Take a look at this currency chart of the Brazilian Real versus the U.S. dollar. The Y-axis is how many reals you can get for $1:
It has lost almost 50% from its peak. If this holds then that means when I go to Brazil everything will be half off. Other Latin currencies are also struggling. As the Chinese would say: in every crisis there is opportunity. For American men everywhere this is incredible news. For the same budget you can double the amount of time you stay in Brazil.
Also, I hope you guys liquidated all stock holdings in your 401k’s. Otherwise you’re getting murdered. I wonder if one day we’ll look back and consider it crazy to put retirement money into company stock.
Postscript: I need to step away from the internet.
At this point the recession train has left the station; the financial and banking crisis train has left the station. The delusion that the US and advanced economies contraction would be short and shallow – a V-shaped six month recession – has been replaced by the certainty that this will be a long and protracted U-shaped recession that may last at least two years in the US and close to two years in most of the rest of the world. And given the rising risk of a global systemic financial meltdown the probability that the outcome could become a decade long L-shaped recession – like the one experienced by Japan after the bursting of its real estate and equity bubble – cannot be ruled out.
And in a world where there is a glut and excess capacity of goods while aggregate demand is falling soon enough we will start to worry about deflation, debt deflation, liquidity traps and what monetary policy makers should do to fight deflation when policy rates get dangerously close to zero.
At this point the risk of an imminent stock market crack – like the one-day collapse of 20% plus in US stock prices in 1987 – cannot be ruled out as the financial system is breaking down, panic and lack of confidence in any counterparty is sharply rising and the investors have totally lost faith in the ability of policy authorities to control this meltdown.
The selloff this afternoon is the “real deal.” It was not caused by the stock market getting “mad”, it was caused by the short-term credit market along with the Treasury market suddenly dislocating at a few minutes before the bond pit closed at 2:00 PM.
Worse is also the fact that institutional lending has essentially disappeared – both between banks and now it is choking off commercial short-term credit across the board.
It doesn’t get any more serious than this. To repeat: short-term commercial credit is threatening to completely disappear from the American scene.
Every action our government has taken thus far, including repealing mark-to-market requirements have made the situation worse by further destroying confidence.
In the overnight market the futures are imploding once again; the Osaka exchange was closed in Japan after hitting its “lock limit” within minutes prior to the Nikkei opening; the Nikkei is now down ANOTHER 10%, for a total loss of nearly 20% in just two days, with Japanese banks trading “offer only” – that is, NO BID. There are rumors of government bond market fails in parts of Europe, and Iceland has essentially been cut off from the rest of the world Interbank marketplace.
The global economic dam has now cracked wide open. Water is pouring everywhere. The bursting of the dam is a fitting tribute to Paulson’s and Bush’s $700 billion boondoggle to add liquidity to banks.
The public was overwhelmingly against the plan (and rightly so) as were close to 200 economists. Paulson, Bush, Trichet, and Brown all goaded Congress to waste $700 billion of taxpayer money on grounds there would be a global meltdown if the plan was not passed. Congress had it right the first time. The $700 billion bailout helped bust the dam.
Neither the Bush administration nor the fools in Congress voting for the bailout bothered to figure out you cannot patch a failing dam by adding water.
Liquidity measures cannot and will not work, when the disease is the Fed, reckless Congressional spending, and fractional reserve lending carried to extreme.
Postscript 2: More Denniger
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Oil will collapse in price to $20/bbl. Unfortunately nobody will have any money to buy gasoline, or a car, so it won’t matter. As in The Depression millions of automobiles will be scrapped after being abandoned by their owners for lack of insurance and registration fee money. Cheap scooters will become the dominant form of transportation for those with jobs, as they will be all most people can afford.
As credit collapses distribution of food and other essentials will break down. Unable to access credit, trucking companies will be unable to get goods to market. The current distribution system for food requires travel of over 500 miles from production to consumption; this is untenable in a market where stable credit is unavailable. Food distribution will be severely impacted and in some areas may break down below critical levels.
Unemployment will reach 25% within two years. Median income will fall by 30% nationally. Foreclosures will reach 20 million homes. The government will step in with HOLC-style remediation but it won’t matter – the unemployed won’t be able to pay irrespective of the price.
House prices will fall to well under $100,000 nationally on a median basis but with lending all but non-existent you’ll need 50% down. A few people will make out like bandits near the bottom, being able to buy up homes for $10,000 each in blocks of 10 at a time – for cash. 60% of America will be renters; nearly half of all homeowners will ultimately lose their homes to foreclosure.
Civil unrest will break out in major cities when incomes fall but the cost of food and essential services fail to come down materially, leaving millions of Americans hungry, broke and homeless. Unlike in the 1930s America will not quietly stand in soup lines – instead they will riot, loot and burn. The National Guard will be called up but will find it impossible to exert meaningful control without shutting down all commerce in the affected areas. The decision will be made to cordon off the cities and deny entry to anyone who does not live in that specific neighborhood, essentially shutting down commercial activity. GDP will fall by 30%.
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You’re a douche only if your 401k is just in your company stock. If you’re diversified into a couple of funds, you’re fine. My foreign hard-assets fund is doing fine while my small and midcaps are taking it. I’ve only taken a minor hit in my retirement so far because I have the dollars spread around. And tax-wise you’d be an idiot to follow your advice if you’re under 50; you take a huge tax hit if you pull out early.
And if you’re that serious about saving on Reales, get some now.
“And tax-wise you’d be an idiot to follow your advice if you’re under 50; you take a huge tax hit if you pull out early.”
Now where did i say pull out?
Liquidate = sell off the stocks/funds you own in your 401k and let it just sit there in cash. In some cases all you have to do is change the allocations to all money market, which the Fed has shown its willing to back
The world economies suffering is a god send to the International Playboy with liquid CASH.
Booking a flight to Iceland soon. They are going Bankrupt.
Icelandic Girls are illmatic.
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Also, although I think the bottom is a ways away, its not a bad move to buy stocks now. You will be happy you did in 2013.
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brazil? eh…i want more euros. i kept some from a few years a go, it could prove to be a good investment. too bad it was only 5 euros.
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I’m actually considering buying mutual funds now. I think most of this sell-off right now is psychological. Stocks now appear to be on sale. As long as you don’t think the world is coming to and end and you’re buying for the long term, you’ll be fine.
Hell yeah, Brazil baby! I gotta really go now. And Iceland, but I think I’ll wait till summer for that since I don’t want to be somewhere that it’s dark for 22 hours a day.
“And Iceland, but I think I’ll wait till summer for that since I don’t want to be somewhere that it’s dark for 22 hours a day.”
All the better. Do you plan on getting a tan in Reykjavik?
Day light is overrated.
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Colombia has gone from $1600 peso per $1 to $2300+ pesos per $1 since I was last there a few months ago. I feel raped!
I’ve lost a crapload of money this year, but I’m not selling. I do, however, plan to build up a giant stockpile of capital losses via tax loss harvesting. Unfortunately you can only write off $3K of losses per year, but basically I’m hoping to never have to pay capital gains taxes ever again.
The 401k was never designed to be a retirement plan for the masses, it was a tax loophole for company directors. The management of the big companies were rubbing their hands with glee when they realized they could stop providing defined benefit plans and put their employees retirement at the mercy of the stock market.
I’ve always thought it completely absurd that anyone would put money into a company they have no control over.
That Denniger guy clearly just finished reading “The Road”.
His name is Denninger, not Denniger. Read his older posts. The guy clearly understands how markets work, which is what makes his latest posts so scary. People who dismissed him a year now wish they’d listened to him.
Tell you what, if oil falls to $20/bbl, I’ll eat a small bowl of shit.
A little perspective on Roosh’s suggestion re liquidating: http://www.nytimes.com/2008/10/09/business/yourmoney/09money.html?_r=1&em&oref=slogin
Do you know Denniger’s waist size?
I’d like to send him a case of adult diapers, to better deal with his panty piddling paranoia.
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Melissa, while it’s true that in the vast majority of recessions, stocks end up higher a year or 2 later.
However, on a rare ocassion like the Great Depression, it took 25 years for stocks to recover and break even. TWENTY-FIVE FUCKING YEARS.
Look at what’s going on: massive coordinated, international rate cuts, govt takeover of banks, bank failures, collapse of investment banks, bankrupt Iceland, etc.
You think these events happen in your run of the mill recession? No way. It’s closer to the Great Depression on the spectrum of things.
“All the better. Do you plan on getting a tan in Reykjavik? Day light is overrated.”
Agreed, who wouldn’t want a 22 hour night life, especially with all the hotties up there?!
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Part of the draw of Iceland is ecotourism. If I went all the way to Iceland, I wouldn’t be going just to visit bars 24hrs a day. I’d like to take nature excursions and enjoy the stunning scenery as well. There’s plenty of bars and clubs and hot girls right here at home. Not really a reason to fly halfway across the world in and of itself.
“Also, I hope you guys liquidated all stock holdings in your 401k’s”
Never, never, ever, sell when the market’s at or close to its bottom. You make money by buying low and selling high, not by buying high and selling when things are low. If you’re below 50 years old you have plenty of time to ride this thing out, just let the current allocation sit as is and the markets will come back eventually – it may take 5 or 10 years but you have that time.
Again, please don’t sell low after buying high. If anything this is a buying opportunity for those with cash available. Sure, some companies will fail, but you should never invest in individual company stock in the first place. You want to hold index funds in the form of ETFs.
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BRAZIL is a bargain YES!! I thought I was going to start having to head to Bolivia to live like a king the way I used to in Rio.
Another trip is on the horizon.
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“You think these events happen in your run of the mill recession? No way.”
Actually yea, all of those things have happened before during previous post-WWII crises. It’s weird how when it comes to economics and finance, every idiot has an opinion.
Sure don’t sell anything. Ride it all the way down, wait 10 years or more until your investments recover, and then get rich!!
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Being stupidly selfish:
I just don’t wanna the dollars down again, before I get there
Brazil is a country emerging, developing, but not solid, any balance in the world economy is very painful, yet. If countries like Germany and Netherlands, as US, had to rescue their economy with the public money. Why would different in South America? Brazil would suffer sooner or later. The stock market is going down as flushed toilet, and unless that the Brazilian Federal Government, spend money that they shouldn’t for obvious reasons, the dolar will be increasing value over the Real, for while…
Wow, that Denninger is really shitting his pants, huh? The National Guard? Gimme a break – does anyone notice how the only people shitting their pants are finance guys? I wonder if that has anything to do with the fact that the banking industry is about to shrink to a fraction of its previous size, which is where it should be.
Banks are there to make loans available to businesses and consumers, and take deposits. They don’t actually PRODUCE anything, so the percentage of GDP they’ve been responsible for in recent years was ludicrous. The bankers will all need to find other jobs, banks will become more tightly regulated, and New York City is going to need to find another source of tax revenue.
National Guard in the streets… jeez, gimme a break.
First off, big thumbs up to you and your site, Roosh. Loads of fun to read, and chockablock full of good info, as the Aussies would say. Keep up the good work.
Secondly, I think some tough love is needed around here, when it comes to the economy. Roosh, you need to stop reading Denninger and Mish, and start going back and reading everything you can find written by Doug Casey. The guy makes amateurs like Denninger and Mish look like kiddies playing in a tiny little economic sandbox. He’s been warning about what he calls “The Greater Depression” for many years.
On that difficult note, it shocks me how sanguine people are about this depression, even as it’s staring them in the face. Denninger is a tool who believes the U.S. is the only country that matters, and gold is a stupid thing to own as the global financial system implodes. Good luck to him. He IS right about one thing though: the U.S. is going to have serious supply disruptions, of just about everything. I strongly suggest you all stock up on enough non-perishable food and bottled water to get you through 6 months, at the very least. Unfortunately, you’re going to need it. Also, you think the National Guard is bad? Wait until AmRev2 (The Second American Revolution) starts. Yes, things will get THAT bad. I hope you’re prepared.
And Roosh, don’t get too excited about the U.S. dollar “strengthening”. It’s a transitory thing. People are rushing into U.S. Treasuries because they think they’re safe, and the U.S. and other G7 nations are adding fuel to that misguided fire by using massive numbers of currency swaps to artificially prop up the dollar. People who think dollars or dollar-denominated bonds are a safe place to be are in for a rude awakening. I’m heavily short the long end of the treasury curve, since the U.S. bond market is the last remaining bubble. When it pops, yikes. It will be the shot heard round the world, and then some.
Buy gold and silver coins or bars, if you can find any for sale. Failing that, the yen and Swiss franc might be okay, since they should continue to benefit as the carry trade blows sky high. You could also buy high quality gold and silver stocks, which are on the deep discount rack right now, and which will shoot the moon when the Comex defaults in gold and silver hit (coming soon to a theater near you). I have suggestions in that department, if anyone´s interested.
Even with all these measures, though, the best you can hope for is to survive this thing. A depression isn’t good for anyone, except certain elite banking families and fascist leaders with designs on dictatorship.
Good luck to us all. We’re going to need it.
Here’s Denninger on a radio show:
http://rapidshare.com/files/153283944/karl-denninger-kfyi_all.mp3 (recorded yesterday)
1 hr 20 minutes. Worth a listen.
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