S&P Bank Sector

Japan experienced a deflation in recent years because the bursting of its asset-price bubble in the early 1990s created huge losses in its banking system. The Japanese banks had financed the asset-price bubble. When it burst, the debtors could not keep current on their loans to the banks and therefore were forced to turn back the collateral to the banks. The market value of the collateral, of course, was less than the amount of the loans outstanding, thereby inflicting huge losses of capital to the Japanese banks. With the decline in bank capital, the Japanese banks could not extend new credit to the private sector even though the Bank of Japan was offering credit to the banks at very low nominal rates of interest

 

Paul L. Kasriel

 

 

The line in the sand is drawn..

 

How do you answer the probability of this outcome?  Are home prices falling?  Are home prices peaking or rolling over around the world?  Is the recession spreading?  Are the banks tightening lending standards?  Are foreclosures  increasing? Does the commodities blow off help consumers? Are long term indicators pointing up or down?

 

You have got your answer...

S&P GSCI

http://www2.standardandpoors.com/portal/site/sp/en/us/page.topic/indices_gsci/2,3,4,0,0,0,0,0,0,1,1,0,0,0,0,0.html

 

Monthly and daily chart attached,

 

Peak oil is legit; everyone now talks about peak oil, as Don Coxe launches his new fund, as Sprott launches his IPO as macleans magazine covers the Malthusian end of the world thinking, as price are forecasted to go to 150, 200 300 500 dollars a barrel, you know we are near the end… in price

 

Canada GDP/ TSX INDEX

http://www.statcan.ca/Daily/English/080530/d080530a.htm

Real gross domestic product (GDP) edged down 0.1% in the first quarter of 2008, its first quarterly decline since the second quarter of 2003. The economy, which had started to lose momentum in the second half of 2007 as exports declined, stalled in the first quarter due to widespread cutbacks in manufacturing, most notably in motor vehicles. In addition, weather disruptions hampered economic activity in the quarter. Economic output contracted 0.2% in March. Final domestic demand advanced 0.6% in the quarter on the strength of consumer spending. Inventory accumulation eased considerably in the first quarter, after two quarters of large build-ups.

The strength in the TSX is solely because of energy, every other sub index is in a downtrend...

US 10 & 30 Year rates

The long-term trend line is still intact for long-term yields. This higher interest is the last thing the US economy can afford, as you would have the combination of higher commodities prices, higher interest rates, decelerating credit growth, and falling asset values that is toxic to economic growth. This combination is a tsunami of future debt deflation counter to inflation fears around the world

 

On that note, I get quite a bit of emails that inflation is in our future, the point to the shadow statistics numbers. I agree with these numbers, inflation is probably much higher that the governments would let us know.  However, I ask the question, if rates were really reported then the bond market would have taken off which would have not allowed the Real Estate market to blow off which would have not brought us where we are today...

 

I suggest that you look at Asia in the 1997-1998 periods where inflation numbers collapsed within a year… I would suggest that this would be the case as the global recession spreads...  Real Estate is a lagging indicator, so is inflation so is the commodities blow-off...  Do you really believe the economy can grow at all if we get another move of over 20-30% in commodities and or interest rates?

 

Checkmate for the global economy.