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Friday, June 24, 2005

Stephen Roach of Morgan Stanley

The US economy ain't held together with anything more than chicken fencing and tie wire. When they bust loose, there isn't going to be anything but a sick feeling in the stomachs of those left holding the bag (real estate, general US stocks, US government notes and bonds, and corporate debt). Sure, a lot of debtors are going to be in trouble, but that means a lot of creditors are going to be in trouble. The Piper could care less who does the paying.

Stephen Roach:

June 21 (Bloomberg) -- Stephen Roach, chief global economist at Morgan Stanley in New York, comments on the Federal Reserve, U.S. monetary policy and the dollar. He spoke in an interview today.

On Federal Reserve policy: ``We have an irresponsible, reckless monetary policy that is keeping real interest rates artificially low and we're fooling asset-dependent American consumers to keep on binge-buying.''

`Don't give the Fed all this credit. They have taken rates from negative to zero'' in real, inflation-adjusted terms. `They're still providing a lot of candy for the carry trade and all these other speculative activities that are keeping the U.S. economy afloat artificially.''

Actually it's worse than that. Since the US government artificially figures inflation at too low of a rate, interest rates are still negative in real terms. Roach is being kind.

The US big casinos:

Not sure what to make of this, and this is old news, but lists of estimates of the notional amounts of otc derivatives that big casinos are holding are starting to come out in newletter advertising booklets being sent out in the mail to people's homes. These estimates are close enough to get the picture of the top 25:

JP Morgan Chase 43,026 billion USD worth (that's 43+ trillion)
Bank of America 16,555
Citigroup 15,530
Wachovia Bank 3,025
HSBC (their US entity) 1,753
Wells Fargo Bank 738
Bank One 709
Bank of New York 617
State Street Bank & Trust 372
Fleet National Bank 363
National City Bank 239
National City Bank of Indiana 128
Mellon Bank 113
Keybank 98
PNC Bank 92
Suntrust Bank 88
LaSalle Bank 63
Standard Federal Bank 53
U.S. Bank 48
Merrill Lynch Bank 44
Deutsche Bank Trust Company 34
Northern Trust Company 33
First Tennessee Bank 28
Capital One Bank 26
Union Bank of California 22

I'd have those numbers in a nice neat column but the program only counts one spacing key stroke.

Jim Sinclair has flat out stated that the otc derivatives scene is the biggest criminal activity in the history of man.

"So dominant is Morgan Chase in the derivatives market that its exposure looks like typographical errors" - James Grant, Interest Rate Observer

When the dodo hits the fan, hyper inflation of the USD won't surprise me a bit.
A partial freeze up of the financial system won't surprise me a bit. There is a good reason that the Fed is screamingly unconstitutional. It is still capable of creating astonishing amounts of USD both for the US government's benefit and its own benefit. Guess what this does to the USD price of gold and silver. But then again, who cares about or knows about the constitution now a days, why it even exists.

The scene is surreal.

I'm still waiting for someone to analyse the balance sheets and income statements of the brokerage houses in the US.

Here's an ugly sight:
GE's stock taking a dive yesterday and the day before
No wonder the Dow was down 167 and the transports a 100 or so.

To me, gold has already put in its final bottom in this long 18 month (if you're looking at horizontal price levels) or so correction. Right now it's at a confluence of a 7 month down trend line, a 50% Fib level and a resistance level of prices just a little while ago. So it's natural for it to be struggling to go up at the moment. It's doing a good job at struggling. It went up yesterday despite the USD going up. This market has changed, baby! Look at it this way. It's the pause that refreshes. Phase two of the gold and silver bulls have already thrown off their lines and gotten underway. The bow, stern and spring lines are stashed below and they're looking at the scenery.

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