Goldman calls for a possible (worst case) -8% GDP -some insights into the real distress

I can confirm, as my research provides from various angles, disastrous results for the times ahead – the point will be that the Obama administration will kick off a humongous aid package in Q1 2009, which might create the illusion that the world has been saved since it will be accompanied by all states on this planet who can do so (but basically no one can afford it). That means the world will be flooded with worthless money, which will create paper growth – but that is the first phase of the hyper inflation which will lead to defaults of governments at some points or to insane inflation as they just print money to pay debt.

They insist that they do it differently than the Japanese, but that’s not true at all since the losses of around $1 tril., which were officially admitted to are just a fraction (as the moves of various markets’ magnitudes say that losses should have double digit tril. of losses in the balance sheets – and off balance sheets). As you can see by the following reports, banks or financial institutions cannot afford to enter into profitable trades although central banks lend money in unprecedented dimensions – $2 tril. by the FED (those are insane levels).

I just came back from a visit to a coffee shop in Frankfurt where I had to witness a conversation between two bankers. The one briefing (likely his boss from America) said that in most segments nothing was moving since no one had the funding or risk permission to get involved. Hedge Funds were completely inactive as only liquidations occur, if at all. People sit on humongous losses in almost every segment of the market and cannot liquidate, as there are no buyers (read below even longer dated Treasury bonds have difficulties to be sold). At some point, the bubble in government bonds will burst as well but right now it’s on shorter maturities the “safe haven” – which is only temporary true for shorter maturities. The illusion they generate on TV shows with the Libor rate coming down so sharply that things are back to normality is completely wrong and misguiding.


The funding market is still crazy…just look at the traded eurodollar contracts. What you can see is very grim. There are some very strange things happening in the wholesale funding market.
Intraday range on the Eurodollar contract is >8 std deviations from the 2001-present average. But volumes are dropping
This is the most liquid market on the planet to access US dollars. Eurodollars are just usd deposits in non-us banks. It’s priced as the inverse of LIBOR. Arbitrages in these markets are insane:
you can sell fed funds at 1%, borrow from a gse at 0.25% and that arb is not collapsing. There are dozens of trades like these – especially in agency and muni bond markets. But the presence of these spreads – which normally never, ever occur – show that banks don’t have the capital to commit to these arbs any more. They are everywhere, but cannot close because there is no capital and funding to do either of the legs! The 30yr tsy auction last thursday was a joke. Price of the 30yr fell out of bed because the auction was very pooor again, major treasury dealers dont have the capital to commit to warehousing 30yr bonds. This is very frightening – measures like LIBOR really are a lie and that’s just for the USD funding market. EUR trades in EONIA, bunds, schatz even more crazy. No-one can get funding quick enough – and the range combined with dropping volumes in every major funding market in the world is a very, very dire situation
GS release a report last night saying we might get up to -8% GDP. Big call for GS to go near an official depression level on GDP
There is a very important difference between liquidity and solvency; the fed is providing liquidity, but they are not fixing the solvency issue.
The fed balance sheet is now ridiculous.

~ by behindthematrix on November 19, 2008.

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