Wall Street Fears For Next Great Depression

[WiseBear]

http://www.independent.co.uk/news/business...ion-796428.html

Wall Street is bracing itself for another week of roller-coaster trading after more than $300bn (£150bn) was wiped off the US equity markets on Friday following the emergency funding package put together by the Federal Reserve and JPMorgan Chase to rescue Bear Stearns.

One UK economist warned that the world is now close to a 1930s-like Great Depression, while New York traders said they had never experienced such fear. The Fed's emergency funding procedure was first used in the Depression and has rarely been used since.

A Goldman Sachs trader in New York said: "Everyone is in a total state of shock, aghast at what is happening. No one wants to talk, let alone deal; we're just standing by waiting. Everyone is nervous about what is going to emerge when trading starts tomorrow."

In the UK, Michael Taylor, a senior market strategist at Lombard, the economics consultancy, said on Friday night: "We have all been talking about a 1970s-style crisis but as each day goes by this looks more like the 1930s. No one has any clue as to where this is going to end; it's a self-feeding disaster." Mr Taylor, who had been relatively optimistic, has turned bearish: "It really does look as though the UK is now heading for a recession. The credit-crunch means that even if the Bank of England cuts rates again, the banks are in such a bad way they are unlikely to pass cuts on."

Mr Taylor added that he expects a sharp downturn in the real UK economy as the public and companies stop borrowing. "We have never seen anything like this before. This is new territory for us. Liquidity is being pumped into the system but the banks are not taking any notice. This is all about confidence. The more the central banks do, the more the banks seem to ignore what's going on."

Mr Taylor added that the problems unravelling at Bear Stearns are just the beginning: "There will be more banks and hedge funds heading for collapse."

One of the problems facing the markets is that, despite the Fed's move last week to feed them another $200bn, the banks are still not lending to each other.

"This crisis is one of faith. We are going to see even more problems in the hedge funds as they face margin calls," said Mark O'Sullivan, director of dealing at Currencies Direct in London. "What we are waiting for now is for the Fed to cut interest rates again this week. But that's already been discounted by the market and is unlikely to help restore confidence."

Mr O'Sullivan added that the dollar's free-fall is set to continue and may need cuts in European interest rates to trim the euro's recent strength against the dollar. "But the ECB doesn't like cutting rates," he said.

On Europe, Mr Taylor said that while the German economy remains strong, others such as Italy's and Spain's are weakening. "You could see a scenario where the eurozone breaks up if economies continue to be so worried about inflation."

European financial markets were relatively unscathed by Wall Street's crisis but traders expect there to be a backlash when stock markets open tomorrow.

The Fed's plan will give 28 days of secured funding to Bear Stearns, which saw its value slashed over the week by more than a half to $3.7bn. JP Morgan will provide the funding, but the Fed will bear the risk if the loan is not repaid. Fed chairman, Ben Bernanke, who pumped $200bn of loans to cash-strapped institutions last week, said more would be available to help others in distress.

[The Masked Tulip]

Interesting comments in there.

"It really does look as though the UK is now heading for a recession. The credit-crunch means that even if the Bank of England cuts rates again, the banks are in such a bad way they are unlikely to pass cuts on."

Except to savers no doubt. I wonder whether the BOE is thinking about its credibility now though in that if it reduces IRs and no one takes any notice then why bother doing so.

and:

On Europe, Mr Taylor said that while the German economy remains strong, others such as Italy's and Spain's are weakening. "You could see a scenario where the eurozone breaks up if economies continue to be so worried about inflation."

There's that word again. Everybody now seems to admit that inflation is here but IRs are trying to be forced down by the central banks when they should be going up. Again, a loss of faith in the central banks.

[Confounded]

European financial markets were relatively unscathed by Wall Street's crisis but traders expect there to be a backlash when stock markets open tomorrow.

There will be one with big falls early on, they will bottom out at 11am - 12pm and recover as the US futures put in a recovery on speculation of early rate cut and other freebies.

So far in this crisis the DOW has not fallen more than 200 points for 2 trading in a row. They will try to maintain this at all costs.

If they fail then the crash will be here, but they have done a very good job so far and seem to have the resources atm.

Certainly will be an interesting day but the day everyone expects a crash gives plenty of time to prepare to stop it.

[Optobear]

http://www.independent.co.uk/news/business...ion-796428.html

I'm staggered that Goldmans Sachs and Lombard research took until this friday to realise that there was "trouble at mill". Didn't the FED intervening at a level of $200bn ring alarm bells, or maybe the first run on a bank in a G7 economy last autumn?

Still I'm sure these guys are worth their massive private sector salaries.

[InternationalRockSuperstar]

I'm staggered that Goldmans Sachs and Lombard research took until this friday to realise that there was "trouble at mill". Didn't the FED intervening at a level of $200bn ring alarm bells, or maybe the first run on a bank in a G7 economy last autumn?

Still I'm sure these guys are worth their massive private sector salaries.

Wall street and the City are part of the public sector. Hence the intervention.

[IDN]

Interesting comments in there.

There's that word again. Everybody now seems to admit that inflation is here but IRs are trying to be forced down by the central banks when they should be going up. Again, a loss of faith in the central banks.

as far as i can see it- to protect ourselves we should:

buy gold/silver

move money into swiss accounts

anything else other than buy tins of food?

i think once the sheeple see lower IR arent being passed on and inflation rising- they could well lose faith with banks and we could see bank runs across the country

[Bardon]

as far as i can see it- to protect ourselves we should:

buy gold/silver

move money into swiss accounts

anything else other than buy tins of food?

i think once the sheeple see lower IR arent being passed on and inflation rising- they could well lose faith with banks and we could see bank runs across the country

learn to speak Mandarin but its hard to get a good tutor now that the language is booming as all the good ones are fully booked up

[InternationalRockSuperstar]

as far as i can see it- to protect ourselves we should:

buy gold/silver

move money into swiss accounts

anything else other than buy tins of food?

i think once the sheeple see lower IR arent being passed on and inflation rising- they could well lose faith with banks and we could see bank runs across the country

Don't forget energy. You can currently get coal delivered to your door for about £150/tonne.

[Errol]

anything else other than buy tins of food?

You should already have roughly 6 months of food stored at home anyway. This is simple prudence.

[Optobear]

Wall street and the City are part of the public sector. Hence the intervention.

Priceless

[InternationalRockSuperstar]

Priceless

Literally.

[Guest Skint Academic]

Independent on Sunday? As I said, 'Black weekend' The sheeple may not fully understand what's going on, but they do understand the words "Great Depression" and "recession" .

[Barb E Dahl]

move money into swiss accounts

Excuse my ignorance, but why would swiss accounts be safer in a 1930s style depression?

[The Masked Tulip]

Excuse my ignorance, but why would swiss accounts be safer in a 1930s style depression?

Nothing is safe in a depression - not even gold. Who is going to buy your gold when cash is 'worthless'. Why would they want to buy gold? What use does it have other than making pretty jewellery? Yes, gold is used in circuit boards but in a depression just how many new PCs and LCDs will be being sold? At least silver has real needs in medical supplies but not gold.

[Bardon]

Excuse my ignorance, but why would swiss accounts be safer in a 1930s style depression?

on the subject of Swiss Francs for the first time in recorded history, the U.S. dollar has just plunged to less than a single Swiss franc

[FernandoMorientes]

Why not just make a little allotment plot in the corner of the garden and grow vegetables?

You should already have roughly 6 months of food stored at home anyway. This is simple prudence.

[drunkincharge]

Why not just make a little allotment plot in the corner of the garden and grow vegetables?

if it gets real bad you could cultivate the whole garden and sell/barter the surplus-but then you would need to guard it 24/7 and put razor wire up to stop the marrauding hordes getting to it

Edited March 16, 2008 by drunkincharge

[right_freds_dead]

i think once the sheeple see lower IR arent being passed on and inflation rising- they could well lose faith with banks and we could see bank runs across the country

they will never, ever see that. the bbc will not report that. they will spin it.

like they do now about wheat.

according to the media, the price of wheat is all about poor harvests and increased world use,

when the real reason is speculators pilling out of credit derivatives and into commodities. driving the price up.

the bbc have got away with effectively saying the consumption of wheat has gone up 146% when its not true

and the public are none the wiser because the public only know what they are told.

all they know is thats theres this credit crunch and its caused by the falling american housing market and thats about all they know.

they hear that northern rock had some trouble in the 'money markets' but dont know anything else or what that means.

[huw]

Nothing is safe in a depression - not even gold. Who is going to buy your gold when cash is 'worthless'. Why would they want to buy gold? What use does it have other than making pretty jewellery? Yes, gold is used in circuit boards but in a depression just how many new PCs and LCDs will be being sold? At least silver has real needs in medical supplies but not gold.

More to the point, why would you sell gold for cash when cash is 'worthless'? Even the most ardent gold bug should have some other strategy besides having a hoard of gold.

[huw]

Why not just make a little allotment plot in the corner of the garden and grow vegetables?

You need to get off HPC and start digging then, and find a way of preserving enough produce to get you through next winter

[Assurbanipal]

Excuse my ignorance, but why would swiss accounts be safer in a 1930s style depression?

It is not sure. However, there are some reasons to be a bit optimistic on Swiss franc:

1. Switzerland still holds significant amount of gold, Swiss franc has highest ratio of gold support among world currencies

2. There is more gold in Switzeralnd than officials admit - many dictators kept their gold deposits in Swiss banks in secret, when they died, practically that gold belongs to banks

3. Swiss Franc is traditionally seen as safe haven, like a gold. In panic, a lot of people should flee to Swiss Franc.

However, while I myself bet of Swiss Franc, nothing is sure in present times, except house price crash and dollar and pound one.

[The Masked Tulip]

I seem to recall readng an article many years ago which said that Swiss banks like to play up the amount of gold that they had in their banks and that what they actually had was alot lower than reality but, of course, no one can proove it.

[Ash4781]

In Dec'07 UBS were right up there at the top of the sub prime loss league http://news.bbc.co.uk/1/hi/business/7135872.stm