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Thread: Money Crunch Coming?

  1. #1
    God/dess Deogol's Avatar
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    Default Money Crunch Coming?

    Michael Taylor, senior economist at Lombard Street Research, said this year's sudden rise in 10-year yields risked tipping the US economy into a downturn.

    "This could be the catalyst for a sharp correction in property prices and wean consumers off their credit binge," he said.

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    Default Re: Money Crunch Coming?

    the underlying economic question of course is whether or not the US can maintain 'faith' in the US dollar among foreign countries / investors.

    " Fed credibility crucial to dollar faith-Fed's Fisher
    Tue Apr 11, 2006 2:36 PM ET

    DALLAS, April 11 (Reuters) - The Federal Reserve will do what it takes to maintain its credibility, which is central to preserving the integrity of the U.S. dollar, Dallas Federal Reserve Bank President Richard Fisher said on Tuesday.

    Alluding to the Fed's dual role of ensuring inflation doesn't "raise its ugly head" while still promoting the fastest possible noninflationary growth, Fisher said, "We seek to get it right. And the answer to your question is we will do what gets it right."

    Answering audience questions after a speech to the Dallas Friday Group, Fisher said the U.S. dollar is a "faith-based currency" dependent on the credibility of a central bank.

    "In addition to a faith-based currency, we are the currency of the world and we must maintain its integrity. As far as my involvement is concerned, I will spend every ounce of energy doing that. I have no doubt that my colleagues will do exactly the same," Fisher said. "


    Also, we've been here before, actually ...





    Arguably, from the viewpoint of world commodity prices, the dollar crunch has been with us for some time already. The major thing which HASN'T yet happened to the same degree is the typical increase in US interest rates which matches the increase in the US$ price of these world commodities. The 'tin foil hat' crowd is of the opinion that the Fed's massive printing of brand new US dollars, along with some collusion with foreign central banks (notably Germany, Japan and China) has been the mechanism which has propped up the US$ exchange rate and thus kept long term interest rates from rising all that much. However, once a 'breach of faith' in the US$ occurs internationally, aah-ooh-gah dive dive. The last time this happened, Jimmy Carter was president and US mortgage interest rates hit something like 17.5% before the US$'s exchange rate plunge could be levelled out again.

    The 'tin foil hat' crowd is also of the opinion that, this time around, the results may be much worse than the last time. The reason of course is that today the US economy is far less self-sufficient than it was 25 years ago ... thus there are many things that were once manufactured in the USA and priced in US dollars (textiles, appliances, you name it) that today must be imported and are actually priced in Euros or Yen or Yuan or Rupees or Won or Baht. Also, while today many products may be 'assembled' in the USA, many component parts are imported and actually priced in foreign currencies rather than US dollars. And of course any global commodity used in such products is actually priced based on a worldwide basket of currencies.

    This will of course mean that as soon as the US$ exchange rate takes a whipping, the prices of all of these imported goods, US 'assembled' goods, and even the few remaining US manufactured goods but utilizing worldwide commodities for component parts will immediately increase by a similar proportion to the dollar's drop. This will be extremely bad news for 'joe sixpack', because his monthly credit card and ARM payment will also skyrocket at the very same time -

    - because US interest rates must continue to increase in order to continue to attract enough foreign capital inflow to finance America's ongoing negative trade balance. However, this time around, the trade imbalance on imported oil can never be rebalanced no matter how high gasoline or fuel oil prices rise, because there simply isn't enough US / North American oil production capacity today to even meet basic needs of commuting, heating, electricity production, and truck shipment of essential goods.

    If you're looking for some independent corroboration that all is not well with the US dollar (or future US interest rates) ...




    ~
    Last edited by Melonie; 04-14-2006 at 10:38 AM.

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    Default Re: Money Crunch Coming?

    Quote Originally Posted by Deogol
    http://www.telegraph.co.uk/money/mai.../14/cnus14.xml

    Michael Taylor, senior economist at Lombard Street Research, said this year's sudden rise in 10-year yields risked tipping the US economy into a downturn.

    "This could be the catalyst for a sharp correction in property prices and wean consumers off their credit binge," he said.
    There is no better authority on the US Treasury market and economy than a left-wing British rag like the Telegraph.

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    Banned Melonie's Avatar
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    Default Re: Money Crunch Coming?

    how about the left-wing IMF ?



    " Petrodollars, just as much a part of the 1970s as bell bottoms and platform shoes, are dollars paid to oil-producing countries and then re-invested in major financial markets.
    In the 1970s, these funds were deposited in big Western banks. This time around, it is more complicated. Petrodollars are being recycled through international capital markets and offshore accounts, partially because of the post 9/11 Patriot Act reporting requirements, the IMF said.
    But these investments have kept U.S. interest rates low, allowing the U.S. trade imbalance to persist, because there has been no pain from running large trade deficits.
    This only adding to the risk of an eventual sharp drop in the dollar, a spike in U.S. interest rates, and a recession, according to the IMF report. The report was one of the chapters of the IMF's World Economic Outlook released Thursday."(snip)


    or how about that left-wing American Conservative ?



    (snip)" Offshore outsourcing makes it impossible for the U.S. to rectify its trade imbalance through exports. As more and more of the production of goods and services for U.S. markets moves offshore, we have less capability to boost our exports, and the trade deficit automatically widens. Economic catastrophe at some point in the future seems assured.

    In the meantime, even a small country could pop the U.S. housing bubble by dumping dollar reserves—which is some fix for a superpower to be in, especially one that is disdainful of the opinion of the rest of the world. Comeuppance can’t be far away.

    The hardest blow on Americans will fall when China does revalue its currency. When China’s currency ceases to be undervalued, American shoppers in Wal-Mart, where 70 percent of the goods on the shelves are made in China, will think they are in Neiman Marcus. Price increases will cause a dramatic reduction in American real incomes. If this coincides with rising interest rates and a setback in the housing market, American consumers will experience the hardest times since the Great Depression"
    ~
    Last edited by Melonie; 04-14-2006 at 10:49 AM.

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    Default Re: Money Crunch Coming?

    Quote Originally Posted by Melonie
    how about the left-wing IMF ?

    http://www.marketwatch.com/News/Stor...t=TNMostMailed

    or how about that left-wing American Conservative ?

    http://www.amconmag.com/2005_07_04/article1.html
    First off, the IMF is a left-wing organization. Secondly, most journalists are not experts in Economics or anything other than presenting things out of context.

    Interest rates are still pretty low by historical standards. They should go up. As they go up, those interest rates will attract more foreign investment.

    I don't buy the "China is responsible for the housing bubble" nonsense because the Bubble is more a result of the actions of the Fed and not a trade imbalance with China.

    Both of those articles you provided are so full of holes it would take me hours to refute all of them. For example, the second one says that Walmart will become like Neiman Marcus should China ever revalue its currency. The author is ignoring the substitutes available for Chinese goods (not all clothing is made in China, you know) and, most of all, he is failing to realize that most of the Chinese junk sold at Walmart is discretionary and not daily staples. It can be done without. (Do you really need that Chinese made coffeemaker?) So that argument of declining real incomes due to revaluation of China's currency doesn't hold much water at all.

    Furthermore, the author claims that a small country can burst America's housing bubble by dumping currency. No. The housing bubble is ALREADY bursting (the article is nearly a year old now) and the bursting has been anticipated for years. The housing bubble is a result of the low interest rates which have more to do with the actions of the Fed than foreign investment due to the trade imbalance. The bursting of the bubble will be the result of the Fed moving interest rates back to historical norms (and to a degree inflation), not the actions of foreigners.

    OK, let's say that foreign countries are getting sick of financing the US trade imbalance. Then what happens??? They stop selling us their crap? Tell me in your own words what you think would happen.

    Foreign nations aren't investing in America because they can't do anything else to "finance" the trade deficit. They are investing and buying our debt because they can make a return on their investment.

    From what I've gathered, the general idea is that eventually foreigners are going to want higher rates of return in exchange for financing the trade imbalance. Is that right? Are they going to stop selling us their junk because they don't want American dollars anymore? What would that do to their home economies?

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    Default Re: Money Crunch Coming?

    Actually, India, Pakistan, Thailand, China etc. are attempting to create a comparatively well paid 'quasi-middle class' among their own citizens that will eventually be able to consume a fair proportion of their own manufactured products. Even though the Chinese made US$6,000 sale price Chery QQ is no Chrysler / Toyota / BMW, it represents a major step up from bicycles and bus tickets. Last I heard, Chinese factory wages at the 'best' manufacturing plants have now risen to the shockingly high level of US$200 per month (comparatively speaking of course ... many Chinese manufacturing plants pay less than US$100 per month)



    Arguably, the gov'ts of China, India etc. look upon their almost total reliance on the US export market being the 'growth engine' for their own domestic economies as a temporary situation ... similar in some ways to post-WW2 Japan and Germany. Also, the gov't of China realizes that it is taking on a huge financial risk by continuing to hold such a large number of US dollar denominated bonds which could rapidly devalue versus other currencies.

    The Chinese gov't already tried to put these US dollars to better use by attempting to purchase something they really wanted / needed that was priced in US dollars (UnoCal). The US gov'ts response of 'hell no' arguably drew much official Chinese attention to the fact that they're not going to be allowed to deploy their US dollar reserves toward productive / profitable US investments, thus the Chinese gov't has turned its investment eye towards other countries (and other currencies) already.

    Also (and hopefully this will never be put to the test) if the US gov't ever has to make good on it's promises in a future brouhaha between China and Taiwan, China would stop shipping export product to the USA in a heartbeat regardless of the potential negative economic impact on Chinese citizens ! Keep in mind that from a 'real world' standpoint there is extremely little democracy involved in China, India, Thailand etc. if the gov't decides it needs to do something which is unpopular with its people.
    ~
    Last edited by Melonie; 04-14-2006 at 04:11 PM.

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    Default Re: Money Crunch Coming?

    also some analysis on US interest rate changes vs stock market ...



    "CAUTION is warranted !"

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    Default Re: Money Crunch Coming?

    Really Melonie ... that's excellent. They really do not pay you enough to do this on this site! Sure, your politics show every now and again, but really, anyone on this site who wants to understand finance or economics should just bookmark your posts and read 'em all.

    Re the above, it'll make you laugh. CNN Int had a piece on over the Easter weekend about an Indian outsourcing giant. They are worried about income and profits!! Why? They are being undercut by firms in Cambodia, Indonesia, the Philipines and others that have even lower wage costs and are teaching their staff how to use pcs and speak English. Really scary though, is that these new low cost workers are also being taught Spanish and German. Nowhere to hide.

    If you are reading this and don't know what to do about it to save yourself ... simple. Go to school, sit another exam in something useful and add an extra skill to your cv. Over the next 50 years, only the superfit will survive and prosper - and us weedy (single language) westerners are not in that category!!

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    God/dess Deogol's Avatar
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    Default Re: Money Crunch Coming?

    Go to school for what?

    Ah - something that MUST be done locally like auto repair.

    But of course they can always add more (illegal) immigrants for that.

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    Banned Melonie's Avatar
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    Default Re: Money Crunch Coming?

    Go to school for what?
    Obviously, going to school for something which involves 'locked doors' - which one sort of person/diploma will open while the vast majority of other persons/diplomas won't. Law, Finance, Banking, Emerging technologies like nanotech and bio and anything defense related come to mind. Also, there are neglected engineering sectors which should get very hot in the near future i.e. power transmission, small generation, primary metals manufacture to name a few. These sort of professions are generally very selective re 'Ivy League' degrees and lack of a latin/asian accent. I know that this is NOT a politically correct answer, but it is an accurate one in the 'real world'.

    As to the primary metals and other US manufacturing industries, the theory goes that any product which has a relatively low cost per pound (or cubic ft) will always create enough of a shipping cost differential that it will be economically viable to produce in North America because the higher labor + DEC&OSHA compliance costs will be less than international shipping costs. I'm told that this sort of situation exists in the steel sheet industry, the wire and cable industry, storage tanks, and selected other products which have high weights/sizes relative to the selling price of the end product, such that international competitors cannot absorb international shipping costs and still sell competitively to North American customers.

    Stuart, I'll let you in on my 'secret'. I have spent many years working in clubs near where the 'action is' in the financial industry (typically Manhattan). It's amazing what bankers and brokers and lawyers and CEO's will talk amongst themselves about when they are drunk - and when they think that the girl dancing on their lap is a dumb blonde with big tits who has absolutely no clue in regard to the subjects they're discussing ! Dancers who make a 'study' of these matters stand to potentially profit far more in the long run from what their upscale club customers say than from what they spend !

    ~
    Last edited by Melonie; 04-18-2006 at 08:36 AM.

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    Default Re: Money Crunch Coming?

    Quote Originally Posted by Melonie
    Also, there are neglected engineering sectors which should get very hot in the near future i.e. power transmission, small generation, primary metals manufacture to name a few. These sort of professions are generally very selective re 'Ivy League' degrees and lack of a latin/asian accent. I know that this is NOT a politically correct answer, but it is an accurate one in the 'real world'.
    Coincidentally this was a topic that came up this weekend. Ivy League and other large research schools don't turn out the sort of engineer firms are looking for anymore. They don't study/learn the practical everyday side of their field, and firms are sick of having to retrain people during their first 12-18 months.

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    Default Re: Money Crunch Coming?

    yes but such firms keep hiring 'Ivy League' people, don't they - or more accurately the technological Ivy League like M.I.T. and R.P.I. ! If and when such firms start hiring based on 'real world ability' plus a competent degree, these jobs will wind up opening the doors for low-priced H1B foreign imports, and the end result will likely be the same as it has been in the software industry.

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    Default Re: Money Crunch Coming?

    Quote Originally Posted by Melonie
    yes but such firms keep hiring 'Ivy League' people, don't they - or more accurately the technological Ivy League like M.I.T. and R.P.I. ! If and when such firms start hiring based on 'real world ability' plus a competent degree, these jobs will wind up opening the doors for low-priced H1B foreign imports, and the end result will likely be the same as it has been in the software industry.
    You are saying that isn't happening already?

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    Default Re: Money Crunch Coming?

    back on topic of an impending dollar crunch...

    "From Jacqueline Doherty’s The Trader column in Barron’s this week:

    “Unlike the past five years or so, liquidity is slowly draining out of the U.S. via the Federal Reserve's 15 consecutive interest rate hikes. ‘Monetary policy acts with a big lag,’ says Ravi Malik, a senior portfolio manager at Froley Revy Investment Co. ‘You have to anticipate [its results] because by the time it shows up it's too late.’ Malik believes the results will include lower housing prices and eased consumer spending, which ultimately will slow the economy in the second half of the year from its current strength. Stocks may start to anticipate this sooner rather than later.

    “Just as the U.S. economy slows from its current red-hot pace, the Asian and European economies look set to pick up the slack and the emerging markets remain bulwarks of strength. Global markets seem to have sensed this shift. U.S. financial assets -- stocks, bonds and the dollar -- are down 35% relative to the world's financial assets over the past three years, notes Bob Prince, co-chief investment officer at Bridgewater Associates.

    “If this continues, it will become tougher for the U.S. to attract the foreign investment on which it's so dependant. Then there's the potential unwinding of the yen carry trade, where investors borrow cheap money in Japan and invest it in higher-yielding markets like the U.S. In February the Bank of Japan ended its policy of pumping excess funds into the economy and Japanese and last week the 10-year Japanese bond rose to 1.975%, the highest rate in just over five years.

    “Wayne Nordberg, a senior director at Ingalls & Snyder, an investment-management firm, expects the dollar to decline 10%, which will be enough to make U.S. assets unattractive versus those in the rest of the world. ‘Sometime this year, in September or October, you'll see the S&P down 20%,’ he warns.

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    Default Re: Money Crunch Coming?

    Quote Originally Posted by Melonie
    “Just as the U.S. economy slows from its current red-hot pace, the Asian and European economies look set to pick up the slack and the emerging markets remain bulwarks of strength. Global markets seem to have sensed this shift. U.S. financial assets -- stocks, bonds and the dollar -- are down 35% relative to the world's financial assets over the past three years, notes Bob Prince, co-chief investment officer at Bridgewater Associates.
    Crock of shit. First off, "down 35% relative"...what does that even mean? Of course bonds are going to go down as the interest rate rises--out of mathematical necessity. Duh.
    Quote Originally Posted by Melonie
    “If this continues, it will become tougher for the U.S. to attract the foreign investment on which it's so dependant. Then there's the potential unwinding of the yen carry trade, where investors borrow cheap money in Japan and invest it in higher-yielding markets like the U.S. In February the Bank of Japan ended its policy of pumping excess funds into the economy and Japanese and last week the 10-year Japanese bond rose to 1.975%, the highest rate in just over five years.

    “Wayne Nordberg, a senior director at Ingalls & Snyder, an investment-management firm, expects the dollar to decline 10%, which will be enough to make U.S. assets unattractive versus those in the rest of the world. ‘Sometime this year, in September or October, you'll see the S&P down 20%,’ he warns.
    Crock of pure shit. Down 20%? That's a joke. That ass thinks the market is going to lose 1/5th of its value in the next 5 or 6 months? I feel sorry for the chumps who have invested money with him. That guy is an absolute fool.

    The forecasts are for continued moderate economic growth in America and abroad. Corporate profits--the MAIN determinate of stock market value--have been consistently and steadily growing.

    Hey, if you want to see the market go down real fast, elect Democrats who'll raise taxes and take money out of the economy.

    By the way, when the dollar declines American assets get cheaper to foreigners and thus more attractive.

    http://money.cnn.com/2006/03/30/news/economy/gdp.reut/

    Corporate profits lift GDP
    Economic growth revised up to a 1.7 percent annual gain in 4Q, in line with forecasts, on strongest gain in corporate profits in 4 years; inflation measure rises.

    - U.S. corporations pocketed their strongest increase in profits in four years during the closing months of 2005 despite a sharp slowdown in economic growth, a Commerce Department report on Thursday showed.

    Quote Originally Posted by lunchbox
    Coincidentally this was a topic that came up this weekend. Ivy League and other large research schools don't turn out the sort of engineer firms are looking for anymore. They don't study/learn the practical everyday side of their field, and firms are sick of having to retrain people during their first 12-18 months.
    Ivy League schools are a joke. Do a search for Harvard and grade inflation (or other Ivy League schools) and you'll see what a joke their education has become. The education of many public universities rivals or exceeds the Ivy League. Hell, grades and intelligence are no longer the primary factors in admission any more. The bleeding heart fools

    Engineering is a highly specialized field. A mechanical engineer is going to be doing different things than a bridge engineer or an engineer designing hard drives or optical disks. It's not practical to expect such specialized training from any university. Besides, a generation ago on the job training was the norm. Companies trained and promoted from within. Some of the more foolish ones decided to get away from that and instead buy the skills they need in the marketplace instead of developing within. That gets expensive fast.

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    Default Re: Money Crunch Coming?

    Please leave the crock of shit out of your arguments.

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    God/dess Deogol's Avatar
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    Default Re: Money Crunch Coming?

    heh heh... Barrons - that financial rag!

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