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The Perfect Financial Storm of 2007

Economics, Current Events

Looks like we are entering the perfect financial storm.

Goldman pays the price of being big
“We were seeing things that were 25-standard deviation moves, several days in a row,” said David Viniar, Goldman’s chief financial officer. “There have been issues in some of the other quantitative spaces. But nothing like what we saw last week.”


1. Subprime meltdown
Subprime meltdown Q&A
"Markets have been falling sharply across the globe primarily because of fears of a global 'credit crunch'. The falls have wiped billions off the value of shares owned by companies, pension funds as well as private investors."

Signs of subprime fallout trample shares
"A major issue in the mind of some investors is whether this is a systemic problem and does the whole thing implode. I don't think so, but that seems to be a concern, which is why we have the nervous selling,"

2. Liquidity/Credit crisis
Worse than LTCM: Not Just a Liquidity Crisis; Rather a Credit Crisis and Crunch

3. Carry trade unwinding
Yen Sharply Higher on Massive Carry Trade Unwinding
"The forex market was dominated by massive carry trade unwinding last week"

Carry traders dash for the exit
"The result has been a sharp unwinding of the carry trade, where funds are borrowed in currencies of countries with low interest rates to invest in higher-yielding assets elsewhere."

4. China threatening dumping US Treasuries
China threatens 'nuclear option' of dollar sales

"Described as China's "nuclear option" in the state media, such action could trigger a dollar crash at a time when the US currency is already breaking down through historic support levels."

5. Oil not paid in USD
Oil producers shun dollar
"Oil producing countries have reduced their exposure to the dollar to the lowest level in two years and shifted oil income into euros, yen and sterling, according to new data from the Bank for International Settlements."

Iran leads attack against U.S. dollar
"Tehran has reached a decision to end all oil sales in dollars"

Japan Drops Dollar to Buy Iran’s Oil
"Iran has asked Japanese oil refiners to pay for all future deliveries in yen, as opposed to dollars"

Venezuela 'may swap oil currency'
"Venezuela has hinted it could price its oil exports in euros rather than US dollars, further weakening its links to the US."

6. Hedge fund redemptions
Today is hedge fund redemption day
"Taking many out of a hedge fund is not like withdrawing cash from your bank account. Most funds require 45-day notice before investors can get redeem shares. For many investors today is the deadline, if they want to pull out before the end of the third quarter"

The sound of 10,000 shoes dropping -- one hedge fund at a time?
"there's a run on the bank going on at Sentinel. That's because for some reason, its clients want to get all their money out RIGHT NOW!"

Banks pulling the plugs
"Banks pulling the plugs: Hedge funds finding that their subprime portfolios have zero value as far as collateral"

7. Coming home ARM readjustments
Rude Awakening
"The ARM readjustments are just hitting, with more getting ready to hit in the next quarter"

8. High retail oil prices
It costs me $50 to fill up my tank. I don't know about you, but I don't have $50 bills just lying around everywhere.

9. Hurricane Season
Hurricane Season
"Experts predict that the 2007 Atlantic hurricane season, which begins June 1 and ends November 30, has a 75% chance of being above normal in activity."

10. Military entanglement in Middle East
Cost of war
Almost $500 billion spent so far on the war with Iraq

Cost of Iraq war could surpass $1 trillion

11. Bad US economic fundamentals
Are we headed towards a recession?
"Negative personal savings rate, rise of Fed funds rate, National debt, Federal budget deficit, trade deficit, record personal debt, record personal debt ratio"

Coverage:
Global Economy - Yahoo
Subprime - Reuters

Articles:
A Slow Motion Train Wreck
America's Perfect Financial Storm
Perfect Storm
Hedge funds forced into equities fire sale
Plunge Protectors Are All Over Market Meltdown
Stock Market Meltdown: What You Need to Know
Housing Free Fall Turning into Meltdown...2007 Recession Ahead
WTF is Going On? Market Melt-Down, etc.

Posted: 2007-08-16 10:52:37


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