September 15, 2007

Good morning world. Welcome to the biggest financial crisis since the Great Depression. Hey - did someone just say PANIC?!

Northern's dilemma will rock markets

Northern Rock crisis sparks banking panic

Run on the bank

Scramble to quit UK bank

So, no surprise for HP'ers. We've been predicting runs on the banks for months. And now they're here. So what should you do to get ready for the collapse? Here's Ten Ways to Prepare for the Great Crash:

1) Get to cash, NOW. Every financial mania ends with a rush to cash, and a liquidation of assets at greater and greater loss. Get to cash. Even gold is at risk as owners liquidate to raise cash.

2) Know where your cash is, and that it's protected by the "full faith and credit" of the host government. If you have more than the allowed limits in any one institution, and they go tits up, it's your own damn fault. If there's no protection, get your money out of there NOW.

3) Unless you plan on keeping your house forever, sell your house as fast as you can at whatever price you can get for it. Because you'll never get that price again in your lifetime. And then rent (for a fraction of the cost of buying)

4) Get out of all stocks and money market funds. Yes, that's right, even money market funds are not secure, and they can and will lose value

5) Get into short term US government t-bills and liquid FDIC-insured savings accounts (up to the FDIC limits). Wait for the bad storm to pass

6) Tell everyone you care about that The Great Unwinding is here. Use the "email this post" function (the little envelope by the comments link below) to send this to your friends and family. DO NOT be the last one out of the pool - be the first.

7) Get 100% out of ANY troubled bank or brokerage, and any bank exposed to the subprime cancer. If and when they go belly up, even getting your FDIC insured deposits out will be a pain.

8) Check your mutual funds and 401k. Get them to cash and T-bills if you can.

9) Watch what the central banks do. Their actions may present you with some short-term trading opportunities. Watch for currency meltdowns - don't have all your cash in one currency. Use the currency ETFs to spread your risk.

10) Get some popcorn. You're gonna witness some historic stuff these next few days, weeks and months.

From The Independent:

Panic on the streets of Britain: Northern rocked, City shocked

Yesterday something happened that I have not seen in my lifetime, a run on a major British bank. There were queues outside Northern Rock branches as depositors tried to get their money out.

This is the sort of event that happened in America after the Great Crash of 1929. For Northern Rock, this is catastrophe. For the rest of us it marks the end of an era of easy money.


bickerer said...

>Northern's dilemma will rock markets.

Really? The markets did just fine yesterday. Guess it just doesn't matter if it's not on the front page of yahoo.

Anonymous said...

Many financial institutions have been hit by a sudden shortage of cash and other liquid assets as banks hoard money in anticipation of having to provide finance to complex investment vehicles. Triggered initally by defaults by poor Americans struggling to meet increased mortgage bills, the problem has spread.

Yeah this interlinked, interdependent, intertwined global economic system is working out really well. One ships sinks, the rest get dragged down.

FlyingMonkeyWarrior said...

Dear Keith,
I am glad to see that you and Richard FINALLY agree on some things.

Anonymous said...

Jiffy Pop at the ready!

keith said...

We don't even know how much the BofE is lending to Northern Rock. Just like we have NO IDEA what the terms were of Countrywide's phantom 12 billion credit line announced last week. Either Angelo doesn't want you to know, or he really didn't get the financing.

Tell you what, I'll arrange 12 billion for Countrywide too.

100% interest, pledged share of company, convertible securities.

How's that?

Anonymous said...

It's kind of funny to see the sheep lined up like that

Roccman said...

11. Buy food - as much as you can afford...then steal the rest.

Aaron Krowne said...

Gold and silver.

If you MUST get into cash, for chrissakes, don't make them US dollars.

Oh, and popcorn kills.

FlyingMonkeyWarrior said...

Posted On: Thursday, September 13, 2007, 6:06:00 PM EST

Fed Custodial Account Holdings Of Foreign Central Banks Sees Definitive Trend Change

Author: Dan Norcini

Dear CIGAs,

For the last 5 weeks I have been posting charts that illustrate the Fed Custodial Account holdings for Foreign Central Banks since developments have been occurring here that I believe bear greatly on the prospects of the dollar and thus on gold.

I wanted to make certain that I did not prematurely leap to conclusions since this is too important of an issue to get wrong. However, I have to say that after monitoring this data (which by the way comes out weekly) that we can now assert with a great deal of confidence that a definitive trend change has occurred.

As you can see by examining the following charts, especially the Treasury holdings charts, we are witnessing what certainly appears to be a significant change in the desirability of holding US debt among foreign central banks.

Six out of the last seven weeks have seen a reduction in foreign central bank holdings of US Dollar-denominated debt. That is something that has not occurred going back as far as 2002, the year that I began the data series with. This reduction has been fueled by what appears to be the beginnings of a buyer’s “boycott” of US Treasuries. From a peak of $1.259 Trillion on July 19 of this year, Foreign Central Banks have sold $55.4 Billion worth of US Treasury paper. That is not exactly what would qualify as “chump change”.

The question we have to ask ourselves is quite simple – “if foreign central banks which hitherto have been the biggest buyers of US Treasuries go on strike, who will step in to take their place?” The answer in my opinion is the Fed, which will have no choice but to monetize the debt acting as the buyer of last resort. Needless to say, this will not be lost on foreign observers who may perhaps begin dumping more of their holdings onto the market as a result. After all, who wants to get stuck holding the majority of their reserves in a currency that is plummeting fasting than a thermometer in the Klondike in winter.

This is a serious situation in my opinion and one that we need to continually monitor to see how it plays out. What actions might the US monetary authorities attempt to re-instill lost confidence among these foreign central banks? Are there any such actions that can prove to be more than ephemeral in this capacity? I do not know but my gut feeling is that any such actions would have to be so drastic that they would send shock waves through the US economy at large. Either way, if even a fraction of the money resulting from foreign central bank sales of US treasuries for diversification purposes finds its way to gold, the results would be immediately noticed.

Stay tuned as things are getting quite interesting.


TraderMark said...

While I have many issues with the housing bubble and think we need serious corrections in certain markets; this run on the bank was very strange to me. I'd me more worried if I were a Countrywide Thrift customer than Northern Rock. Actually *they* are trying to pro-active, unlike most US institutions (and society) which is reactive and tries to fix things after they blow up.

I also noticed the McCanns saga is more important than a banking run, even in England - oh how we love our scandals and celebrities. "Russia drops Nuclear Bomb on NYC" would probably be supplanted by Paris Hilton pregnancy news. Sad.

hayMoe said...

I have quite a lot in Etrade.

anyone hear any bad news re them?

Anonymous said...

read the comments.

Anonymous said...

Rush on Northern Rock continues
Queue outside Northern Rock branch in Kingston, Surrey
Customers have been withdrawing money despite appeals for calm
The rush of customers taking money out of Northern Rock has continued for a second day, amid concerns over its emergency Bank of England loan.

Long queues built up outside branches such as Kingston, Surrey, where some 250 people waited to take out money.

Lost Cause said...

Everytone is reminded of the bank runs of the great depression, when in fact the housing speculation bubble is much worse than what triggered the great depression.

unomyname said...

FWIW - which is probably nothing - I went to a bank in S.E. PA. yesterday to take out $1000.00. The teller (young lady) commented that she had very few 50's as a lot of people came in that day and took out large sums (she mentioned $5000 and $7000) respectively. So I wound up with a thick wad of 20's. I returned to the same bank today to test the waters and they were able to exchange all the 20's for 50's. Must be nice to have paper, ink, and plates nearby when you need them.

Anonymous said...

A run on 1 bank.
WOW! It's 1929 again.

Anonymous said...

I also noticed the McCanns saga is more important than a banking run, even in England - oh how we love our scandals and celebrities. "Russia drops Nuclear Bomb on NYC" would probably be supplanted by Paris Hilton pregnancy news. Sad.


Yeah I seem to recall after 9/11 there was no mention of it on TV. Just Britney news 24/7.

Reason people don't care about this is because it is a non-story. Only the tinfoil hat gang cares about it. Oh no, 100 people lined up outside a bank, the end is near.

What a bunch of tools.

Anonymous said...

I went to a BofA branch this morning to cash some checks that have been lying on my desk for weeks.

No runs. No panic. There were 3 tellers and 1 person (me) in the branch.

I think we'll be OK folks, how about we all calm down.

Cyberdyne Systems Model 101 said...

12) Guns
Uzi 9mm. 12 gauge autoloader. .45 long slide, laser sighting.

FlyingMonkeyWarrior said...

LOL @ Cyberdyne Systems Model 101

scott715 said...

anic on the streets of London
Panic on the streets of Birmingham
I wonder to myself
Could life ever be sane again ?
The Leeds side-streets that you slip down
I wonder to myself
Hopes may rise on the Grasmere
But Honey Pie, you're not safe here
So you run down
To the safety of the town
But there's Panic on the streets of Carlisle
Dublin, Dundee, Humberside
I wonder to myself

Anonymous said...

I went to a BofA branch this morning to cash some checks that have been lying on my desk for weeks.

No runs. No panic. There were 3 tellers and 1 person (me) in the branch.

I think we'll be OK folks, how about we all calm down.

Youre just located on the wrong side of the Titanic. The other end is sinking, soon pulling you under too.

LauraVella said...

I sold 90% of my gold stocks knowing assets would be sold off to cover the over leveraged. Not just for hedge funds, but any other establishment that is into financials and REITS.

Moved everything into FDIC 6mo. CD's. BTW, Vanguard's CD rates are pretty good...

I'll buy back into gold stocks/ energy stocks after the first of the year hopefully...we'll see what happens then.

Magon said...

It can't happen here.

By virtue Of the authority vested in me by Section 5 (b) of the Act of October 6, 2007, as amended by Section 2 of the Act of March 9, 2008, entitled "An Act to provide relief in the existing national emergency in banking, and for other purposes," in which amendatory Act Congress declared that a serious emergency exists, I, George W. Bush, President of the United States of America, do declare that said national emergency still continues to exist and pursuant to said section do hereby prohibit the hoarding of gold coin and gold bullion, within the United States by individuals, partnerships, associations and corporations and hereby prescribe the following regulations for carrying out the purposes of this order:

Anonymous said...

What's the going rate for a Streetsweeper shotgun and an AK-47?

whitetower said...

If the Fed cuts rates I won't really be worried about my bank closing -- I'll be more worried about taking my paychecks home in a wheelbarrow in the future.

Alpha_Bear said...

"Really? The markets did just fine yesterday. Guess it just doesn't matter if it's not on the front page of yahoo."

Is this your idea of fine? (from Yahoo)

Anonymous said...

Hey... It's hard to imagine advice more questionable than to get cash and lots of it.
You have not seen a hyperinflation. I have. Old piles of cash were worth nothing. More and more of it was coming to the market and prices kept growing 100% a month.
Why that government ( in Eastern Europe) did it? they wanted to reduce internal debt.

That's the only way to bail everyone out of housing bubble - the debt will burn. But there are consequences to the economy and they are deadly.

The key is - we don't know how it's going to work out. If it really turns out this "hyper inflation" way, people who bought the houses will win. And everyone else who kept a stockpile of cash will use it for firewood.

Anonymous said...

A run on 1 bank.
WOW! It's 1929 again.

September 15, 2007 7:13 PM

This is a systemic crisis you moron. The entire banking system is on it's death bed.

Anonymous said...

Woke up this morning (ok afternoon, late night last night). Turned on TV. Hmmm whadayaknow, world still as it was yesterday.

Sorry tinfoilers, once again you are wrong.

need some info please said...

Hi there. You say we should cash out or use treasury bills, and not keep money market funds. I have retirement IRAs that I have just converted from mutual funds to money market. I don't see an option on the company's website to convert my money market retirement IRA to t-bills.

Have I done all I can, considering that I want to keep my retirement account . . . or do you see an advantage to cashing out of the retirement account and paying the taxes and 10% fee?

Seems to me that it would be better to keep the retirement account -- is there something besides keeping it in a money market account that you can see I could possibly do? I am not well educated on the financial options.

Thanks very much.

Anonymous said...

What do you want to bet there will be plenty of Brits who think, "Those banks just aren't safe any more---I want to put my money into something substantial and permanent, more property. They can't take THAT away from me! No financial fiddlediddling for me."

Anonymous said...

Hey "need some info please", you might want to rethink the wisdom of making major financial decisions based on anonymous internet ravings and prognostications.

abb said...

It's hard to imagine a run on banks when everything is paid for with credit and debit cards.

Even as these banks implode, the Federal Reserve is there to loan all necessary funds.

A few will go down, but for the most part it's going to be a massive devaluation in the dollar as dollars are printed for all takers. It's just bits in a computer these days.

Buy gold.