Tim A,
Look out, weekend off topic stuff from Chicken Little.
Last night I watched Greenspan and part of Camdessus speeches on CSPAN. My immediate conclusion was if I spend any more Friday evenings watching them, I better go out and get a life, get psychiatric help or start learning how to play golf. Nothing could be more boring.
The serious side, unfortunately, is alarming.
Camdessus mumbled for about the five minutes that I watched without saying one word of substance. Bottom line IMF is history. They are a band aid organization while the world is hemorrhaging now. Besides, they have already ran out of band aids.
Greenspan was his usual self with Greenspeak, using big words that are totally meaningless. He should have just came out and said that the world pay far too much attention to this mumbling old man who chairs an agency which is far overrated in terms of political and monetary influence. Going forward, what the Fed Reserve does with interest rates, be it up or down, are totally inconsequential. The market will dictate interest rates, not fed policies.
What is obvious now?
The US economy is about to head down the same path of the rest of the world, though not as severe. Why?
Budget "surplus" is about to hit budget deficit. With S&P 500 growth rate estimated at less than 3% this qtr, per 1st Call, where are those tax revenue going to come from? When we start looking for money to finance our national debt, the treasury auctions will decide where interest rates will end up. With global paper wealth vanishing at the current rate, competition for funds is likely to heat up. Can anyone rest assured that US rates will not have to be increased in order to attract buyers?
This week, Wall Street has announced to the world that US may not be the ultimate safe haven afterall. This lost of confidence is bound to have devastating consequences. CNBC reported that over $2 trillion of paper wealth had been lost in the US market this week. It seems to be an awful high figure but I have no data to confirm or dispute it. The first major red flag I see is the US$/yen exchange rates. I suspect there are other problems which will be surfacing in the next few weeks.
While US companies were taking hits in their earnings due to currency, Japanese companies such as Canon were benefiting and chalking up "profits". If US$ stays at current level of $133ish, Japan Inc is going to further deteriorate.
Trade deficit a catch 22. As the US trade gap continues to widen against all trading partners, traditional wisdom suggests that US$ needs to come down to narrow the gap. However, our trading partners already have no purchasing power regardless of how much cheaper US products may be. A weaker dollar only weakens domestic US purchasing power. The net result being that imports into the US decreases while exports also decreases, just about the worse case scenario for global trade and corporate profits.
Japanese Inc getting killed. Earnings are down across the board, with the steel industry being the latest on center stage. Nikkei is losing paper wealth more rapidly than US for their investors. Unfortunately, this is causing more problems for the already troubled Japanese banks. 13 trillion yen had been previously allocated for the bail out plan, being debate in Japan right now. This is grossly inadequate by my totally rough guess, if they don't just let the banks fail. On the other hand, if they let the banks fail, can anyone predict that a chaotic run on the banks won't occur?
HK playing high stakes no limit poker. Win or lose, HK has already lost its reputation as the free market of Asia. I suspect its value as the business center for the region will diminish through time.
China's 8% GDP dream will succeed, because the government says so. From what I have read, they are going nowhere with the unemployment problem. Yes, China can have their 8%, either by quietly printing enough RMB without telling anyone, or by having 22% inflation, or both.
Korea is trying to do the mother of all corporate downsizing. Korea also happens to have the mother of all trade unions, violent and ready to strike at a blink of an eye. How are they going to downsize without massive layoffs? I suspect the news from Korea in the next few months would be riot police dressed like Darth Veda (sp?) shooting rubber or real bullets into the crowd. On top of that, we have N Korea firing missiles, which N Korea now claims are satellite launches. Are you trying to tell me that US intelligence cannot confirm which is which, when we can pin point the location of a summer camp in Afganishtan?
SA is bound to take a fall. Chicken little admits that he has not been paying enough attention down south but may be forced to start learning Spanish or Portuguese.
Domestically, support from what was perceived to be endless liquidity is finally ending. The "glass half full" camp may argue that all the money is sitting on the sidelines ready to jump back in, catapulting the market to new highs. I think not.
biz.yahoo.com
So, if I have not totally depressed everyone on this fine holiday weekend, please send me a message and I will be glad to see what else I can dig up for you.
Ramsey |
