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EJ
05-17-07, 04:35 PM
http://www.itulip.com/images/treecat.jpgCat rescued from tree, DOW surges 100 points
Boom or Poom?
May 17, 2007 (iTulip)

Any excuse will do as markets continue to move on the expectation that global central banks don't have the cojones to withdraw liquidity, that is, to increase the cost of debt in our highly leveraged global financial system, so the flow of money to finance deals will continue unabated. Like the IPO mania of 1999, this disease has infected not a few hundred board rooms of dot coms and telco companies, which industries represent a few percent of the US economy, but thousands of board rooms, representing just about every public company in every market and a significant share of the US economy. We have yet to speak to a CEO or senior exec of a public company that won't confide the giddy hope, bordering on conviction, that their company is next in line to receive a proposal for marriage from a larger company, an LBO from a private equity firm or hedge fund, or some other source of capital that will result in a personal financial windfall. These expectations have infected DOW and S&P investors as well. With so many betting that the company whose stock they own is likely to be over-bid in a take-over, why sell? Here's how our hero JJ Cramer puts it:
Cramer: Why Selling Has Lost Its Appeal (http://www.thestreet.com/markets/activetraderupdate/10357501.html?puc=googlefi)
May 17, 2007 (TheStreet.com)

They might as well be dozens of other companies, everything from Fair Isaac (FIC - Cramer's Take - Stockpickr - Rating) to Fiserv (FISV - Cramer's Take - Stockpickr - Rating). Unexceptional stock wallpaper.

To be, sure they had their champions. But my point is that these are basically humdrum, not-really-interesting stocks that just got very big bids -- the kinds of bids that, if you sell a lot of other companies, you run the risk of looking stupid when they too get bids.

These bids make it so you can't resist owning and buying. They have changed the risk/reward for owning hundreds upon hundreds of stocks,

That's why, in the end, we are up today.

It just doesn't make any sense to sell!
Meanwhile, the same execs and board members, who are also often high net worth, tell us how concerned they are about inflation, both the type that results from its transient source–persistently high energy prices–and the type that results from it penultimate source, queasy politicians and their crowd-pleasing fiscal deficits. Some are worried enough to move at least some of their assets overseas, while others say they are still only thinking about it.

Complaints about wimpy central bankers shirking their responsibility to contain inflation are rising among notable investors world wide. For example, the following article sent to us by a reader.
Bank attacked over rate mistakes (http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/05/17/cnbank17.xml)
May 17, 2007 (Tom Stevenson - Telegraph UK)

The Bank of England will be forced to raise interest rates higher for longer because of its caution in fighting resurgent inflation, Britain's biggest investor has warned. Legal & General said the base rate would need to rise to 6pc to slow the economy because the Bank has been too slow to raise rates over the past year.

James Carrick, investment strategist at L&G, said: "The slower the MPC acts, the higher interest rates might ultimately need to peak." He contrasted the Bank's timidity with its aggressive hikes in 2004, when it raised rates three times in four months.
Here in the US, the markets continue to turn away from the CPI lie (http://www.nowandfutures.com/cpi_lie.html) rather than confront the implications, instead focusing on the flood of money pouring out of the latest perpetual motion money machine, the LBO and PE market. My bet: when this machine eventually shuts down, either because central banks bite the bullet and get on the hawkish side of the inflation curve or an accident occurs–the latter is more likely as the Fed has learned to not be seen popping bubbles as Greespan did in 1994–sentiment toward dollar denominated assets among high net worth individuals and institutional investors alike will accelerate the portfolio diversification trend, possibly turning it into outright capital flight. Paradoxically, the most likely way to shut down the latest money machine is to raise rates, the very act investors are asking for to contain inflation.

What a mess.

The chorus of central banking critics is sure to grow more shrill over time, yet the last two times central banks attempted to draw down liquidity, February this year and last spring, the markets acted like they'd been kicked in the cojones, doubling over and screaming "Sell!" they did. Our All-Assets-Up world became, briefly, an All-Assets-Down world. Since then, most everyone we talk to is positioned for a short term assets down correction followed by another long global expansion. The debate among the market pros these days is on the nature of the period that follows the mean reversion event, whatever it is. Here at iTulip, we've narrowed the question down to two possibilities: new asset bubbles to replace the housing bubble (Alt Energy and Infrastructure) or an inflationary capital flight and currency depreciation driven debt deflation cycle kicked off by a US recession, aka "Poom." The question is, Boom or Poom? And how do you hedge one without missing the opportunity to take advantage of the other?

http://www.itulip.com/images/HardAssetsNYC2007sm.jpgHard Assets Conference
An extended period of doubling over and selling, triggered by who knows what, is what I believe is in store at some point later this year. When? My best guess is when the markets, which no longer discount anything, decide that the trend of steadily rising inflation which was acceptable when the economy was growing will become unacceptable when the US is in recession, which we still expect to occur in Q4 2007. Then we may see a reaction, and likely not before.

That was my message at the Hard Assets conference in New York City where I gave a speech earlier this week, and with Americas Bubble Economy author Bob Wiedemer, delivered a workshop. The presentation is available as a PowerPoint file here (http://www.itulip.com/images/HardAssetsNYC2007sm.jpg). It addresses the two potential scenarios of the eventual mean reversion period that we see as most likely: central banks succeed at pulling the plane out of a dive or they don't.

Over the years I've done about 100 public speaking gigs and moderated panels at high technology industry venture capital and entrepreneur events at Harvard Business School, Stanford, MIT, various industry events, and so on. The mining industry execs on my panel are a different breed, as are the investors. For example, when I'm at technology conferences, half the audience are typing on their WiFi enabled laptops or pecking away at a Blackberry. This group sits still and actually does what they came to do, listen to the speakers. I hope they enjoyed the change-up as much as I did. The team from International Investment Conferences (http://www.iiconf.com) were competent and courteous, and a pleasure to work with. Special thanks to conference Producer Marlene Weeks. At our workshop, Bob and I expected interest but were surprised to see a packed room, given our bearish message and the frothy state of the markets.

http://www.itulip.com/images/permits051607.gifHousing Construction Pipeline Continues to Shrink
The news that moved the markets yesterday was a housing data release which was widely reported as "mixed" as in, some good news and some bad. The good news? Home builders constructed more homes in April in the U.S. compared with March as housing starts rose 2.5% to an annual rate of 1.528 million units. A month to month increase in home construction in the spring is as meaningful as month to month increases in the number of warm days. Reporting more warm days in April than in March is not exactly news. If the mean daily temperature in April fell short of mean daily April temperatures for the past 100 years by, say, by 25%, now that would be news. So, the real news on housing starts? The Commerce Department data showed housing starts for April had declined by 25% compared to April last year; the good news was bad news. And the bad, bad news? Applications for building permits fell by the biggest amount in 17 years.

The big news that the markets ignore is the implications of the collapse in housing permits issuance for the economy. In our 2007 forecast in October 2006 we noted that six of the past seven recessions followed a decline in housing permits of 20% to 30% over the previous year's issuance; the exception was the 2001 recession that followed the NASDAQ crash.

http://www.itulip.com/images/capflight.jpgCapital Flight: Dick Cheney is not alone
George Setser over at RGE Monitor (http://www.rgemonitor.com/blog/setser/194459/) teases apart the latest Treasury Dept. report on net foreign lending. After careful sleuthing he determines that US citizens have become net sellers of dollar denominated assets.

We have over the years offered a number of hypotheses about how the Poom process might start, such as with a relatively small nation such as Australia signaling a willingness to risk a stampede out of the dollar by diversifying out of dollars the way Russia has been doing. But might US investors start the process themselves? Setser's analysis is consistent with anecdotal evidence that we're collecting, that while Joe and Jane Sixpack struggle to make ends meet in the face of rising inflation by taking on more debt and selling assets to raise cash, high net worth individuals, besides Dick Cheney, are moving assets overseas. Some believe that the US will develop the cojones and do something about it, but we think they are waiting for the markets to take care of it with a negative wealth effect event that allows them to respond to the event rather than being seen as causing it. We'll keep an eye on Setser's blog to see where this goes.

A report by Financial Analysts Journal that we touch on below asks that if some day in the future US citizens become net sellers of dollar denominated assets, can foreign investor sentiment be far behind? Setser shows convincingly that they already have become sellers, and that–paradoxically–US citizens are following the lead of foreign investors not the other way around, with central banks again adding fuel to the inflation fire by buying overpriced bonds and not allowing interest rates to adjust. Noting that US citizens have recently become net sellers, Setser asks the question a different way: "Financing the United States current account deficit is one thing. The current account deficit is the counterpart to China’s current account surplus (read export jobs). Financing capital flight (i.e. portfolio diversification) by US residents is another matter."

http://www.itulip.com/images/spainmap.gifSpain: The Euro Prisoner

Spain may trigger the next major global economic fiasco. I give them a year or less.
Spain risks crisis over vanishing reserves (http://www.telegraph.co.uk/money/main.jhtml?view=DETAILS&grid=&xml=/money/2007/05/16/cnspain16.xml)
May 17, 2007 (Ambrose Evans-Pritchard - Telegraph UK)

Spain's foreign reserves have plummeted to wafer-thin levels, leaving the country exposed to a possible banking crisis if the property market swings from boom to bust - despite membership of the eurozone.
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The Banco de Espana's holdings of foreign currencies and gold have fallen to €13.2bn (£9.02bn), equivalent to 12 days of imports.

Over the past two months the Banco de España has sold off 80 tonnes of gold, flooding the world market with enough bullion to dampen the usual spring rally. The bank has reduced its holdings of US Treasuries, British gilts, and other investments at a similar rate.

Total reserves have now fallen by two thirds from €41.5bn in early 2002. Greece and Portugal have seen a similar drop.

"The current account is completely out of control," said Alberto Mattelan, an economist at Inverseguros in Madrid.

"We have the worst deficit in our history and worse than any other country in the western world. It has not yet become a 'street concern', but I can assure you that it is of great concern to us economists. This will turn bad over the next 18 months," he said.While we may make it out of 2007 without The Big One, 2008 promises to be the biggest year for the markets and economy in a generation. With debt bubbles in the UK, Australia, Spain, the US, a stock market bubble in China, and presidential elections in both the US and Russia coming on the heals of a late 2007 recession, the year is unlikely to go smoothly.

http://www.itulip.com/images/grimgross.gifGross Turns Cautiously Bullish

Remember this picture from a News with AntiSpin a couple months ago? Bill Gross, in his June note to investors How We Learned to Stop Worrying (so much) and Love “Da Bomb” (http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2007/IO+May-June+2007.htm) becomes the latest professional bear to drink from the half-full glass, citing a growing global economy and low inflation as long term positive factors that outweigh apparent risks. But he still leaves himself a lot of wiggle room:


"Does this virtuous circle favoring capital at the expense of labor continue? We see nothing to stop it absent a global financial bubble popping of sorts, an accelerated decline of U.S. housing in the short run, or a U.S.-led trade policy reversal that could precipitate counter-attacks from Asian exporters. These three are not “black swans” as they say. Asset bubbles are a near inevitable result of attractively financed leverage in search of a limited array of financial assets – and the exuberance that inevitably accompanies them. In turn, if U.S. housing declines soon morph into the consumer sector, the belief in a U.S.-centric global economy will reemerge, and a cyclical argument for slower global growth will accompany it. Anti-trade legislation may or may not become a reality. Still, odds favor a continuation of recent years’ global growth rates and the favorable dynamics for most financial markets which accompany that secular 3-5 year forecast."
The legislation that Gross refers to as anti-trade will be passed wrapped in fair trade clothing some time after the next major recession. Informing Ka-Poom Theory is the observation that open trade is politically mostly good when things are booming and mostly bad when they are not. Things have to get really bad, due to nationally interested protective trade barriers that rise when things are bad before the cycle can start anew. Many will argue that China's currency policy is already such a trade policy, and at some point into the next recession, that view will have a more receptive audience.

http://www.itulip.com/images/text1.jpgUS Government Accounting Fails CFA Institute Standards
Meanwhile, iTulip welcomes another adherent to the Ka-Poom Theory school, and an unlikely one at that. Ever wonder what professional financial analysts think of the US fiscal and entitlements deficits? Jagadees Gokhale and Kent Smetters, in a 48 page report for the March/April issue of the CFA Institute's Financial Analysts Journal (http://www.cfapubs.org/toc/faj/2004/60/3), conclude as we did seven years ago when Ka-Poom Theory was developed, that ultimately the most likely way for the US government to get out of its foreign and domestic debts, and the even more intractable political debts represented by unfunded liabilities, is via the "inflation tax." Our conclusion in 1999 was that "today's high fiscal debts are tomorrow's high inflation and interest rates, or high taxes, or both," and that is essentially what they also conclude. Except that they are professional financial analysts. Taxation via inflation, contrary to Gross' prediction of low inflation and interest rates, is in the cards. They even go so far as to predict that an Argentina style crisis is possible if the unfunded liabilities and fiscal deficits are not quickly addressed.

We go into the report in detail in the iTulip Select (http://www.itulip.com/select) area next week.

The more folks we meet with, the more the field of potential culprits for the end of the current boom narrows.

The global economy may continue to grow, but the headline risks remain: global inflation fueled by sustained high energy prices which is tightening a noose around central bankers' necks as they try to avoid popping the credit bubble, a US-centric recession led by a continued decline in housing, an out-of-control credit machine that's fueling the buys-out and LBO activity that is infecting investors and keeping the stock markets at lofty levels, economic crisis in Spain that will put major strain on the euro, and the likelihood of a very choppy political transition for Russia.

Our position on gold remains short on the trade, long on the allocation; bearish on stocks; and heavily weighted toward cash in the form of short term US treasury bills.

iTulip Select: The inside scoop (http://www.itulip.com/forums/showthread.php?t=1032).
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jk
05-17-07, 06:00 PM
re bill gross' conversion to the bull camp:

gross is a smart guy who has has consistantly outperformed his peers until the last few years when his performance has been only mid-range .

his column is titled, significantly, [B]'How We Learned to Stop Worrying (so much) and Love “Da Bomb”' he defines "da bomb" as all the good things happening in the global economy. the title is signifricant since, as he notes, it was the subtitle of the film, dr strangelove. the illustration atop the column is a cartoon of slim picken's waving his cowboy hat as he rides an h-bomb [being dropped out of a b-52 in the movie, and setting off a doomsday machine which destroys the whole world].

so it appears that gross is still quite attuned to underlying risk, but [my interpretation] thinks this game is likely to go on a long time and he doesn't want to keep underperforming [for him, which is average performing for the asset class].

bill
05-17-07, 08:12 PM
The markets continue to move on the expectation that global central banks don't have the cojones to withdraw liquidity,

an LBO from a private equity firm or hedge fund, or some other source of capital that will result in a personal financial windfall.


The PE SWAT TEAMS just keep busting down every door they can around the globe to apply their techniques, “purchase, reorganize, pump, and flip creating asset bubbles” . As pointed out in this article http://usmarket.seekingalpha.com/article/35127 they are now raising cash creating ways for sophisticated investors to buy shares with no regulatory oversight and no say in company activities.
What a dream come true for these PE Firms going public and may cause the hyperbolic stage as Grantham’s colleagues suggested.http://www.itulip.com/forums/showthread.php?p=9776#post9776

What is this new “GS Tradable Unregistered Equity OTC Market” or “GSTrUE” (Dark Pools) and how will it function?

sparki
05-18-07, 10:55 AM
excellent!

thanks from germany

DemonD
05-18-07, 03:40 PM
Eric, I think this is one of the, if not the best articles you have written. As the Dow again today surges through new highs, and I sit here thinking "this is madness," it's really nice to know someone that's called it before and been through it before reminds us that the reasons the Dow is shooting the moon are not fundamentally sound and sustainable.

I would almost ask for an article dealing specifically with china, but at this point it seems like the itulip community has the whole china thing described pretty good. Maybe an educated guess on if/when china will have a slowdown or market crash/correction?

bill
05-18-07, 05:30 PM
I would almost ask for an article dealing specifically with china, but at this point it seems like the itulip community has the whole china thing described pretty good. Maybe an educated guess on if/when china will have a slowdown or market crash/correction?

http://www.financialsense.com/fsu/editorials/andros/2007/0517.html

This writing by Ty Andros is as close on the mark as it gets about China.

DemonD
05-18-07, 09:20 PM
Bill, that's a lengthy description of the basics of the populace. There have been many more better articles about the chinese government in collusion with the financial system and exporters to keep the yuan low and buy non-chinese debt so that the countries they export to can continue to buy their cheap goods.

It finally dawned on me this past week or two the gravity of what is going on with china. It is beyond scary.

I would still say the WORST thing out of all of this, is the failure of the United States mainstream media of not reporting these things. Just like the housing bubble (affordability at 9% in LA County? Oh sure, home prices will keep rising why not?), the tech bubble, all the absolutely horrendous things going on in iraq that are not being reported on, the lack of public press on the cronyism of the bush administration. It makes me sick to my stomach that the only place "freedom of the press" seems to take place nowadays are on financial blogs and bulletin boards as well as some less mainstream things that are taken as "wacky" or "too far out there" to be mainstream like moveon.org.

zoog
05-19-07, 01:49 AM
Hello all, a newbie here, though I've been lurking around since last fall.

Bill I thought that was an interesting article, particularly the "front lines" perspective of his wife visiting in China.

Tying into this, there was an article on Minyanville today talking about next week's meeting in Washington between the Fed's Paulson and the Chinese...


With next week’s big powwow in Washington between Paulson and the Chinese drawing near, it’s a good bet that at any time over the next couple weeks (including this weekend) that the Chinese could go ahead and revalue the yuan significantly higher against the dollar (although they're still unlikely to float it just yet).http://www.minyanville.com/articles/DXY-US-China-Fed/index/a/12881

The article went on to speculate what this might do to bonds, stocks, gold, US inflation, etc if the Chinese were to revalue the yuan by 10-20%. Should be interesting to see what unfolds.


...the United States mainstream media of not reporting these things...I have also found myself increasingly relying on "out of the way" corners of the internet for reliable and thoughtful news and insight. As a result, I have to constantly remind myself that, even compared to what little I know about the economy, war and politics, et al, the average person has absolutely no idea what is going on.

EJ
05-19-07, 10:32 AM
Eric, I think this is one of the, if not the best articles you have written. As the Dow again today surges through new highs, and I sit here thinking "this is madness," it's really nice to know someone that's called it before and been through it before reminds us that the reasons the Dow is shooting the moon are not fundamentally sound and sustainable.

I would almost ask for an article dealing specifically with china, but at this point it seems like the itulip community has the whole china thing described pretty good. Maybe an educated guess on if/when china will have a slowdown or market crash/correction?

Thanks for the kind words. I have written about China in the past and will again, such as this piece from 2005, U.S. Press Perpetuates Taiwan Myths (http://www.itulip.com/forums/showthread.php?t=117). When it was originally published on AlwaysOn, a west coast US technology and social issues site founded by my friend Tony Perkins, it was widely criticized by Mainland Chinese readers and lauded by Taiwanese entrepreneur and VC readers who settled in CA in the 1980s to start many successful high technology companies. Friends have suggested that a piece I wrote on China and the US titled Economic M.A.D. (http://www.itulip.com/economicMAD.htm) about a year ago influenced a fair amount of opinion you read on the web today.

I will write an update on China once I develop a stronger conviction about where I believe recent developments in China are headed. All I can say for certain is that all is not as it appears. There are at least two major factions within the Chinese government fighting over the direction for the country, whether more or less state control of the economy, and over more or less state political control.

With respect to China's relationship with the US, at a very high level, my belief is that much of China's otherwise inexplicable behavior, such as collecting out-sized dollar reserves, can be explained if you understand that China's leadership anticipates an eventual transition from the current US-centric global monetary system to a multi-lateral system in which the Chinese currency becomes a reserve currency. China wishes to have as many face cards in hand as possible when all parties sit down at the table some day in the future ala Bretton Woods to hash out the next system. Holding a sizable chunk of US debt and the capacity to send US interest rates through the roof and crash the US economy, while largely insulated from the impact domestically via diversification of exports across Asia and the rest of the world, is a strong bargaining position.

My sources based in China are:
Personal friend and journalist there for a major US magazine who covered Japan in the 1980s
Well known economist there who we have interviewed before
Personal friend who grew up there and ran the subsidiary in China of the company for which I served as CEO
Professional friends who run venture capital firms there
iTulip friend Jim Rogers, who spent many years there over the past 30 and is there now
Personal experience traveling in Asia over 20 years
And, of course, my wife, who is Chinese

bill
05-19-07, 01:05 PM
With respect to China's relationship with the US, at a very high level, my belief is that much of China's otherwise inexplicable behavior, such as collecting out-sized dollar reserves, can be explained if you understand that China's leadership anticipates an eventual transition from the current US-centric global monetary system to a multi-lateral system in which the Chinese currency becomes a reserve currency.


It is yet to be determined what global reserve currencies system will emerge but the shape of things to come has been laid out in the article recently posted on the CFR web site. The consolidation of Asian currencies seems to be one of the most likely unborn candidate. http://www.foreignaffairs.org/20070501faessay86308/benn-steil/the-end-of-national-currency.html



http://www.atimes.com/atimes/China_Business/IE12Cb05.html

What will happen?

China will have to choose between the lesser of two evils, namely the protection of employment in its export-dominated industries or the safety net being created by investments in property and stocks by millions of its citizens. I believe it will choose to protect people's wealth more than lower-end manufacturing jobs; therefore a sharp revaluation of the Chinese currency, the yuan, is certain in the next few weeks.

In its aftermath, the economic cognate will have to shift from production to consumption; therefore we should see the stock prices of exporters falling even as those of companies servicing domestic demand will increase. Banks will have to absorb billions of yuan in defaults from the export sector, particularly to the many inefficient state-owned companies in northern China. That will cause a sharp decline initially in their stock prices, but I expect the outlook to improve rapidly thereafter.




All the talk about Chinese exporters tanking and US consumers experiencing higher prices due to a revaluation of the reniminbi in my opinion will not have such a severe impact as predicted.
The Hong Kong and Taiwanese exporters to the US will get their profit squeezed more than the exporting factories will in China . Hong Kong and Taiwanese exporters take profit inside of the US on many transactions. The Chinese government will apply a lot of pressure to these exporters to assume the responsibility of taking a lot less in profits or jeopardize the ownership of their Joint Venture in China . I also think the exporters will be pressured in making good on loans given to exporting factories or else you will not have a future in China .
Source: 98% of my neighbors are Taiwanese, Hongkongese, Chinese


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stumann
05-20-07, 07:15 PM
"Capital Flight: George Setser over at RGE Monitor (http://www.rgemonitor.com/blog/setser/194459/) teases apart the latest Treasury Dept. report on net foreign lending. After careful sleuthing he determines that US citizens have become net sellers of dollar denominated assets..."

US Citizens = US Corporations

not to get stuck on definitions, but the DEFLATION Prechter and the like are talking about could well come from the offshoring of US capital. Cental bankers of the world might well be frightened of withdrawing liquidity, but owners fleeing to offshore tax havens will end up performing the task for them.

Offshored capital is either dead capital or misallocated capital, your choice. China doesn't need anymore skyscrapers and Pottery Barns, nor gigantic dams, nor does Brazil - what these countries need is good old fashioned, progressive, civic duty type waterboards and street lights. But these kind of low yeild investments just don't interest the hot money investors of the Casino Captitalist Realm.

These hot money investors are at the root of the "reverse capital flight" now artificially dragging down the US DOLLAR and overinflating what are basically worthless currencies - those of countries like Russia, Brazil, Australia & China.

Walmart & Costco maybe killing small town USA, but at least there is a small town USA left to kill. There is a social foundation there developing countries lack. I include OZ amoung these 3rd world nations (sorry, "developing") because they are the most urbanized country in the world, due to the fact they continue to be a colony of Mother England.

As a result, the currencies of these countries are basically worthless because they lack the sufficient social foundation to honor their debts (that's what money is). The moment hot money investors begin to flee from globalized "urbanization bubble", these currencies will flounder. China & Russia could well slip into civil war as a result - which would be the ultimate in currency depreciation.

Just don't hold your breath for inflation to materialize. That old fool Milton F. finally threw up his hands in despair, his precious theory proven to be complete hogwash - and soon it'll be the goldbug's turn. The globe is awash in liquidity, yet the cost of living continues to fall (unless you're sending your kid to college or staying at the Hilton - those costs are rising for a different reason).

Weimar style hyperinflation can only result from capital flight - so unless globalism ends up opening up tax havens on the moon, don't count on it. Casino Capitalism is a CLOSED SYSTEM and therefore DEFLATION will be its undoing. Capital will continue to flow to those areas of highest return - tax avoidence - in preference to productive endevour, until the financialized world (including penny "investors" such as ourselves) completely decouple from reality. Reality will experience painful deflation while the financialized make believe world of gambling/investing continues down the path of whatever.

coming soon - a super strong US dollar. a static DOW televised on two more 24/7 biz news channels. small town USA starts kicking some Walmart ass. huge declines in the developing world. Russia & China embrace entropy. Prechter finally proven right in everything EXCEPT stocks (his specialty)

Rajiv
05-21-07, 10:20 PM
Interesting article at Yahoo Finance Australia & NZ

<a href="http://au.us.biz.yahoo.com/seekingalpha/070521/36012_id.html?.v=1">Is China Headed for a 1929-Style Market Crash?</a>


Okay, so the bank also allowed the yuan to fluctuate - sort of. Well, not really. In a rule the government would be sure to change if it was effective, the yuan will be allowed to fluctuate 0.5% of a daily fixing rate. Just wanted to be sure you didn't miss that. In other words, no change. Finally, China is also raising the reserve requirement on bank deposits to 11.5% starting June 5, from 11% previously. The bank has raised this requirement almost weekly. I have flirted with the idea that eventually a threshold or break-point should be reached, where some banks may be forced to call back loans.

I have serious concern that China may be headed for a 1929 style market crash, run on the banks and depression. 11.5% is not going to be enough when that happens folks. I have suggested more direct restrictions on brokerage assets as a direct solution to the local speculation. Allow investors to only invest a small portion of liquid wealth. I mean, it is a communist country isn't it? At least put your evil to proper use.

c1ue
08-19-08, 04:08 PM
A quick update:

http://biz.yahoo.com/rb/080819/usa_economy_housing.html


The annual pace of housing starts at 965,000 slimly beat Wall Street's expectations of 960,000, but it was the lowest since a 921,000 unit rate in March 1991.


From the graph posted in the original "Cat-Stock rally", it appears that this number is still significantly above past lows.

From a different article:

David Rosenberg (notified via John Mauldin) notes that 'necessary' housing should be around 1.45M units built per year, and that something like 2.5M extra units were built between 2003 and 2007.

Based on this - it appears we've got quite a ways to go from the supply/demand side.

But I wouldn't mind hearing a recap from the Boss...

metalman
08-19-08, 11:11 PM
A quick update:

http://biz.yahoo.com/rb/080819/usa_economy_housing.html



From the graph posted in the original "Cat-Stock rally", it appears that this number is still significantly above past lows.

From a different article:

David Rosenberg (notified via John Mauldin) notes that 'necessary' housing should be around 1.45M units built per year, and that something like 2.5M extra units were built between 2003 and 2007.

Based on this - it appears we've got quite a ways to go from the supply/demand side.

But I wouldn't mind hearing a recap from the Boss...

i'd like to hear, too. ej's got a new 'ask ej' forum going. post it as a question there? (http://itulip.com/forums/forumdisplay.php?f=66)

ocelotl
08-29-08, 12:08 PM
http://www.itulip.com/images/spainmap.gifSpain: The Euro Prisoner

Spain may trigger the next major global economic fiasco. I give them a year or less.
Spain risks crisis over vanishing reserves (http://www.telegraph.co.uk/money/main.jhtml?view=DETAILS&grid=&xml=/money/2007/05/16/cnspain16.xml)
May 17, 2007 (Ambrose Evans-Pritchard - Telegraph UK)

Spain's foreign reserves have plummeted to wafer-thin levels, leaving the country exposed to a possible banking crisis if the property market swings from boom to bust - despite membership of the eurozone.
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The Banco de Espana's holdings of foreign currencies and gold have fallen to €13.2bn (£9.02bn), equivalent to 12 days of imports.

Over the past two months the Banco de España has sold off 80 tonnes of gold, flooding the world market with enough bullion to dampen the usual spring rally. The bank has reduced its holdings of US Treasuries, British gilts, and other investments at a similar rate.

Total reserves have now fallen by two thirds from €41.5bn in early 2002. Greece and Portugal have seen a similar drop.

"The current account is completely out of control," said Alberto Mattelan, an economist at Inverseguros in Madrid.

"We have the worst deficit in our history and worse than any other country in the western world. It has not yet become a 'street concern', but I can assure you that it is of great concern to us economists. This will turn bad over the next 18 months," he said.While we may make it out of 2007 without The Big One, 2008 promises to be the biggest year for the markets and economy in a generation. With debt bubbles in the UK, Australia, Spain, the US, a stock market bubble in China, and presidential elections in both the US and Russia coming on the heals of a late 2007 recession, the year is unlikely to go smoothly.

iTulip Select: The inside scoop (http://www.itulip.com/forums/showthread.php?t=1032).
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And IMHO this will mean that Spain will be the Euro version of 1995 hit


Subject: Legislative Action Plan for Bailout of Peso
UNITED WE STAND AMERICA
LEGISLATIVE ALERT #4
TO: UWSA TEAM

FROM: Russ Verney

DATE: January 20, 1995

SUBJECT: Proposed Bailout of the Mexican Peso

Since the Mexican government stopped its artificial support of the Mexican currency, the peso has lost approximately 40 percent of its value.

Mexico currently has a public debt in excess of $100 billion. Because of the large debt load and risk associated for investors, approximately $28 billion dollars of their debt is financed with short term (30, 60 and 90 days) bonds, called Tesobonos. To attract investors, Mexico is supposed to pay 20% interest on these short term (junk) bonds. These bonds are in danger of being in default.

Mexico has no U.S. dollar reserves left to pay back the bond holders. Approximately $18 billion of the bonds were sold through Wall Street; and $10 billion are held by Mexican banks and wealthy Mexican investors. There have been 24 Mexican billionaires created since 1991.

Continue... (http://www.uwsa.com/issues/peso/mex-a.html)