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alstry (35.49)

Total Financial Meltdown...SOON??????

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June 29, 2008 – Comments (23)

Three major European Banks have called for a financial meltdown in the U.S. in recent weeks.  The are Royal Bank of Scotland, Barclays, and Fortis.  The CEO of Fortis said it could happen as early as the next few days to few weeks.

Here are a few excerpts:

“The Royal Bank of Scotland has advised clients to brace for a full-fledged crash in global stock and credit markets over the next three months as inflation paralyses the major central banks.

“A very nasty period is soon to be upon us - be prepared,” said Bob Janjuah, the bank’s credit strategist.

 

US central bank accused of unleashing an inflation shock that will rock financial markets, reports Ambrose Evans-Pritchard

Barclays Capital has advised clients to batten down the hatches for a worldwide financial storm, warning that the US Federal Reserve has allowed the inflation genie out of the bottle and let its credibility fall “below zero”.

 

BRUSSELS/AMSTERDAM - Fortis expects a complete collapse of the US financial markets within a few weeks. That explains, according to Fortis, the series of actions by the bank of last Thursday to raise €8 billion. “We have been saved just in time. The situation in the US is much worse than we had thought”, says Fortis chairman Maurice Lippens.

 

Are the European banks giving their clients a heads up that is not being heard in America?  What are our politicians doing about it?

23 Comments – Post Your Own

#1) On June 29, 2008 at 4:45 PM, JoHooch (< 20) wrote:

I'm curious alstry.  How are you prepared for this world financial apocalypse you forecast daily?  I'm just trying to get a better picture of who the person behind the CAPS persona is.

When I personify the CAPS version of you in my mind, I see a middle aged survivalist with a beard.  In between CAPS blog posts I envision you running to Home Depot for more concrete with which to fortify your panic room.  Then, you stop at Sam's Club to pick up jumbo packages of tuna fish and peanuts, as well as purified water (or maybe you have installed your own purification system, in which case, I say BRAVO).  In the concrete walls of your panic room, you have encased small gold bars which you can chisel out for bartering purposes when needed.  Of course you must also have a firearm stash as well. I assume at least 2 handguns, a rifle for hunting, and a shotgun for close quarters defense (hallways, etc).

Alright all joking aside, does your internet-doom-and-glooming extend out into the real world?  I'm really curious.

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#2) On June 29, 2008 at 5:19 PM, alstry (35.49) wrote:

Actually, no....not even close.  But I have begun to at least understand such behavior much more than I would have in the past.  I do shop at Costco, but that is because I think they are by far the best retailer in the world..at least for my tastes and simplicity.

That said, I don't believe I have ever predicted an apocalypse.  At least not in the nature you are seemingly intending.  However, if you ask me do I think major social changes can arise out of economic distress, I would respond most such changes do and the greater the distress the greater the likelihood of change.

If you are asking me am I predicting 30%-40%unemployment based on current methodologies of reporting unemployment....sure.

Am I predicting that the majority of financial institutions will fail or merge....sure, but that is no appocalypse.

Am I thinking that the vast majority of retirement accounts and pensions will be wiped out....absolutely but that will not even be close to an appocalypse.

You must understand I have travelled the world both as an adult and a child.  I am the son of a diplomat and grew up really seeing what distress really can be......most of us Americans really have little clue from a material perspective.

You see, I play CAPS to accumlate points.  I love winning.  Doesn't really matter the game...but I like to play fairly and with honor.  I  call things as I see them and try to provide independant sources supporting my position.  I encourage opposing views as it challenges me on my own views.....and that is my primary reason for blogging.

Right now I see a world where economic systems are going to fail.  You can't double the price of most things people spend money and and stagnante incomes and not expect failures.....actually many failures when you apply it to practically the entire population. 

The fact that half the retailers in America may go bankrupt is not the world destruction...just sucks of you are that retailer or its landlord.

It is not the end of the world....but if you are going to try to accumlate points you better get it right...or you simply don't get many points.

I think I have it right.....more right than many......in the end points will be the judge.

Now back to finishing up my bloody mary and I have a little league game tonight....and hopefully accumulate a bunch of points this week.

Right now you have about 300 more points than me with about 25% more active picks....do you think I can overtake you by the end of the week?

 

 

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#3) On June 29, 2008 at 5:22 PM, lquadland10 (< 20) wrote:

iwat >>>>how are you prepaired do you have a garden? do you have gold? do you have a gun? you will be one of those who say the GOVERNMENT must do something to help me.These are a few people who know how bad it will be. So just go along making fun of alstry and we will be the one making fun of you in the end. Except we have more comapssion than you do and we won't make fun of you I will just have pity.  alstry abit dwot                       

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#4) On June 29, 2008 at 5:26 PM, lquadland10 (< 20) wrote:

few people who know how bad it will be. alstry abit dwot are the ones who know how bad it will be it just looked wrong as I re read the post.

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#5) On June 29, 2008 at 6:19 PM, sid187 wrote:

How nice that some C S***in euro banks talk about aboot a crisis in America ??

Are they kidding me. are you kidding me.

But I guess as most banks are evil and blow, they would be in a good position based upon their own inadequacies to project their own failures upon other institutions.

Inflation is a world wide problem, although the US hasnt helped by devaluing its dollar and making its interest rates a joke.

Whats the inflation in Russia ??? well over 10 %

In ASia ??? In India ???

Alstry just about every blog ive read that you've posted have been rather negative and bleak.

Of the 3 euro banks you mentioned ive only heard of the first 2 and of those, they are in pretty bad shape themselves.

Although the royal bank of scotland has funny commercials.

Right now everyone can give into panic and fears, you can sell your entire portfolio, but than you'll still lose given how inflation will make the money much less.

Now is the time to make shopping lists as to companies that you like but have been too expensive.

Lets say for example sake that they are right and things will get more darker, does anyone honestly think that those who are capable of riding out the storm won't be in a good position.

Right now the european economy is bad so its not surprising for them to have such an outlook.

Maybe if they looked into fixing their own messes, things could improve.

What's an investor to do?

A brief anatomy lesson
My favorite quote, among the thousands that deal with investing, is this one: "When in danger or in doubt, run in circles, scream and shout."

Wait, wait. Wrong one. Here we go: "The key to good investing is not the brain, it's having the stomach."

While that might not be a word-for-word quote of Peter Lynch, it certainly is a paraphrase of what he taught. And he's not the only one who's expressed that sentiment. Remember this one?

"Be fearful when others are greedy, and greedy when others are fearful." Warren Buffett has lots of great advice, but that one just begs to be framed.

There's always something to worry about
Peter Lynch meant that worries always abound. The successful investor knows to mostly ignore them.

Right now, the big bugaboo is the turmoil in housing and the credit markets. Two years ago, it was avian flu. At the beginning of the millennium, it was the dot-com crash.

Before that, we feared that Americans couldn't keep up with the Japanese. Remember when "they" bought Rockefeller Center?

The 1970s had inflation and an oil crisis. The 1950s had fears of nuclear war.

Do you see a pattern here?
Although the market always has something to worry about, the worry du jour has never meant the end of the investing world.

Instead, strong businesses survive and keep growing -- taking the market along for the ride.

Less worry, more money
Now, not every company survives, and people do lose money investing. That's why you'll do well to focus on strong operators and superior management teams.

Why did Blue Nile (Nasdaq: NILE), founded in 1999, survive the dot-com crash? It had a viable business model and the right people in place to make it great. While many dot-bombs disappeared forever, Blue Nile went public not long after the bubble burst.

Although Asian manufacturers did end up gaining an edge in many markets, American entrepreneurs responded with businesses such as Cisco (Nasdaq: CSCO), founded in 1984, that have kept our capital markets strong.

Northrop Grumman (NYSE: NOC) has been affected by every one of these worries -- and lived to tell the tale. It's a blue-chip brand that's always worth considering for purchase when the market dips.

Consider: Northrop Grumman has returned more than 15% annually over the past two decades!

Something for everyone
Which kind of investor are you: a Chicken Little, or one who will take advantage of market panic to profit?

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#6) On June 29, 2008 at 6:22 PM, MarketBottom (29.82) wrote:

In all probability, a strike on Iran and the subsequent disruption in the flow of oil will precede.

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#7) On June 29, 2008 at 6:28 PM, RVAspeculator (40.04) wrote:

Its all this type of talk now that is making THIS long term bear look for a bounce. 

 I wait until I hear "the sky is falling" 100 times and on #101 I go long.  :)

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#8) On June 29, 2008 at 7:34 PM, JoHooch (< 20) wrote:

Hey no offense.  I was just curious.  I think that if we did see 30-40% unemployment there would be violence in the streets.  I just doubt it will get to that.  Who can predict though?  You could be right.  I could be right.  I think the truth will be somewhere in betwixt.

and alstry, as far as the points thing, you very well could overtake me by the end of the week.  I use CAPS to watch stocks that are generally moving up and when my 200 is pretty much full, I put the less good looking stocks into the watchlist.  CAPS is a really fun tool for me....I know I don't have much hope of breaking into the top 100 or so players, as they are amazing.  I haven't been playing long though and I think I'm doing *ok*  I take pride in making picks ONLY based on charts and fundamentals researched by me.  I do that so that I know how good I am independent of others.  I could copy rudolphsteiner or TDRH and do better but I'm happy floating around in the 98th percentile until I get better.  I will definitely take a look at your CAPS port later this week to see how things are going though :-)

And RVAspeculator,  I completely agree that we should see a bear bounce this week.  I blogged about it yesterday.  With only about 14.6 or so % of stocks above their 40 DMA's, we are in extremely oversold conditions.  A lot of good stocks put in strong last half hours on Friday.

We'll see...

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#9) On June 29, 2008 at 8:36 PM, wolfhounds (29.26) wrote:

When the end comes, you're all invited to come over and share from my wine cellar. Chateau LaFite Rothschild anyone? lol

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#10) On June 29, 2008 at 9:03 PM, jegr5347 (< 20) wrote:

Are RBS, Barclays and Fortis good sources for this kind of analysis? These are the same institutions that bought into that whole securitization and collateralization garbage. Aren't they all scrambling for capital now. Sounds to me they are trying to inflate a balloon in order to draw attention away from their mistakes. Inflation is a global problem, not a US problem.

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#11) On June 29, 2008 at 9:10 PM, sid187 wrote:

Start stocking up on some whiskeys wolfie.....

some may say that wine is fine

 but liquor is quicker.

 

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#12) On June 29, 2008 at 9:10 PM, alstry (35.49) wrote:

All great perspectives.  Thanks to all.

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#13) On June 29, 2008 at 9:18 PM, sid187 wrote:

RBS BAR and whatever that third bank is, are horrible sources.

THey are scrambling to stay afloat

http://news.moneycentral.msn.com/ticker/article.aspx?Feed=AP&Date=20080609&ID=8746541&Symbol=RBS

RBS is selling new shares at only 3 dollars a share and

RBS announced its rights issue last month in a humiliating reversal, just months after chief executive officer Fred Goodwin said the bank did not need to raise cash.

 

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#14) On June 29, 2008 at 9:19 PM, sid187 wrote:

Those foreign banks actually make US banks look real good.

 

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#15) On June 29, 2008 at 9:47 PM, SemperGumby77 (72.53) wrote:

At the very height of the Depression in 1933, 24.9% of the total work force or 11,385,000 people, were unemployed.

With a prediction of 40-50% unemployment, you're predicting is an event roughly twice as bad as that. 

While I have no doubt that we could see an extended bear market, I would have to characterize the event that you describe here as a genuine apocalypse, and a very, very low probability one at that.

 

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#16) On June 29, 2008 at 10:05 PM, debtRichQuick (< 20) wrote:

30-40% unemployment?!  By US calculation methods? 30-40%?

 I spent part of my life growing up in a 3rd world country too, and I cannot imagine unemployment getting to even 30%.

 30% unemployment means you're talking about reversing decades of job growth. Not possible. A recession is merely a return to the the normal GDP growth line.  Job loss is typically closely related to the decline in GDP. If GDP is above trend by 20% and the jobs created to reach that overextended point are 5% of jobs, then 5% is the mean increase in unemployment for the recession.

 Unemployment by the end of next year will be no higher than 10%/12%. I'm thinking 8% is more like it. 2010 we may see the peak.  Even if you wipe out all the GDP growth since the housing boom started, you are talking about unemployment under 20%.

 Don't forget, the reason why many third world countries use man power to do what machines can is basically because it makes no sense to operate machines when labor capital is cheaper. 30-40% unemployment means during the construction of a building we are basically going to be running wheel barrows full of cement up to the 45th floor on bamboo scaffolding instead of using a crane.

I am still optimistic about a green building/environmental tech bubble in 5-7 year. One where you will once again see the checker at COSTCO writing down a "hot" stock tip on the back of a customer's receipt. All we need is Obama and we are outta here. My take is money right now doesn't know where to go. Once it finds out defense spending is over and domestic spending is in...it won't be long before you see the bubble start to take shape.

 

 

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#17) On June 29, 2008 at 10:10 PM, MakeItSeven (32.83) wrote:

alstry missed three more sources:

 The International Monetary Fund today warned authorities worldwide to "think the unthinkable" in planning to cope with a mounting crisis in the global financial system.
  John Lipsky, IMF first deputy managing director, called for "decisive policy action" amid a credit crunch that stems from the US real estate meltdown and is spreading throughout the financial markets.

 

The Bank for International Settlements (BIS), the organisation that fosters cooperation between central banks, has warned that the credit crisis could lead world economies into a crash on a scale not seen since the 1930s.

 

 Billionaire Warren Buffett has already said he thinks the U.S. economy is in a recession, and now he says the economy is getting worse.

 

But the reason I chipped in is because of this quote from sid187:

Something for everyone
Which kind of investor are you: a Chicken Little, or one who will take advantage of market panic to profit?

I guess I'm neither.  There are a few people who used the words "chicken little" when arguing with me about the stock market but I consider myself just an arrogant SOB who thinks he can double the return of the top long-short hedge fund in the US every year and then proves it.

I read through Sid187's long argument and I only have these short comments:

- It's easy to recognize patterns and then expect similar  patterns to be repeated (Pavlov's dog-wise).

- It's harder to understand the reasons behind the pattern and explain why.

- It's hardest to unlearn what you consider a part of your knowledge so you won't be bogged down by it in your analysis.

Anyway, the CEO of Hovnanian  said last year that he had been in the business for 25 years but never expected the housing market could turn out that bad.  I believe he was truly caught by surprise and not that he wanted to destroy his family business of 50 years.

Now, do you really think you know more about the economy than  Ara K. Hovnanian knows about the home building business ?

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#18) On June 29, 2008 at 10:52 PM, LORDZPAIN wrote:

Just because someone was in business for 25 years what does that prove ????? expect the unexpected ...

Never heard of ARA...

NEXT !!!!!!!!!!!!!

LMAO

since when is the housing market so bad ???

the market is where it should be, did everyone honestly believe it would continue to grow at such ridiculous rates.

The thing about old people is they think they know everything and they dont..

had they know they would have made better choices.

Oh please make it seven.......... not another sky is falling blogger,,,,,

Havent we dealt with similiar crap before...

remember when these idiot bankers loaned billions to third and second world countries at such large rates that they defaulted and never got paid...

anyone ???

did the world end than ???

THE answer is

NO !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

 

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#19) On June 29, 2008 at 11:01 PM, jesusfreakinco (29.58) wrote:

Al,

Good post.  Nice job on the recent run up in score.  I told you to add some gold stocks.  With my emphasis on gold, I am liable to catch you.

Keep posting.  People can call you what they want, but you present a viewpoint not often found in the media and necessary for any investor with an open mind.  

JF 

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#20) On June 30, 2008 at 1:51 AM, McNabRanch (< 20) wrote:

 I'm new, don't claim to have 5% of the knowledge most of you seem to. But I do have a question. Why is gold considered "the" place to be why times are bad? Having worked in electronics and optics for 35+ years I know it has some industrial value, but at bottom isn't it's value just based on the fact that it's rare and pretty? Is this an over 5,000 year old bubble?

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#21) On June 30, 2008 at 6:52 AM, alstry (35.49) wrote:

debtrich:

"30% unemployment means you're talking about reversing decades of job growth."

No it doesn't.........it simply means that 25% of the population not looking for work right now starts looking for jobs due to rising prices and falling asset values.

Unemployment only measures those people actively looking for work. 

Then if you reverse out birth/death adjustments from the BLS, plus additional likely layoff announcements, to me 30% seems like a pretty attainable number.

Remember, this is just my analysis.  I have not heard another come even close..... yet.

The biggie this week will be Ford's and GM's sales reports....we are looking at hundreds of billions of debt and likely trillions of SWAPS....I simply can't see how the two auto manufacturers can come even close to servicing their debt with sales likely down 30% and the mix moving away from higher margin SUVs.

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#22) On June 30, 2008 at 1:50 PM, angusthermopylae (41.42) wrote:

I think I get alstry--he sounds like a doomsayer, but what he's really doing is just pointing out a strong possibility that he sees.

I think of myself as a generally happy guy, but I see all the recent news and "surprises" as the rivets and bolts popping out of an unsupportable structure that has been built in the market--gas/oil, housing, autos, and debt have all been feeding on themselves and each other for too long.

So, I take some steps to survive the downturn.  No debt (now or in the near future), growing a bigger garden for those easy-to-grow staples (tomatoes, beans, potatoes, corn, etc), drive only when I have to and combine errands when I do, and buying hay and planting feed corn now so I'm partially insulated from prices this winter.

As for the survivalist stuff, that's everything I always do:  We heat with wood, own firearms, and I have my own blacksmith shop.  However, heating with wood is just our way of life.  In our family, being able to use a weapon is just a normal skill that we have (not in anticipation of the hordes of starving New Yorkers stampeding west...:-), and I would rather make and repair my own tools than continually buy cheap replacements.

Just because you "prepare" for an economic recession/depression/correction doesn't mean you plan on holding up in a cabin in Montana eating MREs.

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#23) On July 11, 2008 at 4:03 PM, 22SMU22 (< 20) wrote:

I couldn't agree more.

 If there is one thing I HATE about analysts and their outlook towards the stock market, its this... THE MARKET IS YOUNG!!! WHY WOULD ANY ONE ASSUME THAT BECAUSE OF 80 YEARS OF STOCKS GOING UP, HISTORICALLY SPEAKING, THAT THE MARKET WILL ALWAYS GO UP. Mathematically speaking, 1. That is a stupid and ignorant thought, and 2. It has always been possible the market tanks to a level we have never seen. If they assume it will keep rising forever, than the time interval they believe is infinity. If time approaches infinity, over the coarse of time any and every possibility will happen at least once.

 

Will it happen? hope not

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