Wednesday, September 3, 2008

Crisis Crisis part II

Credit Crisis Financial Armageddon

Nobody will escape the wrath of this deleveraging, and that is why I call it Credit Crisis II. Credit Crisis I was only the preliminary round…Credit Crisis II is characterized by the realization that the gigantic losses of capital cannot be purged from the financial system , even with big public bailouts. And that this deleveraging cannot be stopped. There are too many interlinkages. And, without writing a book on this, the next victim when Credit Crisis II unfolds, will be massive world currency instability. This will make any of the banking and currency crises we have seen since WW2 look like child's play. It is not clear when Credit Crisis II begins but it is threatening already.

Posted by sold 2 rent 1 @ 10:05 AM (2319 views)
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35 thoughts on “Crisis Crisis part II

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  • The Armstrong and Calleman models point to things easing slightly into spring 2009, mainly due to falling oil prices.
    My guess is that Credit Crisis part II will start in November 2009 when we enter the sixth night.

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  • s2r1, do you have any good links on how others are predicting the final stages of the Mayan calendar to play out in terms of world events?

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  • Did anyone else feel quite uncomfortable reading this? I have read several articles on marketoracle recently and they seem rational (rather than out-and-out doom-mongering!). Are the central banks really panicking as much as this article makes out?

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  • I want my mummy!

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  • sold 2 rent 1

    to the invisible government financial armageddon means no more physical money, but a rapid switch to electronic money in order to control us totally. Control of how much we earn, where and on what we spend it ……….

    If by some great miracle it is not an orchestrated crash of money it may hopefully bring an end to these invisible ruthless manipulators. Hopefully people will become wise in the process?

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  • s2r1,

    Do you think oil prices will fall when measured in sterling? If oil drops 20% but the pound also drops another 20% (quite a reasonable expectation IMHO), then we can’t expect to see cheaper petrol at the pumps. Thoughts?

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  • s2r1. I see you are still peddling that gold story… Loved the article BTW albeit an ultra bearish outlook. Unfortunately I’ve been too tied up recently to keep such close tabs as I usually do with all the financial stories to make many more comments.

    But I do see a period of deflation coming up and this will be led by the end of the commodity cycle through gold and oil. As I mentioned before, I sold my gold and took quite a hit but am pleased after seeing it dip under the $800 territory. There is no way it will go above $850 and the only way seems to be down now. The big question here is – how to protect our wealth? If as the article suggests and financial armagedon is imminent, then probably the best place would be to be in housing, no??? After all if you own the tittle deeds, then you own it… Better than holding onto cash in a bank account that subsequently goes under and then having the government renaging on promises because they are so in debt. Look over the past few house price cycles and you will notice the downturn lasts about 2 years… Bring on summer 2009 and I’m in (providing volume indicators pick up)!

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  • Broadly agree that something of massive proportions is going on, but in the representation @1 where does he get the leverage ratios, and haven’t some of those earlier bubbles been deleveraged to some extent? And why China, India AND Bric (since the ic in Bric IS India and China? If he’s going to put the tech bubble in there he may as well add the security/antiterrorist bubble that has inflated since 9/11.

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  • If the economic system collapses money will be worthless, any on deposit will be lost anyway. What are the alternatives for providing a tradable medium? Or does everyone with liquid assets need to move promptly to a country with a safe economic system? Are there any safe countries? Or do we just stock-up on tinned food and buy a solar oven?
    The article is very bearish and is saying there’s no escape. I’m not sure that’s what going to happen. If everyone is involved then it’s in everyone’s interest not to push it over the edge ( a sort of Mutually Asssured Destruction syndrome). It seems to me that the only way out is to trade the way out over a long period. The countries with the best productivity will those that enjoy the best conditions. That doesn’t look too good for the UK though. We have too many unoccupied people, too many thick and lazy people, too large a benefits bill, an NHS money pit, we’ve sold off everthing so don’t own the profits just skim the tax, we don’t do anything just shuffle paper. My brother tried to tell me this 20odd years ago when he emigrated but I’ve always had him down and a nut job, not so sure now.

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  • @ crash n burn

    re commodities. As the saying goes “the bull likes to shake off people who are on-board for the ride”. The “weak hands”, speculators etc need to sell out before the next up leg. Why? These people tend to sell on an up-leg and so prevent the bull from charging onwards.

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  • This is truly scary. Ever since they started the liquidity scheme I’ve been asking myself why are banks still lending money for mortgages, for leveraged buying of rapidly-depreciating houses? They should be severely rationed.
    crash n burn @5 – I’m also wondering about a deflationary period coming in the next year or so, so have put a few Ks in 5 year and 3-year fixed rate bonds with Northern Rock. Will also look at pulling out of my inflation-linked bonds if I see deflation starting. Very difficult to know what to do. I too would feel safer with my money in bricks and mortar but buying now would be silly.
    Still think it’s worth having a few gold coins on hand, just in case, but am not sure how to buy them. More reassuring than a certificate saying you hold gold in a vault. Anyone care to advise? I believe you can just buy from a jeweller’s but they charge more than the spot price. Can you just order them from the mint? With regard to timing of gold purchase I saw several weeks ago someone was predicting support at $650, which would imply a further drop, comments welcome.

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  • crash n burn,

    Gold and the money supply have an inverse relationship at the end/start of secular gold trends
    Look at 1980 – gold high – TMS low
    Look at 2001-2002 gold low – TMS high

    Gold may have fallen 20pc from its peak, but the GBP has fallen nearly 15pc against the USD from its peak, and much more to go

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  • crash n burn,

    For the record I have purchased more gold/gold stocks in the last few weeks.
    The next mega gold high will be in spring 2010.

    Maybe will sell a bit in the spring 2009 and buy it back in September 2009.

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  • @5 crash n burn said

    “The big question here is – how to protect our wealth?”

    I’m Inclined to agree with you on the merits of property ownership in these increasingly uncertain times. Having sold at the peak last year, I’m currently renting and feeling increasingly nervous as to the most secure home for capital and the impact of inflation etc. I’m reaching the conclusion that a property owned outright maybe the safest option in the event of total economic meltdown.

    The dilemma is; lose a few £100k if property prices totally crash, but still have a home vs. risk losing a large capital sum and having no home. At least property ownership may provide the opportunity for self sufficiency – grow veg, keep a few chickens, goats and a pig maybe! You never know we may need to resort to barter – how many eggs for a tank of petrol?

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  • nice article today on BBG.
    To make it short: 5 next bubbles to invest in next 10ys
    – Old Europe (France, Italy, Germany)
    – automobiles (if the switch to electric happens)
    – stockbroking
    – dollar
    – private islands

    I agree with most of them

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  • 5. crash n burn said…
    s2r1. I see you are still peddling that gold story… The big question here is – how to protect our wealth?

    For starters, I have noted a number of s2r1s predictions regarding gold, and more than enough have been wrong for me to trust any more of his predictions. I don’t complain about his articles as I enjoy reading them even though I think he is very largely in the tin-foil-hat-brigade. And when he starts talking about Callemans model or fifth night destructions or whatever, I really go to sleep. Utter nonsense IMO. However…

    Having read the MoneyWeek article posted today, I am more convinced than ever that physical gold is a good place to be. Considering it as THE currency, there are just too many scenarios that could happen to the other currencies. Deflation/inflation/god knows what. All I know is that the government/banks are very likely to steal my wealth by offering lower interest than they should relative to real inflation – which as far as I am concerned is the rate at which money is printed (or created). the “created” bit is very hard to measure, and although created money being uncreated seems to be raising the possibility of deflation, I am not going to bet the house on it. As far as I’m concerned, if I can afford enough gold to pay for a house according to the moneyweek article then it is just a matter of time before I can make the exchange.

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  • mountain goat says:

    The article mentions the banks addiction to central bank injections. I read this earlier “zombie securitisations are where the bank bundles up a load of toxic mortgage paper, securitises it, but then sells it to itself – so it can then pledge the stuff to the Bank of England in return for crisp gilted-edged stock.”

    Good find S2R

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  • Well mountain goat – your statement “the bull likes to shake off people who are on-board for the ride. The “weak hands”, speculators etc need to sell out before the next up leg” is true. Fortunately in the grand scheme of things I’m up regarding gold, but only just. Would have been better to have put it in a bank account – which is exactly what I am going to do.

    S2R1 – think I’ve seen that chart of yours before… It’s lovely when TA contradicts itself isn’t it?!

    Have a look at this: http://inflationdata.com/inflation/Inflation_Articles/M3_Money_supply_2.asp

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  • Yep the BoE, ECB and Fed are all funding huge volumes to banks and getting a load of poor securities in return. If they weren’t bailing out the banks we’d already be in a proper meltdown – but they can’t keep taking these rubbish securities, my money’s on the ECB to pull the plug first and let all the Spanish banks go to the wall.

    Anyone fancy a sweepstake?

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  • Those buying Gold or considering selling – I am down, but do not beleive medium term it is a bad idea to hold gold – it’s more of a hedge than a speculation though. All western currencies are taking a pounding and will continue to do so for the next year or more. If you pound-cost-average over a period of time with gold purchases you will achieve an average buy price, minimising your risk, but still hedging against currency falls. i’m planning on buying some more when I’ve got some more cash, and then again 3mths after that.

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  • Ok, I am convinced now. I should buy gold. Where can I find it? Ebay?

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  • I feel that is sarcasm…. damn you! Actually i’ll bet you can get bullion on Ebay, hang on…

    Yep, 641 matches for gold bullion

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  • Eyes_wide_open says:

    If this happens, and as the author pointed out, it is looking likely, I don’t think having gold is going to help you.

    The end of money will surely turn into global chaos, for a while at least.

    Wouldn’t trying to survive be the greatest challenge?

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  • stillthinking says:

    Unless we enter a deflationary recession of course. You can’t buy anything with gold, you have to sell it for some currency first.

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  • crash n burn,

    under the current monetary system gold is not the official form of money and therefore does not represent liquidity.

    in 1930s gold was used for payment and therefore was effected by a deflationary period.

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  • I found some Turkish gold bullions on Ebay. They must be as a bargain as those Turkish properties in earthquake zone. Should I buy them?

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  • Check it against the spot price, add in your cost of delivery, work out your risk of non-delivery and your risk of subsequent theft, add your effort input; balance that against your paranoia of your currency collapsing split with globabl currency meltdown, then you can probably make a fair judgement. Add in whether you like looking at shiny stuff.

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  • I’m told that the Olympic ‘gold’ medals are in fact plated silver. They wouldn’t be ‘worth their weight in gold’.

    Something to bear in mind if buying physical bullion – all may not be what it seems…

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  • Good point Cornishman @31.

    Poor old Michael Phelps.Those 8 gold medals going down in value (and even silver – was off some 3% when I checked earlier today). Wonder if he had to pay excess baggage to take those home?

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  • 27. stillthinking said…
    Unless we enter a deflationary recession of course. You can’t buy anything with gold, you have to sell it for some currency first.

    Wow, selling it. There’s an idea. Unless of course people do in fact lose all faith in fiat paper currencies, in which case I am sure that gold will be considered by many as the currency of choice – in which case you would have a head start on everyone else. Sounds like a plan to me.

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  • Those with a reasonable level of intuition have long suspected a scenario such as this, and weighing the present evidence does give this credence. Excellent article. Doom mongers—– No! Realists—– Yes!
    Gold seems logical but too obvious. I’m sure in such an event governments would take total control of gold.

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  • I think this article looks reasonable at a superficial level, if a little extrapolative (is that a word?) although I’m worried about Chris Laird as a VI in gold bullion. He’s said he owns an awful lot of the stuff and the article seems to be shouting BUY GOLD NOW.

    Anyhow. I do respect opinions in Market Oracle but this needs a sprinkling of salt I think …

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  • This site’s contributors were the 1% speaking out against the 99% who wanted to buy houses.
    Strange that the 1% are now the 99% wishing to buy gold?

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