World economy talk

[tidus1203]

ARROYO GRANDE, Calif. -- Remember that hot 1973 Stealer's Wheel song marking the end of the Nixon era? "'Cause I don't think that I can take anymore. Clowns to the left of me, jokers to the right, here I am stuck in the middle with you!"
It's still a perfect metaphor. Testifying before Congress: Fed Chairman Ben Bernanke on the left. Treasury Secretary Henry Paulson on the right. The American public stuck in the middle.
Last summer they assured us the subprime-credit crisis was "contained." We now know that was a big lie. They knew, had the facts, early warnings, lied and are still lying. More proof? They just told Congress: "America will avoid a recession." New data tells a different story.
Clowns to the left ... jokers right ... stuck in the middle ... can't take it anymore.
But we have to, we have to hang on at least 10 months more, praying they won't do too much more damage. But I'm afraid they will: more lies, blunders and incompetence will drag out this bear. Like the song says: "Got a feeling something ain't right."
Read the new InvestmentNews, a professional journal for financial advisers. The lead headline grabs you: "Bad times for stocks could last many years." A long secular bear.
Do you believe it? That's the big question today: When's the next bull? How long will the bear last? And forget Washington's rhetoric about "no recession." The truth is, you can call it a "bear," "slow growth," a "downturn," a "recession" -- call it whatever you want. Timing's the real question. How long will it last? When will it bottom? 2008? 2011?
Test your timing skill. You tell us, what'll drag this out 30 months, like in 2000-2002? Or shorten it? Here are 11 critical factors for your timing equation, things that could make this bear-recession shorter or longer. You tell us. Add a comment. What's your prediction: How long before the next bull?
1. Stagflation: Bernanke's no-win Achilles heel
Reading Fed-watcher William Fleckenstein's new book, "Greenspan's Bubbles: The Age of Ignorance at the Federal Reserve," you get the feeling that for 18 years America's banking system was run like a "new age" hippy commune, by a Ayn Rand free spirit who believed "anything goes."
Now the Fed's run by a college professor and Fleckenstein says he's "in over his head." Except this is the real world, a $13 trillion economy in a $48 trillion world, not a college seminar on economic theory.
In the 1970s Nixon faced a similar problem, convinced then by Fed Chairman Arthur Burns: "No one ever lost an election on account of inflation." Wrong! Low rates generated inflation not growth. That stagflation triggered a bear/recession. Is Professor Ben trapped, repeating history?
2. Housing-credit meltdown: We've got a long way to go!
It's far from over folks and still spreading: Years of inventory, foreclosures, building slowdown, risky bond insurers, weak rating agencies, funds holding bad debt, freezing exits and fuzzy math on values. Yet Bernanke and Paulson still live in a Washington bubble of wishful-thinking fantasies.
Economic realists say what's needed is a massive $1.6 trillion demand-driven program (that's the record cash Corporate America's hoarding) not a dinky $160 billion supply-side "appease the voters" giveaway that ends up increasing the odds of a lengthy Nixon/Burns style bear-recession.
3. Commodities: World's new reserve 'currency,' not dollars
Forget paper money and IOUs. Commodities are the world's new "currency:" Hard stuff like oil, grains, metals, gold. And that means America is financing the growth of our enemies, surrendering our long-term economic power for short-term oil-guzzlers and plastic toys. We are responsible for making Russia and China into threatening world powers. Buffett warned us. We're selling the farm, piece by piece.
4. Toxic derivatives: World's $516 trillion ticking time bomb
Derivatives are great for deal-by-deal risk management in a $48 trillion GDP world. But leverage them 10 times over across the globe and we got a financial "weapon of mass economic destruction."
Bill Gross warns that the world's new unregulated "shadow banking system" is printing new money, now at $516 trillion, out of thin air, with no "central banks of last resort" backing up the "Frankenstein" monsters they've created.
5. Massive debt: Everywhere, trade, federal, states, local
America's Comptroller General David Walker, Congress's head accountant who is leaving his position next month, warns our government is "bankrupting America." Using unethical accounting worse than Enron's. Fiscal responsibility lost. He sees "striking similarities" with Rome. Both parties are gluttons in a spending orgy.
We spend-spend, load debt on future generations, then use accounting gimmicks to hide our greedy excesses: Hidden earmarks. Supplemental war appropriations. Meaningless IOUs after stealing from Social Security.
6. America's new 'pushers:' Banks feeding consumer addicts
Trader's Daily captured it perfectly: "Never underestimate the power of the superpsycho, hyper-spending American consumer. Where there is no cash, they will sell their soul. Or just charge it. Let's just not think about what it all means for credit-card debt down the road."
Meanwhile, the credit meltdown is making banks desperate for money. A recent Chase credit-card commercial fuels consumer addictions: Wife wants bigger television. Husband smiles. They shop to the pounding drumbeat of Queen's hit 80s song: "I want it all, I want it all, I want it all ... and I want it now!" Tag line: "Chase what matters!" Yes, Chase debt, all you addicts. Forget saving, spend like there's no tomorrow.
7. More wars: Pentagon predicts bigger, costlier conflicts
The Pentagon's internal studies see a perfect storm accelerating wars worldwide: Global population growth, limited natural resources and global warming. Our war machine is exploding. The Pentagon gets over 50% in the new federal budget. We're only 21% of the world's GDP, yet spend 47% of the world's total military expenditures.
Our power-hungry mindset is becoming self-destructive, suicidal. Remember Nixon strategist Kevin Phillips' warning: "Most great nations, at the peak of their economic power, become arrogant and wage great world wars at great cost, wasting vast resources, taking on huge debt, and ultimately burning themselves out."
8. Greed: Wall Street and Corporate America's defining 'value'
Values start at the top. But the top won't change for 10 months. Leadership, statesmanship and character are vanishing. Five short years ago Corporate America and the mutual fund industry were consumed by greed. How quickly we forget.
It's worse today. We see greed consuming not just Wall Street's clueless CEOs, but the entire industry: Outrageous bonuses of $38 billion amid mega-billion write-offs. Fire sales of billions more American equity to sovereign nations.
From the top down, greed is driving America from bubble to bubble. Wall Street's already fueling the next bubble, trading on a volatile market.
9. Democracy failing: America now run by 35,000 lobbyists!
Forget government "of the people, by the people, and for the people." Adam Smith's "invisible hand" is now a small group of 35,000 highly paid, greedy lobbyists demanding handouts. They run America from the shadows, for those at the top of the economic food chain and vastly outnumber Washington's 537 elected officials.
Nationally there's an estimated quarter million lobbyists, with hundreds of millions of dollars to buy favors in campaign contributions. Politicians talk "change," but America's lobbyists will still be working for their special interest clients in 2009. And they'll fight all "changes."
10. America's already in a recession, and in denial
This year's elections will be a huge factor in lengthening the recession. Our lame-duck government will delay action on critical issues. It reminds me of my days counseling addicts and alcoholics. Change never happens until they admit they have a problem. Same here.
Paulson and Bernanke cannot admit there's a recession. They'd have to take blame for America's failed policies. And congressional Democrats are weak co-conspirators in this meltdown. Nobody has the guts to take responsibility. They're all like addicts and alcoholics, in denial, giving lip-service to "change," while they blame the other guys and support ineffectual stimulus plans.
Vote for whomever, but this lame-duck mindset plus lingering partisan rancor will push any recovery at least into 2009, probably delay the next bull till 2010 or 2011.
11. Class warfare: Superrich vs. Main Street America
No matter who wins, the presidential campaign is warning us: A major battle's coming between "the rich and the rest;" over taxes, benefits, cuts, power.
For years the media collaborated with Wall Street and Corporate America, hyping "Ownership, the New American Dream," where everyone benefits, shares the wealth, gains a piece-of-the-action, ownership in "The Dream" through the magic of housing, stocks, growth, profits, retirement plans. But the housing-credit contagion killed the dream.
Yes, the superrich did get richer. But "the rest" didn't. And they're waking up to a widening gap. A backlash is brewing and will explode ... delaying a recovery and a new bull.
Clowns to the left, jokers right, we're stuck in the middle. Can't take it anymore? Add a timing comment. Tell us: When's the recovery? Next bull? Late 2008? Not till 2011?
Copyright © 2008 MarketWatch, Inc.

[shadow]

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copy paste rule

[uls]

Eto ang mga macro scenario for the US economy:

Baseline scenario: Bad Q1, signs of recovery in Q2

Best case scenario: Recovery late Q1

Worst case scenario: Bad Q1 & Q2, recovery late 2008

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If u read the articles written by the doomsayers, nakakatakot talaga.

The scariest thing i've read is the unwinding of the incredibly huge derivatives bets. (like bets that corporate bonds will default)

A lot of people have placed huge bets that will hit triggering mechanisms soon, and those that are suppose to pay up have no money.

That will send shockwaves all over the financial world.

People and financial institutions will be ruined.

That's why the FED and other regulators and banks are doing all they can to save the bond insurers from losing their AAA rating.

Dito mo makikita na wala pala talaga free market sa States.

Meron sa States socialism for the rich.

When poor people make bad bets, they get ruined.

When rich people make bad bets, they get bailed out.

[tidus1203]

The best places are still hard assets like commodities, and land (not land in financial districts, I am more inclined into farmland which can produce commodities). If you must have some fiat currencies, IMO the best places to be is the Australian Dollar (at least they have their priorities right combating inflation first), the Euro (being the anti-dollar, the Euro itself is not a good currency but being the anto-dollar it will be a huge benefit of a dollar collapse plus at least their central bank is acting much more responsibly). The Japanese Yen and the Chinese Yuan (two very undervalued currency especially the Yuan). If there was a safe investment then it has to be the Chinese Yuan this thing will surely go up without a doubt.

If you hold a lot of US Dollars and do not act now then I pity you. You will lose tremendous amounts of purchasing power as the USD loses its status as the world's reserve currency just like the British Pound lost its status back then 80% drop from top to bottom.

[empy]

there is a lot of truth in the article. although i am in the consumer finance industry in the US, and in my opinion (after looking at our spending and credit data) i don't think it's as gloom-and-doom as the article suggests. i could be wrong though, and it would certainly be stupid to say that the USD and US stocks won't take a short to medium term hit at least.

unfortunately, i have little choice. my income is all in USD and that won't change unless i move. but i am putting as much money i can in foreign stocks.

one thing about the Chinese yuan/renminbi: the reason it's undervalued is that it is pegged by the Chinese government to the USD. one main reason why they do that is to "subsidize" the Chinese export industry (the lifeblood of their economy) - the pegged x-rate allows Chinese exporters to take in artificially high revenues with artificially low expenses.

unless the government removes that peg and allows the yuan to "float", you're not likely to see a huge appreciation in your investment.

[tidus1203]

there is a lot of truth in the article. although i am in the consumer finance industry in the US, and in my opinion (after looking at our spending and credit data) i don't think it's as gloom-and-doom as the article suggests. i could be wrong though, and it would certainly be stupid to say that the USD and US stocks won't take a short to medium term hit at least.

unfortunately, i have little choice. my income is all in USD and that won't change unless i move. but i am putting as much money i can in foreign stocks.

one thing about the Chinese yuan/renminbi: the reason it's undervalued is that it is pegged by the Chinese government to the USD. one main reason why they do that is to "subsidize" the Chinese export industry (the lifeblood of their economy) - the pegged x-rate allows Chinese exporters to take in artificially high revenues with artificially low expenses.

unless the government removes that peg and allows the yuan to "float", you're not likely to see a huge appreciation in your investment.

I am speculating on the idea that the Chinese government will essentially have to depeg out of the US Dollar to fight inflationary pressures. Currently they have a semi-float currency with trading bands and the Chinese Yuan has appreciated since then. The theme is inflation, as the US dollar drops their inflation will soar given their limited float. Inflation is a big problem in China and by letting the currency appreciate inflation can be fought.

We foreigners who don't need US dollars for our daily use have normally been more objective in our currency allocation than people who use the said currency.

[CVT]

Money Experts:

Mayroon bang Euro placements dito sa Pilipinas? Sa 2 bangkong tinanong ko like BPI and BDO, they told me that I have to bring in the Euro.... I asked them if they can source it for me,- they told me they will get back with me,- they never did....

So, I guess I am stucked with what I have and have to ask this question. Which is the better partner long term? Philippine Peso or US Dollar?

5505:home:

[empy]

tidus - well, if you're right that would be an overnight windfall for you. purely speculative play obviously, but why the heck not?

CVT - i'm more of a believer in the Euro than the PhP. much more stable economies than the RP, and a good hedge for the dollar. i gotta believe you can buy euros in the Philippines....basta may capital markets, may paraan yan!

[Flagg]

There is no Euro account here in the Phils. No in and out of Euros either.

[tidus1203]

Last I heard merong Euro accounts here kaso sa head offices pa yan ng mga major banks. (I am sure BPI and BDO has one and I can attest to that). No Euro accounts in branches though. As for me I have mines in a different country I just don't trust our banking system. Besides the Euro accounts here are merely deposit accounts no higher yielding investments....

[warp]

http://www.pse.com.ph/html/MarketInf...utualfunds.jsp
http://www.icap.com.ph/factsfignavps.asp

May mga Euro bond funds na available:

ALFM Euro Bond Fund
MAA Privilege Euro Fixed Income Fund,

[mark_t]

kakalunglot naman magbasa dito, my life insurance is in dollars.

[uls]

nagsalita si Helicopter Ben kagabi sa US Congress - House Financial Services Committee...

He gave signals that the Fed will cut rates again...

there goes the USD...

[creepy]

one main reason why they do that is to "subsidize" the Chinese export industry (the lifeblood of their economy) - the pegged x-rate allows Chinese exporters to take in artificially high revenues with artificially low expenses.

You probably read too much of the China-bashing literature that comes out from the States.

The renminbi-USD peg has been there a loooong time -- well before this issue of undervaluation (vs USD) was an issue. In the late 1990s, the US-run institutions (multi-laterals like the IMF) were all applauding China for keeping the peg steady to keep the Asian crisis from becoming worse.

Now, the peg is being portrayed (by US companies/workers hurt by competition) as an unfair manipulation of exchange rates.

[empy]

^you misunderstand why i bring this up. i do know that China is being made a scapegoat for the US economic crisis, and i know that this is not completely true.

but it is still true that the peg undervalues the Chinese currency. are you arguing the point that China's currency would be much much stronger if their government didnt keep the x-rate locked down? i don't think that's disputable, but feel free to take a shot if you believe otherwise.

since this is an investment discussion, the question is - what will the Chinese government do to balance their favorable trade situation with internal inflation? (i.e. will they stop pegging and make buy-low investors like tidus rich overnight?). the topic of who's at fault for the US economic crisis/trade imbalance is a topic for another thread.

[m_ron]

If you live outside the US this is the time to buy and hold greenback.The dollar cant be down forever.It's a cycle thing.What goes down must come up.You just need to be patience.Most of the stocks in US are bargain.Time to load them up.

[tidus1203]

Well this is very very different there are huge structural problems in the US Dollar that never existed before. Before the US was a creditor nation, now its debtor nation. Yes market fluctuates, but those structural problems in the USD will severely debase the currency. I remember the British Pound was trading 4USD in the early 20th century when it was still the world's reserve currency. The USD is going to eventually lose that status (its only a matter of time when the world realizes that all the inflationary pressures we have in the world like high oil prices is because of the continuous effort of the US government to debase the currency by printing more money to pay of debts and to increase more debts) and if the British Pound is any indication we could see the USD lose 60%-80% of its value from top to bottom.

As for stocks, they are only as good as the currency that it is based on. If the stock market goes up 10% but the dollar falls 10% its useless. We should invest in REAL TERMS (factoring inflation) rather than NOMINAL TERMS (base purely on numbers) that Wall Street wants Main Street to continue believing in. Buy GOLD, buy AGRICULTURAL COMMODITIES, buy things that can't be re-produced indefinitely. Stocks and paper money can be re-produced endlessly thus eroding their worth....

[empy]

As for stocks, they are only as good as the currency that it is based on. If the stock market goes up 10% but the dollar falls 10% its useless. We should invest in REAL TERMS (factoring inflation) rather than NOMINAL TERMS (base purely on numbers) that Wall Street wants Main Street to continue believing in. Buy GOLD, buy AGRICULTURAL COMMODITIES, buy things that can't be re-produced indefinitely. Stocks and paper money can be re-produced endlessly thus eroding their worth....

keep in mind though, that most large US companies have earnings diversity. there are quite a few US based companies that make more than 50% of their revenues in foreign currencies, and those companies (and others) usually have a diversified cost base as well - meaning that they incur their costs in yuan, rupees and pesos.

there are bargains to be had. do just a little bit of research and you will find plenty of US companies that have growing income and market shares, but have stock prices that are still falling, or are trading below their comparables. or, you can skip the facts and just trade on gut feel or market hysteria, it doesn't matter to me

btw, the statement "stocks and paper money can be reproduced endlessly, eroding their worth" is totally misleading. because -

(a) the only way you can reproduce a stock is through a split, where yes, the per-share value is cut in half (or more), but the number of shares you own is doubled (or more) - so the value of your investment doesn't change. or you can issue new stock, which has to come directly out of the unissued equity base of the company, and it doesn't impact any existing owners. so how the heck can you erode the value of a share of stock by reproducing?

(b) the US Fed can only issue new currency by issuing new debt (TBills) to private banks. over a given week they may issue new debt (and increase the money supply) and buy back old debt (reducing the money supply) to the tune of hundreds of millions of dollars. there is a system of checks and balances, and if "Helicopter" Ben was truly printing money like crazy, don't you think the banks would start getting concerned. not to mention every time a country printed money to boost its economy, the resulting hyperinflation absolutely killed that economy. i would like to think that Bernanke and the Fed governors are not complete morons and at least took Econ 101 sometime in college or grad school.

finally - i won't argue that gold and commodities have better rates of return than US stocks these days. but the right time to get into gold was somewhere around 2000 - 2003. look at how high their prices are now? are they really going to continue that trend? maybe, maybe not

[tidus1203]

keep in mind though, that most large US companies have earnings diversity. there are quite a few US based companies that make more than 50% of their revenues in foreign currencies, and those companies (and others) usually have a diversified cost base as well - meaning that they incur their costs in yuan, rupees and pesos.

there are bargains to be had. do just a little bit of research and you will find plenty of US companies that have growing income and market shares, but have stock prices that are still falling, or are trading below their comparables. or, you can skip the facts and just trade on gut feel or market hysteria, it doesn't matter to me

btw, the statement "stocks and paper money can be reproduced endlessly, eroding their worth" is totally misleading. because -

(a) the only way you can reproduce a stock is through a split, where yes, the per-share value is cut in half (or more), but the number of shares you own is doubled (or more) - so the value of your investment doesn't change. or you can issue new stock, which has to come directly out of the unissued equity base of the company, and it doesn't impact any existing owners. so how the heck can you erode the value of a share of stock by reproducing?

(b) the US Fed can only issue new currency by issuing new debt (TBills) to private banks. over a given week they may issue new debt (and increase the money supply) and buy back old debt (reducing the money supply) to the tune of hundreds of millions of dollars. there is a system of checks and balances, and if "Helicopter" Ben was truly printing money like crazy, don't you think the banks would start getting concerned. not to mention every time a country printed money to boost its economy, the resulting hyperinflation absolutely killed that economy. i would like to think that Bernanke and the Fed governors are not complete morons and at least took Econ 101 sometime in college or grad school.

finally - i won't argue that gold and commodities have better rates of return than US stocks these days. but the right time to get into gold was somewhere around 2000 - 2003. look at how high their prices are now? are they really going to continue that trend? maybe, maybe not

Well you put to much trust with Bernanke and Co. The US has no other alternative to pay its debt but by printing money so its not about that they have a choice, but they are cornered into printing more money cause thats their only alternative. Where is the US getting the money to pay the debts, the answer is nowhere but the printing presses so the debt will just grow and grow. The only real way I see to cure this growing debt (politically unpopular so I am saying it won't happen) is to cut Social Securtiy all together and every single kind of social benefits, create a smaller government, raise taxes, go back to asset backed money and start repaying those debts gradually....

The commodity markets are nowhere near a all time top. Cause the supply is getting smaller (there has been no major oil discovery for almost 30 years and even if there is they are usually hard to access) while demand from rising economies of China and India will push these commodities demand and supply out of whack. Who would thought $1000 gold is probable like 5 years ago now we are near there, $2000 is just another figure we might probably dismiss too at this time. Fact is all these things are just numbers we should be more concerned on the demand and supply of these things.

Regarding stocks, yes siguro I over exaggerated on the claim that it can erode its value. However, stocks just like paper money can be created by the investment banks day in and day out while commodities like Gold, assets like Land cannot be created day in and day out they are truly limited. Earth is limited we only have a X number of square kilometers and it will never grow. And my point is we should be divesting out of something that can be made everyday with ease for something that can't be reproduced out of thin air and is definitely limited and more likely supply getting even more limited.

Basta bahala kayo if you wanna stay in the paper dollars its not my lose. Ako I don't wanna own ANY US DOLLARS. In fact I don't own any nor plan to own any. As for US stocks I also don't want it cause its based in US Dollars and as I discussed previously a stock is only as good as its currency. I prefer foreign stocks based on strong currencies giving out foreign currency dividends.

[empy]

Well you put to much trust with Bernanke and Co. The US has no other alternative to pay its debt but by printing money so its not about that they have a choice, but they are cornered into printing more money cause thats their only alternative. Where is the US getting the money to pay the debts, the answer is nowhere but the printing presses so the debt will just grow and grow. The only real way I see to cure this growing debt (politically unpopular so I am saying it won't happen) is to cut Social Securtiy all together and every single kind of social benefits, create a smaller government, raise taxes, go back to asset backed money and start repaying those debts gradually....

The commodity markets are nowhere near a all time top. Cause the supply is getting smaller (there has been no major oil discovery for almost 30 years and even if there is they are usually hard to access) while demand from rising economies of China and India will push these commodities demand and supply out of whack. Who would thought $1000 gold is probable like 5 years ago now we are near there, $2000 is just another figure we might probably dismiss too at this time. Fact is all these things are just numbers we should be more concerned on the demand and supply of these things.

Regarding stocks, yes siguro I over exaggerated on the claim that it can erode its value. However, stocks just like paper money can be created by the investment banks day in and day out while commodities like Gold, assets like Land cannot be created day in and day out they are truly limited. Earth is limited we only have a X number of square kilometers and it will never grow. And my point is we should be divesting out of something that can be made everyday with ease for something that can't be reproduced out of thin air and is definitely limited and more likely supply getting even more limited.

Basta bahala kayo if you wanna stay in the paper dollars its not my lose. Ako I don't wanna own ANY US DOLLARS. In fact I don't own any nor plan to own any. As for US stocks I also don't want it cause its based in US Dollars and as I discussed previously a stock is only as good as its currency. I prefer foreign stocks based on strong currencies giving out foreign currency dividends.

let me explain the way the US Fed works, then. the only way the Fed can create new money (increase the money supply) is TO ISSUE NEW DEBT - in the form of new T-Bills to be sold to banks. so, how can you "pay down debt" by creating new debt? :hihihi:

the Fed cannot simply print money and throw it out of a helicopter, as those talking heads and bloggers allege.

if the Fed is printing money like crazy, then the value of the USD will decrease, right? which means the US economy will see a really high inflation rate. Econ 101, right? well, i looked up the January inflation rate (US CPI), and came up with....2.2%. i looked up the full year inflation for 2007 and got...2.8%. a bit high for my taste, but hardly hyperinflation, no?

btw, dont get me wrong - i agree with you about gold and commodities being a better place than stocks right now (especially oil). i just don't agree that you cannot make money on the US market this year. i also agree that the dollar will continue to weaken this year, but that's because of US economic weakness and the balance of trade deficits, not because the Fed's printing money...