It looks like the media is finally doing some homework, and that they are beginning to understand what is happening in the economy. For some time now, I have been accusing the major media of hiding the truth about the markets, in order to satisfy big business. I've changed my mind, now, because it looks as if they really had no idea of how the markets work.
Here are some things that are happening, that you may expect to start seeing in the news.
Less talk about the subprime, and much more about the hedge funds and how they have been running under the radar. This means that a few more people may begin to understand the black box of derivatives, and how the lack of oversight has caused the entire market fall. The SEC as a cheerleader for business has now come to the fore, and to the credit of the Administration, they are refusing to bail out the big players.... The SEC had wanted to indemnify the hedge funds, and turnover the losses to the public... In effect Bush said he would not allow that. (Yeah, I know... I can't believe that myself.)
Recognition of the reality of inflation. From 2.3%, the real inflation is being recognized as about 7.5%. In fact, I believe that you may start hearing about 12% to 14% inflation... this year.
I believe that 15% to 20% may be reasonable by the end of 2008.
Remember the caution about the price of the Japanese YEN... The panic point was said to be $1.12... At that time, it looked to be well in the distance since the trade was at $1.22, and in fact looked to be going higher. In the past week or so, the trading has dropped to $1.16. While no one is talking about this right now, the Carry trade is in a wild panic. The effect of this potential problem on the Fed, could be catastrophic for US interests. Stay tuned, and watch the YEN.
Pension Funds... Notice that no one is even talking about this. That's because the people who run the Pension Funds don't know that they are paying for the current market drop. Fund values are only calculated at the end of the month, and unless the Fund Values reflect a mark to market, they may not know about the extent of their losses for several months. (Watch for Fund Directors' resignations).
The entire problem began with fast and easy trading of owed debt... (they call this "Credit")... The SEC was complicit with the big guys, and allowed the Black box Derivatives and Unlimited leverage... with NO oversight. Alan Greenspan was the Rasputin here. Credit him with keeping the balls up in the air for many many years, while the rich got richer, and the poor didn't know they would have to pay for it.
The bill for years of affluence is coming due. The guys who caused it are living in the Hamptons, on their yachts, or in Dubai.
Except for Americans who have already lost their jobs, the public is only now coming to the realization that their way of life may be seeing some changes. Jobs last, only as long as the companies who hire, are making money. With the current average rainy day savings standing at just over one month, trouble may be just over the horizon.
