have no money.

Last year for the first time in American history since the 1920's America had an average household savings in the red - negative. Since then, wages have been slow to rise, relatively stagnant, the majority of jobs created are lower paying jobs, the middle class is shrinking, the rich got richer and the poor got poorer. What happens when Average Joe can no longer afford to go out to eat every weekend, can no longer buy a new car, a house, a computer because he has to much debt? I know I have all my cards frozen, I won't spend any more because I simply can't. Who else got a MASSIVE heating bill because of the sub zero weather this month, and last month, and probably next month... The average American has been spending like they live in the 90's, putting it on plastic, loans, mortgages (funny word huh .. Mort comes from Latin meaning Death...) eventually I think the people will hit a point where they cannot spend any more - to much personal debt and will either pay it off or go bankrupt (foreclosures at all time highs) we are a driven consumer society - according to the CIA world fact book 70% + of our economy is service based.

Me and Gools had discussed on a thread on ATS I posted on the markets about the Fed buying up stocks to keep the value artificially high, preventing a massive sell off. I find it odd that China's stock can fall another 1.8 percent on top of a 10 year sell off record, along with the Australian, Japanese and European markets suffering 3-4% drops while we loose 60 points or so on the DOW.. Doesn't make sense to me.. in fact when I posted the thread (I included real time Stock Tickers on the main post of S&P, NASDAQ and DOW the DOW was actually UP!) Just doesn't seem normal.

Hank Paulson on 3/4/07: /2wvz9c

"Paulson, 60, reiterated his view that the economy is ``healthy,'' with low unemployment, contained inflation and growing exports. Markets don't move ``in any direction in a straight line forever,'' he said. ``I look at it and put it in perspective and say, over the last year, the Dow's up almost 11 percent, the S&P's up 9 percent, and I'll take it.''


David Walker...US comptroller general same day: /ysrqpt

"I'm going to show you some numbers…they’re all big and they’re all bad," he says.

"We've gone from surpluses to huge deficits and our long range situation is much worse," Walker says.



Paulson returned to Asia today. CNBC will probably say there's nothing to worry about...he just forgot his toothbrush.

I keep getting this image of Hank scurrying door to door on the crowded streets of Beijing...sweating profusely as he attempts to peddle T-notes out of his suitcase. lol!

Whoever mentioned 'Payday Loan' companies a few posts back is spot on. They go hand in hand with Pawn Shop shares, as popular momentum plays in downturns....but morally, as businesses, they rank right up there with Gold Eagle taxidermy.

Peace &
Good Fortune
OBE1

[edit on 6-3-2007 by OBE1]

I think i might setup a live stock feed 'widget' tommorow.....

Well, the markets have bounced back in Europe and Asia today, but it should be noted that some US economic data is coming out this week and this could hit the markets pretty hard.

But the market doesn't look too good, I have been sniffing around afew bargins in the last few days, probably take a stab but only a small investment and I recommend this to ATS members as well.