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Realistbear

I M F: Storm Clouds Are Gathering As I R Rise

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http://news.morningstar.com/news/DJ/M04/D1...at=TopDJStories

UPDATE: IMF Report: Storm Clouds For Global Markets

04-11-06 09:07 AM EST

WASHINGTON (Dow Jones) -- After several years of low interest rates and ample liquidity, storm clouds are developing over global financial markets, according to a new report from the International Monetary Fund.
Although the global financial system has gathered strength and resilience in 2005,
"a number of cyclical challenges appear to be gathering on the horizon,
which necessitates a more nuanced view of the financial outlook for the remainder of 2006 and beyond," the study, called the Global Financial Stability Report, concluded.
But the storm clouds are mounting and questions remain about how fast they might arrive and whether financial systems will be able to handle any added stress.
Developments in credit derivatives, which have distributed financial risks to a wide range of financial players instead of banks, increase the chance of
" unpleasant surprises" from the less-regulated market players.
The report said there is evidence that
the global credit cycle is turning
, with
less favorable investment conditions expected
at the year unfolds.
Developments in the U.S. housing market bear watching, with risks of a larger- than-expected fall in consumer spending.
Judging from the experience of Australia and the
United Kingdom
, a drop in U.S. home prices would lead to a weakening of the economy.

And which market has effectively "deregulated" borrowing to allow a free-for-all assett bubble to develop? And who still refuses to admit it and holds IR low against the world wide trend of tightening? Which economy relies on a "Miracle" to keep going?

The economic cycle is changing and the cheap money and loose borrowing standards of Brown's "Miracle Economy" are coming to a close.

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It's all so very obvious what is coming now........

The clouds have been gathering for what feels like a lifetime.

Oil up this morning to close to the level it was at it's peak during the hurricane's at $70 and we are now in what is generally the weak season.

Category 5 Hurricane 'Gordon' heading our way! :o

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Can someone please explain these credit derivatives that have distributed risk to "players" other than banks. From other posts in other threads, the banks package up a bunch of mortgages and sell them on the open market. So someone else buys them, the bank manages them, and the bank makes a smaller profit now but takes no risk.

Who are the organisations/people who buy these derivatives. Do the banks really have no further risk? Who will go bankrupt if the market/economy really goes t*ts up?

Billy Shears

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Can someone please explain these credit derivatives that have distributed risk to "players" other than banks.

Who are the organisations/people who buy these derivatives. Do the banks really have no further risk? Who will go bankrupt if the market/economy really goes t*ts up?

Billy Shears

probably your pension.

He said, facetiously

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probably your pension.

Probably right... though I think most of mine is in foreign shares at the moment. I know it's up a lot this year.

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Can someone please explain these credit derivatives that have distributed risk to "players" other than banks. From other posts in other threads, the banks package up a bunch of mortgages and sell them on the open market. So someone else buys them, the bank manages them, and the bank makes a smaller profit now but takes no risk.

Who are the organisations/people who buy these derivatives. Do the banks really have no further risk? Who will go bankrupt if the market/economy really goes t*ts up?

Billy Shears

The key point about credit derivatives is that, like other derivatives, they allow gearing of risk - the amount of risk exposure isn't limited to the amount of underlying debt any particular issuer has. Say company X has issued £1bn of debt - there is no limit to the amount of credit derivatives that can be written deliverable against that debt even tho in a default situation, there is actually only £1bn of debt to actually deliver against the contracts. The fear is that in a credit crunch, actual losses experienced by financial institutions involved (and bear in mind, this isn't just banks as many insurance companies have used credit derivs as a way of gaining exposure to credit markets) will be magnified by the gearing effect. Since most credit derivs are OTC (over the counter) products (rather than exhange traded), it is difficult to monitor total exposure. Hence, the fear is that losses at under-regulated players could cause a problem if the credit cycle takes a pronounced turn for the worse. :(

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Yeah, I can sense the peak in U.S. rates too.

You're going to get stung, TTRTR.

The FED have got a decision to make -

1. Lower interest rates and pump more money into the world economy to further stimulate demand and exacerbate the imbalances in the world economy, which will lead to a long period of deflation a la Japan

or

2. A short sharp shock of draining liquidity (that's happening already), raising IRs and sorting out the imbalances. It's going to be very painful in the short term as the numerous bubbles will burst quickly, but in the long run it's better.

Either way TTRTR, unless you realise your capital appreciation now, you're going to be stuffed.

BTW, my money's on option 2.

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Yeah, I can sense the peak in U.S. rates too.

You must be joking - there's a 100% chance of another .25% rise by the Fed, and a significant chance of a further one. 5% is certain in the US, 5.25% likely and 5.5% is not improbable. Have a look at what real economists say about the probablities of US rates in the future:

http://macroblog.typepad.com/macroblog/

Where will the UK be in trying to get foreigners to pay its debt when the USA offers 20% higher returns?

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You must be joking - there's a 100% chance of another .25% rise by the Fed, and a significant chance of a further one. 5% is certain in the US, 5.25% likely and 5.5% is not improbable. Have a look at what real economists say about the probablities of US rates in the future:

http://macroblog.typepad.com/macroblog/

Where will the UK be in trying to get foreigners to pay its debt when the USA offers 20% higher returns?

At least TTRTR has made a easily verifiable prediction and one that he's likely to still be around when it is proved/disproved. TTRTR, are you serious about predicting that Fed rates have topped out?

Billy Shears

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At least TTRTR has made a easily verifiable prediction and one that he's likely to still be around when it is proved/disproved. TTRTR, are you serious about predicting that Fed rates have topped out?

Billy Shears

I am beginning to wonder if TTRTR is seeing that the world of finance is based on the economic cycle and the cycle is chnaging making what was profitable a sell item now. Most investors know that you buy low and sell high. I wonder why TTRTR does not think that the sell signal has already begun? We have had enough warnings-even the Japs are bending over backwards to brace the West for what is coming. The US are hiking to soften the shock when it comes and Gordon is caught like the deer in the headlights dreaming away about his days in No. 10.

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I am beginning to wonder if TTRTR is seeing that the world of finance is based on the economic cycle and the cycle is chnaging making what was profitable a sell item now. Most investors know that you buy low and sell high. I wonder why TTRTR does not think that the sell signal has already begun? We have had enough warnings-even the Japs are bending over backwards to brace the West for what is coming. The US are hiking to soften the shock when it comes and Gordon is caught like the deer in the headlights dreaming away about his days in No. 10.

I don't think that much of what TTRTR says on this forum is his serious opinion. I think a lot of what he says is basically teasing/bear bating.

For all we know his property empire could all be SSTC as we speak.

Billy Shears

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I don't think that much of what TTRTR says on this forum is his serious opinion. I think a lot of what he says is basically teasing/bear bating.

For all we know his property empire could all be SSTC as we speak.

Billy Shears

Funny you should say that--I have been thinking the same thing. TTRTR cannot be so dumb as to buy low and NOT sell high, could he?

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Funny you should say that--I have been thinking the same thing. TTRTR cannot be so dumb as to buy low and NOT sell high, could he?

Perhaps he is talking up the market still because he hasn't finished his sell off yet?

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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