Monday, October 27, 2008

Deleveraging and liquidation

Everyday we hear the same thing, and every morning stocks look down. We have companies that wasted money trying to prop up their stocks, and we had countries who wasted money trying to prop up their currencies. Now these Central bankers around the world who warn us that they plan on intervening, are like George W. Bush saying he's looking to invade another country.

Stocks and countries are blowing up everywhere because they are insolvent. Asia stocks got crushed again. Japan was down over 6% and is now back to 1982 levels! Hong Kong was down over 12%, and Europe is hit for 4%, and China, which promised a new stimulus plan is clocked for 5%.

But the lurking problem is this:

Stephen Jen, currency chief at Morgan Stanley, says the emerging market crash is a vastly underestimated risk. It threatens to become “the second epicentre of the global financial crisis”, this time unfolding in Europe rather than America.

Today the IMF announced that they will lend Ukraine $16.5 billion, and announced a plan to lend money to Hungary. Last week they lent Iceland $2.1 billion.

The Ukrainian Prime Minister may be pretty, but their finances aren't. Countries going sub-prime? How far are these tentacles?

Do you think they could be longer than the sub-prime tentacles?

And that's why Asia and European stocks keep getting crushed.

Because they know how entangled those tentacles are!

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