Hold the caviar darling Times Online
Tennis call ‘brain bias’ found BBC
World is facing a natural resources crisis worse than financial crunch Guardian
‘Digital Dark Age’ may doom some data University of Illinois News
Appeals Courts Pushed to Right by Bush Choices New York Times
Volkswagen Overtakes Exxon as Most Valuable Company Bloomberg
Repossessions soar by 70 per cent as joblessness rises Indepedent
Reserve Fund’s Investors Still Await Their Cash New York Times
Mrs Watanabe and the sudden rise of the yen John Gapper’s Blog (hat tip Felix Salmon), Japanese retail traders, far more important than hedge funds, also used a lot of leverage.
Thousands of Banks May Get Bailout Bucks, As Treasury Bribes Its Way Out Of Political Mess John Carney, Clusterstock
In 2009 the US Will Be Forced to Selectively Default and Devalue Its Debt Jesse’s Cafe Americain
Antidote du jour:
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Yves,
Russia/China seal energy deal http://sify.com/news/fullstory.php?id=14785760
Putin told Wen to move away from the US dollar for future trading. He advised the “broader use of national currencies” in the two nations’ bilateral transactions, expected to total $50 billion this year. “Today, the whole world based on the dollar is suffering serious problems,” he said.
What about the T. Boone Pickens story? It’s like the Onion wrote it.
http://jessescrossroadscafe.blogspot.com/2008/10/im-proud-to-be-okie-who-is-brokie.html
i am not at all impressed by the jca article. the us federal government’s debt is ENTIRELY dollar denominated, meaning that it can always in a worst case scenario print its way out of trouble. the risk (if any) to the investor is inflation/devaluation, not outright default. but given the countervailing deflationary winds from the crisis and from the resulting massive monetary contraction, that gives the treasury enormous seignorage powers right now.
i also note that the top article on that blog when i hit the link stated that the collapse of tip-treasury spreads indicates expectations of rising inflation. can someone explain this to me, as i understand it to mean exactly the opposite!
“i am not at all impressed by the jca article. the us federal government’s debt is ENTIRELY dollar denominated, meaning that it can always in a worst case scenario print its way out of trouble. the risk (if any) to the investor is inflation/devaluation, not outright default.”
No, default is possible, even if all sovereign debt is denominated local currency. The way it can happen is if wages for the bottom 50 or 60% of the population would not keep up with inflation, so inflation would reduce most people’s standard of living. And politicians can’t or won’t help those people in other ways, such as modifications to bankruptcy rules to reduce their mortgage debt or refundable tax credits funded by higher taxes on high net wealth or high net earnings. The bottom 50 or 60% will only tolerate so much inflation if reduces their standard of living, and the locally based high net wealth / earning will only tolerate so much high taxes to subsidize the lower and middle class. This isn’t to say a default would happen, only that it could. The odds seem rather low, but assuming the odds are zero with no analysis, is obviously foolish.
“Most economists view creating substantial enough inflation to erode the real value of debt as de facto default.”
Yes, but risk of implicit default through inflation is not why people buy CDS on US government debt, risk explicit default is.
The question is what happens to after the unwind is substantially complete and money now flowing into treasuries slows, perhaps dramatically?
Funding the current account deficit could become a problem. The Fed would be forced to raise interest rates to attract continuing investment in treasuries and cause a catastrophy in mortgage rates and other loan rates.
Other soverign nations will be raising interest rates to prevent capital flight. Will the US continue to attract treasury buyers without competeing?
As far as a US Gov declared devaluation goes…Devalue against what is my question? The dollar is a floater except against some currencies with pegs. A new dollar could be issued with the old being traded at a per centage of the new. The world would take a haircut for trusting the dollar. The US would suffer a great deal if this were to happen.
The only way out of this disaster might be a new currency or dollar based on a basket of commodities, or?
Hi Yves,
I never got the chance to reply re: LOCs. To keep it short, LOCs are separate from the financing often attached with them.
There is also a good link giving some warning of pension issues to come.
Canada: Companies launch behind-the-scenes lobbying effort for temporary reprieve from pension funding obligations
ha! my favorite topic tennis is touched upon. my 2 cents:
there is no bias (except for famous or local players).
it is really hard to judge when a ball travels 180-240km/h bounces off the ground and deforms in the matter of miliseconds if it had actually touched the line a little or not. those judgments requiring milimers of precision have to be made as well from about 5-10 meters distance. the human eye hardly can distinguish more than 8 frames per second so give those guys a break, they do the best they can.
Anonymous (October 29, 2008 6:32 AM)
“No, default is possible, even if all sovereign debt is denominated local currency. The way it can happen is if wages for the bottom 50 or 60% of the population would not keep up with inflation, so inflation would reduce most people’s standard of living. And politicians can’t or won’t help those people in other ways, such as modifications to bankruptcy rules to reduce their mortgage debt or refundable tax credits funded by higher taxes on high net wealth or high net earnings. The bottom 50 or 60% will only tolerate so much inflation if reduces their standard of living, and the locally based high net wealth/earning will only tolerate so much high taxes to subsidize the lower and middle class. This isn’t to say a default would happen, only that it could. The odds seem rather low, but assuming the odds are zero with no analysis, is obviously foolish.”
There is a third alternative hidden in your analysis: Direct and explicit default, when both the locally based high net wealth/earning taxpayers and the bottom 50 or 60% income earners begin to demand government itself reduce its expenditures and tax bite to avoid increasing taxes on the former and improve the living standard of the latter.
But, this means pretty severe cuts in government expenditures not explicitly aimed at consumption, i.e, military spending and debt service.
another interesting article. bear in mind this guy at least politically is quite pro-american. i was surprised to see him write all this.
http://www.ft.com/cms/s/0/6e23cdc8-a517-11dd-b4f5-000077b07658.html
I’m at a loss for what to do right now with a bunch of cash we’ve got. I agree with the general idea that the U.S. will inflate their way out of indebtedness.
I’d like to allocate to hedge against this, but it’s not clear to me which vehicles provide a reasonable hedge. Given the stress in currencies right now, is there a currency basket anyone can recommend? My other idea was to invest in some kind of grains/agriculture ETF.
I’m not a sophisticated investor, and I’ve done very well so far… So any ideas are welcome. I can do the research from there.
anon at 8:24 am…
I was facing the same problem that you are. I am not a financial wizard but I knew in 2006 that stuff was going to hit the fan. My ‘investment adviser’ at Smith Barney advised me that Wall St Banks were ‘too big to fail’. I laughed at that notion and had all stocks sold and left in cash.
I bought physical gold with half the cash and still have the other half in cash. My plan is to purchase treasuries when the US Fed jacks interest rates, which eventually they will be forced to do, imo.
I am in no way connected to any gold or financial institution. Perhaps my plan will fail but it is the best that I could come up with that seemed fairly safe. In any case, had I remained in stock I would already be destroyed. Good luck!
MUFG seeks $10.6 billion from share sales-The re-capitalisation plan comes as share prices continue to plunge and follows the Japanese bank’s own $9 billion capital injection into Morgan Stanley.
http://www.financeasia.com/article.aspx?CIaNID=87659
EHP,
Is this not a pension thing not a perfect re-run of 2001-2. They are even using the same press releases…
@8:24 am
I’m interested in learning more about something I recently read: Mandelbrot’s being in cash 90% and 10% long OTM options. Yves has mentioned Mandelbrot’s cautionary attitude toward equities several times…
The adorable photo has been duly forwarded to everyone I know! Priceless.
This snapshot really pisses me off with the symbolic metaphor that suggests that global junk food has now entered the pet food chain, just like pet insurance, pet benefits, pet 401Ks and the incredibly stupid world of synthetic off balance sheet derivatives, like the recent CDS currency intervention crisis that brought these pets all to their knees. Everyone knew this was too good to be true, but everyone was too busy to stop and think about the consequences of socialized pet daycare and endless cash burn related to inflationary trends that were sucking the life out of a bottomless well of tasty malted milk-like savings account which everyone and their Moms thought was an infinite source of excess from which they could suck on like a canine pacifier.
When will this Hindenburg/Large Hadron Collider humanity stop — when will the blimp burn out and the greasy stains of this soiled and hairy era be washed away? The sins of The fathers are one thing, but the greed of these mothers is reproachable and one does wonder how this will be righted!
I feel better when I write about these things, but then when I see that snapshot, I just get pissed off even more and then go off on the need for union wages and speech therapy and socialism and globalization and, there, yah see, this is like the perfect photo for posters and the final challenge to not allow our world to goto these greedy dogs!
Baychev:
The FT article is a shocker really, Martin Wolf is usually quite measured in his outlook. But the Financial Times staff seems to have come into the office on Monday and had a collective screaming session. Then they sat down and wrote an editorial that says we must have what is essentially a Japanese solution –
see it at
http://www.ft.com/cms/s/0/0af9eba4-a528-11dd-b4f5-000077b07658.html?nclick_check=1
My God! 10 years of drudgery seems to look like paradise to these guys now.
Oh My God, The Large Hadron Collider, put hair on My Children’s chest’s!
Doc…
The poodles are taking a bath on their investments. The one on the left is clueless while the other two realize what is happening to them.
alternatively…
The two on the right have read about the upcoming large hadron collider experiment but the one left has not.
This is a way out-of-date observation in the fast-moving world of 2008 crisis finance, but I just wanted to say somewhere that the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (one of the Fed’s crisis lending facilities) reminds me of the Bear Stearns High-Grade Structured Credit Enhanced Leveraged Fund, one of the BS hedge funds whose failure was a harbinger of the credit crunch. Perhaps the principle is that anything which is that much of a mouthful is bad news.
And let us also remember MLEC (the Master Liquidity Enhancement Conduit, a stillborn proto-bailout). A comparatively short acronym, but for sheer dysphoniousness it’s rivalled only by SLORC, the old name of Myanmar-formerly-Burma’s ruling junta.