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Economist Warns Over Us Consumer Debt


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Notice how the BBC try and discredit Roach by implying that his is not the majority opinion and that he is a "doom-monger" :rolleyes: :

Mr Roach is famous in the investment community for taking a more cautious - some would say bleak - view of the world economy than many of his peers.
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Guest wrongmove

Another BBC article which quotes Roach

Is the global economy set for trouble?

....So far, "serial bubbles" have kept the global economy puttering along, says Martin Wolf, chief economics commentator at the Financial Times and moderator of the Davos debate on the economy.

"We've done wonderfully by not correcting any of our problems," he says.

So far so good.

But it leaves me to wonder: What happens to the global economy should a perfect economic storm engulf the US economy and lead both to higher interest rates and an economic slump?

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I received an unsolicited letter from my Brokerage Firm (Fidelity Investments--world's largest mutual fund company) simply stating that they did not recommend leveraging accounts to buy stocks. Normally, brokerage firms encourage the buying of stocks, even on "margin," because of commissions. This is the third warning that I have received on this point in as many months. A very senior Merrill Lynch advisor told me not to invest with his company but to keep cash. Warren Buffett was asked early last year what investments would be safe going ahead and said three came to mind: cash, cash and cash (I cannot find the link anymore).

When the big VIs tell you to go to cash something is brewing and it is not further increases in house prices. The housing market will be the sacrifial lamb to placate the distortions in the economy. Higher interest rates will reduce the US deficit and correct the distortions in currency markets.

If anyone still belives that there will not be a severe HPC they are not watching and listening to the signs.

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Guest Charlie The Tramp
A very senior Merrill Lynch advisor told me not to invest with his company but to keep cash. Warren Buffett was asked early last year what investments would be safe going ahead and said three came to mind: cash, cash and cash (I cannot find the link anymore).

And how many times now have I read that many of the pundits say in the coming storm cash will be King.

Never seen a consumer offer gold in exchange for goods, well not at least in Tescos. :D

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hey,don'y knock it!

gold,and other commodities,are emerging from a 20-year bear market.

they've been in base-formation since about 99.I suspect these are the plays for the next 10 years or so,not stocks.

IF global IR's are on the rise,stocks will probably be pretty much rangebound.

feel a bit sorry for you realist,fidelity have a load of dogs in their portfolio.

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Guest Charlie The Tramp

More of Roach

By Brett Arends/ On State Street

Tuesday, November 23, 2004

Stephen Roach, the chief economist at investment banking giant Morgan Stanley, has a public reputation for being bearish.

But you should hear what he's saying in private.

Roach met select groups of fund managers downtown last week, including a group at Fidelity. His prediction: America has no better than a 10 percent chance of avoiding economic ``armageddon.''

Press were not allowed into the meetings. But the Herald has obtained a copy of Roach's presentation. A stunned source who was at one meeting said, ``it struck me how extreme he was - much more, it seemed to me, than in public.''

Roach sees a 30 percent chance of a slump soon and a 60 percent chance that ``we'll muddle through for a while and delay the eventual armageddon.''

The chance we'll get through OK: one in 10. Maybe.

In a nutshell, Roach's argument is that America's record trade deficit means the dollar will keep falling. To keep foreigners buying T-bills and prevent a resulting rise in inflation, Federal Reserve Chairman Alan Greenspan will be forced to raise interest rates further and faster than he wants.

The result: U.S. consumers, who are in debt up to their eyeballs, will get pounded.

Less a case of ``,'' maybe, than of a ``Perfect Storm.''

Roach marshalled alarming facts to support his argument.

To finance its current account deficit with the rest of the world, he said, America has to import $2.6 billion in cash. Every working day.

That is an amazing 80 percent of the entire world's net savings.

Sustainable? Hardly.

Meanwhile, he notes that household debt is at record levels.

Twenty years ago the total debt of U.S. households was equal to half the size of the economy. Today the figure is 85 percent. Nearly half of new mortgage borrowing is at flexible interest rates, leaving borrowers much more vulnerable to rate hikes.

Americans are already spending a record share of disposable income paying their interest bills. And interest rates haven't even risen much yet.

You don't have to ask a Wall Street economist to know this, of course. Watch people wielding their credit cards this Christmas.

Roach's analysis isn't entirely new. But recent events give it extra force.

The dollar is hitting fresh lows against currencies from the yen to the euro.

Its parachute failed to open over the weekend, when a meeting of the world's top finance ministers produced no promise of concerted intervention.

It has farther to fall, especially against Asian currencies, analysts agree.

The Fed chairman was drawn to warn on the dollar, and interest rates, on Friday.

Roach could not be reached for comment yesterday. A source who heard the presentation concluded that a ``spectacular wave of bankruptcies'' is possible.

Smart people downtown agree with much of the analysis. It is undeniable that

America is living in a ``debt bubble'' of record proportions. But they argue there may be an alternative scenario to Roach's. Greenspan might instead deliberately allow the dollar to slump and inflation to rise, whittling away at the value of today's consumer debts in real terms.

Inflation of 7 percent a year halves ``real'' values in a decade. It may be the only way out of the trap.

Higher interest rates, or higher inflation: Either way, the biggest losers will be long-term lenders at fixed interest rates.

You wouldn't want to hold 30-year Treasuries, which today yield just 4.83 percent.

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I received an unsolicited letter from my Brokerage Firm (Fidelity Investments--world's largest mutual fund company) simply stating that they did not recommend leveraging accounts to buy stocks.  Normally, brokerage firms encourage the buying of stocks, even on "margin," because of commissions.  This is the third warning that I have received on this point in as many months.  A very senior Merrill Lynch advisor told me not to invest with his company but to keep cash.  Warren Buffett was asked early last year what investments would be safe going ahead and said three came to mind:  cash, cash and cash (I cannot find the link anymore).

If anyone still belives that there will not be a severe HPC they are not watching and listening to the signs.

Cash is King if all other assets fall in value.

Roach has been warning of a "double dip" recession for some time.

In 1997 Thailand was the "canary in the mineshaft" so to speak. Perhaps in 2005 it will be the UK.

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if you had listened to some of the commentsry on bloomberg,they were discussing at some length the type of recession that would be endured post 2000...the concensus was a u-shape but the prospect of double-dip was a scenrio that wa touted....it very much looks like u-shape to me(as far as the US is concerned,they do have the benefit of shedding jobs during the first down-phase,and things are picking up there,which should bolster spending)...here in the UK,we have BIG toruble ahead,as we did not downsize when we should have!!

don't get me wrong,double-dip could still happen if the credit crunch is bad,but the US has a saving grace of a lot of mortgage lending being based on 10yr bond yield,not short-term IR!,coupled with job growth,I think they will just about pull through.

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Notice how the BBC try and discredit Roach by implying that his is not the majority opinion and that he is a "doom-monger" :rolleyes: :

I agree Zzg....but at least these views are being shown by the BBC...I'd never heard of this Roach guy before I read the article....Are the BBC just trying to soften us up for the crash by airing this article?

House Prices are a matter of opinion...debt is a reality...

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I received an unsolicited letter from my Brokerage Firm (Fidelity Investments--world's largest mutual fund company) simply stating that they did not recommend leveraging accounts to buy stocks.  Normally, brokerage firms encourage the buying of stocks, even on "margin," because of commissions.  This is the third warning that I have received on this point in as many months.  A very senior Merrill Lynch advisor told me not to invest with his company but to keep cash. 

I was on the phone today to Merryl lynch enquiring about gold funds. You have got me pondering again.

Have to post this one again, can't resist it.

Did you know that Alan Greenspan, the Chairman of the Federal Reserve once defended gold as the only real money that exists. His comments below are one of the greatest ironies in financial history. Here's what Greenspan said:

"In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold," wrote Greenspan in 1966 for Ayn Rand's Objectivist magazine. He continued: "Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard."

The entire article written by Greenspan can be found at : http://www.321gold.com/fed/greenspan/1966.html

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don't get me wrong,double-dip could still happen if the credit crunch is bad,but the US has a saving grace of a lot of mortgage lending being based on 10yr bond yield,not short-term IR!,coupled with job growth,I think they will just about pull through.

I agree that the banks in the US may be in slightly better shape because of this type of lending. The run up in prices in the US is not as extreme as the UK.

However so many countries have loans piggy backed on top of US treasuries. If they make a sudden break it could spell trouble for many countries.

Everyone is taking the dollars continued weakness as a given. What if???

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  • 441 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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