September 09, 2007

Are you ready for the storm?

Again and again, and you'll know why soon enough, I'll repeat this mantra from the HP bible - Manias, Panics and Crashes:


· The final phase is a self-feeding panic, where the bubble bursts. People of wealth and credit scramble to unload whatever they have bought at greater and greater losses, and cash becomes king.

And so here we go... should be quite the ride this week, pre-Fed. Buckle up.

Banks face 10-day debt timebomb

Britain's biggest banks could be forced to cough up as much as £70bn over the next 10 days, as the credit crisis that has seized the global financial system sparks a fresh wave of chaos.

Fears of this impending call on bank credit lines are the true reason that lending between banks has ground to a halt, according to senior money market sources.

"Banks are hoarding cash," said David Brickman, the head of European credit strategy at Lehman Brothers. "We think the reason for that is the commercial paper markets. There was $100bn of commercial paper issued by European institutions that was scheduled to roll over in August, much of which struggled to do so.

60 comments:

Anonymous said...

The fundamental problem is that the world economy is going into a recession, nothing strange about that, had to happen sooner or later. But when the economy is shrinking it becomes much more difficult for people to pay interest on the money they owe, and since they're swimming in red ink at levels not seen since 1929... well...

Anonymous said...

We might be ok if all the debt wasn't highly leveraged. The new mantra is "got cash" ?

Anonymous said...

"Storm" indeed. After the second Great Depression comes Peak Oil followed shortly by global warming-induced catastrophe. We're living in the Golden Age, friends. Unless there is a series of highly-improbable last-minute saves, the rest of our lives will be dominated by the above.
But in the mean time - houses might become affordable again. Woo-hoo!
We've already hit the reset button. Maybe next time we can come up with a way to do this "civilization" thing right.

Anonymous said...

Where are all the "let the market correct itself" people now?

Anonymous said...

Got my popcorn!

Anonymous said...

Here's why the world is melting down:


“Jill Jackson, a single mom and apartment renter with an annual take-home pay of about $24,000, managed to go on an incredible real estate buying binge last year.”

“In the span of 10 weeks, she bought 10 properties. She did not put a single penny down, borrowing the price for all 10 by signing for mortgage loans totaling $1.84-million. The investment plan seemed too good to be true. And it was.”

“A year later, Jackson’s portfolio has collapsed like a house of cards, with every one of the 10 properties in foreclosure and Jackson’s credit wrecked. The 31-year-old says she was foolish to fall for the get-rich-quick scheme pitched to her by a church acquaintance.”

“‘I didn’t know what I was doing,’ Jackson acknowledges. ‘I don’t have any background in real estate.’”

Anonymous said...

"The 31-year-old says she was foolish to fall for the get-rich-quick scheme pitched to her by a church acquaintance.”

A link would be nice, not that I doubt the story (and a 1000 others like it) is true. What bothers me is that people imagining themself to be christians, can listen to he story of how Jesus drove out the money changers, in the morning and engage in this sort of shenanigans in the afternoon.

Anonymous said...

I`ve said it once before, and I`ll say it again, our "greatest generation" moment may indeed be coming...pulling ourself out of a nasty depression with basically no industrial capabilities...except here`s my new twist; what if we fail???

Anonymous said...

I've got worthless treasuries backed by the full faith of Uncle Sam.

Anonymous said...

Is it me or does it seem like this scary news (just like the Countrywide layoff news late last Friday) is only released while no one's typically paying attention and after the markets are closed? I'm going to have to start reading more financial news during the weekend...

Anonymous said...

"The 31-year-old says she was foolish to fall for the get-rich-quick scheme pitched to her by a church acquaintance.”

"A link would be nice..."

---

http://tinyurl.com/2pugs9

AndyfromSimi said...

What if we fail?

Survival of the fittest, Dude!

unomyname said...

The situation demands a depression.

vegas crash watcher said...

Americans love war and taxation; I am hoping they get their just desserts, the rat bastards.
I consider myself a man of the world, and have only contempt for national borders and flags.

Anonymous said...

"Americans love war and taxation; I am hoping they get their just desserts, the rat bastards.
I consider myself a man of the world, and have only contempt for national borders and flags."

So you choose to live and prosper in this horrible country, which is no better than any other. Why don't you randomly choose another place to live, all things being equal?

AmazingRuss said...

I`ve said it once before, and I`ll say it again, our "greatest generation" moment may indeed be coming...pulling ourself out of a nasty depression with basically no industrial capabilities...except here`s my new twist; what if we fail???

If we fail, we'll grub around in the filth and muck for a few centuries, but eventually crawl back out. Individual humans are pretty durable and adaptable.

rcochran said...

Folks, remember: Keith is a total amateur when it comes to trading/investing advice.

Was cash king in the Weimar Republic days?

No, people were using it to fuel their fireplaces, because it cost more to buy the firewood than to use the paper money to burn fires.

Watch out for hyperinflation, we may very well see it.

If you plan to hoard cash, you might want to use some of it buy gold/silver on major dips.

If cash is all you've got and we get hyperinflation -- a likely outcome if the idiot neocons stay in power -- then you'll dearly wish you had something other than severly devalued cash.

AmazingRuss said...

" The property management group that took over after the foreclosure placed a sign in the yard marketing the duplex briefly, Bing said,"but I think the rats ate it."

Brutal.

Bakersfield Bubble said...

Top realtor in the world goes bust!-

http://bakersfieldbubble.blogspot.com

Anonymous said...

.







Bring It!










.

depresso said...

After the second Great Depression comes Peak Oil followed shortly by global warming-induced catastrophe.

Calm down, if second "Great Depression" really comes, then Peak Oil will NOT be a problem, since oil consumption is likely to decrease dramatically. And Global Warming is pure bullshit anyways...

Anonymous said...

Seems to me no investment is really safe not even gold. Is not the best position to be in then one of no debt and stable income?

Anonymous said...

I don't want to be smug. WHO is going to be safe?

hendry said...

Sell California and Arizona to the Asians for $10 trillion and wipe out our debts. We're going to lose it to the Mexicans anyway. Get something for it while we can. The Asians love California, need more land for the overpopulation, and they have all the money. We'll still have ports in Oregon, Alaska and Washington on the West Coast. After that, we have to pass a balanced budget amendment to make sure we never get in this mess again. It's better to give up a chunk of land than let the entire country collapse.

Anonymous said...

When the corporate paper market freezes up then there is a possibility ones employer will write paychecks that bounce. What a surprise to people who think they are safe...

Anonymous said...

Rents sky high in San Fran, will rents go down with this crash?

Anonymous said...

Sleazy mortgage broker pyramid scheme. they were inserted into every group you could imagine pumping this thing.

Shakster the Tard Slayer said...

REALTARDS.Good find on the #1 Realtardwipeout.
Anyone have pictures of the Special ED Bus loading up with Helmet wearing ,mouthguard slobbering Tards in their padded school clothes?Sorry special ed people,but RealTards are trying to move in on your gravy train.

Capitaf said...

Love your Blog. I wrote a new post on my blog you may want to checkout called "How the 'Core CPI' number is a poor model of inflation". Pretty amazing that the Government uses "equivalent rent" to judge inflation. Ridiculous! My math proves why: http://capitaf.blogspot.com/

Anonymous said...

Good housing crash video here

http://www.youtube.com/watch?v=lEj80hTVHyc

Anonymous said...

GUNS GOLD AND SILVER

Mad Mike said...

To understand who he was, you have to go back to another time when the world was powered by the black fuel and the deserts sprouted great cities of pipe and steel. Gone now swept away. After the credit crunch, two mighty warrior tribes went to war and touched off a blaze which engulfed them all.

Without credit they were nothing. They built a house of straw. The thundering machines sputtered and stopped. Their leaders talked and talked and talked. But nothing could stem the avalanche. Their world crumbled. The cities exploded. A whirlwind of looting, a firestorm of fear. Men began to feed on men.

On the roads it was a white line nightmare. Only those mobile enough to scavenge, brutal enough to pillage would survive. The gangs took over the highways, ready to wage war for a tank of juice. And in this maelstrom of decay, ordinary men were battered and smashed.

Except for one man armed with an AK-47, and a Honda full of silver. In the roar of an engine, he lost everything and became a shell of a man, a burnt out, desolate man, a man haunted by the demons of his past. A man who wandered out into the wasteland. And it was here in this blighted place that he learned to live again.

Ron said...

This will be the hardest 20 years coming up, famine, economic collapse, mass extinctions, polar ice melting off, and a ton of old people running around with nothing. Not to mention the Pepsi generation asked to step up to the task, with out their helicopter parents to wipe their ass I believe we will all be in for a rough time. My advice, worry less about the short term economics and realize that some American royalty are making compounds outside the Country, such as the Bush clan. Why would they do that? Something bad is coming, they know it, we know it, just a matter of time....and probably why they don't care about the environment, they know it is already game over?

Anonymous said...

Trafficking in human meat will be very profitable in the future

Anonymous said...

Except for one man armed with an AK-47, and a Honda full of silver. In the roar of an engine, he lost everything and became a shell of a man, a burnt out, desolate man, a man haunted by the demons of his past. A man who wandered out into the wasteland. And it was here in this blighted place that he learned to live again.

September 09, 2007 11:27 PM

I bet he has "mad" skills with weapons too.

Anonymous said...


"The 31-year-old says she was foolish to fall for the get-rich-quick scheme pitched to her by a church acquaintance.”

"A link would be nice..."

---

http://tinyurl.com/2pugs9


From the end of the article: "I didn't wish for it to turn out this way," she says. "I know a lot more now."

I doubt it. Dumb people will make mistakes like this over and over again, maybe not real estate, but she'll fall for the next big scam. If she is a church-goer, she should have recognized that this was nothing but a form of gambling and that true wealth is built by hard work.

Anonymous said...

Yeah, there ain't none of that their global warmin' thing goin' on, it's just outter space is just gettin' colder...

Anonymous said...

Cash wont become king as the Fed will try to inflate or die... the dollar will become worthless and the only safe place will be GOLD!!! Get out of dollar denominated assets and buy stores of value and foreign currency in asia.

Girl Guide said...

If cash is all you've got and we get hyperinflation -- a likely outcome if the idiot neocons stay in power -- then you'll dearly wish you had something other than severly devalued cash.

Cigarettes, toilet paper, chocolate? What else?

Is this teotwawki?

Girl Guide said...

. "My advice, worry less about the short term economics and realize that some American royalty are making compounds outside the Country, such as the Bush clan."

I have a customer from Gambia who told me the Bushes have a compound there. Is this what you mean?

Why Gambia? So we can't find them?

Anonymous said...

Anon 11:59

Soylent Green?

Ron said...

Paraguay, however it hasn't been confirmed yet. I wouldn't be surprised if this rumor turned out to be true.

Anonymous said...

Hyperinflation will not happen. Why? Because the US "money" system is debt based. All money created is actually brought into existence by the process of commercial banks creating it out of thin air when loans are made. The magic of fractional reserve banking. The Fed creates only a small amount of the money, the banks themselves actually do all the heavy lifting when it comes to money creation. The Fed has no power to inflate, only the banks can do that.

The system in inherently flawed in that it requires a constant increase in new loans to pay the interest on the existing loans. Once the underlying economy can no longer sustain the creation of new loans, the entire system implodes. We are headed for a deflationary depression. Hope you have some cash in your mattress.

Resident old guy said...

Boy someone definitely let the dogs off the leash tonight. This whole mess will correct itself in a couple of years. A few will go down, some others will be unemployed, then - business as usual. The 1970's were a hell of a lot worse than this. Inflation was double digits, housing mortgage interest was around 18%.

This credit crunch is not even as bad as the early 1990's. At that time the BIG banks were in REAL danger of folding. Today, NONE of the big banks is in danger of folding. The biggest hit they will take is to their stock price and a few off the balance sheet "companies". Countrywide is a joke compared to JP Morgan Chase, B of A, Citibank etc. 100 Billion to the likes of these guys is the same as a loss of one house to foreclosure to an investor that has 20 homes making cash flow monthly. It is a hit, but nothing that is going to hurt in the long term. In fact when they write it off as a loss, they won't even pay tax on it.

Agreed that there might be a recession, although this country thinks anything that is not 4% growth anually is a recession. Apparently very few old timers on this blog, because I remember living through some turbulent times, and these are not even close.

Keep up the gloom, but you guys have no idea what a real bad recession is like.

Anonymous said...

Why are we hyper inflating folks. Japan did this a few years back and they got deflation. Yes her people save but their govt debt makes ours pale in comparison especially considering their population is shrinking and their debt is growing. Most of European debt is also as bad or worse than ours.

Last but not least if the US dollar collapses we will make things here again instead of importing everything. This would kill Asia quick because they have no economies outside of exporting. Therefore I see deflation worldwide.

Edgar said...

...but a form of gambling and that true wealth is built by hard work.

What planet are you from?

Anonymous said...

"I`ve said it once before, and I`ll say it again, our "greatest generation" moment may indeed be coming"

I have a 1 year old baby. Am I the father of a member of the greatest generation?

Anonymous said...

I think we're going to get deflation first. It's already happening. Credit (virtual money, M3) is disappearing because it was only there based upon leverage. I could lend to Paul because I had borrowed from Peter. That's over, now those chains of debt are going to collapse which will effectively lower the money supply, deflation. California will have massive foreclosures and trillions of dollars of property value lost as houses priced 4x over their true demand value (as a place to live competing with rent) collapse in price and lose 75% of their value.

When that settles, the countries that have production facilities will recover the fastest. We aren't in that category. Prices will start to rise as the dollar loses value against other world currencies competing for necessities like iron, copper and wheat. Why will th dollar lose value? Because no one will want it. Our exportation of bad debts has made everything financial that we export suspect. Trust has been broken.

Anonymous said...


...but a form of gambling and that true wealth is built by hard work.

What planet are you from?


I'm from earth. It's the third plannet from the sun.

Let me guess... your idol is that idiot Jeff Lewis from the cable TV show, "Flipping Out". You believe that wealth is created by flipping houses all your life or by opening casinos in ghettos. You stupid dumbass!

Joe said...

... or by opening casinos in ghettos ...

I'm pretty sure that opening a casino in a ghetto would be both obscenely profitable and hard work.

Anonymous said...

"Calm down, if second "Great Depression" really comes, then Peak Oil will NOT be a problem, since oil consumption is likely to decrease dramatically. And Global Warming is pure bullshit anyways..."

Depresso - I was exaggerating. I think it is unlikely the housing bubble by itself will bring on a severe Depression. Peak Oil remains a problem no matter what, though, as we have nothing to replace oil.
What makes you think Global Warming is b.s.? How do you reckon CO2 levels shooting up above four previous interglacial peaks, just since the industrial revolution - the highest in 650,000 years? (And C02 levels are tied to global avg. temps) This article contains the graph of the above: http://news.mongabay.com/2005/1124-climate.html

For the first time, the break-up of the ice caps is causing seismic activity. The melting is faster than predicted. Not only is it real, it is already happening.

Anonymous said...

NOT JUST A STORM BUT THE PERFECT STORM!!!!!!!!

NEW YORK, Sept 10 (Reuters) - Washington Mutual Inc (WM.N: Quote, Profile, Research), the largest U.S. savings and loan, may set aside $500 million more than it had previously forecast for loan losses in 2007, amid what Chief Executive Kerry Killinger called a "near perfect storm" in U.S. housing.

The Seattle-based thrift had in July projected setting aside $1.5 billion to $1.7 billion for loan losses.

Anonymous said...

“Jill Jackson, a single mom and apartment renter with an annual take-home pay of about $24,000, managed to go on an incredible real estate buying binge last year.”

“In the span of 10 weeks, she bought 10 properties. She did not put a single penny down, borrowing the price for all 10 by signing for mortgage loans totaling $1.84-million. The investment plan seemed too good to be true. And it was.”

“A year later, Jackson’s portfolio has collapsed like a house of cards, with every one of the 10 properties in foreclosure and Jackson’s credit wrecked. The 31-year-old says she was foolish to fall for the get-rich-quick scheme pitched to her by a church acquaintance.”
================================
Another GenXer forced to fall back upon her collection of Beanie Babies.

Pat's Steaks (Genos Sucks) said...

Great Book!

I had to read it for my Economics class last year.

Best part of the book is the list / chart of all bubbles dating back to the tulip fiasco (or was it the West Indian Trading Company crash). It's a long list

Hey Anon- great slogan "Got Cash?"

Should sell shirts

Anonymous said...

Anonymous said...
When the corporate paper market freezes up then there is a possibility ones employer will write paychecks that bounce. What a surprise to people who think they are safe...
September 09, 2007 9:01 PM
==================================
Good point. I work for one of those companies. Their line of credit began to constrict last Spring.

Anonymous said...

I sold all my stocks and bought an inverse index mutual fund. So, yeah, I'm ready. The fund has gone up 10% since I bought it a little while ago. I figure if I know what is going to happen I might as well make money off of it.

I do feel bad for all the people who will lose jobs and suffer other financial consequences because of this. The vast majority of them have nothing to do with the stupid decisions made by the few at the top who let this disaster unfold.

Anonymous said...

Anonymous said...
"I`ve said it once before, and I`ll say it again, our "greatest generation" moment may indeed be coming"

I have a 1 year old baby. Am I the father of a member of the greatest generation?

September 10, 2007 6:37 AM

I don`t know that for sure, but I`m a father too, and I`ll tell you what we are going to do...we`re going to do the best we can, hang in there!

Anonymous said...

"... or by opening casinos in ghettos ...

I'm pretty sure that opening a casino in a ghetto would be both obscenely profitable and hard work. "

It's not WEALTH CREATION, dumbass!

Casinos do not add value to an economy.

FlyingMonkeyWarrior said...

Mad Mike,
Thanks for posting that! I had looked all over HP archives for that snippet to no avail.
Goo and moving stuff.

k.w. - southern ca. said...

Very good point.

Also, isn't it pathetic how we have allowed the trade surplus to
become so lopsided with China?

China buys rags and cardboard from us to package up their cheap lead-infested products, so we can buy them back.

Anonymous said...
I think we're going to get deflation first. It's already happening. Credit (virtual money, M3) is disappearing because it was only there based upon leverage. I could lend to Paul because I had borrowed from Peter. That's over, now those chains of debt are going to collapse which will effectively lower the money supply, deflation. California will have massive foreclosures and trillions of dollars of property value lost as houses priced 4x over their true demand value (as a place to live competing with rent) collapse in price and lose 75% of their value.

When that settles, the countries that have production facilities will recover the fastest. We aren't in that category. Prices will start to rise as the dollar loses value against other world currencies competing for necessities like iron, copper and wheat. Why will th dollar lose value? Because no one will want it. Our exportation of bad debts has made everything financial that we export suspect. Trust has been broken.