Posted on 02/22/2009 3:00:19 AM PST by palmer
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In Poland, as an example, 60% of mortgages are in Swiss francs. When times are good and currencies are stable, it is nice to have a low-interest Swiss mortgage. And as a requirement for joining the euro currency union, Poland has been required to keep its currency stable against the euro. This gave borrowers comfort that they could borrow at low interest in francs or euros, rather than at much higher local rates.
But in an echo of teaser-rate subprimes here in the US, there is a problem. Along came the synchronized global recession and large Polish current-account trade deficits, which were three times those of the US in terms of GDP, just to give us some perspective. Of course, if you are not a reserve currency this is going to bring some pressure to bear. And it did. The Polish zloty has basically dropped in half compared to the Swiss franc. That means if you are a mortgage holder, your house payment just doubled. That same story is repeated all over the Baltics and Eastern Europe.
Austrian banks have lent $289 billion (230 billion euros) to Eastern Europe. That is 70% of Austrian GDP. Much of it is in Swiss francs they borrowed from Swiss banks. Even a 10% impairment (highly optimistic) would bankrupt the Austrian financial system, says the Austrian finance minister, Joseph Proll. In the US we speak of banks that are too big to be allowed to fail. But the reality is that we could nationalize them if we needed to do so. (And for the record, I favor nationalization and swift privatization. We cannot afford a repeat of Japan's zombie banks.)
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(Excerpt) Read more at safehaven.com ...
My quibble with Mauldin, although he is smart and knowledgeable, is he has been asleep. The worldwide economic crisis went into high gear precisely on October 5th 2008 when Germany threw in the towel and went financially protectionist like the rest of Europe. Iceland was quickly squashed under the bus (along with Ukraine and others to a lesser extent). In the next week or two the European markets melted down and dragged ours down with them.
Mauldin ping!
Contrary to their claim, they have really shallow and lazy mind. Their minds work only enough to present "sophisticated look" to others. But no further.
sophistication measured by the quality of the wine cellar. I’m not afraid to admit that I drink Bud Light!
Are we witnessing the unwinding of the “blind leap of Faith- Into Globalism?”
The reason Globalism will not work, is the ethos of the people in the different countries are not the same.
You cannot simply use money (that is arbitrary) as the ether by which things are measured. Money has a value past an amount, it has a value “in context”. That is how it relates to things around it.
When international banking removed the control of money from the ownership of the asset, it removed the moral limits of the owner from it’s use.
Sounds like magic to me. Arcane powers ? Perhaps they mean just buying more 100 dollar bill cargo ships from North Korea ?
You make good points....Globalism has failed, and miserably.
Those nations who first dump all vestiges of globalism, free trade, and other global isntitutiond....those will be the first nations to recover....
The new administration in Washington DC intends to put us under the yoke of a thoroughly corrupt International Government forever. This is engineered to accomplish that end.
We must keep the pressure on, and form an organized resistance. If they do not blink in the next 6-months, there will be an armed conflict.
Either a Military Coup or a Civil Conflict. Neither desirable, but will be necessary to preserve a free nation.
Thanks
Lots of good, thought-provoking material in this one.
I didn’t realize Europe was in such deep trouble. Or should I say, it is even worse than I thought. I knew some nations like Spain and Britain had larger housing bubbles than the USA did. I knew the toxic paper was sold to every corner of the earth. I knew Iceland is insolvent but I didn’t realize how pervasive and deep the damage was to Europe. Is Asia the next to reveal it’s exposure?
The part about stocks was interesting reading. I enjoyed the part about valuations fluctuating between low and high PEs. I agree that many or most investors buy high and sell low based on emotions, and this is the thinking behind dollar-cost-averaging. It prevents the average investor from doing too poorly, which of course prevents the average investor from doing too well.
Ive seen the “buy high, sell low” mentality here many times when someone posts “I just got out of the market and I should have listened to those guys last year who said ‘get out now’.” They sell after losing 40%, locking in their loss. In this crisis, that may prove to be good, but in general these folks do the same thing in more moderate bull/bear cycles and would be better off generally just dollar cost averaging.
Mauldin’s point is well taken that many elderly do not have time to recover from their current losses, saying the next bull will hit around 2015. I expect he is on the right track here. I feel very sorry for all elderly who could not see this coming as they won’t have time to recover and will have to work longer, go back to work, or scale back deeply.
All but the last point. The same emotional trade that got them out now will draw them back in when the Dow rises back through 10k. They will buy, it will go to 10,400 and waiver. They will sell at 9800 on the way back down (getting out "early" this time) and perhaps shun the market forever or do it all over again.
When I look at the last real bear market, late 60's to 1982, what I see mostly is a series of upside down U's. That's why I don't think dollar cost averaging will work. The average price would remain high (the top of the upside down U) followed by a quick crash and recovery. Even if one refrained from selling in the crash, there won't be much of the low price to average in (unless the investor uses a variable formula buying more when it is low).
However, things could be very different now. For one thing there will be a lot more intervention at the low points which will tend to lengthen them. There could also be a furious bull market if the inflation gambit works out.
I agree with you but even if dollar cost averaging doesn’t make them any money as those series of upside-down U’s lead to a secular sideways market, it would keep those people from simply buying high and selling low. If anything, maybe it would keep them from losing money, even as they don’t make anything. At some point when that protracted period ends, there will be a new bull market and for those who are not yet cashed out from retirement or death, they would ride the new bull market up.
I agree with with you that the future of the markets looks to be mostly sideways with a series of rallies and selloffs. I haven’t yet figured out to play them but I expect to see some strong rallies, even say 20-25%, before they slide back down to the bottom. If you buy-and-hold or dollar-cost-average, you won’t make any money. You’ll have to find some way to buy the dips and sell the rallies.
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