The rising cost of money

[ScottA]

We'll see the same here soon enough.

[muldoon]

I'll be interested to see if it slips Muldoon. Actually, everything is getting interesting from the local to the international level..

The Greece two year was completely destroyed later in the afternoon.  rumor has it 60% but I never saw it, the worst I found was GR0124011454 the bond that exp may 19 2010 best bid was 97.45 for a yields of 53%
for reference:
Portugal 2 year is priced at 5.2%
Germany 2 year is at 0.76%
US 2 year at 1.01%
--
The DAX futures were halted earlier
Check this out,
http://tools.boerse-go.de/index-tool/

Hangseng doen 4.5%
Nikeie down 300+ points

--
tidbit out on Italy bonds:

All of Europe is scrambling to issue new debt and refinance in advance of what more and more are seeing as a credit crisis soon to envelop not only the European periphery but its core as well. We all know what is happening in Greece and Portugal. It appears Italy may be next: the country sold €9.5 billion in 6 Month Bills at 0.814%, up dramatically from 0.568% just a month ago, on March 26. What is scariest is that the Bid To Cover on the auction tumbled from 1.56 at the previous auction to a just barely above passing 1.02. At this rate Italy will be unable to find bidders for its next Bill auction. And if it can't sell Bills, it can't roll the easiest part of its curve. Also, unlike Germany, Italy does not have the "flight to safety" appeal. Keep in mind that Italy, just like Greece, dipped freely in the Goldman debt/GDP swap "adjustment" mechanism. We are confident that as contagion fears grip Portugal, Italy is sure to be next. And confirming that the market is seeing Italy as an even greater risk than Spain, the country sold 1.7 billion euros of six-month securities to yield 0.736%, up from 0.482 percent on March 23. On the other hand, Spain has to sell €150 billion in euros in 2010: it has so far only sold 26% of this amount. We wish them best as they scramble to fill the quota.

--
Now what does all that mean?  It means as your credit risk goes up, and the amount of money or credit available goes down, money gets more expensive.  It means that these countries must pay more for money.  The entire thread is named the rising cost of money to capture the mechanics of this situation.  The mechanics of deflation. 

As these countries must pay more to service debt than exists, they go into death spiral finance.  Todays 8% is tomorrows 12% is the next days 17% until no one will touch it and they pop.  This was the mechanism by which all of the financial banks collapsed last year.  They became credit and counterparty risk, and (as always) it couldn't hit at a worse time.  They needed funds just when their collective ability to repay loans was at its worst.  So, they were given higher and higher interest rates to combat the "risk".  But the more they borrowed at higher and higher rates the more it became apparent they would not pay back a dime and no one would loan them money at any cost.  game set match.  fin.

We saw this play out in Iceland last year, we saw it in Latvia as well. 

Whats going to happen tomorrow, whats happening now in Asia?  Well, those bonds are worth less.  First off, most prospectus's flat out bar holding anything rated junk so any funds holding them will be FORCED to sell them.  Second, the downgrade means those funds will be worth less, as they are worth less it means that banks must RAISE capital to cover the exposure.  The way to raise capital is to force liquidate other assets. 

Finally, I would also touch on the destructive force of these kinds of rates.  Here in the us, our 10year hovers around 4%.  This is generally used as prime and most mortgages are tracked back to it +1 or 2%.  If the 10, or ^TNX, were to go to say 7% in the next few months, that means mortgages goes to 9%.  If it goes to 10, mortgages goes to 12%.  Mortgages going from 6% to 12% has HUGE impact on the value of a home.  Suddenly, you would see a 50% hit across every piece of real estate in the country.  Thats what Greece, Portugal, Spain, Italy, UK, is looking at.  The banks therein are woefully insolvent again on a massive level.  So are the citizens who just took the devastating loss. 

We'll see the same here soon enough.

fair enough, but I think it will take some time to work its way out.  The part I still struggle with, if your the last one standing can you still lose?  Or by definition does being the last standing imply winner?   At what point does the reset wash away? 

[ScottA]

fair enough, but I think it will take some time to work its way out.  The part I still struggle with, if your the last one standing can you still lose?  Or by definition does being the last standing imply winner?   At what point does the reset wash away?

Good point but I don't think the last one standing will be a country but the banks themselves. The IMF has already created an alternate currency (special drawing rights). At the end of the day it will be the banks who will dictate terms to the various governemnts of the world.

I have a question though. Why have the fees for currency exchange gone up so much in the past year? It's like they are trying to discurage people from moving money.

[OlJarhead]

One thing you must not discount is the printing of FIAT money.

The easy way out of this in the minds of the Keynesians is simply to create more money (our dollar is backed by Debt today -- so more debt = more dollars).  If you print enough (300% more recently) in a short enough period you will cause inflation (not a natural occurrence) and devalue the dollar thereby making the debt go poof.

[muldoon]

My target of 84 on the DX was hit, well not hit it was smashed as the the dollar topped 85 this morning.


europe is rioting.  I am exiting my dollar long position to sit on sidelines for a while.  Were at the top of the channel of a more than year look.  Either ECB does their version of TARP and DX falls back for more channeling, or it does a massive breakout and the EU breaks up in months.  I dont believe in lucky guesses here. 

[peternap]

My target of 84 on the DX was hit, well not hit it was smashed as the the dollar topped 85 this morning.


europe is rioting.  I am exiting my dollar long position to sit on sidelines for a while.  Were at the top of the channel of a more than year look.  Either ECB does their version of TARP and DX falls back for more channeling, or it does a massive breakout and the EU breaks up in months.  I dont believe in lucky guesses here. 


RIDE EM COWBOY!

CNBC is trying to do damage control for some reason

[MushCreek]

Ride 'em cowboy, indeed. The last couple hours were...... interesting in the market.

[peternap]

Now that trading is over for the day, I'll discuss it a little more  

I cashed out of all my positions in everything last week. Stocks and bonds.

Sitting on all cash again, and had to scatter it out in 5 accounts again... and I'm still over the FDIC limit .

I have to admit it was interesting today. I'm trying to figure what's going west and what will hype back up.

I would love to be in Greece tonight.

[John Raabe]

It looks like much of the near 1000 point daily spread can be laid at the feet of the automated trading programs. But that doesn't mean there is no fire hidden in the smoke.

I will be interested in the analysis of our financial "experts". (Hey, I trust them at least as much as the hired gurus on TV )

Here is an interesting read

The Global Crisis of Legitimacy, May 4th, By George Friedman

[peternap]

It looks like much of the near 1000 point daily spread can be laid at the feet of the automated trading programs. But that doesn't mean there is no fire hidden in the smoke.

I will be interested in the analysis of our financial "experts". (Hey, I trust them at least as much as the hired gurus on TV )

Here is an interesting read

The Global Crisis of Legitimacy, May 4th, By George Friedman

As usual John, much of the stock drop was due to safety triggers but there is a lot of finger pointing and not much blame taking as far as the automated snafu.

The simple fact is that the market has no fundamentals and hasn't for a very long time. This just proves it. Tomorrow will be interesting too. I'm not sure there will even be a lot of bargain hunting.

Right now, it's a fishing hole full of snakes and I'm going to sit on the bank and watch the show.

[OlJarhead]

Interesting also is gold breaking $1200 again.

Predictions are that it will break $1400 this year.

As folks move out of the Euro into the dollar (have been for a while) the DI goes up...what goes up...

[OlJarhead]

http://www.bloomberg.com/apps/news?pid=20601010&sid=aMbfBKW.uKn4
China May 'Crash' in Next 9 to 12 Months, Faber Says

http://www.spiegel.de/international/europe/0,1518,692666,00.html
The Mother of All Bubbles

http://www.zerohedge.com/article/cmbs-delinquencies-hit-fresh-record-now-51-billion-268-increase-prior-year
CMBS Delinquencies Hit Fresh Record, Now At $51 Billion, 268% Increase From Prior Year

http://online.barrons.com/article/SB127294729055586423.html?mod=BOL_hpp_dc
Still No Credit Where It's Due

Some light reading for you

[muldoon]

what a day,

I have long exited any real investment positions.  My "money" now sits in land and improvements.  All I have now is a little "beer money" pot on the sidelines.  Even with that I pulled more cash in 3 days than I have in 12 months of real work.  crazy days.  bring some more of these. 

jarhead - I read your links, if you believe that china is about to crash, and that euro is about to crash, and that CMDS are about to crash; I just dont understand how you can be anti US dollar.  If anything, if you belive what you posted you should see the demand. 

[muldoon]

I will be interested in the analysis of our financial "experts"

The rumor late afternoon was that europe completely locked up lending.  No more loans, no more bonds.  The credit markets shit the bed on a no bid scenario, and the market cratered.  This was NOT a fat finger "mistake".  I dont care what any news source says, thats a lie.  Credit markets seized, markets went no bid and nose dived. 

After the fact, the ppt stepped in, put a floor in at 10k, and here we are.  Where we go tomorrow I dont know.  I still have puts.

[peternap]

I will be interested in the analysis of our financial "experts"

The rumor late afternoon was that europe completely locked up lending.  No more loans, no more bonds.  The credit markets shit the bed on a no bid scenario, and the market cratered.  This was NOT a fat finger "mistake".  I dont care what any news source says, thats a lie.  Credit markets seized, markets went no bid and nose dived. 

After the fact, the ppt stepped in, put a floor in at 10k, and here we are.  Where we go tomorrow I dont know.  I still have puts.

My guess is that anyone with a slightly dangerous position is gonna be running to sell. So in the morning at least, I expect another smaller sell off.
Then I think everything is going dormant for the weekend.

I'm not as convinced as you Muldoon, that the US Dollar is the thing to have...but I'm also not as versed in currency as you are.
The market is going back to mama though.

I can make money on the roller coaster but not until I get a feel for the new hysteria.
The irritating thing about this mess is I'm going to have a whopping tax bill next year.

[OlJarhead]

what a day,

I have long exited any real investment positions.  My "money" now sits in land and improvements.  All I have now is a little "beer money" pot on the sidelines.  Even with that I pulled more cash in 3 days than I have in 12 months of real work.  crazy days.  bring some more of these. 

jarhead - I read your links, if you believe that china is about to crash, and that euro is about to crash, and that CMDS are about to crash; I just dont understand how you can be anti US dollar.  If anything, if you belive what you posted you should see the demand. 

I should lead with this:  I'm no trader and no economist -- I'm just an incessant reader that has read a ton and found what at least to me appears to be folks that have a good idea of what to expect.  Those folks are typically from the Mises Institute or at least Austrian economic theorists.  Pretty much they've been right from before the dow hit its peak at $14000+ to today.  In general they seem to believe that FIAT money doesn't work and never has.  Oh sure, it sorta works for a while but inflation always kills it no matter what the rest of the world does.

Thus, the FRN can't survive.  However it may take another 100 years for it to deflate to a point that it's tossed out -- who really knows?  After all, they printed some $1.3 TRILLION last year (ok they didn't actually print it all but it amounts to the same thing in our world today) and the banks (using Fractional Reserve Banking principles) then loan out (not necessarily to you and me as seen in some of the latest figures) an additional $11.7 TRILLION thus further diluting the dollar.  Inflation will come, there is no way around it.

Will the dollar survive?  Who really knows?  I personally don't think it will and I think the end game is the IMF and the World Bank.  Which, of course, will just print more FIAT money.

[OlJarhead]

http://gulfnews.com/business/opinion/us-faces-inflation-or-default-1.622397
US faces inflation or default

http://www.gallup.com/poll/127616/Inflation-Worries-Permeate-US.aspx
Inflation Worries Permeate U.S.

[muldoon]

My last target of 88 on the DX crossed hard today, next target 94 or 95 on a wedge.  (Those who are continuing to bet against the dollar are losing badly).  With a DX print of mid nineties over the next 3-6 weeks would likely also equal par or close on the euro, and a huge equities crash (spx under 900?) with perhaps oil at <50.  Who knows, it's my guess. 

I'm a betting man and I have made my "beer money" bets accordingly.  btw, Monday is probably green, it gets dicey after that I think. 

Just posting an update to this thread as todays activities makes this an "inflection point" in my opinion.  If my posts on here are too far from the desired direction of this forum, please advise.  thanks. 

[JavaMan]

My last target of 88 on the DX crossed hard today, next target 94 or 95 on a wedge.  (Those who are continuing to bet against the dollar are losing badly).  With a DX print of mid nineties over the next 3-6 weeks would likely also equal par or close on the euro, and a huge equities crash (spx under 900?) with perhaps oil at <50.  Who knows, it's my guess. 

I'm a betting man and I have made my "beer money" bets accordingly.  btw, Monday is probably green, it gets dicey after that I think. 

Just posting an update to this thread as todays activities makes this an "inflection point" in my opinion.  If my posts on here are too far from the desired direction of this forum, please advise.  thanks. 

Can I get a glossary for this post? 

[muldoon]

Can I get a glossary for this post? 

Sure, I'll give it a go.

I'll start off by saying I am not a certified or registered investment advisor.  I am just some guy on the internet who is spouting an opinion.  And with that, you should take this opinion as worth exactly what you paid for it.  ie, nothing.  That being said, I have followed the markets a touch, and I think I have a read on what it may or may not do.  Again, this is my opinion only.

My last target of 88 on the DX crossed hard today, next target 94 or 95 on a wedge.  (Those who are continuing to bet against the dollar are losing badly). 

The US dollar is weighed against a basket of currencies internationally.  That means that as other currencies get less desirable our currencies value increases.  Our dollar is genaerally track via the us dx.  You can watch it here

http://quotes.ino.com/chart/?s=NYBOT_dx

From there, you can change to 1 month, 1 year or max timelines to get perspective.  Essentially, during the crash of mid08, it spiked because everyone needed money (dollars) and supply and demand dictated that the value of something in demand increased.  In Feb 09, the fed began programs to inject funding to the banks "stimulous/tarp/etc" and the dollar fell.  In December that reversed when those programs ended.  Since then, other countries have began to undergo debt crises.  Mostly Europe, Greece, Portugal, Spain, Ireland, Italy, UK, etc.  As those countries and the euro have delcined, the US dollar has increased in value.  I see no reason for that to reverse, and with news today from Hungary on the verge of default I see it increasing.  I have tracked my targets on the DX for months here for all to see, and I now believe it is headed for mid nineties for a variety of technical and fundamental reasons. 

With a DX print of mid nineties over the next 3-6 weeks would likely also equal par or close on the euro, and a huge equities crash (spx under 900?) with perhaps oil at <50.  Who knows, it's my guess.

This is the crux of the entire thread.  If the US dollar increases in value, what does that mean?  It means the dollar goes further, it means that prices of many asset classes goes down.  It means that when people NEED dollars they are willing to sell things cheaper than when they do not.  That applies to houeses, to cars, to stocks, to oil, to anything.  The value actually does go up.  And when the value of the dollar goes up prices of assets go down.  For various reasons I pontificate targets on the primary measuring sticks on things like oil and the stock market, perhaps I am wrong, perhaps my models are wrong, but that is the general mindset behind this statement. 

I'm a betting man and I have made my "beer money" bets accordingly.  btw, Monday is probably green, it gets dicey after that I think.

Today was an extreme.  things do not move in a straight line on the markets.  But to be honest were in a really bad spot.  almost any symbol I can think of is trading under the 200 day moving average, and most are heavily down from month and months and months of gains.  Extremes in trading often indicate short term trading points.  So I am halfway expecting the early part of next week to be very up days in the market.  However, the tide is moving, and the dip buyers or not, or the interventions or not, it may take time but the direction is down.  The funny thing about money is that it moves like water.  It flows from one thing to another.  If one thing is down, another is up.  When the stock market tanks, the dollar goes up and vise versa.  Also like water, money seeks level.  It can be distorted momentarily by intervention, but it always finds true level.   

Just posting an update to this thread as todays activities makes this an "inflection point" in my opinion.  If my posts on here are too far from the desired direction of this forum, please advise.  thanks.

Mr. Raabe has been very gracious in letting me ramble on about my musings for several years now, I am just noting that if I am causing any unwanted distraction or disturbance to his forum I will happily shut up.  Until I hear different I will continue to ramble on with my thoughts on the markets as they affect us. 

If you want to read more, you can search for my name and get more posts on these topics than you likely will want to read.  There are actually plenty of market savvy folks here with many different perspectives, (very different than mine but equally worth listening to)  so if you have questions, start a new post and see where it goes. 

[MushCreek]

Although my grasp of all this financial stuff is very weak, I find it fascinating (like watching a train wreck). I have my own beliefs about where this is all headed in the long run, but like many folks, I don't know where to have my money as we head there. Most of our assets are real estate, one property (our house in FL) losing value like crazy, the other (raw land) is still appreciating, albeit slowly. The land is valuable to me, since I can live there and grow my own food, as well as having wood for heat. So if things really go south, I have a place to survive, unless the zombie hoards get to me. The rest of our vast (major sarcasm) wealth is in a 401K, only a little of which is still tied to the stock market. Since we are nearing retirement age, we're trying to keep what little we have relatively safe. Next year, we're going to draw out some of that money to build our place in the country, so that at least one of our properties is paid for. The house here in FL still has quite a bit of equity, despite losing about 50% of it's one-time 'value', so I think we can sell and at least not owe anyone.

Sorry for the somewhat off-topic ramble there, but it is tied together a little. In short, we have a few hundred thousand in various assets, which is both a lot of money, and not very much money, depending upon what you do with it. At our age, we certainly can't afford to make a major financial blunder, so it is with great interest that I read and try to understand everything I can. I'm torn between two opposing theories: 1) Most of what's going on is being cleverly manipulated from behind the scenes by a group much more powerful than merely the United States of America, or 2) The financial wizards and politicos are in way over their heads, and have no earthly clue how to restore a semblance of stability. Either way, i figure us little guys are probably screwed unless the PTB in scenario #1 decide to leave us peasants alone after achieving whatever it is that they are planning, or the clowns in scenario #2 somehow get lucky and things go back to 'normal' despite their help. At any rate- keep throwing those financial insights out there!

[JavaMan]

Well, muldoon, that was a good stab at explaining what you meant, but wasn't what I meant by a glossary  

Some of what I was looking for was indeed covered in your explanation. However, it was only by inference that the meaning of a word or phrase was deduced.

What I was originally looking for was something like this:

DX - meaning: Dollar exchange (dollar value vs other currencies) (To a ham radio operator this means a "distant station", usually overseas )
Wedge - meaning:
DX print - meaning:
Monday  is probably green - meaning: an "up" day for the market (and I'm assuming here from what you stated)
"Inflection Point" - meaning:

Just like building has its own technical jargon (cripple, king stud, etc...), and we programming types have ours (Java, no, not the liquid kind   ), threads, thread safety, etc...  Those that trade, even as a "hobby" get to a point where they have a tech-speak that, well, you may as well be speaking Russian for as much as I can understand.

As you can tell, I can figure out some of it, but then again, there are a few things that I just can't quite grasp  

From all that I've read of yours on this subject, I find it fascinating, and I do believe that you have an opinion worth considering - even tho it's "free advice" and worth every penny I've paid for it.  I think it's wise to get information from many sources, tho.

So keep posting info like this.  Just help some of us understand your language a bit more fully  

Thanks

[firefox]

I'll second this:

"So keep posting info like this.  Just help some of us understand your language a bit more fully   

Thanks"

Bruce

[muldoon]

Wedge - meaning:   -- a wedge is either an ascending or descinding line, as opposed to a gap which would look like a jump or straight fall.  a wedge can mean a grind up or down, but its directional and steady. 

DX print - meaning: -- a print is the price as it is recorded.  the prices can be called a few things, there is bid and ask.  the bid is what someone is willing to pay, the ask is what some is willing to sell at.  the bid/ask fluctuates up and own with direct buying or selling pressure.  as more buyers show up, the bid increases.  a print is the recorded price the transaction is done at.  It can also be called the tape, or the tick.  It is a singular data point in the stream.  By saying a DX print of 95, I means that at some point I personally think it will get that high on the next extreme swing but that it may not close at that. 

Monday  is probably green - a green day is a up day, or a green tick is where the sale was completed at the ask and not the bid. 

"Inflection Point" - meaning: -- the market swings like a pendulum, and usually goes too far in both directions.  so it sways back and forth.  When there is extreme in either direction you can identify "turns" or inflection points.  For a more scientific answer, in differential calculus, an inflection point is a point on a curve at which the sign of the curvature (i.e., the concavity) changes.

[ScottA]

Send me all your money then you won't need to worry about all this complicated stuff. Life will be so much simpler.