Flight to safety appears imminent

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investorzzo's picture
investorzzo
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Flight to safety appears imminent

http://www.financialsense.com/fsu/editorials/bloom/2009/0831.html

 The most logical explanation for what we are seeing on the markets at present is that there is an emerging fear that the commercial banking system is on the brink of unraveling. Were this to materialize, then:

  • The industrial equity markets would collapse (resume their Primary Bear Market with a vengeance)
  • US$ denominated bond prices would rise strongly as money flowed to the “safety” of government bonds
  • The gold price would explode as investors scramble to protect themselves.

Alternatively, if the banking system does not unravel, then the bond yields will travel sideways, the Gold price will not explode upwards, the dollar might collapse, and equity prices might bumble along.

Author’s note:

investorzzo's picture
investorzzo
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Re: Flight to safety appears imminent

http://www.financialsense.com/fsu/editorials/delta/2009/0831.html

Banana Ben strikes again

Just when you thought it was safe to hold dollars, even for just a little while, Fed Chairman Ben Bernanke once again climbed aboard his helicopter and spread some more confetti (US dollars) across the sky.

Apparently having the world’s reserve currency drop 13% since March, even as measured against a basket of other flawed fiat currencies isn’t enough. And if you were to measure the dollar’s performance against hard assets like copper since March, the currency has lost 50%. Yet despite those facts, Fed head Bernanke thought it wise to increase the size of the monetary base by $86 billion just last week alone! That brought the base total to over $1.73 trillion, the highest level since May and just $37 billion off its all time record high.

Maybe he thought the rally in the stock market was stalling. Or maybe he was afraid the price of oil was having trouble breaking above $75 a barrel. Either way, it’s just plain disappointing to know that even after he no longer needs to worry about being nominated to another term, he’s still playing politics.

 

investorzzo's picture
investorzzo
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Re: Flight to safety appears imminent

The real estate bear market is not over after 2-3 years! Anyone who says or thinks so doesn't understand the facts, market cycles or previous historical precedents (or they are just lying to you to get you to buy a house). We have a recent example from Japan in the decade after 1990. I know, I know, we're different. You know why? Because we have much more usable land and we overbuilt much more than Japan did during their boom. Otherwise, its the same, particularly the government response to help banks hide the fact that they're insolvent (which prolongs the bear market by years). Here's a chart of Japanese land price that I stole from somewhere in cyberspace (can't remember where - sorry to the creator):

1

Maybe we get through this mess in 6-10 years instead of 15. I don't think that's an unreasonable optimistic scenario (though it will take 20 years if the government insists on continuing to stop the free markets from functioning). So, maybe by the 2011-2012 time frame we will find a bottom in housing. If that's true, we will drag along the bottom for another 5 years as the psychology of housing as an investment or speculation turns 180 degrees in the opposite direction from a culture that actually had a popular television show about "flipping" houses. Once a bubble like this pops, it ain't coming back for a generation or two. Period.

This means that banks and debtors who hold mortgage notes are in trouble for a long, long time (in aggregate). When a bank is in trouble, it gets cautious. It doesn't want to loan money to risky borrowers. Once bitten, twice shy. Please don't forget that banks are actually in the business of trying to make money! If they don't think they can get paid back, they won't make a loan. The exception is if there is a secondary market to sell their loans to so that the banks don't have to be the ones worrying about getting paid back. This is why Freddie Mac and Fannie Mae are such nefarious organizations. They promoted (and continue to promote) unsound lending and put the risk on the taxpayers' backs with no sharing of profits when times were good!

The flip side of this is the consumer. Even if the bankers want to continue to make unsound loans and the U.S. government gave them free money to loan, the U.S. consumer, in aggregate, is exhausted. We have finally reached that point after two decades of unbelievable profligacy by the typical American. After refinancing their home, maxing out every credit card they could find and getting themselves into long term loans for vehicles, second homes, appliances and education, the final wall has been hit.

http://www.financialsense.com/fsu/editorials/brochert/2009/0831.html

investorzzo's picture
investorzzo
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Re: Flight to safety appears imminent

http://globalresearch.ca/index.php?context=va&aid=14971

Ben Bernanke never should have been reappointed as Fed chairman. Obama made a big mistake. The main thing to remember about Bernanke is that, in the two years since the financial crisis began, he's made no effort to force the large banks and financial institutions to write-down their losses. Nor has he pushed for the regulations that are needed to restore confidence in the system. The credit system is still clogged because the banks are buried under $1.5 trillion in toxic assets and non performing loans which are defaulting at the fastest pace on record. At the same time, Bernanke has failed to push for reform of derivatives trading, off-balance sheet operations, securitization or capital requirements for financial institutions. The good news is that Bernanke has demonstrated great creativity in providing sufficient liquidity to keep the financial system from collapsing in a heap. The bad news is that the core problem is not liquidity at all, but solvency. A good portion of the banking system is underwater. That's why Bernanke's actions have been a complete flop.

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cannotaffordit
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Re: Flight to safety appears imminent

GREAT posts, investorzzo.  Very thoughtful, and I'd say, right on the money. (pun intended)  Thank you.

Cloudfire's picture
Cloudfire
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Re: Flight to safety appears imminent

Hi, Investorzzo;

Just a note to let you know that I'm listening and enjoying your analysis.  FWIW.

-- C1oudfire

 

Morpheus's picture
Morpheus
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Re: Flight to safety appears imminent

Question: Would this not make money marksts a precarious place to be in?

investorzzo's picture
investorzzo
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Posts: 1182
Re: Flight to safety appears imminent
Morpheus wrote:

Question: Would this not make money marksts a precarious place to be in?

You would think! But how much manipulation is going on is unfathomable If wall street controls Fed/congress, then anything is possible. But I'm in all cash. Checkout this interview with Jim Puplava and Bob Prechter. The deflation argument.

http://www.netcastdaily.com/broadcast/fsn2009-0905-3a.mp3

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