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Strategies & Market Trends : Waiting for the big Kahuna -- Ignore unavailable to you. Want to Upgrade?

To: Vitas who wrote (36050)	1/5/1999 8:23:00 AM
From: Kip518	Respond to of 94695

From the Dec. '98 issue of The Richebacher Letter (electronic version not available) Article entitle "Denial" "To find a comparable experience, it is necessary to go back to the financial excesses of the 1920s and their aftermath. The impending crisis is not a typical cyclical recession. It is the upshot of tremendous financial and economic balances that have accumulated over the past years. A global credit bubble, of which the financial markets were the primary and main recipients, is bursting. "The parallels between the two periods are truly astonishing. The development during the last years preceding the crisis of 1929-32 were characterized by three outstanding features that have been equally predominant in the last three or four years: 1) a rampant, actually unprecedented credit expansion; 2) heavy involvement of the banks in the securities markets; and 3) an unsually heavy reliance on securities issuance as a source of finance. "The last of these three features is generally underappreciated. Yet it is more important because securities carry one specific risk that bank loans don't -- an interest rate risk affecting their market values. In other words, the risk of asset depreciation. What ravaged the U.S. banking system in the 1930s and led to the sequence of banking panics was not the stock-market crash of October-November 1929, nor even an excess of bad loans. It was soaring interest spreads, which hammered the value of lower-grade bonds filling the banks' portfolios." ...... "With bank reserves in the United States actually down year-over-year from $47.4 billion to $45 billion and M1 only slightly up over the last six months, it is completely inconceivable to most Americans that in the face of such tightness in bank reserves and narrow money there could be a virtual explosion of credit and the broad money aggregates. The answer is very simple: There is more and more financial leverage in the financial system on the basis of existing cash balances through the explosive growth of securitization. Asset-backed securities markets, totaling $3.7 trillion at present, are rapidly overtaking the banking system, totaling $4.3 trillion, as a credit source.