13 Nov. 2007

Financial Tsunami On The Horizon: $350 Billion Set To Explode!

Here comes Howard's "Tampa 2007". But it's not what he expected. The big question is whether the $350 billion wave on the global financial horizon will crash on our shores within the next 10 days.

Here's Mike Whitney:
On Monday, Asian stock markets took another drubbing on fears that the credit squeeze which began in the United States would continue to worsen in the months ahead. Every index from Tokyo to Sidney [sic] fell sharply continuing the “self-reinforcing” vicious cycle of losses started last week on Wall Street. The Nikkei 225 average fell 3.3%, India’s Sensex dropped 2.9%, Taiwan tumbled 3.5%, and Hong Kong’s Hang Seng slumped a whopping 4.5%. The subprime tsunami is presently headed towards downtown Manhattan...
Of course, none of this registered in the Aussie news cycle, which is obsessed with the election.
Overnight, the greenback has become the leper at the birthday party; everyone is steering clear for fear of contagion. Foreign central banks are looking for any opportunity to dump their stockpiles of dollars in a manner that doesn’t disrupt their economies or the global financial system. Their intentions may be prudent—even honorable—but it won’t forestall the inevitable blow-off of USDs that is likely to commence as soon as the financial giants reveal the real size of their losses. New regulations have been put in place that will require the banks to provide “market prices” for their assets. This will expose the degree to which they are under-capitalized. When word gets out that the banking system is underwater; there’ll be a run on the dollar.

On Sunday, the AFP reported that the Group of Seven richest nations (G7) is considering direct “intervention” in the dollar’s decline to prevent a “disorderly correction”.
Interestingly, today's news suggests an easing in the US credit crisis. But consider this from the comments at ICH:
Amusingly, the stock market went UP by 320 Dow points today, just as Mike Whitney comes out with another dire prognostication.

It's not that Mike is wrong, or that the subject is unimportant. However, anyone who believes that the stock market functions according to rational economic principles has misunderstood the nature of the beast.

The market is a fantastically corrupt creation -- there's almost nothing in it that is NOT corrupt. It does what people on Wall St want it to do. Almost always, they want it to go up, and they view with extreme hostility the idea of letting it collapse. They have a million tricks at their disposal to prevent it from collapsing.

So, no matter how awful the objective economic circumstances might be -- and they are indeed terrible -- I wouldn't recommend holding your breath until the market collapses. I fully expect that the very evening before Doomsday comes, there will be a brisk market rally, supported by hedge funds & the Plunge Protection Team.

If Bush declared himself "Emperor for Life" tomorrow, the market would probably rally on the news. If he nukes Teheran, the market will simply look for Pentagon assurances that the nuking was "successful" -- then it will rally. If the Rapture comes, and we all get spirited up to Heaven, the market will rally on the rumor that Goldman Sachs plans to privatize Heaven, & is offering an IPO on the deal.
RichM | 11.13.07 - 3:18 pm | #
Well, exactly. OTOH, I've been reading Whitney for some time now: his forecasts don't usually happen as quickly as he expects, but they DO HAPPEN. Nobody else in the Financial News sector is prepared to tell it like it is, until they have already cashed out.