Market crash: are we there yet ?

[Cruisingdad]

Hey Rick and Windy, read this (assuming you did not write it). Interesting. Now it is all a bunch of my bankers stuff with no names (so take a bunch with a grain of salt), but where there is smoke? Hmm?

The US is a failed state destined for 3rd world status. A HUGE SCARY FOREX DISCOUNT IS BEING USED RIGHT NOW BY MARKET INTERMEDIARIES FOR CASH CURRENCY TRANSACTIONS. THIS IS A CLEAR LOUD PREVIEW OF FUTURE US$ AND BRITISH POUND STERLING DEVALUATION. THE DISCOUNTS PROBABLY OCCUR ON GRAND ACQUISITIONS, SPENDING US & UK DEBT, IN CONVERSION TO HARD ASSETS. $$$ Last week, my email INBOX was abuzz. A query came from me to a reliable regular banker contact with connections to Europe, Asia, and the Persian Gulf. My query specifically commented on the frenetic British Pound Sterling, which has risen or fallen by almost 200 basis points on a several days in the last week or more. It shows great unstability, my point, likely a prelude such as any initial tremors before a big earthquake. What came back was a shock, as news of actual liquidation activity have come his way. ***He wrote, "Really substantial transactions in buying USDollar are done at a 38% discount, and British Pound Sterling are done at a 42% discount. The big off market transaction guys are already factoring in the coming devaluation. Hundreds of billions are involved, including outright cash transactions where those discounts are being applied." ***WOW!! He had mentioned just days before in another exchange that a big event comes on the near horizon having to do with angry USGovt creditors. They have run out of patience. They feel the USGovt pays no heed to their concerns, in displayed arrogance. The global banker said a coordinated group of foreign creditors are planning to sell several hundred billion in USTreasurys in the months of September and October. If executed, then a US bank holiday is assured, and a significant devaluation of the USDollar comes. We might even see the first hint of a temporary USTreasury default. In the same line of exchanged communications, that also involved a couple other fellows who are respected, questions came as to when this charade would end. The US$ had bounced yet again on vaporous news and heavy interventions. My comment was simple: GOLD WILL RISE AND THE USDOLLAR WILL FALL, IN A POWERFUL WAY, WHEN CHINA DICTATES IT, WHEN CHINA IS READY, WHEN CHINA DECIDES IT. My connected banker contact agreed totally. Furthermore, Chinese agency organizations have been gathering considerable information from the Gold Anti-Trust Action committee, probably to make the case that the USDollar is not legitimate even on US Constitutional terms. When they slam the US$, they will likely make the case for an illegitimate USDollar operating as the currency by a financial sector ripe with corruption and fraud.

This came from Tech Ticker. Interesting. The only part I dissagree with is the 3rd world part. You cannot take down this economy and england and just go your mary little way. The repercussions will be more than anyone can bear.

- CD

[TropicCat]

Brian,

We all know what has to happen to the USD. At this point, there's no other way out of this mess. China sees it coming and is bailing early yet having said this, knowing what's coming doesn't tell us when it's going to happen.

I don't know who wrote that post you're citing, but if this news were true the USD would have collapsed already as you simply can't hide 38% discounts in trades.

Statistics are sometimes duly reported but intentionally misinterpreted. For instance, there's some pretty good data on income stratification in the United States. Economists Thomas Piketty and Emmanuel Saez have made careers of studying US income inequality using IRS data, which goes back to 1913. The most recent data available (for 2007) showed that the top 1% of US households received 23.5% of all income (the second highest on record, after 1928), while the top 10% received 49.7% of income (the highest on record).

The top .01% earners, 14,988 fortunate folks, had an average income in 2007 of $35,042,705. They had an average federal tax burden, according to Piketty and Saez, of 34.7%, leaving them after tax income of $22.9 million. If you assume a 50% savings rate among this group, you get total savings of $171.5 billion. This is nearly ONE HALF of the total savings for the entire country implied by a savings rate of 4.2% ($365 bn) reported in this month’s Bureau of Economic Analysis data.

The average Joe is struggling to meet his mortgage payment, health care bill and buy groceries yet the news media happily reports that our Joe is saving tons of cash. It's simply not true and is just more 'happy talk' to convince us the bottom of this recession has been reached. What puzzles me is I can't figure out what the benefit is in misinterpreting the data.

It is what it is..

[Cruisingdad]

You don't quote the real news because of Politics. Neither you nor your party gets re-elected when you tell those who elect you that your economy is in shambles, 20% of everyone is out of work, the dollar is collapsing due to massive deficits, etc. Do you think the majority of people actually follow the economy in detail and really know who and what is to blame? Do you think they really care? All they need is someone to blame.

Missinformation is also about changes in consumer sentiment. It lies (no pun intended) in the belief that a positive attitude will change market forces. Maybe there is some truth in that? I suspect most of the day traders and typical investors invest in the market based upon their sentiment and what they hear about the world around them. I suspect that few really dig deep to check the foundation of the beliefs.

None of this changes the long term effects of the debt in the US and loss of jobs. However, after mulling all this stuff over last night, I realized something. We have not counted on the effets of a hiccup in China and elsewhere.

Lets face it, China is horribly polluted and we don't go to China because there is no where else to turn, we go there because of cheap labor and their ability to build it cheap. However, I have seen some of that changing as of late. I have seen things pulled out of China for India and the Phillipenes. This caould drastically change the dynamics of what we talk about. When China has to start competing with lower paid coutries and those that have not polluted themselves to Chernobyl, they will start having a lot of their own problems. Unemployment will rise. Style of living will fall. Their economy will become very fragile (if it has not already). I sometimes wonder if the recent massive Asian market corrections are not seeing this? The concept of Communism relies on everyone being happy. It does not do well when they are not. I believe that China, much more than America, could be at rish should that correction occur. I don;t care how much gold they have.

So if the US can begin to show the world we are taking our debt seriously and we are still a stable foundation no matter the current negatives, China may have a hard time taking over. Like I said, I have already seen a lot of movement away from there. That could change our equations.

Thoughts?

- Brian

[wind_magic]

CD,

I'm not completely sure what that author could be talking about. The general meaning of "cash forex" is the spot forex market, in contrast to the futures exchange. The cash forex market is open 24/7 around the world, the market "moves" from country to country following the sunlight and anybody can trade it, whereas the futures market in a particular country is only open when their exchange is open and you can only trade it during those hours.

If the author means "spot forex" when he says "cash forex" then I can assure you he doesn't know what he's talking about, there is hardly any spread between the spot market and futures right now that I am aware of, and certainly not more than a few percentage point spread in any case. The spread between spot and futures is usually less than one tenth of one percent and as I understand it if the spread was any wider it would only last for a few moments until someone took advantage of the difference.

Alternatively, the author could mean something else by "cash forex", maybe he means the market for physical cash, and not the spot market. If that is the case then I have no idea, I know nothing about that except that there are very few places to get physical forex, so everyone has to order it when they need it, everyone except the biggest banks and airport forex exchanges. If the author means the physical cash market then he's talking about a paper commodity cash, and that would play by a whole different set of rules than the spot market, because with cash money you are talking about a physical thing that has a cost associated with it for transport (big truck, people with guns ..), storage (big heavy door w/ a wheel instead of a tiller), and everything else.

I would assume the physical cash market is a lot like the physical precious metals market meaning that there can be times when there is a premium over or under the spot price (late last year being a good example), and that has to do with the availability of the commodity and it does (in the pm market) forecast a change in prices. I do not, however, think that the physical cash market would forecast a price change for the spot forex market in the same way, because I would assume that if the price of physical cash was trading at a significant discount to the spot price it would be due to general decline in economic activity around the world, and people would be trying to drop the reserve currency (as a physical note) because they would still have to pay all those warehousing fees but they would not be generating as much profit on trades to cover them because the people who use physical forex cash (businesses and tourists) would not be doing as many transactions (due to less travel, etc).

That is the only way I would be able to explain a wide spread between a "cash market" and the rest of the forex market, I really don't know what the author is talking about to be honest. I cannot imagine there is a 38% discount on the $us in any market, however, because spreads like that don't last in any market because there are too many people who could take advantage of it through arbitrage. An example of how that works is last year in the physical PM market, when the spreads increased between physical gold and the spot price you had people who were willing to sell their physical gold and lock in a future price to replace the physical gold at a substantially reduced cost with essentially zero risk to them, and that activity eventually opened up the physical gold market by increasing inventories and availability. I would assume the same thing would happen with physical cash, except that it would be even easier because all you have to do is deliver the cash to the government that made it and have them convert it into electronic form for you thereby completely eliminating the spread, converting your physical cash into the electronic spot market.

As should be obvious, I'm not really sure what the author is trying to say.

Edit - but I do agree with the author's conclusion that eventually there will be devaluation!

[Bene505]

Though of this thread when I saw this...

[Cruisingdad]

Originally Posted by Bene505

Though of this thread when I saw this...

Boy, that was scary.

- CD

[chris_gee]

[QUOTE=TropicCat;519181]Brian,

"Economists Thomas Piketty and Emmanuel Saez have made careers of studying US income inequality using IRS data, which goes back to 1913. The most recent data available (for 2007) showed that the top 1% of US households received 23.5% of all income (the second highest on record, after 1928), while the top 10% received 49.7% of income (the highest on record).

The top .01% earners, 14,988 fortunate folks, had an average income in 2007 of $35,042,705. They had an average federal tax burden, according to Piketty and Saez, of 34.7%, leaving them after tax income of $22.9 million. If you assume a 50% savings rate among this group, you get total savings of $171.5 billion. This is nearly ONE HALF of the total savings for the entire country implied by a savings rate of 4.2% ($365 bn) reported in this month’s Bureau of Economic Analysis data."

Now where have I read that before? Oh right. Guest Post: “The Savings Rate Has Recovered…if You Ignore the Bottom 99%” « naked capitalism

"Economists Thomas Piketty and Emmanuel Saez have made careers of studying US income inequality using IRS data, which goes back to 1913. The most recent data available (for 2007) showed that the top 14,988 households (0.01% of the population) received 6.04% of income, the highest figure for any year since the data became available. The top 1% of households received 23.5% of income (the second highest on record, after 1928), while the top 10% received 49.7% of income (the highest on record).


The fortunate 14,988 had an average income in 2007 of $35,042,705. They had an average federal tax burden, according to Piketty and Saez, of 34.7%, leaving them after tax income of $22.9 million. If you assume a 50% savings rate among this group, you get total savings of $171.5 billion. This is nearly ONE HALF of the total savings for the entire country implied by a savings rate of 4.2% ($365 bn) reported in this month’s Bureau of Economic Analysis data."


Copy and paste plagiarism? That used to get a fail grade.

[danjarch]

Cris, I don't think rick was trying to claim that as his own words.

Bene, that commercial gave me the willies the first time I saw it. Scary stuff.

Windy, thanks for the insight on the cash forex.

[wind_magic]

Originally Posted by danjarch

Windy, thanks for the insight on the cash forex.

The cash forex market is very interesting. I've said before in this thread that I think anyone who is investing should learn about the cash forex market before they even learn about the stock or bond markets. Investors may or may not invest in stock, they may or may not invest in bonds, but everyone who has two pennies to rub together is exposed to foreign currency exchange risk in the forex markets whether they like it or not.

[TropicCat]

No Chris, I wasn't.

Here's a puzzling scenario. The recession will be declared over soon. Unemployment will be called a lagging indicator. So we will see GDP numbers showing us that growth occurs when close to 17% of the workforce is unemployed. This is forecast to continue rising. Given that 70% of GDP is consumer spending...and given that we will have close to 20% of the working population who can't spend....Just how is this possible?? Granted that full employment is usually cited at 4-5% U3 unemployment rate (say about 7.5% U6??).

So, 80% (workforce still working) then add the 7.5% U6 number to allow for the full employment factor= 88% of 70% (of the economy)is a drop in consumer spending to 60% of the economy...right? GDP should be impacted by -10%. If they declare the recession over and a return to growth in GDP, what math can they be using? I realize I didn't allow for unemployment insurance. A recent Princeton survey found less than 40% of the unemployed were still receiving it. Which calls into question the accuracy of the U6 unemployment number ...it's too low.

Anyone?

What the Hell is GDP measuring these days? China's imports??? Or is this the new math? Or is it one guy with a computer who asks whoever comes into his office "how much of an increase in GDP do you want this quarter?