Four data points

[solarbird]

In reference to the immediate previous post about my... lack of sanguinity regarding actions in the currency markets, I provide three four data points:

1. People's Daily (China) calls for abandonment of US dollar as global trading currency. This is self-serving but they have a lot of power to make this happen if they want to.

2. Delivery failures plague Treasury market. The latest data from the Federal Reserve Bank of New York showed that cumulative failures hit a record $2.29 trillion as of Oct. 1... The outstanding U.S. public debt is $10.3 trillion... 'Current [fail] levels are at historic levels.'" Indeed they are.

3, or, more specifically, H.3. Nonborrowed banking system reserves at US$-363.529B, or about a third of a trillion dollars. Check monetary base growth, too.

4. Taiwan insurers ordered out of US agency MBS, which is really, really bad for the US if it starts a trend. Worse, and in addition, "[t]he FSC [Financial Supervisory Commission of Taiwan] says it cannot see how the United States will develop a valid mechanism to assess the credit quality of MBS issued by US federal housing loan agencies, namely Fannie Mae, Freddie Mac and Ginnie Mae. ... Such a ruling will be a blow to US Treasury authorities... The US financial system needs to maintain the willingness of Asian investors to buy its assets." This is nightmare fodder. You cannot float a deficit without either borrowing money or defaulting on your debt via old-fashioned paper-money printing.

I swear this whole thing is looking more and more like France 1720 every week. I need to read up on that crisis more, but the broad outlines have some similarities I don't like.

PS: Dr. Roubini says to be ready for a potential financial market shutdown of up to a week in duration.

eta: Elisa Parisi-Capone at RGE Monitor says actual Lehman CDS payout is already around US$200B, and will only grow, and shows her math. This is much higher than the commonly accepted estimate.

Comments

[silussa.livejournal.com]

Start of 2007: 117.76 Japanese yen to the US dollar
today: 92.4589 Japanese yen to the US dollar


What the....???? If people are fleeing to US Treasuries, should the trend be the OTHER way?

Or is someone dumping in wholesale quantities?

[angharads-house.livejournal.com]

likely the latter, at a guess.

edit: also note Canadian dollar sliding against the American dollar, and most every other industrial currency except sterling, which is sliding even faster.

suppose that this means we are largely now regarded as being hewers of wood and drawers of water, and incapable of sustaining our own economic way.

[pause here to insert grumbles about Stephen Harper and claims of strong economy.....]

[silussa.livejournal.com]

Would you like a collection of a US Republican Presidential Candidate saying how strong the US economy is?

Keeping in mind a Republican makes Stephen Harper look like a liberal?

[angharads-house.livejournal.com]

I dare say that it's been a frequent refrain ever since the days of Calvin Coolidge. But I do wonder about the distinction between Harper and, say, your average Republican. My presenting view, here, (and of course it comes with the caveat that I am a foreigner who lacks lifelong comprehension of the two-party dynamic) is that there is minimal difference between entrenched Republicans and entrenched Democrats. Both are beholden to the network of contituencies upon whose funding they rely; both seem to enjoy putting on a show of "just us folks, here" no-nothing populism.

Back to economics: my guess, with the exchange swings, is that we are seeing the chaotic interaction of several forex-trading algorithms, and that this will get steadily more intense until the system locks up with one or more of the major trading economies running out of cash. Which is, in the end, what we're seeing now with Iceland, and I suspect also very soon Eire and America.

The image that springs to mind is a game of musical chairs. Most of our family's near-term survival strategy was based on holding yen and RMB yuan while being domiciled in Canada; the part we did not collectively foresee was the difficulty in moving funds across between Canada and Asia. Unfortunately for us, RMB yuan, or even yen, are not particularly spendable in Canada. United States dollars are, with the caveat that often the recipient will demand to have them at par, which at 1.284 ratio is rather painful.

[firni.livejournal.com]

From a friend of mine:

"The technical "fair pricing" that I established (using the same finance techniques that I so roundly despise) is S&P500 at 830 (historical performance is not an indicator of future returns... yet we keep making models).

The model says that 830 is a good buy point for long term (five to ten year) returns. It doesn't suggest that the market craziness won't sink things further. The thing to remember, who makes a mint right now? Uncovered short sellers. With everyone looking to the "technical" floor, there's money to be made on gambling. Covering those sales is what will drive prices back up. The mechanics of the market are setting prices more than supply and demand -- or, to be more precise, are accentuating volitility, which is the opposite of their supposed function.

I'd be really fascinated by this if I weren't in my 40's hoping not to eat Meow Mix in retirement."

[solarbird]

I'm not sure what your friend means by "fair pricing," but I'm wondering what calculations they're using for P/E ratios - or whether they even are. For market pricing, a lot of people will look at the stated whole-market P/E, which as of late has come to exclude companies with negative P/E ratios, which I find insane. (And believe I have complained about before, but I can't be bothered to google my own journal to see.)

Mind you, 830-ish is an important support area, but once you fall through that there's something in the 700s, and then you're looking at the 500s. Seriously.

[firni.livejournal.com]

Well, he's a graduate of the UW Business School, so GAWD KNOWS where he's getting ... well, anything. Perhaps I scarred his psyche when we graduated and I would dance in front of him with my TWO "magna cum laude" diplomas to his one "cum laude" diploma.

Then again, I'm a stay at home mom and he makes bank at Borg these days, so who's the bigger dummy?

[angharads-house.livejournal.com]

if you are thinking about the l'Affaire de la Compagnie des Indes, of 1719-1720, yes, I would agree with you.

the black swan, here, also, may be a similar public health crisis as was seen in Marseilles in 1720 (then, a plague outbreak); but this time, in the here and now, thinking more of emerging strains of preventable diseases like the various measles and whooping-cough. What kicks this off is the perfect storm of some proportion of know-nothings believing that vaccinations are bad for their children, and another increasing proportion of more well-meaning folks who simply cannot afford to pay for health-care.

Foreign Affairs ran an excellent article on preparation for pandemic influenza back in 2005; free-to-view at http://www.foreignaffairs.org/20050701faessay84402/michael-t-osterholm/preparing-for-the-next-pandemic.html.

also, regrettably, agree with Firni in the sense of concern for the future, although personally I suspect we will get by on salmon and rice for the next decade, rather than fancy imports like Meow Mix.