# Economic Armageddon??



## The Barbarian Investor (25 November 2004)

Stephen Roach is apparently very gloomy in private...

Fair Use For Discussion and Educational Purposes

Economic `Armageddon' predicted
By Brett Arends/ On State Street
Tuesday, November 23, 2004

http://business.bostonherald.com/businessNews/view.bg?articleid=55356

Stephen Roach, the chief economist at investment banking giant Morgan Stanley, has a public reputation for being bearish.

But you should hear what he's saying in private.

Roach met select groups of fund managers downtown last week, including a group at Fidelity.

His prediction: America has no better than a 10 percent chance of avoiding economic ''armageddon.''

Press were not allowed into the meetings. But the Herald has obtained a copy of Roach's presentation. A stunned source who was at one meeting said, ''it struck me how extreme he was - much more, it seemed to me, than in public.''

Roach sees a 30 percent chance of a slump soon and a 60 percent chance that ''we'll muddle through for a while and delay the eventual armageddon.''

The chance we'll get through OK: one in 10. Maybe.

In a nutshell, Roach's argument is that America's record trade deficit means the dollar will keep falling. To keep foreigners buying T-bills and prevent a resulting rise in inflation, Federal Reserve Chairman Alan Greenspan will be forced to raise interest rates further and faster than he wants.

The result: U.S. consumers, who are in debt up to their eyeballs, will get pounded.

Less a case of ''Armageddon,'' maybe, than of a ''Perfect Storm.''

Roach marshalled alarming facts to support his argument.

To finance its current account deficit with the rest of the world, he said, America has to import $2.6 billion in cash. Every working day.

That is an amazing 80 percent of the entire world's net savings.

Sustainable? Hardly.

Meanwhile, he notes that household debt is at record levels.

Twenty years ago the total debt of U.S. households was equal to half the size of the economy.

Today the figure is 85 percent.

Nearly half of new mortgage borrowing is at flexible interest rates, leaving borrowers much more vulnerable to rate hikes.

Americans are already spending a record share of disposable income paying their interest bills. And interest rates haven't even risen much yet.

You don't have to ask a Wall Street economist to know this, of course. Watch people wielding their credit cards this Christmas.

Roach's analysis isn't entirely new. But recent events give it extra force.

The dollar is hitting fresh lows against currencies from the yen to the euro.

Its parachute failed to open over the weekend, when a meeting of the world's top finance ministers produced no promise of concerted intervention.

It has farther to fall, especially against Asian currencies, analysts agree.

The Fed chairman was drawn to warn on the dollar, and interest rates, on Friday.

Roach could not be reached for comment yesterday. A source who heard the presentation concluded that a ''spectacular wave of bankruptcies'' is possible.

Smart people downtown agree with much of the analysis. It is undeniable that America is living in a ''debt bubble'' of record proportions.

But they argue there may be an alternative scenario to Roach's. Greenspan might instead deliberately allow the dollar to slump and inflation to rise, whittling away at the value of today's consumer debts in real terms.

Inflation of 7 percent a year halves ''real'' values in a decade.

It may be the only way out of the trap.

Higher interest rates, or higher inflation: Either way, the biggest losers will be long-term lenders at fixed interest rates.

You wouldn't want to hold 30-year Treasuries, which today yield just 4.83 percent.


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## The Barbarian Investor (25 November 2004)

Sorry Wayne..

Didn't realise you'd posted this earlier


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## Mofra (25 November 2004)

Interesting article, in Australia the effect could be worse given the de-regulation of the market leading to greater household debt levels for depreciating assets - exacerbating the effect of interest rate rises (that seems inevitable sooner rather than later)

 :ald:


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## greggles (8 February 2018)

Thirteen years later and Economic Armageddon is still being predicted. No surprise there. This time, it's being predicted by John Adams, a former Coalition policy adviser who has identified ten signs that the global economy is heading for a spectacular crash.

https://www.dailytelegraph.com.au/b...n/news-story/1b307a7dd620376d0bd8628e015cbf56

Here are John Adams' Ten Signs of the Upcoming Economic Armageddon

Sign #1: Record Australian Household Debt
Sign #2: Falling Australian Household Savings
Sign #3: Continued Record Low Australian Interest Rates
Sign #4: Growing Australian Housing Bubble 
Sign #5: Continued Increase in Global Debt
Sign #6: Major International Asset Bubbles Keep Growing
Sign #7: Increasing Inflation
Sign #8: Tightening Monetary Policy and Rising Global Interest Rates
Sign #9: Inverted and Flattening Yield Curves
Sign #10: Return of Risky Derivatives 

There is, of course, more detail on each sign in the linked article.

So, are we any closer to Global Economic Armageddon now than we were back in November 2004 when this thread was started? Were the plunges on the US Markets on 2 and 5 February foreshocks of something much larger to come? 

I think there is something ominous on the horizon for 2018. It's now 10 years since the GFC and I can't shake the feeling that there is going to be another global economic catastrophe sometime soon. 

What do others think?


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## tech/a (9 February 2018)

Learn how to trade short.

2008/9 was the prelude.
The credit default swap meltdown
STILL hasnt been wound out.

Falls like those earlier this week are 
nothing more than blips just reminding 
Everyone how venerable we all are.

It will happen but the true Armageddon will
Be world wide when all the money in the world won’t save 
Western economic stupidity and greed.


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## greggles (9 February 2018)

Tech, I'm interested in this topic and you are obviously someone with a lot of experience. I agree with what you say.

To be honest I've never done any short selling. The DJIA is down another thousand points overnight. If I were to trade short then I would be interested in trading indexes. Are CFDs the best way to achieve this?


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## tech/a (9 February 2018)

greggles said:


> Tech, I'm interested in this topic and you are obviously someone with a lot of experience. I agree with what you say.
> 
> To be honest I've never done any short selling. The DJIA is down another thousand points overnight. If I were to trade short then I would be interested in trading indexes. Are CFDs the best way to achieve this?




Easiest I guess for you.
I use IB.
Warning
These times are volatile (an index traders dream) and you'll be using a leveraged product.
Day trade only would be my advice.
Get on a trend ride it and take your profit!
If you find yourself on the wrong side *DONT HESITATE*
get out!

Things will steady.
This is a perfect ABC move so tonight should be down again
around 800 points.


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## notting (9 February 2018)

tech/a said:


> 2008/9 was the prelude.
> The credit default swap meltdown
> STILL hasnt been wound out.



Really?


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## tech/a (9 February 2018)

Yes really!

The swaps are still there , they were just rescued on the defaults.
They like any locked in position have an expiry where they are either sold to
someone else or taken back by the issuer.

What do you think will happen with rapidly rising interest rates?

Tic Toc.


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## PZ99 (9 February 2018)

If we have a repeat of 10 years ago it'll be economic armageddon for Australia if we enter it with a $300b debt instead of the $40b cash reserve we had last time.


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## tech/a (9 February 2018)

PZ99 said:


> If we have a repeat of 10 years ago it'll be economic armageddon for Australia if we enter it with a $300b debt instead of the $40b cash reserve we had last time.




While it wont be pretty it wont be anything like the pain the US will go through and other European countries.
$300B is peanuts to Trillions. We don't have credit default swaps to un wind.
We cant just walk into a bank and hand in the keys and walk away debt free.
We don't have a $4.5 billion a DAY interest bill.
We don't have Trump.


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## notting (9 February 2018)

tech/a said:


> Yes really!
> 
> The swaps are still there , they were just rescued on the defaults.
> They like any locked in position have an expiry where they are either sold to
> ...



Haven't all the balance sheets been repaired and the majority of the leverage is out of the Fin markets.
I think it's more about the tax less selling which I said would happen months ago once the tax cuts were approved.
They were all waiting before taking profits,  there was no selling so the market just crept up.  Now they are all trying to lock in the profits at once.
On top of that you had the first wage growth number and the bond rates market tick up, as the Fed tries to unwind and slow inflation!
The US market was in nutso territory.  Our market - far more realistic we never had FED interference.  We just had Rudd flush billions down the toilet in panic throwing money at everyone.


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## Smurf1976 (9 February 2018)

So investors worry about rising inflation causing the Fed to raise interest rates.

That leads to a sell off in stocks with the S&P 500 down just over 10%. OK so far, I "get" that thinking.

It also leads to a fall in oil prices of 8%. That makes no sense to me whatsoever - we're talking about a "problem" of strong economic growth and rising inflation. How on earth does anyone conclude that somehow reduces the value of oil? If you're looking for symptoms of inflation then the price of oil rising is about as classic as it gets.

Thinking ahead my thoughts are that now this has happened:

*The Fed will will go slow on interest rate rises until the point arrives where there's no choice but to act in the face of visible, proven rising inflation.

*Stocks rally in the meantime once everyone works out that the Fed is going slow on rate hikes. We'll see new record highs in the major US indices much sooner than practically anyone is expecting.

*Oil goes up for multiple reasons. Strong demand growth with economic growth just about everywhere. Rising oil price would be a classic thing that happens with inflation. Plus the Saudi's are planning to float part of their national oil company and would benefit hugely from a reasonably high price which they'll do everything possible to bring about.

So I'm seeing this as a correction and then we're back on up, up and up until the point comes where the threat isn't the Fed raising rates to limit inflation but inflation itself. Then we get the crisis.

So in short I do think there's major problems ahead but we're not there yet. We've just seen the 9pm fireworks but the party's not over yet by any means and the real show's at midnight.

That's just my thoughts on it at the moment. Anyone got any comments?


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## tech/a (9 February 2018)

You could be right or wrong.

No point in guessing.

All we can do is look after our own backyard and take
advantage of the opportunity that these times give us.
We know what that is ( Short and long )
We know how to do it ( CFD or FUTs )
We just have to do it. ( find that setup and trade it )

Lucky US.

Most will do nothing.
Most will cop sizable losses.


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## McLovin (9 February 2018)

Smurf1976 said:


> So investors worry about rising inflation causing the Fed to raise interest rates.




I don't think the concern is inflation. It's that the threat of deflation has reduced/ended and bonds are re-pricing accordingly. If anything, this week's gyrations have probably reduced the risk of the Fed overshooting on rates, not undershooting.

As usual, any time the market sneezes we get endless comparisons to 2008.


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## greggles (1 March 2018)

Bill Gates weighs in on economic armageddon and says it's "a certainty": http://www.news.com.au/finance/econ...y/news-story/364c28ad0c20696f399553d51900fe77

Well, maybe not economic armageddon exactly, but another global financial crisis.


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