The dollar is going up again based on the notion that the banking crisis is over and all is well
This foolish idea keeps popping up every three weeks. Then the depressionary forces suck down more funny money. This is why all charts for depressions show huge rises (money supply/credit) based on the hopes that central banks and bankrupt governments can bail out a collapsing speculative bubble.
All I see is more and more bad news! But then, are the people buying stocks sane? Indeed, what I see is them thinking the central banks will save everyone...so they can plunge into the 'good old times' again. Unfortunately, history tells us all these schemes are doomed to failure. Excess money won't vanish if it is replaced as fast as it vanishes. Ergo: inflation will rise in retaliation.
But even as the central bankers of the G7 nations drop interest rates and offer sweetheart loans to the misbegotten investment banks, it is never enough
The black holes that have opened on all these bottom lines on the ledgers...of these banks can't be so easily filled. The problem (for example) with a SWF rescue is simple: the interest rates they want in return for a rescue are fairly stiff. As more and more future wealth vanishes, investors pull their funds and go elsewhere, seeking to beat inflation. So they (the banks) need more and more money from someone to keep afloat.
The central bankers would dearly love to simply make up money on the spot using their nifty computers that can go to infinity in no time flat. But they see the example of Zimbabwe.
Zimbabwe, with their attempt to outdo the Germans after WWI with the Weimar Republik, tried to make money grow faster than it was disappearing. Any central banker tempted to go to infinity has a shining example today. Inflation in Zimbabwe is 400,000%, and showing no signs of stopping. Of course, when inflation hits multi-trillion% then money vanishes totally. Right now, the place has been reduced to barter trade.
Rising commodity prices kills manufacturing in the form of higher costs...which they fix in the same way Japan fixed higher material and energy costs: ruthless slashing of wages of workers. The US is very heavily involved in this process. Workers who can't buy things and who are seeing growing inflation for the things they need to stay alive go deeper into debt in order to keep up. This is a deflationary cycle. Instead of growing, everything burns up. Increased spending due to food and energy shooting up isn't a good thing...our rulers celebrate the rise in spending as if this signaled a healthy economy rather than a forest fire raging out of control.
When inflation rages AND CENTRAL BANKS DROP INTEREST RATES, savings drops through the floor and vanishes
Banks struggling to continue without savings soon find themselves in the fix UBS and Lehman finds themselves today. When global inflation eats up the ordinary savings of the masses of humanity, we see a full collapse of the banking system. So far, the biggest bankers are hoping the commodity wealth nations will bail everyone out.
They are giving up on the Chinese bailing them out. China is busy at home. China is furious about global inflation. All of the commodity selling nations are, too. They want to have prices go up in sales outside but the flood of funny money is causing inflation at home. This feeds the commodity inflationary cycle as they raise prices to deal with the collapsing dollar. Or they use euros instead, increasingly. Which destabilizes Europe's trade.
Trade in manufactured goods is stumbling, world wide. The frantic search for cheaper labor to make up for rising commodity prices is running out of stable governments to protect manufacturers. Vietnam is one of the last destinations of such labor. Hardy peasants willing to slave for hours for pennies are getting harder and harder to find. There are such people in lands that are undergoing ethnic/tribal warfare...they are not useful in this regard.
UBS in Switzerland and Lehman Brothers in the US: both have been rapidly sinking ever since 7/17/7
(Image shows a chart of) how the stock market and UBS and Lehman all were tracking together just fine but suddenly, right when the Japanese carry trade began its long collapse in mid-July (2007), the biggest banks began their sudden, shocking decline! When the yen rose to beyond the 100 yen to 1 dollar floor, these banks nearly totally collapsed. Both were saved by various schemes that are doomed in the long run. Unless that pesky carry trade in Asia is restarted.
The central banks have been diluting the value of their currencies by making it easier for them to lend money to the investment bankers. And in turn, these guys are diluting the value of their existing stocks by printing up more pieces of paper that say, 'This is a SHARE in the value of the company.' Doing this while a company is declining in value is what we call 'inflation'. Inflation is when money loses value and more is made to cover costs so it loses value, a vicious cycle once it is launched and let to run out of control.
A company that dilutes its stocks as it declines in profit usually ends with that organization going under
There are many people who are betting both UBS and Lehman will go under. Issuing stocks backed by declining profits certainly is a bad sign, not a good sign. If all companies in trouble simply...issue more stocks, we would never see any bankruptcies! But of course, they can't do this for obvious reasons.
But the news has to sound good so this dire news has been greeted by the investment community as a wonderful thing! Note how this offering isn't a share, actually. It is an attempt to get loans for less than 10%, I guess. To attract the SWF, they need to offer shares that will pay back 7%? That is well above the Fed's emergency window rates...for ordinary banks and JP Morgan. OLD JP MORGAN IS ONE OF THE FOUNDERS AND OWNERS OF THE FEDERAL RESERVE LLP. So of course, they can hand over a fistful of 30% of value SIVs and CDOs and get 95% value with their own central bank! But this is very incestuous and extremely inflationary. They then are turning around and trying to profit from all this by investing this ill-gotten gains in...guess where? The commodities markets!
The Japanese are absolutely hysterically desperate to get the yen to collapse in value
The Nikkei, as always, shot up when the yen fell down. They desperately want one way trade with the US. It is very queer, watching the dollar rise and fall against other currencies. The US trade deficit has barely improved at all.
The unbalanced flow of trade and finances has not ended at all. What we are seeing is an attempt at restarting the old status quo that collapsed. And it collapsed because there is no realm where endless red ink doesn't cause a total collapse! The rank attempts at getting things back to 'normal' will all fail! Utterly! If they get restarted for a while, this means the US will continue its industrial/financial decline and the pit of bankruptcy simply is dug deeper and deeper. Eventually, it will swallow up the entire US economy and everything will plummet down this fiduciary sinkhole.
If the yen is falling on news that they can't ship even more Toyotas to the US, this means they will have cheaper Toyotas thanks to the falling yen and then can resume flooding our markets. This will then cause the yen to rise in value. This riddle upsets the Japanese who are desperate for some solution that allows the floods of exports to come into the US while keeping the yen weak. They will arrive at some sort of trick. And of course, the carry trade: this has to restart, too! This is why UBS, Lehman and the other pirate banks are desperate for the yen/dollar status quo they need which happens to be 130 yen to the dollar. Then the flood of 'free funny money' they tapped for 7 years can resume!
But this is why we have global inflation! Which is hammering them and everyone, especially workers who can't buy the products of mass industrial production thanks to inflation. The Horns of Dilemma are obvious here.
So long as our biggest banking houses act like little children or inmates in psycho wards, nothing will be fixed and the collapse will continue
When reality bites, acting like an infant is stupid. But then, look at the governments involved here! 'Infantile' is being generous. 'Fetal' is more like it.
A UBS news release mentions the replacement of 'money' with pieces of paper that are basically IOUs drawn against future earnings of UBS. Instead of being able to take money out of UBS, the unlucky saps who invested in it can only get shares that are automatically diminishing the value of all other shares. Aren't they lucky? Then, they may take THESE and sell them on the stock market! And of course, this drives the price of ALL the stocks lower! And so they are in a trap: sell and everyone takes a big hair cut or hold and pray this banking collapse doesn't go all the way to zero.
As usual, all the indicators of financial health are headed downwards. Note the bond failures are not only continuing but getting worse, not better. The bidders on these things have vanished. Hedge funds, badly burned by their own gambling debts, can't run off to Japan and get armloads of more money to play this game.
The eternal, endless window through which money poured into these guys pockets is gone.
And the world will deal with this by having temporary inflation. But since this mess was created by the gamblers, the deflation cycle will replace all this and the central bankers said, they will not allow this to clean up the mess, they want this previous inflation to hang out here...FOREVER. Naturally, they also want to fix things by resurrecting the Japanese carry trade which caused this in the first place. Since they still refuse to talk about or analyze the dire effects of the Japanese carry trade, we won't see anything fixed in the foreseeable future.
All we know is, UBS and Lehman and everyone in the system won't attract any savers so long as they offer negative returns on investments. And the positive flow has to be more than inflation. Which is impossible right now. Let's look at some slightly older news from the beginning of this collapse.
Back when they were all struggling with the downdrafts from the collapse of the Dot Com frenzy, these regal investment houses were playing stupid games. Like not letting anyone know up to date information concerning the finances of these groups! Like naughty children, they hid the report card from mommy! Despite this, people went back to these dishonest houses of finance for more wealth once daddy Warbucks, Greenspan, started handing out the candy...
If Lehman Brothers think they can get out of the present mess by diluting the value of their stocks and getting 7% or greater loans, they are NUTS
Look at the numbers! The % change goes from 20% losses all the way to 60% losses! OUCH. Would anyone sane park their money in this loser? I seriously doubt it. The fact that Lehman is limping along is a miracle worthy of Lourdes. But not much longer, I would dare suggest. Will JP Morgan devour them, too? Probably. Though Goldman Sachs may be alarmed by all this. After all, JP is getting a free ride in all this! So Goldman might throw caution to the winds and demand their own cut of the carcass.
I have no idea how much Federal Reserve stocks Goldman Sachs holds. We can't tell thanks to the damn SECRECY that enfolds this particular Cave of Death. If so, it will be easy for GS. But if not, then they must depend on Paulson to do the dirty work. Which he will.
How the frozen Auction Rate Securities (ARS) market will burn Merrill
Here's a new reason that the brokerage firms are in trouble. The customers who hold Auction Rate Securities (ARS) accounts will take their entire portfolios away from the firms who are currently denying them access to their money. I am not sure which brokers will benefit from this, but I can suggest one that will suffer -- Merrill Lynch & Co.
Since I started writing about the $330 billion ARS market last month, my initial post has accumulated 764 comments. Investors were persuaded to put their spare cash in these ARS accounts by brokers who touted their relatively high yields and low risk.
But now those ARS accounts are frozen due to the failure of the auctions. One person about whom I posted earlier this week, has $1.4 million frozen in ARSs and needs to come up with another way to pay the $350,000 he owes in taxes from the sale of the business that generated those proceeds. Today, I read a comment from a person who claims that her account at Merrill is frozen and she plans to take her entire seven figure portfolio away from Merrill as soon as she gets her ARS account unfrozen.
Merrill Lynch will be hung out to dry by the investors as soon as they can unpark their funds. Note how this investment house is acting in a draconian fashion to prevent a bank run: they shut the doors.
This is what all bankers and investment houses do when things go bad: they close the doors and hoard other people's money. They tell everyone to go away. And then they want more money? Only an insane person will give it to them! This is why gold shot up in value these last 7 years. Suspicious people decided to hide their money from the banking system. People who trusted the greatest banking/investment houses on earth are being burned.
This refusal to pay back funds can't last more than a few months. Lawsuits are already flying out of lawyer's offices! The fury of savers and investors is rising. This has political as well as economical repercussions.
Here is an example:
3-28-2008 @ 5:24PM
john m. said...
”We're stuck with $600,000 of ARS. Merril started cramming them into our account in October. Everytime we sold stock they put it in ARS. When I finally noticed a big purchase in January in our February statement I told them to sell. The broker was away for a couple of days including a Valentine dinner. No doubt he was avoiding us. We were looking for a good money market rate and now we're stock holders in a hedge fund!!! Yes hedge fund, who do you think these ARS companies are? We've already pulled our money out and are seeking legal counsel.”
Brokers who hide from their own investors! Again, the picture of the 'bad boy' hiding from mommy when he has to give her his report card comes to mind.
I am including a chart to show who has been the most risky here: JP Morgan. And HSBC, another investment bank that is sailing off the same cliff. The overexposure to risk is tremendous.
Here is an attempt at cracking the nuts that are screwing the investors:
ATTENTION MERRILL LYNCH BROKERS
I'll pay top dollar (4 digits) for the alleged Merrill Lynch handbook or memo which purportedly urged brokers to sell ARS as alternatives to money market funds. My contact information is above.
Full Confidentiality Assured.
Citibank is getting sued Lead Plaintiff is Lisa Swanson
"The collapse of the auction rate securities market ... was a direct result of defendants' unilateral decision to no longer artificially support the auction rate securities market," plaintiff Lisa Swanson, who purchased auction rate securities in 2006, claimed in one suit.
excerpt from Money Matters blog. Dated, April of 2008, but note the prescience.
Securities and Exchange Comission response with follow up phone call.
Massachusetts Securities Division Opens investigation in UBS business practices.
Boston Nick wrote...
I received a call from Attorney Gombar at the MA Securities Division this morning.
They are opening up a UBS investigation and are issuing a comprehensive document subpoena today.
I was assured that this is a high priority for the MA Securities Division and can expect regular follow-up.
Cat's out of the bag...its only a matter of time before all of the broker dealers start sweating this big time - could be criminal implications. Regulators are working for us and I think there is healthy competition amongst each State's Securities Enforcement divisions to be the first to press charges.
Thanks to the internet, accumulating information is a lot easier for the lawyers. UBS hopes to hide as much as possible from them. But if investment houses are pirates, lawyers are like crocodiles seeking to eat Captain Hook. They keep on ticking. If investment banks are whales, lawyers are killer whales.
No comments:
Post a Comment