http://www.safehaven.com/article-2114.htm

Part of me says, "Thanks Tom, this is really sobering, interesting stuff. Keep it coming." Another part says, "Mercy! Mercy!".

It's coming . . .

Happy Anniversary!



Can The U.S. Stock Market Crash Again?
Peter Kang, 10.25.04, 6:00 AM ET



It Can Happen...
Robert Prechter

Title:
Founder of research firm Elliott Wave International, author of Conquer the Crash.

Probability of a 1929-like crash:
High. "Every one of the preconditions for a crash is in place, to a greater degree than ever."

Conditions needed for a crash:
Extreme optimism; a narrowing of breadth (advances versus declines) in the preceding uptrend; a market that fails to rally to new highs.

What's different today:
Nothing. "Human herding propels markets."

The Fed:
"Fed intervention to push interest rates down encourages debt. The greater the debt load, the bigger the bubble, and the bigger the bubble, the bigger the ultimate crash."

Outlook:
"The market has already completed a counter-trend rally, and the psychology of investors, advisers and economists is dangerously optimistic. The market is probably doing something more akin to what happened in 1835-1842 or 1929-1932 [versus the 1970s]. According to my analysis, the bear market has already resumed, so the crash potential is significant."

Investment picks:
Cash and cash equivalents in a safe bank.


It Can't Happen...
Alfred Goldman

Title:
Chief market strategist at A.G. Edwards

Probability of a 1929-like crash:
"I would say zero to none. I don't even think about it, it's negligible."

Conditions for a crash:
Weak financial infrastructure, lack of global communication.

What's different today:
"The whole financial structure is different than it was in 1929. Nations didn't talk to each other. Today, we talk to them too much."

The Fed:
"We have a very strong Federal Reserve. Their ability to help the market during bad times is substantial."

Outlook:
"The economy is the strongest it has been in 20 years. The bear market that we had in February 2000 was the second worst since the Great Depression. We had a tremendous crash of the stock bubble, a collapse of telecom and Internet stocks. We had a recession, we had Sept. 11, war, accounting scandals, corporate malfeasance, mutual fund scandals, and it still didn't match the break of 1929. You come out stronger."

Investment picks:
Consumer nondurables and medical-related products, including large-cap pharmaceuticals.


______________________________
Wall Street experienced some of its darkest moments 75 years ago in October 1929. Three "black" days over four trading sessions started a punishing decline in stocks that wouldn't end until 1932.

America entered into a decade-long funk known as the Great Depression, and yet many publicly traded companies from that time endured and still exist, including AT&T (nyse: T - news - people ), Coca-Cola (nyse: KO - news - people ), DuPont (nyse: DD - news - people ), General Electric (nyse: GE - news - people ) and General Motors (nyse: GM - news - people ). But could a crash happen again? Conservative optimism reigns on Wall Street. While most market strategists don't rule out the possibility of a market crash of titanic proportions, the majority say the likelihood is very low, less than 1%.

Bill Strazzullo, chief market strategist at State Street Global Markets, says fear and greed are two primary drivers of market crashes.

"We saw that at the end of the 1990s--it was essentially a melt-up, people were just getting greedy," he says. "With cases of extreme fear, even with the circuit breakers [automatic trading halts] and a proactive Fed, you don't know what kind of panic fear can bring. You can't prevent crashes; you can only cushion them."

Ralph Acampora, chief market strategist at Prudential Equity Group, doesn't forecast anything as drastic as a crash any time soon but predicts "real nasty declines" in the second half of 2005. Prior to then, however, the market will reach new highs, with the Dow hitting 12,000, Acampora says.

"They call it a stealth bull market, and it's not over," he says. "A roaring bull market is going on right now under the surface, and no one knows about it. The breadth of the market is spectacular. Do we have the makings of a crash? Not at all."

JWT 1972:
Just had my house inspected. Need some minor repairs and another inspection before I put it up for sale.
Gee, I hope I don't end up like Cathy!

Originally Posted by Tom Mazanec

JWT 1972:
Just had my house inspected. Need some minor repairs and another inspection before I put it up for sale.
Gee, I hope I don't end up like Cathy!

I hope not too - I wonder if the bubble is closer to bursting where Ms. Guisewite lives than in other places.

Meanwhile, my parents are buying condos as investment properties that are worth less in real dollars than they were twenty years ago . . .

Gloom & Doom from the Financial Times:

http://news.ft.com/cms/s/a67665a0-2e...00e2511c8.html

?The dollar fell to fresh nine-year lows in trade-weighted terms on Thursday and gold prices reached a 16-year peak amid concerns over tensions in the Middle East and a renewed belief in the dollar's longer-term decline. Traders said reports of Yassir Arafat's continuing ill-health were weighing on the dollar. ?This spells trouble for the dollar since it could mean protracted US involvement in the region, not just Iraq,? said Kamal Sharma, currencies strategist at Dresdner Kleinwort Wasserstein. Middle Eastern investors, including central banks, have been active in the market selling dollars over the past two days, according to traders. There has been speculation for some time that investors in the region would seek to diversify their largely dollar-based wealth as the greenback weakened? The greenback's weakness was also attributed to the re-election of President George W. Bush. Since the start of Mr. Bush's first term the dollar has fallen 20.8 per cent in trade-weighted terms and observers do not expect a change in dollar policy in his second term.?

See it here at:
http://www.frontlinethoughts.com/pri...p?id=mwo110604

http://www.kitco.com/ind/Appel/nov042004.html

Take a look at our recent personal savings rate:

http://www.bea.gov/briefrm/saving.htm

And the dollar compared to Euros (that many countries want to price petroleum in):

http://www.x-rates.com/d/EUR/USD/graph120.html

Originally Posted by NickSmoliga

See it here at:
http://www.frontlinethoughts.com/pri...p?id=mwo110604

If the Republicans don't act on most of that advice in the next two years, maybe it will be adopted by Fourth Turning-aware "new" Democrats (Al Gore), or a political party that isn't carrying the values baggage.

The article reads like S&H's T4T"How America Should Prepare."
Thanks for posting it.

Originally Posted by Tom Mazanec

Take a look at our recent personal savings rate:

http://www.bea.gov/briefrm/saving.htm

And the dollar compared to Euros (that many countries want to price petroleum in):

http://www.x-rates.com/d/EUR/USD/graph120.html

Doesn't look good. Large scale pricing of oil in Euros would, as you know, largely diminish (or eliminate) the advantage the US dollar has as the world reserve currency. Then all of those surplus dollars and dollar-dominated assets loose the demand factor propping them up.

Disaster.

Originally Posted by The Financial Times

The dollar could slide still further, in spite of hitting an all-time low against the euro last week in the wake of George W. Bush's re-election, currency traders have said.

The dollar sell-off has resumed amid fears among traders that Mr Bush's victory will bring four more years of widening US budget and current account deficits, heightened geopolitical risks and a policy of "benign neglect" of the dollar.

Many currency traders were taken aback on Friday when the greenback fell in spite of bullish data showing the US economy created 337,000 jobs in October.

"If this can't cause the dollar to strengthen you have to tell me what will. This is a big green light to sell the dollar," said David Bloom, currency analyst at HSBC, as the greenback fell to a nine-year low in trade-weighted terms.

The dollar's fall comes as the Federal Reserve is widely expected to raise US interest rates by a quarter point to 2 per cent when it meets on Wednesday and to signal that it will continue with a measured pace of rate increases.

Speculative traders in Chicago last week racked up the highest number of long-euro, short-dollar contracts on record. Options traders have reported brisk business in euro calls - contracts to buy the euro at a pre-determined rate.

However, the market has been rife with rumours that the latest wave of selling has been led by foreign governments seeking to cut their exposure to US assets.

India and Russia have reportedly been selling US assets, as well as petrodollar-rich Middle Eastern investors.

China, which has $515bn of reserves, was also said to be selling dollars and buying Asian currencies in readiness to switch the renminbi's dollar peg to a basket arrangement, something Chinese officials have increasingly hinted at. Any re-allocation could push the dollar sharply lower and Treasury yields markedly higher.

The above is quoted for educational/informational purposes only. Emphases are mine.

http://news.ft.com/cms/s/257979a6-30...00e2511c8.html

Heard the Muslims are talking about making an all Muslim common currency (like Euros) to be called the "Dinar". How would this affect the financial crisis?

Originally Posted by Tom Mazanec

Heard the Muslims are talking about making an all Muslim common currency (like Euros) to be called the "Dinar". How would this affect the financial crisis?

At this point I don't think it would make much impact because I absolutely cannot imagine the Muslim world, or even any portion of it, cooperating enough to make a single currency. The only thing they can agree on is to play up the plight of the Palestinians to distract themselves from more pressing problems.

I wouldn't even venture to make a "light bulb" joke because they wouldn't be able to agree to even screw it in.

would be (is?) a gold coin of high purity and would be used to price oil and trade between Islamic nations. There would be (is?) a silver coin as well called dirham.

It was privately minted and traded. I think it is off the screen for two reasons. It is Islamic and thus an object of contempt by the Secular West. It is a precious metal and is thus ridiculed by the fiat money professionals.

I think it may be important in the struggle of the Crisis as both a funding mechanism and as a matter of identity. We may come to fear such a creation of Allah's coinage.

http://reuters.myway.com/article/200...CONOMY-DC.html

??The monthly trade gap totaled $51.6 billion, down from a revised $53.5 billion in August, the Commerce Department said. Economists had forecast the September trade deficit would come in at $53.5 billion, only slightly lower than the original estimate for August of $54.0 billion. It is pretty encouraging news and says that we will probably get an upward revision to third-quarter GDP (gross domestic product)," said David Resler, chief economist with Nomura Securities International in New York...?

So we have only lost 51.6 billion dollars in a month, and this is good news.

Originally Posted by Tom Mazanec

So we have only lost 51.6 billion dollars in a month, and this is good news.

That's exactly what I thought when I read the news.

"It's only when the tide goes out that you learn who's been swimming naked."

- Warren Buffett

Housing Bubble...it's already popping in UK:

http://news.independent.co.uk/busine...p?story=583304

Originally Posted by Tom Mazanec

Housing Bubble...it's already popping in UK:

http://news.independent.co.uk/busine...p?story=583304

By Philip Thornton, Economics Correspondent
16 November 2004


The housing market is suffering its worst downturn since the tail-end of the 1990s property crash, a leading industry body warns today.

The Royal Institution of Chartered Surveyors (Rics) says the market is in the grip of a vicious cycle as mounting speculation of a property crash conspires to drive down prices.

It says the number of surveyors reporting a fall in prices outnumbered those seeing a rise by 41 per cent in October - the lowest reading since December 1992. Although the figure does not directly equate with a fall in property values, it is the latest in a run of industry reports to highlight a fall in prices last month.

Last week the Bank of England predicted for the first time that prices would suffer a "modest fall" over the next two to three years.

Rics says: "Additional uncertainty has been injected into the market by continued speculation over the potential for more serious declines in prices."

Individual surveyors across the country highlighted growing media speculation as a driving force behind the slowdown.

Quentin Jackson-Stops, of Jackson Stops & Staff in Northampton, said buyers had been "spooked" by adverse media comment. "Both new instructions and viewings are down and if there is continuing adverse press coverage it could make price falls inevitable," Mr Jackson-Stops said.

In Winchester, Hampshire, the UK-wide agency John D Wood said constant speculation was undermining buyers' confidence and forcing sellers to cut their asking prices.

A surveyor in Frome, Somerset, singled out the Daily Express newspaper, which has repeatedly warned of a crash on its front page, for "negative impact beyond the call of duty".

The Rics survey found that activity in the market appeared to be drying up, with transaction numbers at a nine-year low, another rise in stocks of unsold properties, and new buyer inquiries down for the sixth month in a row.

"Buyers are still nervous, which is not surprising given the quick-fire interest rate rises over the summer," Jeremy Leaf, Rics' housing spokesman, said. However, he said there was little evidence of "panic selling", and focused on "encouraging signals" from London, where surveyors are reporting a levelling off in prices. Rics said the capital traditionally provided a reliable indicator for emerging national trends. "This may be an early signal that declines are coming to an end," Mr Leaf said. "Despite the gloom, the professionals on the ground believe that confidence will not deteriorate further over the coming months as the underlying factors, jobs and the wider economy, remain stable."

Its report found that prices fell in every region bar Scotland, with the biggest drops in southern England, followed by the Midlands, Wales and northern England.

Many said that winter - traditionally a quiet time - had come early, although several hoped for a spike in the new year.

There is a growing consensus among economists that interest rates are at or close to a peak at the current level of 4.75 per cent. Several believe that borrowing costs will start to tumble in the second half of next year as falls in house prices begin to accelerate.

Mark Annett, at Scott Symonds surveyors in Witney, Oxfordshire, said: "If interest rates don't rise, all should be well. It seems that the Bank has achieved what was required - a slowdown."
17 November 2004 06:23

Search this site:

Printable Story

When do you suspect it will reach here?

The Washington Times www.washingtontimes.com

Declining superpower act By Paul Craig Roberts
Published November 19, 2004

China's currency peg to the U.S. dollar prevents correction of the U.S. trade imbalance and imperils the U.S. dollar's role as reserve currency.

In the post-World War II period, the dollar took over the reserve currency role from the British pound, because the supremacy of U.S. manufacturing guaranteed trade surpluses. The British pound lost its role due to debts of two world wars, loss of empire, a rundown industrial base, and socialist attack on U.K. business.

The reserve currency conveys unique advantages on the favored country. As the reserve currency, the U.S. dollar is guaranteed a high demand. Foreign central banks hold their reserves in dollars, and countries are billed in dollars for their oil imports, which requires other countries to buy dollars with their currencies.

Since a reserve currency fulfills world needs in addition to the functions of a domestic currency, the favored country can hemorrhage debt for a protracted period on a scale that would promptly wreck any other country's currency.

This advantage is a two-edged sword, because it permits the reserve country to behave irresponsibly by running large trade and budget deficits. When the tide turns against the reserve currency, its exchange value collapses.

Collapse occurs because of the huge stock of reserve currency held by foreigners. When other countries conclude their hoards of dollars represent claims the United States cannot meet, dollar dumping begins. Financing for U.S. debt dries up; interest rates rise; imported goods become unaffordable and living standards fall...

Indeed, the dollar is declining against all currencies that have any international standing: the British pound, the Canadian dollar, the Australian dollar, and even against the Japanese yen despite Tokyo's intervention to support the dollar.

Overcome by hubris and superpower delusion, U.S. policymakers are unaware of America's peril. Economists and pundits are equally in the dark.

Economists believe decline in the dollar's exchange value will correct the U.S. trade deficit by reducing imports and increasing exports. Once upon a time, a case could have been argued for this logic. But that was before U.S. corporations took to outsourcing jobs and locating production offshore for U.S. markets...

It is amazing that U.S. policymakers and economists do not understand dollar devaluation is meaningless as long as China keeps its currency pegged to the dollar.
America's greatest trade imbalance is with China. In 2000, the U.S. merchandise trade deficit with China became larger than the chronic U.S. trade deficit with Japan. By 2003, the U.S. trade deficit with China was almost twice as large as the U.S. deficit with Japan: $124 billion vs. $66 billion. This year the U.S. trade deficit with China is expected to be $160, a 29 percent increase from last year.

This imbalance cannot be corrected as long as China maintains the peg. As the dollar falls against the euro and other currencies, the Chinese currency falls with it, thus maintaining China's advantage over U.S. goods in world markets...

Currency markets cannot correct the undervalued Chinese currency, because China does not permit its currency to be traded and there are insufficient stocks of Chinese currency in foreign hands with which to form a currency market.

Sooner or later the peg will come to an end -- perhaps when China fulfills its World Trade Organization obligation to let its currency float. When the peg ends, it will deliver a severe shock to U.S. living standards. Suddenly, Chinese manufactured goods -- including advanced technology products -- on which the U.S. now depends will cost much more. Overnight, shopping at Wal-Mart will be like shopping in high-end department stores.

China accounts for a quarter of the U.S. trade deficit and for one-third of the U.S. deficit in manufactured goods, is the second-largest source of U.S. imports after Canada, and is America's third-largest trading partner as conventionally measured. Despite these facts, the U.S. government does not publish full current account data for China, instead lumping China in with "Other Countries in Asia and Africa." This keeps the magnitude of the problem out of sight...

Recently, Goodyear Tire and Rubber Co. declared its intention to close all U.S. plants and to manufacture offshore for U.S. markets. Each time the U.S. loses an industry, America's export potential declines and America's imports rise. This scenario guarantees a rising trade deficit and the end of the dollar's reserve currency role.

Paul Craig Roberts was assistant secretary of the Treasury for economic policy during 1981-82 and is a nationally syndicated columnist.

Originally Posted by William Jennings Bryan

Originally Posted by Tom Mazanec

Housing Bubble...it's already popping in UK:

http://news.independent.co.uk/busine...p?story=583304

The housing market is suffering its worst downturn since the tail-end of the 1990s property crash, a leading industry body warns today.

...

There is a growing consensus among economists that interest rates are at or close to a peak at the current level of 4.75 per cent. Several believe that borrowing costs will start to tumble in the second half of next year as falls in house prices begin to accelerate.

Mark Annett, at Scott Symonds surveyors in Witney, Oxfordshire, said: "If interest rates don't rise, all should be well. It seems that the Bank has achieved what was required - a slowdown."

When do you suspect it will reach here?

Two observations on the report cited:

1) Unlike the UK, the housing bubble stateside is very unevenly distributed. House prices in e.g. the Midwest have barely budged for a decade, while here in the Sound they have increased by triple the rate of wage growth. (Seattle is now apparently the least affordable city in the U.S. by that measure.)

2) There is virtually no chance that borrowing costs will decrease here, meaning that there will be no fiscal intervention to slow the decline in prices once they start. No "soft landing" here.

It will probably pop one week before I sell my house :lol: