Wednesday, April 21, 2010

Don't Know If Iceland's Volcano Is It, But We're Due For A Black Swan Soon.........

Next financial Crisis is about to emerge

The next crash might be away only days, not years

The SEC and Goldman Sachs shocked the market with messages which we already knew. That shouldn’t drive markets down. Banks have the obligation to take benefit of their customers, otherwise they couldn’t do those orbiting high profits. So no real news here.
What is new however is the concentration of commercial real estate issues. Beside the sub-prime engagement, the next bubble is about to burst.
Deutsche Bank, Morgan Stanley an Goldman Sachs have taken hits in their commercial real estate funds. Eventually those have been constructed in the same way as Goldman constructed the subprime CDOs. We knew about the collapse of CR for quite some time.
This will be a bitter pill for the governments and the banks. Most countries and central banks have lost credibility in dealing with the crisis. Even so the public doesn’t understand yet how they are affected, some are starting to ask questions.
Among those who ask questions are the people of Ireland, Greece and Spain. Spanish unemployment is reported to rise to 30% this year and Greece has to swallow a Deflation and Taxation package. The first one in Greek history for generations.
When CR is collapsing, then banks will follow. Massive Deflation will be the consequence. Central banks have to print money and prop up the system with liquidity, otherwise we will see a global meltdown of a still extremely fragile banking system.
Just for those who believe that everything is better and we are getting slowly out of the woods with the economic recovery packages. Please, let me know where you see improvement and which of the underlying problems have really been solved? – I could not identify any issue been solved. Not a single one.
At this point of time, a new crisis is to hit the markets. Deutsche has already started to provide emergency funding to one of their CR funds. This is a following down the path of Bear Stearns. Eventually we just have to wait a couple of weeks more to see if Deutsche plans to step in the footsteps of Bear.
This new crisis will hit the public with vengeance. It will have more dramatic and harsh effects than the subprime crisis, as people, central banks and governments have used up their reserves. There are no silver bullets left to deal with a crisis which might be twice as big as the subprime crisis.
This time it might finally break the international business and trade structures and lead to a significant structure in businesses and supplies. While we already notice the effects of supply destruction, many businesses have kept employees or put them on short time work. With the next wave of financial destruction there is no room to keep those workers on the waiting list.
The next wave is about to hit the markets and it will most likely drive the world into a depression, mirroring or exceeding the 29 depression levels.
Individual preparation is key. This does not only include financial preparation and positioning. To survive the coming depression it requires more than financial skills.

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