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The tsunami of bad news keeps coming

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October 10, 2008 – Comments (9)

The world financial system on the brink of collapse is the warning.... 

It is interesting that this warning comes from the UK, which after my brief experience living there and see first hand the dire straights of their economy, well, I have maintained that the pound is in really bad shape.  They have huge social programs, high taxes and low services for the taxes paid.  They have some interesting taxes as well, like the council tax renters pay, the TV tax, yes if you want to watch TV you must pay a TV tax.  I think the pound has a ways to fall. 

I suspect they'd collapse first.

Yves is reporting that hedge fund margins have been tightened.  So hedge funds used to 15% have had margin requirements increase to 35%, forcing them to sell stocks.  This would be deleveraging in action.

Lehman, a $270 billion insurance payout required? That's a lot of money....

The TED spread (the difference between the LIBOR interest rate and the three month T-bill) has increased to a record 4.65 today.

With the US dollar rallying I suspect that boost to tourism is going to dry up, expecially with people losing so much.

9 Comments – Post Your Own

#1) On October 10, 2008 at 8:52 PM, lquadland10 (< 20) wrote:

My ode to Ron Paul who has told the truth for 50 years. May he be the new President.

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#2) On October 10, 2008 at 9:24 PM, EnergyCzar79 (33.24) wrote:

What's your read on the G8/Paulson announcement today. Is this our great salvation or is it more gasoline on the fire?

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#3) On October 10, 2008 at 9:26 PM, floridabuilder2 (99.33) wrote:

I agree DWOT... if there is a collapse the UK is in worse shape...  However, I think that the global govt's coming together to solve this problem on the same page will prevent a total meltdown... instead i see a decade of zero growth mostly.. thus you need to be much more selective in your investments since tying them to an index means zero return

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#4) On October 10, 2008 at 11:16 PM, Harold71 (22.89) wrote:

florida you also said the Dow might go down to 10K but that's about it.  It's not going to be zero growth, it's going to be negative growth.  The debt bubble is crashing.  Humpty Dumpty fell off the wall; there is no putting this thing back together again.

The monetary system itself will now come under attack, and rightfully so.  If you thought the last few weeks were interesting, the next few years are going to blow your mind.  :)

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#5) On October 11, 2008 at 12:19 AM, floridabuilder2 (99.33) wrote:

harold I always play the cards that are being dealt... there are no guarantees in life... so you see a decade of negative growth?  if you have 5 years of negative growth offset by 5 years of positive growth then that is 10 years of zero growth... see my point?

your call on the future is about as pointless as mine... neither of us know how this really turns out

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#6) On October 11, 2008 at 12:46 AM, dwot (69.85) wrote:

EnergyCzar, I have no opinion on that, I haven't looked at it at all.

fb, I agree on being selective.  I think the economy is going to go into dealing with a huge reversal.  I really think we are going to see the average number of square feet of housing per person decline and that will be enormously difficult to absorb in terms of less jobs.

Harold, I think negative growth as well...

 

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#7) On October 11, 2008 at 1:04 AM, Harold71 (22.89) wrote:

I didn't say a decade of negative growth.  But there will be a cascade downward.  It's turning out exactly like I thought it would, and I predict much worse things ahead.

This isn't rocket science.  It's not hard to see "how this really turns out" so let's quit pretending we can't see the future.  The stock market will continue to be crushed, and in due time the US dollar will collapse to a mere fraction of its current value.  It is the worst financial crisis since the Great Depression, and we're a solid 5 years away from the bottom.

There are no exact guarantees in life FB, but certain things do have a destiny.  You can also examine the past to determine future events if you know where to look.

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#8) On October 11, 2008 at 11:48 AM, dwot (69.85) wrote:

Harold, neither did I say a decade.  The bottom on negative growth will probably only be a year or two, depending on how quickly it happens.

I used to say in the past that if everyone in the economy was like me it would come hardly move.  I certainly had some discretionary spending, but I felt like I saw most people around me spending more.  I know how much I put into my mortgage.  I know I shared a vehicle for 12, nor did I have the cost of supporting a family, yet there is no way I lived the DINK lifestyle (double income no kids).  Housing costs completely crippled my lifestyle, as it has for years for anyone about my age and younger in Vancouver.

It has to play out the same way for a much higher percentage of North America now, and that's going to hurt long term.  I was a homeowner for 15 years and paying for it dominated my fianances the entire time.

My view a year ago was the Vancouver was a mini economy of what was to happen in the bigger picture due to housing costs. 

And now there is simply a much higher percent of the economy that is crippled.  This is going to be a dead weight for years.  

So, there will be negative growth to a bottom and then future growth will be impaired.

Bottoms tend to over shoot, just like tops, so finding that over shot bottom will be handsomely rewarding, but, if you had fair market value right now I'd say that future growth would be a slug for years because of the crippling effect of debt.

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#9) On October 11, 2008 at 2:19 PM, Harold71 (22.89) wrote:

"Harold, neither did I say a decade."

Sorry I was responding to Florida's comment.

"I used to say in the past that if everyone in the economy was like me it would come hardly move."

:) My brother says the same thing about me...that I'm "bad for the economy" because I'm frugal.  Perhaps if everyone was frugal we would not be in this mess.  Savings (capital is the root of capitalism) is necessary for economic growth.  America has had high Gross Domestic Consumption but Gross Domestic Production is lacking.

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