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To: Real Man who wrote (355049)	1/26/2008 9:26:32 AM
From: Giordano Bruno	Respond to of 436258

The Economy According to Cat Caterpillar, the big construction equipment maker, put out its earnings today — and detailed the “specific economic and industry assumptions” — also known as a forecast — for the coming year. The highlights: U.S. interest rates: We assume the federal funds rate will end the year below 3%. U.S. economic growth: We forecast the economy will grow 1 % in 2008, slow enough that the National Bureau of Economic Research may eventually decide that a recession occurred. We expect construction will likely remain distressed in 2008. If the Fed continues to cut interest rates as we expect and the U.S. government takes action to stimulate economic growth, 2008 could be the bottom of this U.S. machinery cycle. U.S. housing: Housing starts should slow from 1.35 million in 2007 to 1.1 million in 2008. We expect continued downward pressure on the industry from a large inventory of unsold homes, tighter lending standards, increased home repossessions and lower home prices. U.S. nonresidential construction: New contracts awarded should decline more than 4 % in 2008, continuing a weakness that developed in the last half of 2007. Negatives include tighter lending standards, reduced corporate cash flows, rising vacancy rates and a smaller increase in federal highway funding. European interest rates: Financial markets are unsettled in Europe, and we expect this will prompt the European Central Bank to hold interest rates at 4 % for the rest of the year and the Bank of England to cut interest rates again to 5.25 %. European economic growth: Our forecast is for 2.3 % growth in 2008, down from 2.7 % in 2007. Both nonresidential building and infrastructure construction should improve, however housing declined in 2007 and should do so again in 2008. Developing economies: The robust recoveries in these economies should last throughout 2008. Our forecasts are for 5.5 % growth in Africa/Middle East, 7 % in the CIS, 4.5 % in Latin America and 7.5 % in Asia/Pacific. Those growth rates are close to those of the past two years … Oil and Gas: The world’s spare oil production capacity remains low, and oil prices should average higher in 2008. Higher prices should drive increased exploration, drilling, pipeline expenditures and tar sands development… . In its business, the company said, “We expect continued strength outside North America and below average growth in North America.”

To: Real Man who wrote (355049)	1/26/2008 10:25:39 AM
From: carranza2	Read Replies (1) \| Respond to of 436258

Did you see the BIS's December Quarterly report, specifically the section on credit derivatives? Holy Crap, Batman! Everyone knew they had grown hugely in the past few years but it appears that they kept growing even after the subprime and credit stuff hit. The counterparties are either incredibly brilliant or abysmally stupid. I'll find out as I'm shorting financials for the long term. bis.org BIS Quarterly Review, December 2007 pp 21-24: In November, the BIS released the latest statistics on positions in the global over-the-counter (OTC) derivatives market. These comprise the results of the second part of the Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity as well as the regular semiannual OTC derivatives statistics.4 The two surveys share the same format but differ in coverage. The triennial survey is more comprehensive. It contains information on instruments not covered by the semiannual survey, in particular credit derivatives other than credit default swaps (CDSs). Moreover, whereas the semiannual survey aggregates data from major dealers in the G10 countries and Switzerland, the outstanding of such instruments totalled $516 trillion at the end of June 2007,135% higher than the level recorded in the 2004 survey (Graph 4). This corresponds to an annualised compound rate of growth of 33%, which is higher than the approximatively 25% average annual rate of increase since positions in OTC derivatives were first surveyed by the BIS in 1995.5 Notional amounts outstanding provide useful information on the structure of the OTC derivatives market but should not be interpreted as a measure of the riskiness of these positions. Gross market values, which represent the cost of replacing all open contracts at the prevailing market prices, have increased by 74% since 2004, to $11 trillion at the end of June 2007. While growth has accelerated in all major risk categories during the last three years, the highest rate of increase was reported in the credit segment. Positions in credit derivatives stood at $51 trillion at end-June 2007, compared to under $5 trillion in the 2004 survey. CDSs are by far the dominant instrument in this category, accounting for 88% of positions in credit derivatives. The triennial survey provides a useful benchmark against which the coverage of the semiannual data can be assessed. It turns out that the 55 reporting dealers surveyed on a half-yearly basis account for 88% of total positions in that market, reflecting the fact that OTC derivatives are generally executed between a large bank or securities house and a customer.6 The coverage of the semiannual survey is lowest in the equity and foreign exchange segments, where the regular reporters account for approximately 85% of total positions. A much higher coverage is achieved in CDSs (94%). 5 The 1995 survey covered OTC foreign exchange and interest rate derivatives only. However,other evidence suggests that positions in other risk categories were relatively small at the time. The bias resulting from incomplete coverage is therefore probably small. 6 Of course, this ignores the possibility that contracts are entered into between institutions that do not report to the triennial survey. Conversations with market participants suggest that such positions are likely to be extremely small relative to those covered by the two surveys. Notional amounts outstanding of all types of OTC contracts increased by 25% between January and June, after a 12% increase in the second half of 2006. Growth accelerated in all risk categories with the possible exception of commodities,7 although once again the pace of increase in CDSs (49%) outstripped the rises in other risk categories.