IMF says credit crisis spreading in 'negative feedback loop'
WASHINGTON - The credit crisis stemming from the US housing slump has triggered a 'negative feedback loop' in the global economy that poses risks for growth, the International Monetary Fund said on Monday, 28 July 2008.
'Global financial markets continue to be fragile and indicators of systemic risks remain elevated,' the IMF said in an update of its April report on global financial stability.
A year after the financial markets were battered by the US subprime, or high-risk, home mortgage crisis, those expected losses have now been 'largely acknowledged' by financial institutions but the risk has spread to other forms of credit.
'Credit quality across many loan classes has begun to deteriorate with declining house prices and slowing economic growth,' the IMF said.
Banks are under 'renewed stress' to raise additional capital amid a sharp plunge in banking stocks, which has 'increased the likelihood of a negative interaction between banking system adjustment and the real economy', according to the update of the Global Financial Stability Report.
'The downside risks outlined in the April GFSR appear to be materialising, leading to a negative feedback loop between the financial system and the broader economy,' Jaime Caruana, the director of the IMF's financial markets department, said at a news conference.
The IMF estimated banks and financial institutions have written off in excess of US$400 billion in soured mortgage-related investments.
The 185-nation institution said that due to the slump in the asset-backed securities and ongoing loan delinquencies, it had 'little reason' to change its April 3 estimate of US$945 billion for the 'total mark-to-market losses' in the financial crisis.
Stemming the decline in the US housing market 'would remove a key component of the feedback loop, as this would both help households and financial institutions recover', Mr Caruana said.
He noted that with sharply rising loan delinquencies and foreclosures and a continuing fall in home prices, 'a bottom for the housing market is not yet visible'. -- AFP
the Greatest Crash in Stock & Property Market is coming.
Moderators: alvin, learner, Dennis Ng
IMF says credit crisis spreading in 'negative feedback loop'
Cheers!
Dennis Ng - When You Master Your Finances, You Master Your Destiny
Note: I'm just sharing my personal comments, not giving you investment advice nor stock investment tips.
Dennis Ng - When You Master Your Finances, You Master Your Destiny
Note: I'm just sharing my personal comments, not giving you investment advice nor stock investment tips.
Hi everyone out there,
we are entering into possibly the Worst Global Financial Crisis in over 50 years. It can also be the Best Opportunity in a Lifetime.
Your level of Financial Literacy will be tested in the crisis. And how you fare in the Crisis will be the "results" you get from this test.
This is NOT a theory test. Those who score well would see their wealth Grow after the crisis. Those who fail the test will see their finances adversely affected.
For many months, I've tried to warn people about the up-coming crisis. For many months, I've also been sharing what one can do to mitigate the effects of the Crisis.
I hope I've not wasted my time and some people out there miight have benefitted.
Take Care. Even PM Lee is hinting of the "storms ahead".
Cheers!
Dennis Ng
Nouriel Roubini predicts the worst financial crisis since the Great Depression
RGE Monitor MEDIA ALERT: Nouriel Roubini predicts the worst financial crisis since the Great Depression and the worst U.S. Recession in the last few decades.
New York, July 15, 2008- In a series of recent writings on the RGE Monitor Nouriel Roubini – Chairman of RGE Monitor and Professor of Economics at the NYU Stern School of Business - has argued that the U.S. is experiencing its worst financial crisis since the Great Depression and will undergo its worst recession in the last few decades. His analysis leads to the following conclusions:
* This is by far the worst financial crisis since the Great Depression
* Hundreds of small banks with massive exposure to real estate (the average small bank has 67% of its assets in real estate) will go bust
* Dozens of large regional/national banks (a’ la IndyMac) are also bankrupt given their extreme exposure to real estate and will also go bust
* Some major money center banks are also semi-insolvent and while they are deemed too big to fail their rescue with FDIC money will be extremely costly.
* In a few years time there will be no major independent broker dealers as their business model (securitization, slice & dice and transfer of toxic credit risk and piling fees upon fees rather than earning income from holding credit risk) is bust and the risk of a bank-like run on their very short term liquid liabilities is a fundamental flaw in their structure (i.e. the four remaining U.S. big brokers dealers will either go bust or will have to be merged with traditional commercial banks). Firms that borrow liquid and short, highly leverage themselves and lend in longer term and illiquid ways (i.e. most of the shadow banking system) cannot survive without formal deposit insurance and formal permanent lender of last resort support from the central bank.
* The FDIC that has already depleted 10% of its funds in the rescue of IndyMac alone will run out of funds and will have to be recapitalized by Congress as its insurance premia were woefully insufficient to cover the hole from the biggest banking crisis since the Great Depression
* Fannie and Freddie are insolvent and the Treasury bailout plan (the mother of all moral hazard bailout) is socialism for the rich, the well connected and Wall Street; it is the continuation of a corrupt system where profits are privatized and losses are socialized. Instead of wiping out shareholders of the two GSEs, replacing corrupt and incompetent managers and forcing a haircut on the claims of the creditors/bondholders such a plan bails out shareholders, managers and creditors at a massive cost to U.S. taxpayers.
* This financial crisis will imply credit losses of at least $1 trillion and more likely $2 trillion.
* This is not just a subprime mortgage crisis; this is the crisis of an entire subprime financial system: losses are spreading from subprime to near prime and prime mortgages; to commercial real estate; to unsecured consumer credit (credit cards, student loans, auto loans); to leveraged loans that financed reckless debt-laden LBOs; to muni bonds that will go bust as hundred of municipalities will go bust; to industrial and commercial loans; to corporate bonds whose default rate will jump from close to 0% to over 10%; to CDSs where $62 trillion of nominal protection sits on top an outstanding stock of only $6 trillion of bonds and where counterparty risk – and the collapse of many counterparties – will lead to a systemic collapse of this market.
* This will be the most severe U.S. recession in decades with the U.S. consumer being on the ropes and faltering big time as soon as the temporary effect of the tax rebates will fade out by mid-summer (July). This U.S. consumer is shopped out, saving less, debt burdened and being hammered by falling home prices, falling equity prices, falling jobs and incomes, rising inflation and rising oil and energy prices. This will be a long, ugly and nasty U-shaped recession lasting 12 to 18 months, not the mild 6 month V-shaped recession that the delusional consensus expects.
* Equity prices in the US and abroad will go much deeper in bear territory. In a typical US recession equity prices fall by an average of 28% relative to the peak. But this is not a typical US recession; it is rather a severe one associated with a severe financial crisis. Thus, equity prices will fall by about 40% relative to their peak. So, we are only barely mid-way in the meltdown of stock markets.
* The rest of the world will not decouple from the US recession and from the US financial meltdown; it will re-couple big time. Already 12 major economies are on the way to a recessionary hard landing; while the rest of the world will experience a severe growth slowdown only one step removed from a global recession. Given this sharp global economic slowdown oil, energy and commodity prices will fall 20 to 30% from their recent bubbly peaks.
* The current U.S recession and sharp global economic slowdown is combining the worst of the oil shocks of the 1970s with the worst of the asset/credit bust shocks (and ensuing credit crunch and investment busts) of 1990-91 and 2001: like in 1973 and 1979 we are facing a stagflationary shock to oil, energy and other commodity prices that by itself may tip many oil importing countries into a sharp slowdown or an outright recession. Also, like 1990-91 and 2001 we are now facing another asset bubble and credit bubble gone bust big time: the housing and overall household credit boom of the last seven years has now gone bust in the same way as the 1980s housing bubble and 1990s tech bubble went bust in 1990 and in 2000 triggering recessions. And a similar housing/asset/credit bubble is going bust in other countries – U.K., Spain, Ireland, Italy, Portugal, etc. – leading to a risk of a hard landing in these economies.
* But over time inflation will be the last problem that the Fed will have to face as a severe US recession and global slowdown will lead to a sharp reduction in inflationary pressures in the U.S.: slack in goods markets with demand falling below supply will reduce pricing power of firms; slack in labor markets with unemployment rising will reduce wage pressures and labor costs pressures; a fall in commodity prices of the order of 20-30% will further reduce inflationary pressure. The Fed will have to cut the Fed Funds rate much more – as severe downside risks to growth and to financial stability will dominate any short-term upward inflationary pressures. Leaving aside the risk of a collapse of the US dollar given this easier monetary policy the Fed Funds rate may end up being closer to 0% than 1% by the end of this financial disaster and severe recession cycle.
* The Bretton Woods 2 regime of fixed exchange rates to the US dollar and/or heavily managed exchange will unravel – as the first Bretton Woods regimes did in the early 1970s – as US twin deficits, recession, financial crisis and rising commodity and goods inflation in emerging market economies will destroy the basis for it existence.
* Thus, the scenario of 12 steps to a financial disaster that I outlined in my February 2008 paper is unfolding as predicted. If anything financial conditions are now much worse than they were at the previous peak of this financial crisis, i.e. in mid-march of 2008.
To read the entire piece click here or to contact RGE Monitor and arrange for analyst interviews, go to http://www.rgemonitor.com or 212-645-0010.
we are entering into possibly the Worst Global Financial Crisis in over 50 years. It can also be the Best Opportunity in a Lifetime.
Your level of Financial Literacy will be tested in the crisis. And how you fare in the Crisis will be the "results" you get from this test.
This is NOT a theory test. Those who score well would see their wealth Grow after the crisis. Those who fail the test will see their finances adversely affected.
For many months, I've tried to warn people about the up-coming crisis. For many months, I've also been sharing what one can do to mitigate the effects of the Crisis.
I hope I've not wasted my time and some people out there miight have benefitted.
Take Care. Even PM Lee is hinting of the "storms ahead".
Cheers!
Dennis Ng
Nouriel Roubini predicts the worst financial crisis since the Great Depression
RGE Monitor MEDIA ALERT: Nouriel Roubini predicts the worst financial crisis since the Great Depression and the worst U.S. Recession in the last few decades.
New York, July 15, 2008- In a series of recent writings on the RGE Monitor Nouriel Roubini – Chairman of RGE Monitor and Professor of Economics at the NYU Stern School of Business - has argued that the U.S. is experiencing its worst financial crisis since the Great Depression and will undergo its worst recession in the last few decades. His analysis leads to the following conclusions:
* This is by far the worst financial crisis since the Great Depression
* Hundreds of small banks with massive exposure to real estate (the average small bank has 67% of its assets in real estate) will go bust
* Dozens of large regional/national banks (a’ la IndyMac) are also bankrupt given their extreme exposure to real estate and will also go bust
* Some major money center banks are also semi-insolvent and while they are deemed too big to fail their rescue with FDIC money will be extremely costly.
* In a few years time there will be no major independent broker dealers as their business model (securitization, slice & dice and transfer of toxic credit risk and piling fees upon fees rather than earning income from holding credit risk) is bust and the risk of a bank-like run on their very short term liquid liabilities is a fundamental flaw in their structure (i.e. the four remaining U.S. big brokers dealers will either go bust or will have to be merged with traditional commercial banks). Firms that borrow liquid and short, highly leverage themselves and lend in longer term and illiquid ways (i.e. most of the shadow banking system) cannot survive without formal deposit insurance and formal permanent lender of last resort support from the central bank.
* The FDIC that has already depleted 10% of its funds in the rescue of IndyMac alone will run out of funds and will have to be recapitalized by Congress as its insurance premia were woefully insufficient to cover the hole from the biggest banking crisis since the Great Depression
* Fannie and Freddie are insolvent and the Treasury bailout plan (the mother of all moral hazard bailout) is socialism for the rich, the well connected and Wall Street; it is the continuation of a corrupt system where profits are privatized and losses are socialized. Instead of wiping out shareholders of the two GSEs, replacing corrupt and incompetent managers and forcing a haircut on the claims of the creditors/bondholders such a plan bails out shareholders, managers and creditors at a massive cost to U.S. taxpayers.
* This financial crisis will imply credit losses of at least $1 trillion and more likely $2 trillion.
* This is not just a subprime mortgage crisis; this is the crisis of an entire subprime financial system: losses are spreading from subprime to near prime and prime mortgages; to commercial real estate; to unsecured consumer credit (credit cards, student loans, auto loans); to leveraged loans that financed reckless debt-laden LBOs; to muni bonds that will go bust as hundred of municipalities will go bust; to industrial and commercial loans; to corporate bonds whose default rate will jump from close to 0% to over 10%; to CDSs where $62 trillion of nominal protection sits on top an outstanding stock of only $6 trillion of bonds and where counterparty risk – and the collapse of many counterparties – will lead to a systemic collapse of this market.
* This will be the most severe U.S. recession in decades with the U.S. consumer being on the ropes and faltering big time as soon as the temporary effect of the tax rebates will fade out by mid-summer (July). This U.S. consumer is shopped out, saving less, debt burdened and being hammered by falling home prices, falling equity prices, falling jobs and incomes, rising inflation and rising oil and energy prices. This will be a long, ugly and nasty U-shaped recession lasting 12 to 18 months, not the mild 6 month V-shaped recession that the delusional consensus expects.
* Equity prices in the US and abroad will go much deeper in bear territory. In a typical US recession equity prices fall by an average of 28% relative to the peak. But this is not a typical US recession; it is rather a severe one associated with a severe financial crisis. Thus, equity prices will fall by about 40% relative to their peak. So, we are only barely mid-way in the meltdown of stock markets.
* The rest of the world will not decouple from the US recession and from the US financial meltdown; it will re-couple big time. Already 12 major economies are on the way to a recessionary hard landing; while the rest of the world will experience a severe growth slowdown only one step removed from a global recession. Given this sharp global economic slowdown oil, energy and commodity prices will fall 20 to 30% from their recent bubbly peaks.
* The current U.S recession and sharp global economic slowdown is combining the worst of the oil shocks of the 1970s with the worst of the asset/credit bust shocks (and ensuing credit crunch and investment busts) of 1990-91 and 2001: like in 1973 and 1979 we are facing a stagflationary shock to oil, energy and other commodity prices that by itself may tip many oil importing countries into a sharp slowdown or an outright recession. Also, like 1990-91 and 2001 we are now facing another asset bubble and credit bubble gone bust big time: the housing and overall household credit boom of the last seven years has now gone bust in the same way as the 1980s housing bubble and 1990s tech bubble went bust in 1990 and in 2000 triggering recessions. And a similar housing/asset/credit bubble is going bust in other countries – U.K., Spain, Ireland, Italy, Portugal, etc. – leading to a risk of a hard landing in these economies.
* But over time inflation will be the last problem that the Fed will have to face as a severe US recession and global slowdown will lead to a sharp reduction in inflationary pressures in the U.S.: slack in goods markets with demand falling below supply will reduce pricing power of firms; slack in labor markets with unemployment rising will reduce wage pressures and labor costs pressures; a fall in commodity prices of the order of 20-30% will further reduce inflationary pressure. The Fed will have to cut the Fed Funds rate much more – as severe downside risks to growth and to financial stability will dominate any short-term upward inflationary pressures. Leaving aside the risk of a collapse of the US dollar given this easier monetary policy the Fed Funds rate may end up being closer to 0% than 1% by the end of this financial disaster and severe recession cycle.
* The Bretton Woods 2 regime of fixed exchange rates to the US dollar and/or heavily managed exchange will unravel – as the first Bretton Woods regimes did in the early 1970s – as US twin deficits, recession, financial crisis and rising commodity and goods inflation in emerging market economies will destroy the basis for it existence.
* Thus, the scenario of 12 steps to a financial disaster that I outlined in my February 2008 paper is unfolding as predicted. If anything financial conditions are now much worse than they were at the previous peak of this financial crisis, i.e. in mid-march of 2008.
To read the entire piece click here or to contact RGE Monitor and arrange for analyst interviews, go to http://www.rgemonitor.com or 212-645-0010.
Cheers!
Dennis Ng - When You Master Your Finances, You Master Your Destiny
Note: I'm just sharing my personal comments, not giving you investment advice nor stock investment tips.
Dennis Ng - When You Master Your Finances, You Master Your Destiny
Note: I'm just sharing my personal comments, not giving you investment advice nor stock investment tips.
latest update from asiachart, entitled:"Whole world bearish"
8th September 2008: Some clear bearish developments this week. Let's start with the world at large:
Oil majors top: Most importantly, the Amex oil majors index, XOI, broke out of a persuasive 18 month top, ending the five year bull trend for this group of stocks. XOM, BP and Total are three stocks in this group that made persuasive breakouts from long term tops. Although the daily crude chart has not topped, the reversal of trend for these producers is good evidence that oil is heading lower.
Emerging markets top: The ETF representing emerging markets, EEM, has topped persuasively. These markets are now part of the global bear. Indeed, with the breakout from this fund, we can now say that the whole world is in a bear market.
In Asia, Hongkong has failed a key support on the weekly chart, giving a good chance that the index will test the 19,000 level. Thailand also broke a key support. Other Asian markets headed lower.
In the US, major indices fell out of rising wedges, suggesting a retest of previous lows.
Other newly confirmed bear markets are listed on the Other Global Markets page. They include Brazil, South Africa and Australia. Canada is yet to be confirmed. But its breakout is highly likely in the next few weeks.
gb
8th September 2008: Some clear bearish developments this week. Let's start with the world at large:
Oil majors top: Most importantly, the Amex oil majors index, XOI, broke out of a persuasive 18 month top, ending the five year bull trend for this group of stocks. XOM, BP and Total are three stocks in this group that made persuasive breakouts from long term tops. Although the daily crude chart has not topped, the reversal of trend for these producers is good evidence that oil is heading lower.
Emerging markets top: The ETF representing emerging markets, EEM, has topped persuasively. These markets are now part of the global bear. Indeed, with the breakout from this fund, we can now say that the whole world is in a bear market.
In Asia, Hongkong has failed a key support on the weekly chart, giving a good chance that the index will test the 19,000 level. Thailand also broke a key support. Other Asian markets headed lower.
In the US, major indices fell out of rising wedges, suggesting a retest of previous lows.
Other newly confirmed bear markets are listed on the Other Global Markets page. They include Brazil, South Africa and Australia. Canada is yet to be confirmed. But its breakout is highly likely in the next few weeks.
gb
Cheers!
Dennis Ng - When You Master Your Finances, You Master Your Destiny
Note: I'm just sharing my personal comments, not giving you investment advice nor stock investment tips.
Dennis Ng - When You Master Your Finances, You Master Your Destiny
Note: I'm just sharing my personal comments, not giving you investment advice nor stock investment tips.