December 4, 2007
Elaine Meinel Supkis
Both the Canadian dollar, the loonie, and the yen are in the news. Time to examine both and their relationship with the US dollar. We are seeing the whole world that trades with the US falling into the same system Japan has created. This is why I have been hammering in the issue of how Japan has arranged its own finances and global trading. Of course, none of this will work if the US imitates Japan. And we are imitating Japan so this is throwing the entire planetary free trade system into a deflationary tailspin as I feared some time ago. It is increasingly obvious now. And Leona Helmsley's spoiled rotten dog has to go into hiding.
Yen Advances on Concern Credit Losses Will Deter Carry Trades
The yen rose against the dollar and euro after comments from U.S. Treasury Secretary Henry Paulson failed to revive credit-market confidence, prompting traders to sell higher-yielding assets bought with loans from Japan.The yen advanced against 15 of the 16 most-active traded currencies after equity markets in Europe and Asia fell and U.S. stock-index futures slipped. Paulson said he had no ``silver bullet'' to stop subprime-mortgage losses from spreading. The Japanese currency rose the most against the Brazilian real and Australian dollar.
``Subprime concerns are back at the top of the list, and that's leading to heightened risk aversion and the unwinding of carry trades,'' said Audrey Childe-Freeman, an economist at CIBC World Markets in London. ``The market is in a very hesitant and cautious mood.''
Paulson is throwing in the towel? How interesting. There are several horrible cures for overextending credit:
1. Hyperinflation: one devalues the currency so that past loans in higher-value currency are paid back with worthless paper. This scheme works only so long as the people owing money get big pay raises. If they don't, this causes the bankruptcy rate to soar even higher.
2. Bankruptcy: everyone from top to bottom throws in the towel. This scheme causes great pain because everyone gets a visit from the sheriff who seizes everything. If laws are changed so the bankrupt an keep their home and other valuables, the entire banking system collapses and stays dead for a long, long time, sometimes for hundreds of years.
3. War: nothing works better than destroying everything and killing lots of people while everyone who survives gets great jobs working like crazy for the military. The downside: if you lose to someone who doesn't care if you survive, things get really nasty. Or if you win but there is no loot, you go back to square one. The worst case scenario is the one we are in now: you sort of win but it costs a fortune and everyone hates you and the loot doesn't come anywhere near to balancing the books.
We are now officially in the middle of the American Banking Crisis of 2007. This major financial meltdown is officially unfixable. Back in 2003, astute people like myself knew that Greenspan's easy money coupled with the Japanese carry trade flooding our equity and asset markets with hyper-cheap loans was going to cause a huge bubble/collapse. This is why we were not shocked that the US decided to go to war. This was a preemptive strike to deal with the obvious future problems. They figured, a cheap war to push over the obviously unarmed Saddam would make us rich for we would get all of Iraq's oil and thus, the world price of oil would be low and we would collect all profits from Iraq's oil sales. Only this war was a total failure and the prize has turned into a booby trap.
Now that the lending birds are coming home to roost and poop on Paulson's bald spot, the US is in financial straits from every indicators running in the red. Paulson wanted to save the investing houses that got in trouble investing in housing. He finally figured out that this is impossible. None of them want those sub-prime buyers off the hook via super-low interest rates to infinity. If good risk people were forced to put more than 20% down plus pay all the other costs and now have a 5.45% interest mortgage while some spendthrift with 0% down and slender resources gets a 2% mortgage courtesy of Uncle Sam? That is nasty.
The big investors gain nothing from this, the reason why all those ABX indexes are collapsing is due to the fact that they are all based on the presumption that in the future, all those Alt-A loans would switch to high-value paybacks! Not hyper-low rate loans! It is very unfortunate, but the bankruptcy process must proceed. Not one of these loans should have happened in the first place. As a multi-purchaser of housing over the years, when I invested in housing, over 60% of the money I used was in cash so I had a huge cushion. I didn't use huge loans, I had a revolving credit line for renovations which was not attached to properties so the interest was higher but my freedom was even higher. I needed the freedom to move in and out of projects and if I lost sums, later, they could be recouped.
The hazard we are in now is much nastier than it should be because EVERYONE was using 'leverage' which is debts, to play speculative games. Homebuyers as well as the buyers of ABX He tranches, everyone thought they could enjoy the multiplier effect of using lent money to play risky games. The problem with this is, when things go bad, the multiplier effect on the downside is much worse than the upside. For one is FORCED to tell in a down market! One can't ride it out. If entire financial fields are run via debts, this causes a huge banking collapse which is why this was forbidden after 1929. Alas, the rich of the US got this removed in the last 30 years, bit by bit until any yokel in the streets could tap into infinite resources to play investment games. Yokels who didn't have any resources to play this game in any downturn.
From my own news service just yesterday:
And here is a snippet from this report, talking about how the Japanese carry trade has nothing to do with the flood of M3 money and freebie loans that have caused world finances to explode upwards.
The flood of nearly free loans that came broiling out of Japan this last 3 years has pooled into such fetid swamps as the US speculative housing boom. And buy-outs of any corporation still not up to debt to their eyeballs. The historic M3 money growth this last 3 years has been concentrated mostly in Japan, a nation supposedly in a depression, and Europe and the US, the places now having a major banking breakdown. I have noted before, the peculiar nature of a nation in depression, pumping this level of liquidity into markets! This is impossible. Japan is drowning in liquidity! Yet we see today that all the Western banks are now complaining about lack of liquidity.
We know that they are now aware that the 'carry trade' with Japan is history. It began to devolve in July, 2007. Now it is a topic of regular speculation in the mainstream news. Even after the IMF issued this report 'debunking' the idea that Japan has flooded the world with liquidity and thus, is responsible for the present mess. Before we examine this further, let's look at today' news about the loonie, Canada's dollar.
Canada Unexpectedly Cuts Rate as Dollar Gains
The Bank of Canada unexpectedly cut interest rates for the first time in more than three years after a soaring Canadian dollar and financial market ``volatility'' restrained inflation faster than the bank forecast.The central bank lowered its target rate for overnight loans between commercial banks by a quarter point to 4.25 percent, reversing a July increase. Twelve of 27 economists surveyed by Bloomberg News predicted the cut, and some analysts called for another reduction next year.
``We are likely going to see another cut,'' said Paul Ferley, assistant chief economist at Royal Bank of Canada, the country's biggest lender. ``Going into the fourth quarter, our sense is the growth rate in Canada could get halved'' from 2.9 percent in the third quarter, he said.
OK: all the top national banks, the Big Boys who play the global currency games, the guys who set the rules, who are both the umpires and the guys up at bat or pitching the balls, they are now all suddenly dropping interest rates in the teeth of still rising costs in many commodities. Of course, as the world slides into an obvious recession, the value of commodities will drop soon enough. But the banks are dropping rates much faster than this process! This is because they are all being forced, via the logic of systems forcing other systems to copy the ones that have the most influence, everyone is becoming the Bank of Japan!
This bank utterly ignores inflation, it ignores everything. Any happenstance is an excuse to keep rates at near 0%. This is ahistorical and impossible except as a false system. Since all the other banking systems exploited the Japanese system to tap into its easy money, they have all been forced to slowly conform to Japan's New World Order systems! This whacky banking system is set at zero. It is a deflationary model that all others will have to imitate in the bitter end. For a century, there has been a struggle between the inflationary model of modern finance and the deflationary model. Everyone loves the inflationary model except for savers. Savers love the deflationary model.
This should concern us all because the US loves the inflationary model with very great ardor. We need it, all our systems assume we will run in the red and inflate our way out of all our debts. But if we are forced to follow the Japanese model, this means a depression here. The US has zero savings right now and to balance things, we must save for the next 30 years or more. This is nearly impossible without most of us going into some sort of financial shock, ie, a rise in bankruptcies. The problem with this is, all our financial officers and rich people who game the present system but who also tapped into the Japanese system, will go bankrupt. And they don't want to, of course. They will fight for the inflationary system, tooth and nail.
Except they can't function unless they get 0% loans. This is a classic 'horns of dilemma' which I mention periodically. The choices are stark and they want none of this. They want Santa Claus to come and rain them with toys, not lumps of coal.
Canada is our nearest neighbor who is similar to our economy in nearly every facet. So what is happening there has a huge impact on us. Last fall, the loonie took off against the dollar which was falling across the board, all over the earth. The unravelling of the US financial position has become quite obvious to everyone except for the people running in circles in Washington, DC. The loonie did a loop-de-loop in November which was very shocking and frankly, unprecedented. Look at the chart below:
Quite frankly, I have been waiting impatiently for some one to analyze this business. I looked at the chart above and decided to color-block three time frames when the loonie shot up. I noted also when buying activity shot up. It all began right after the US housing market balloon popped at the very end of 2005. Very few people were aware of this in Xmas, 2005 [except for myself and a few others like Calculated Risk]. But by March, quite a few traders who obsessively watch the news, began to play with the loonie. This was, I suspect, due to the sudden rise in the value of fossil fuels. After all, Canada exports lots of building materials to the US and this was beginning to unwind, yet the currency traders were convinced something good was there. The chart didn't shoot up, though, until that stellar day, when the present climb began: mid July, the 7/17/7 tipping point day.
Then the dollar swan dived and the loonie flapped its wings and flew off. With each rate cut by the US Fed, the loonie rose until it shot up in just a matter of days by 10¢ which is a gigantic rise considering the monthly average seldom moves more than a fraction of a penny! Looking at the trade statistics above, there was no hyper-activity, namely, the market wasn't flooded with people betting on the loonie. This leads me to think, perhaps this was due to some large institutional organization which has a some country's name attached to the word 'bank' had bet against the dollar and for the loonie. I hope someone can get this information?
Since then, the loonie has fallen 10¢ which now makes November's rise a strong and bizarre peak. I fear this is a sign of global instability causing micro-storm bursts all over the place with little warning.
Dollar drops vs. yen, euro; up on loonie after BOC rate cut
The dollar slipped versus most major counterparts Tuesday, undermined by increasing expectations that the U.S. Federal Reserve will further cut interest rates next week, but jumped against its Canadian counterpart, the loonie, after the Bank of Canada's own interest rate cut. "This surprise decision by the BOC will help ensure that the loonie will not become misaligned with the greenback as the Fed continues cutting interest rates. This decision indirectly adds to the case for the Fed to cut interest rates on December 11," wrote Michael Woolfolk, senior currency strategist at the Bank of New York.
Goldman Sachs took over the Bank of Canada last month. [sound of clearing throat here] Ahem. These guys all conspire with each other to create conditions and control events. I like the statement, 'the loonie will not become MISALIGNED with the greenback.' OK, let's review the last 3 years of US and the other G7 nations including Canada, yapping about how China must NOT keep the yuan aligned with the dollar! HAHAHA. Oh, this is too funny. Goldman Sachs merrily wants the CD to be PEGGED to the USD! And this is good. Unlike when China does this.
Talk about two-faced! The astonishing level of venality in the G7 constantly amuses me. Now, the Fed will happily cut rates as well as the Bank of England and then Europe will sigh and do the same and all will be FORCED to keep doing this. Over and over again. And meanwhile, they will all pray that they can restart the carry trade machinery only they all will be the ones offering the carrying deals. Namely, I would presume, China and the Arab oil nations will use us as their carry trade destinations? They will play the game we had with Japan?
It won't work. The Arabs want 0% interest while making money not via savings but via mercantilism. This means, one has to have a destination for trade, someone who can't trade back. Right now, the entire planet is set to do this to the US: we must run deficits with absolutely everyone. As the dollar dies, this becomes increasingly impossible. Our own rulers boast that this will fix the trade deficits. But it is a rather crude way of doing this and might cause the collapse of all global trade! Resetting this is a violent enterprise since absolutely everyone on earth is dead-set against this---including Canada.
Foreign bargain hunters find U.S. dollars a deal
Thirty percent of Canadian households said they plan to go to the United States to shop or purchase products online or over the phone from the United States, according to a survey, conducted by the International Council of Shopping Centers (ICSC), a New York trade group."These survey results highlight the importance of the strong Canadian dollar against the U.S. greenback as a driver of U.S. cross- border shopping both physically and virtually," said Michael P.
The US is in a peculiar fix here: Canadians and people from Britain and Europe are flooding in to buy stuff...MADE IN ASIA. So we are merely a funnel for ASIAN TRADE. Since the yen and yuan are still pretty much pegged to the dollar, they are both cheaper vis a vis these other G7 currencies! And if the US is having a fire sale of these goods brought over here, this means our trade deficit isn't really improving all that much. What good does it if we sell fancy, fast German cars to Canadians? The mishmash of statistics concerning world trade are greatly muddied by basic statistics. All I know is, using crummy currency valuations to conduct trade is going to cause one misalignment after another, none of which are productive or good in the long run to anyone.
The monetarists have created a monster that is exploited, its weak spots the focus of tremendous attention and energy. These cracks in the system have widened more and more even as everyone at the top struggled for stability. We saw with the Great Asian Currency Crisis, how swiftly currency value differences can turn toxic. And none of the countries involved in that mess were top-tier, either! If the top 5 industrial/trade/banking nations do this, it will cause a global financial collapse.
Canadians Profit Big in USA Real Estate Market
With the Canadian dollar closing just over the US, and an increase in Albertans' wealth, interest in south of the border properties have sky rocketed. Along with Arizona's staggering increase in foreclosures (1,931 notice of trustee sales recorded), a 20% decrease in Real Estate prices, and you can see why investors are heading for a free seminar being held in Saskatoon on December 10th and in Winnipeg on December 11th. This free to attend meeting is being run by Real Core Realty of Phoenix Arizona.
All financial carry trade games somehow end up being property speculations. The Japanese came here and did this even as they did it at home back when the US forced a huge currency realignment with the Plaza Accords. Do note that even in the recent past, we didn't use open markets to determine the relative value of currencies! Anyway, the human tendency to take easy money and park it on top of some property somewhere seems to be pretty basic to human psychology. Even when I was a kid, when the Arizona property market balloons popped, our state would go out to the world and market the properties that were in arrears. We bought a ranch this way. NYC and LA both do this whenever the dollar is weak. This is why those markets don't fall as fast as the rest of the nation in a recession that features a weaker dollar vis a vis Asia and Europe.
But if everyone is trying desperately to make their own currencies weaker vis a vis the dollar, then we get what we see today: complete chaos and a reordering of old alliances. Europe can't cling to the US forever, especially if we cease having a trade deficit with Europe. Ditto, Japan. I have already predicted that Japan would begin triangulating with China if the yen became strong against the dollar and trade begins to fade with the US. And so it is beginning. Time to visit the Nikkei!
Chinese Insurance Giant Seeks Stake In Japan Financial Firm
TOKYO (Nikkei)--China Life Insurance Co. is looking into taking a stake in a Japanese insurer or asset management company, Chairman Yang Chao told The Nikkei in an interview Tuesday.
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Moneylender-Related Provisions Erode Earnings At Trust BanksTOKYO (Nikkei)--Sumitomo Trust & Banking Co. (8403) and Mitsubishi UFJ Trust and Banking Corp. saw their group net profits fall sharply for the fiscal first half ended Sept. 30 because of increased reserves against loans to consumer credit companies.
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The Chinese are aggressively moving into Japanese territory. This will cause Japan to frantically search for some defense that will make Fortress Japan stronger. But of course, their fake depression has critically weakened the public sector. Note how their own banking system is still reducing liquidity! China has been deliberately choking off liquidity but still has so much excess, they can go shopping for power and influence around the world and note how they are now targeting Japan specifically. The Chinese intend to embrace Japan no matter what or how. This bears watching closely.
I heard that the US navy has been sailing up and down near as possible to China as a show of force aimed at convincing Taiwan and Japan, we rule the Seven Seas. But power grows out of the bankroll, to paraphrase Mao. This expensive show of force will, if we can't counter Chinese financial moves, be a loss of face rather than enhancing our power.
Annual inflation in OECD area up to 2.8 pct in yr to Oct - OECD
The Organisation for Economic Cooperation and Development said consumer price indices in the OECD area rose by 2.8 pct in the year to October 2007 compared with 2.2 pct in the year to September. However, on a monthly basis, the price level rose by 0.3 pct in October, unchanged compared with September, the agency said.Consumer prices for energy increased by 8.5 pct year on year in October, compared with a rise of 3.4 pct in September, while consumer prices for food were up by 4.1 pct year on year in October, compared with 3.5 pct in September, the OECD said.
The agency added that, excluding food and energy, consumer prices rose by 1.9 pct in the year to October, unchanged compared with September.
This is very pesky for all the world's bank controllers. They are in a race to the bottom yet again like in 2002-2004. This race downwards, like back then, ignores real inflation. The need to do this further destabilizing action grows greater every day. Normally, they want to set rates at some level and leave it there. This is simple: if you hold someone's loan at say, 4% and the rate of inflation rises afterwards to above 4%, one starts to see the profit of lending erode, vanish and turn into losses which is why Paulson couldn't freeze rates at 2% for reckless homebuyers facing bankruptcy. But this driving down of the lending costs is costing us all dearly since who wants to hold these loans?
Why, other central bankers trying to peg their currencies so they can flood the US with imports! This has been the game for a number of years during which our trade surplus with the world grew from $0 in 1966 to a whopping $800 billion today. The price of oil is now going down from record highs now that Saudi Arabia and China are stepping up actions to prevent a US invasion of Iran. The US people should thank Hu very politely for this. Our own dictator loves high oil prices but he, too, is under fire from the GOP to stop it. They need to have lower prices at the pump or they are doomed. If the price of oil drops then the deflationary forces that lurk within the carry trade system will take over completely and we will see 1% interest rates again. And no savings, oddly enough. People save when there is HIGH interest rates.
Dow Chemical To Shut Down Some Operations, Cut About 1,000 Jobs
The layoffs continue all over the place. This one is not just in the US, there is very little Dow left here anyway. They are cutting back, globally. So they are betting on a lower-level of future business.
U.S. Stock-Index Futures Fall; Goldman, Merrill Shares Decline
U.S. stock-index futures dropped after JPMorgan said deteriorating debt markets will reduce earnings at Wall Street's four biggest securities firms through next year.Goldman Sachs Group Inc., Morgan Stanley, Merrill Lynch & Co. and Lehman Brothers Holdings Inc. fell after JPMorgan analysts said the brokerages may write down debt-related holdings in the fourth quarter. Brokerages also declined after Punk Ziegel & Co. analyst Richard Bove advised selling shares of Bear Stearns Cos., Goldman and Lehman.
The great banking houses are going under fast. And this is rather amusing. They all thought their clever tax haven schemes could protect them from downturns in their home states. But this is childish of them. They have weakened all our economic systems in order to earn 20% bonuses off of profits due to investors. They are not prepared for an all-around downturn that is global and unescapable. All the precious hedging schemes fall apart if there is NO hedge anywhere at all as it is in any depression cycle.
And now a news bulletin from my cat, Fluff:
Trouble is said to have earned a number of enemies due to its habit of biting.She was taken to an undisclosed location in Florida two months ago, the newspaper said.
Fluff tells me that all dogs, especially the two dogs that live in our house, should be removed to undisclosed locations, preferably the moon. And of course, cats specialize on not begging for anything but when a spoiled pooch bites the hands that feed it, it gets kicked. Or rather, scratched on the nose. But then, there is nothing more obnoxious than a spoiled dog. Outside of spoiled children, of course. Fluff wonders if any French photographers on motorcycles might arrange an accident or two?
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Posted by: notgonnatellya | December 04, 2007 at 04:18 PM
Howard Schultz, the former owner (who sold the team two years ago) has decided to sue the new owners. His goal; to declare the sale of the team null and void as a means of keeping the team in Seattle- and retuning his validity and helping his reputation so he will not be seen as the‘ man who lost the Sonics’. However, I personally fail to see how after two years, Schultz, has any legal claim to‘ undo’ the sale simply to make himself look good. I hope the courts wont waste to much time and tax dollars on this nonsense. The State on the other hand seems to have no problem wasting tax dollars and time on the issue at hand. The State Legislature and the Governor have decided to step in and have recently sent a letter to NBA Commissioner David Stern, urging him“ to reject or delay a scheduled vote on allowing the Sonics to move to Oklahoma City”. Somehow I imagine the State has more important things to do than write letters to the NBA. In any case; the team is not a matter of the state what so ever. If the city government in Seattle cared to keep them around they would make an effort; they have not. This is between the NBA, the current owners, the team, and Seattle.
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