"nervous traders" . . . "ashen and wide-eyed." [View All]

http://onlinejournal.com/artman/publish/article_2640.shtml


On Monday, Asian stock markets took another beating, on fears that the credit squeeze which began in the United States will continue to worsen in the months ahead. Every index from Tokyo to Sidney fell sharply continuing the "self-reinforcing" cycle of losses started last week on Wall Street. The Nikkei 225 average fell 3.3 percent, India's Sensex 2.9 percent, Taiwan's 3.5 percent, and Hong Kong's Hang Seng slumped 4.5 percent. The subprime tsunami is presently headed towards downtown Manhattan, where nervous traders are already hunkered-down in the trenches -- ashen and wide-eyed.

Amid the deluge of bad news over the last weekend, one story towers above all the others. The yen gained 1.5 percent against the dollar. (9 percent year-over-year) That means that Wall Street's biggest swindle, the carry trade, is finally unwinding. The over-levered hedge funds will now be forced to sell their positions quickly before the interest-rate window shuts and they're stuck with humongous bets they cannot cover. The faltering yen is the grease that lubricates the guillotine. $1 trillion in low interest loans -- which keeps the trading whirring along in US markets -- is about to get a haircut. Cheap Japanese credit is the hidden flywheel in Hedgistan's main cylinder. Once it is removed, the industry will seize up and clank to a halt. Fund managers can forget about the vacation rental in the Hamptons. It'll be sloppy Joes and Schlitz Malt Liquor on Coney Island from here on out.

-long snip-

As Noland concludes, "A devastating housing bust will bankrupt the mortgage insurers, while the solvency of their derivatives counterparties going forward will be in doubt in any number of scenarios. The GSEs are now integrally linked to what I expect to be Credit insurance's and 'structured finance's' astonishing downfall."

Amen.

The only thing looking up are oil futures. And they'll be denominated in euros soon enough.
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crumble, crumble

america is almost the size of a bath tub, in which to be drowned.