Bank Rumors

Getting on with Rumor Central, which we can never escape, stories that Citibank and CIT and Wells Fargo having some problems. Wells Fargo took over Wachovia and all their toxic mess, but got a whole lot of new territory and branches. Citibank is cancelling credit cards en masse, such as Shell Gas cards they provide, and raising interest rates en masse to 29% on current cards. Citi’s move is said to suggest they are in pretty bad shape. I heard Morgan has a fast declining cash supply – but that is a rumor, nothing definite.

There are also many rumors going around about and end of October, first part of November possible bank holiday – again nothing substantive. But, we have to take these seriously, especially since this is exactly one year after the credit banking collapse following Lehman last fall. There are stories that banks are taking cash on the barrelhead offers much lower than offers involving a loan on foreclosures. IE possibly banks feel it’s very possible that any offers involving loans having to close in the next months have a good chance of not being able to be funded for the buyer. These are all inferences, again nothing definite.

A lot of banks are also doing either online site maintenance and or a disaster recovery test on Oct 25 and 26th. Of course that makes people wonder if it’s a test or a real problem.

In any case, go look at the alerts and see the one on preparing for a bank crisis and make sure your boxes are checked off. Things like paying ahead mortgages, insurance and having cash at home. I am not saying there will be a bank crisis in early November, but one has to take this all with some seriousness because of the nature of it. I point out that we reported there were almost two world banking scares so bad that it threatened the entire interbank lending market – with prospects of bank closures (holiday). Those scares were Fall 08 and Fall 07.  You have to be logged in to see the alert. The Bank of England and the US Fed and the ECB barely staved those imminent holidays off within a matter of hours. I also point out that the US has apparently taken off the emergency guarantees off money market funds this September it put out last year to stem one of those holidays. USNews.com

http://www.prudentsquirrel.com/alert.php?a_id=184
Market quandaries right now, turning points

I am looking at several quandaries, markets are in turning points right now, or on the verge of them:

The Dow fell below 10,000 again, and this is the second failure recently over 10,000. As we know, there is very mediocre economic data that would support a 60% stock rally worldwide, and so the quandary is, will world stocks keep their gains, or at the very least have a major correction?
The next quandary is that gold prices are set to go to new highs, but again, since gold rallied so much recently, it is also maybe due for a modest correction. This goes in hand with the third major quandary, will the USD rally again? It is quite possible. But, right now markets are in between and it is very hard to decide which way these quandaries will go. Believe me, If I think something will happen or is likely I will say it, as you know.

But these three quandaries bear very close watching, as they are all major trends in the making. Another ‘not quite a quandary’ is that there is a structural USD foreign exchange problem, in that the USD is now becoming  more of a major carry trade currency, and the problem with this is that markets rally on the ultra low USD interest rates for USD carry that are plowed into all markets.

IF/When the USD carry starts to unwind, (this is not necessarily imminent) it will be like the Japan carry trade unwind that led to the massive rally of the Yen in 1998 that forced hedge funds to unwind a massive Yen carry trade and forced down markets and caused a huge Asian currency crisis.

Another major structural problem is the USD trade deficit problem. With major economies like Germany, China and Japan still relying heavily on a USD centric export economy, now all the central banks are bleating loudly that the USD must be kept strong or else their exports sag badly.
This really built to a cacophony this week with the stories out about the Europeans and others all complaining that the weakening USD is causing major exchange losses for their exporters, particularly the Euro region with companies having costs locked in Euros but being paid with weakening US Dollars which kills their profits. This is a long ongoing dialog, but the pieces are aligning on the economic chessboard for coordinated central bank buying of USD to support it and stop its fall. But those interventions usually do not last. The Asian central banks also all got together two weeks or so ago with a massive intervention to try and stop the USD from falling below 77 on the US Dollar index, the USDX, which is heavily Euro weighted.

But the Forex markets appear to have the upper hand and driving the USD down now to 75 range on the USDX. Another thing that needs to be noted is that China and all the other exporters do NOT want the USD to fall, but the US would actually like it to drop, in spite of lip service by the US Treasury to the contrary.
I continue to be very dubious of any economic improvement in the US and the rest because if you look at the economic activity of this year, and the stock rallies, remember that there was a two pronged force that caused the rallies. One, half of all the bailout and stimulus money in the world went directly into stock/financial speculation, and the other prong was a natural bounce in production and demand after the catastrophic collapse in world GDP after the Lehman bank crisis mess in later 2008, to early 2009.

A good example is that the US had over 500,000 new unemployment applications, while the total number of unemployed is said to drop on claims… you know why? 7000 people a day are falling off the unemployment rolls because they ran out! I would not call that an improvement! When they run out, they are dropped from the totals! So, the news reports that the total number dropped – as if it’s an improvement! It’s because the benefits ran out on 7000 people a day!

Real organic demand did not cause these rallies. It was the two prongs, which are one-off temporal events. When the stimulus and bailout money comes to an end, the rallies must certainly stall as they appear to be now? Obviously if markets tail off or crash there will be immediate calls for new $trillions of central bank infusions of all kinds, half of which will plow directly back into financial markets because the bailed out banks and such are speculating with the money and not lending it out…with the winking nod of the central banks.