Posted on 09/19/2007 6:51:42 PM PDT by Revel
The credit bubble is just starting to unwind, a credit-derivative insider says. And while U.S. borrowers are being blamed for the mess, they were really just pawns in a global game.
Jon Markman
Satyajit Das is laughing. It appears I have said something very funny, but I have no idea what it was. My only clue is that the laugh sounds somewhat pitying.
One of the world's leading experts on credit derivatives (financial instruments that transfer credit risk from one party to another), Das is the author of a 4,200-page reference work on the subject, among a half-dozen other tomes. As a developer and marketer of the exotic instruments himself over the past 30 years. He seemed like the ideal industry insider to help us get to the bottom of the recent debt crunch -- and I expected him to defend and explain the practice.
I started by asking the Calcutta-born Australian whether the credit crisis was in what Americans would call the "third inning." This was pretty amusing, it seemed, judging from the laughter. So I tried again. "Second inning?" More laughter. "First?"
Still too optimistic. Das, who knows as much about global money flows as anyone in the world, stopped chuckling long enough to suggest that we're actually still in the middle of the national anthem before a game destined to go into extra innings. And it won't end well for the global economy.
An epic bear market
Das is pretty droll for a math whiz, but his message is dead serious. He thinks we're on the verge of a bear market of epic proportions.
The cause: Massive levels of debt underlying the world economy system are about to unwind in a profound and persistent way."
Follow the link for the best explanation I have ever read.
http://articles.moneycentral.msn.com/Investing/SuperModels/AreWeHeadedForAnEpicBearMarket.aspx
(Excerpt) Read more at articles.moneycentral.msn.com ...
Question: If even money funds are being backed by this bogus debt, what, other than gold bullion is a safe store of value?
Interesting charts at your site. I agree that we are at a major top.
No, it is not economic ruin for the US, just a tradable feature of the business cycle.
This would not be good time for any hostile neigbors to squeeze us as, for example, Russia is wont to do in the energy markets.
“Because, ummm, I guess people feel like big boys ought to be able to do what they want with their money. Last time I checked, no one guaranteed one’s investment in a hedge fund.”
So if they borrow a dollar from you then they should be able to spend it 20 times over. And then cry to government to bail them out at the expense of the taxpayer? And if the government says no then they get to crash the economy a little faster than they have already.
Just read around and see what makes sense I guess. Even with gold there is the idea that in a crisis the government could take it or make it illegal to own(Which they have done before). Or even if they don’t take it...they could make it illegal to sell. There are reasons why they might do that. But I am no expert in that area.
The Feds were a ‘day late and a dollar short’ with the cut, IMHO. I agree totally with you three - we weren’t promised a rose garden, and where we are undoubtedly headed will not be rosy.
Add all the self-described conservatives who are bears to the long list of anti-capitalist liberals who are bleating bears, and I do believe us bulls bees in good shape I tell you.
Well, yes, if you bet more than you can afford to lose, thinking you’re going to win, disaster is quite likely.
But you don’t need derivatives to do this, just go to Vegas. At least they have nice shows and buffets there.
>what, other than gold bullion is a safe store of value?
1) Swiss Franc or Japanese Yen denominated money market assets. You can buy FXF and FXY through any brokerage account.
2) precious metal bullion (gold, silver, platinum, palladium)
3) futures contracts on agricultural and energy commodities
4) commodity producer stocks
5) real estate
6) short sales on companies not prepared to weather an inflationary period; i.e. where input costs are rising, but the company has little pricing power.
7) Anything that people need regardless of their financial condition, such as storable food.
8) Prepayment of services and goods, where you can be reasonably certain that the other party will deliver on the agreement. E.g. subscriptions, maintenance contracts, etc.
and last of all...
8) if you have lots of money, diamonds and art. Investment grade diamonds are large (2 carats or more) and flawless. They may come in rare colors, like pink. They are very expensive. Likewise, blue chip art can be an excellent store of value.
That’s why at least some gold should be held outside the US.
>>there is virtually no damage on the ground to be seen.
Not true. Although the averages are within a few % of all-time highs, the average stock is still down over 15% from its peak. This is why so may hedge funds are getting killed right now.
Yup. I moved my 70% stock/30% bond position to 95% stocks a couple weeks ago and am up around 10% already. I really just do not see a bear market with stocks anytime soon. PE Ratios and earnings growth are just too solid at this. If the market drops down to say 12k or so for any period of time, I will be getting some great value bargains.
It's not time yet. We have about 30 years to go. (1930's, 1970's, 2000's) We only have the markets cut in half every 30 years or so. 1987, 1994, 1998 all were just fire drills. Those losses were recovered within a year.
ping for later
“And yes, I believe there is a possibility we are facing a major depression.
It’s not time yet. We have about 30 years to go. (1930’s, 1970’s, 2000’s) We only have the markets cut in half every 30 years or so. 1987, 1994, 1998 all were just fire drills. Those losses were recovered within a year.”
Sorry. We have never had derivatives before. All your models are toast.
bump for later read
Bookmark for the morning.
The key component is whether lower taxes will stay in place or even be reduced further. If the scum in Congress decide to allow taxes to go up again, the economy will falter.
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