RBS issues global stock and credit crash alert

The Royal Bank of Scotland has advised clients to brace for a full-fledged crash in global stock and credit markets over the next three months as inflation paralyses the major central banks.

“A very nasty period is soon to be upon us – be prepared,” said Bob Janjuah, the bank’s credit strategist.

(Got Gold and Silver? More under “Solution– The Infinite Unknown)

A report by the bank’s research team warns that the S&P 500 index of Wall Street equities is likely to fall by more than 300 points to around 1050 by September as “all the chickens come home to roost” from the excesses of the global boom, with contagion spreading across Europe and emerging markets.

Such a slide on world bourses would amount to one of the worst bear markets over the last century.

  • RBS alert: Quotes from the report
  • Fund managers react to RBS alert
  • Support for the euro is in doubt
  • RBS said the iTraxx index of high-grade corporate bonds could soar to 130/150 while the “Crossover” index of lower grade corporate bonds could reach 650/700 in a renewed bout of panic on the debt markets.

    “I do not think I can be much blunter. If you have to be in credit, focus on quality, short durations, non-cyclical defensive names.

    “Cash is the key safe haven. (No way!!! Yet it is still good to have some cash. – The Infinite Unknown)
    This is about not losing your money, and not losing your job,” said Mr Janjuah, who became a City star after his grim warnings last year about the credit crisis proved all too accurate.

    RBS expects Wall Street to rally a little further into early July before short-lived momentum from America’s fiscal boost begins to fizzle out, and the delayed effects of the oil spike inflict their damage.

    “Globalisation was always going to risk putting G7 bankers into a dangerous corner at some point. We have got to that point,” he said.

    US Federal Reserve and the European Central Bank both face a Hobson’s choice as workers start to lose their jobs in earnest and lenders cut off credit.

    The authorities cannot respond with easy money because oil and food costs continue to push headline inflation to levels that are unsettling the markets. “The ugly spoiler is that we may need to see much lower global growth in order to get lower inflation,” he said.

  • Morgan Stanley warns of catastrophe
  • More comment and analysis from the Telegraph
  • “The Fed is in panic mode. The massive credibility chasms down which the Fed and maybe even the ECB will plummet when they fail to hike rates in the face of higher inflation will combine to give us a big sell-off in risky assets,” he said.

    Read moreRBS issues global stock and credit crash alert

    Army Overseer Tells of Ouster Over KBR Stir


    Shawn Baldwin/Reflex News, for The New York Times

    An employee of KBR serving dinner to an American soldier at a base in Baghdad. In 2004, a civilian official questioned KBR’s request for about $200 million in payments for food services.

    WASHINGTON – The Army official who managed the Pentagon’s largest contract in Iraq says he was ousted from his job when he refused to approve paying more than $1 billion in questionable charges to KBR, the Houston-based company that has provided food, housing and other services to American troops.

    The official, Charles M. Smith, was the senior civilian overseeing the multibillion-dollar contract with KBR during the first two years of the war. Speaking out for the first time, Mr. Smith said that he was forced from his job in 2004 after informing KBR officials that the Army would impose escalating financial penalties if they failed to improve their chaotic Iraqi operations.

    Army auditors had determined that KBR lacked credible data or records for more than $1 billion in spending, so Mr. Smith refused to sign off on the payments to the company. “They had a gigantic amount of costs they couldn’t justify,” he said in an interview. “Ultimately, the money that was going to KBR was money being taken away from the troops, and I wasn’t going to do that.”

    Read moreArmy Overseer Tells of Ouster Over KBR Stir

    Ahmadinejad to OPEC: Dump weak dollar


    Iran’s President Mahmoud Ahmadinejad

    Iran urges the OPEC member states again to convert their cash reserves into a basket of currencies rather than the tumbling US dollar.

    Speaking at a ceremony to open the 29th ministerial meeting of the OPEC Fund for International Development (OFID), Iran’s President Mahmoud Ahmadinejad repeated his proposal made about six months ago in a rare summit of the Organization of Petroleum Exporting Countries’s heads of states.

    “The fall in the value of US dollar is one of the pressing problems of the world today,” warned the Iranian president at the conference in Isfahan on Tuesday.

    He further expressed concern over the adverse effect of the dollar depreciation on the international community, especially energy exporting countries through increasing the price of commodities like wheat, rice and oilseeds. (This could have also been said by Ron Paul or Jim Rogers. – The Infinite Unknown)

    Ahmadinejad said he warned six months ago in the summit conference in Riyadh that there were many indications pointing to continued fall in the value of the greenback.

    “And we see that this continues to happen and the resources and wealth of OPEC member countries have been hugely damaged.

    “I again repeat my previous proposal; we should have a basket of different international hard currencies as the basis or the member countries should come up and produce a new hard currency for petroleum contracts,” he stressed.

    “They get our oil and give us a worthless piece of paper,” Ahmadinejad said earlier after the close of the summit in the Saudi capital of Riyadh. (Which is absolutely correct too.)

    The comments by the Iranian president gained backing from Venezuelan President Hugo Chavez as he said at the same event, “The empire of the dollar has to end.”

    Read moreAhmadinejad to OPEC: Dump weak dollar

    Tech Crunch – Here’s Our New Policy On A.P. stories: They’re Banned


    The stories over the weekend were bad enough – the Associated Press, with a long history of suing over quotations from their articles, went after Drudge Retort for having the audacity to link to their stories along with short quotations via reader submissions. Drudge Retort is doing nothing different than what Digg, TechMeme, Mixx and dozens of other sites do, and frankly the fact that they are being linked to should be considered a favor.

    After heavy criticism over the last few days, the A.P. is in damage control mode, says the NYTimes, and retreating from their earlier position. But from what I read, they’re just pushing their case further.

    They do not want people quoting their stories, despite the fact that such activity very clearly falls within the fair use exception to copyright law. They claim that the activity is an infringement.

    A.P. vice president Jim Kennedy says they will issue guidelines telling bloggers what is acceptable and what isn’t, over and above what the law says is acceptable. They will “attempt to define clear standards as to how much of its articles and broadcasts bloggers and Web sites can excerpt without infringing on The A.P.’s copyright.”

    Those that disregard the guidelines risk being sued by the A.P., despite the fact that such use may fall under the concept of fair use.

    The A.P. doesn’t get to make it’s own rules around how its content is used, if those rules are stricter than the law allows. So even thought they say they are making these new guidelines in the spirit of cooperation, it’s clear that, like the RIAA and MPAA, they are trying to claw their way to a set of property rights that don’t exist today and that they are not legally entitled to. And like the RIAA and MPAA, this is done to protect a dying business model – paid content.

    So here’s our new policy on A.P. stories: they don’t exist. We don’t see them, we don’t quote them, we don’t link to them. They’re banned until they abandon this new strategy, and I encourage others to do the same until they back down from these ridiculous attempts to stop the spread of information around the Internet.

    June 16, 2008
    Michael Arrington

    Source: Tech Crunch

    AP To Set Guidelines For Using Its Articles In Blogs

    The Associated Press, one of the nation’s largest news organizations, said that it will, for the first time, attempt to define clear standards as to how much of its articles and broadcasts bloggers and Web sites can excerpt without infringing on The A.P.’s copyright.

    The A.P.’s effort to impose some guidelines on the free-wheeling blogosphere, where extensive quoting and even copying of entire news articles is common, may offer a prominent definition of the important but vague doctrine of “fair use,” which holds that copyright owners cannot ban others from using small bits of their works under some circumstances. For example, a book reviewer is allowed to quote passages from the work without permission from the publisher.

    Fair use has become an essential concept to many bloggers, who often quote portions of articles before discussing them. The A.P., a cooperative owned by 1,500 daily newspapers, including The New York Times, provides written articles and broadcast material to thousands of news organizations and Web sites that pay to use them.

    Last week, The A.P. took an unusually strict position against quotation of its work, sending a letter to the Drudge Retort asking it to remove seven items that contained quotations from A.P. articles ranging from 39 to 79 words.

    On Saturday, The A.P. retreated. Jim Kennedy, vice president and strategy director of The A.P., said in an interview that the news organization had decided that its letter to the Drudge Retort was “heavy-handed” and that The A.P. was going to rethink its policies toward bloggers.

    The quick about-face came, he said, because a number of well-known bloggers started criticizing its policy, claiming it would undercut the active discussion of the news that rages on sites, big and small, across the Internet.

    The Drudge Retort was initially started as a left-leaning parody of the much larger Drudge Report, run by the conservative muckraker Matt Drudge. In recent years, the Drudge Retort has become more of a social news site, similar to sites like Digg, in which members post links to news articles for others to comment on.

    But Rogers Cadenhead, the owner of the Drudge Retort and several other Web sites, said the issue goes far beyond one site. “There are millions of people sharing links to news articles on blogs, message boards and sites like Digg. If The A.P. has concerns that go all the way down to one or two sentences of quoting, they need to tell people what they think is legal and where the boundaries are.”

    On Friday, The A.P. issued a statement defending its action, saying it was going to challenge blog postings containing excerpts of A.P. articles “when we feel the use is more reproduction than reference, or when others are encouraged to cut and paste.” An A.P. spokesman declined Friday to further explain the association’s position.

    After that, however, the news association convened a meeting of its executives at which it decided to suspend its efforts to challenge blogs until it creates a more thoughtful standard.

    Read moreAP To Set Guidelines For Using Its Articles In Blogs

    Emerging markets face inflation meltdown


    Downward spiral: Chinese stocks have slumped by almost 50pc since October while Mumbai’s BSE index has lost 27pc of its value

    Central banks across much of Asia, Latin America, and Eastern Europe will soon have to jam on the breaks or risk a serious crisis as inflation spirals into the danger zone. As the stark reality becomes ever clearer, this year’s correction in emerging market bourses and bond markets has now accelerted into a full-fledged rout.

    Shanghai’s composite index touched a fourteen-month low of 2,900 yesterday. It follows moves this week by the central bank raised reserve requirement yet again, draining a further $60bn from the banking system. Chinese stocks have now slumped by almost 50pc since peaking in October.

    In India, Mumbai’s BSE index has lost 27pc of its value as the exodus of foreign funds accelerates. The central bank has raised rates to 8pc to curb inflation and halt a run on the rupee, but critics still say the country waited too long to tackle overheating. The current account deficit has shot up to near 3.5pc of GDP. A plethora of subsidies has pushed the budget deficit to 9pc of GDP.

    Russia, Brazil, India, Vietnam, South Africa, Indonesia, Nigeria, and Chile – among others – have all had to raise interest rates or tighten monetary policy in recent days. Most are still behind the curve.

    “The inflation genie is out of the bottle: easy money is the culprit,” said Joachim Fels, chief economist at Morgan Stanley.

    “Weighted global interest rates are 4.3pc, while global inflation is above 5pc. The real policy rate in the world is negative,” he said
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    The currencies of Korea, Thailand, the Philippines, and Malaysia have come under pressure this week as investors scramble for dollars in moves that echo the East Asia crisis in 1997-1998. Several countries have had to intervene to slow the currency slide.

    The sudden shift in sentiment appears to follow comments by Ben Bernanke and Tim Geithner, the heads of the US Federal Reserve and the New York Fed, leaving no doubt that Washington has lost patience with the crumbling dollar.

    It is almost unprecedented for Fed officials to take a public stand on the Greenback. The orchestrated move is clearly aimed at halting the vicious circle in the oil markets, where crude prices are feeding off dollar weakness – with multiples of leverage.

    The “strong dollar” campaign has switched into high gear. US Treasury Secretary Hank Paulson has conducted an aggressive lobbying drive behind the scenes in the Middle East and Asia. America’s friends and foes have been left in no doubt that the enormous strategic might of the United States is now firmly behind the currency. From now on, they cross Washington at their peril.

    The markets are now pricing in two rate rises by the Fed this year. Investors no longer doubt that the US – and Europe – will do what is needed to restore credibility. This display of resolve has suddenly switched the focus to the very different universe of emerging markets, where a host of countries have repeated the errors of the 1970s.

    Richard Cookson, a strategist at HSBC, advises clients to slash their holdings in these regions.

    “Inflation looks like a very real problem in Asia, and the risk is that investors will lose faith in the region’s currencies. Although markets have fallen savagely from their peaks, they’re still looking pricey. We’ re lopping exposure even further, to zero,” he said.

    “Where to put the money? We think corporate debt is stunningly cheap compared with equities. Seven-year to ten-year ‘BBB’ [rated] corporate bonds in the US haven’t been this cheap since the Autumn of 2002,” he said.

    “Until and unless policy makers in the emerging world – especially those in China – tighten policy dramatically, the inflation rates are unlikely to fall much. Our guess is that most don’t have much will to tighten pre-emptively,” he said.

    Russia’s inflation is 15.1pc, yet interest rates are 10.75pc. Vietnam’s inflation is 25pc; rates are 12pc. Fitch Ratings has put the country on negative watch and warns of brewing trouble in the Ukraine, Kazakhstan, the Balkans, and the Baltic states. The long-held assumption that emerging markets are strong enough to shrug off US troubles is now facing a serious test. The World Bank has slashed its global growth forecast to 2.7pc this year. The IMF and the World Bank define growth below 3pc a “global recession”.

    There is a dawning realization that China is facing a major storm as inflation (7.7pc), the rising yuan (up 5pc this year), soaring oil prices, and an economic downturn in the key export markets of North America and Europe all combine to crush profit margins. China uses five times as much energy as the US to produce a unit of GDP. It is acutely vulnerable to the energy crisis.

    A quarter of the 800 shoe factories in the Guangdong region have shut down in recent months, and several thousand textile workshops are battling to stay afloat. Hong Kong’s industry federation has warned that 10,000 firms operating in the South of China may soon go out of business.

    By Ambrose Evans-Pritchard
    Last Updated: 13/06/2008

    Source: Telegraph

    Turkey, Syria eye nuclear energy cooperation: agency

    ISTANBUL (Reuters) – Turkey and Syria are considering setting up a joint energy company and could build joint nuclear power plants for electricity, Syria’s oil minister was quoted as saying on Friday.

    Turkey’s state-run Antolian agency quoted Oil Minister Sufian Alao as saying that the two countries will announce the establishment of a joint energy company in the coming days, which could explore for oil in Turkey, Syria and in third countries.

    “We could also enter into cooperation in the nuclear field. I spoke to (Turkish Energy Minister Hilmi Guler) Mr. Guler on cooperation. In the future we could found joint nuclear power plants for electricity production,” he was quoted as saying.

    Washington released intelligence in April which it said showed Syria secretly built an atomic reactor with North Korean help. Damascus, a U.S. foe and ally of Iran, denies any covert nuclear activity and has said it would cooperate with a U.N. investigation into the allegations.

    Turkey, a NATO ally of the United States, is already under pressure from Washington because of its natural gas cooperation with Iran, whose secretive uranium enrichment program has been under scrutiny since 2003.

    The general director of Turkish state energy firm TPAO, Mehmet Uysal, was also quoted as saying the two countries had decided to set up a joint energy company and that a deal could be signed by the end of the year, but did not mention cooperation on nuclear energy.

    (So what now? Bomb them all? -The Infinite Unknown)

    Fri Jun 13, 10:57 AM ET

    Source: Reuters

    California Home Foreclosures Skyrocket by Over 400 Percent

    (NaturalNews) The number of California homes foreclosed on in the fourth quarter of 2007 was more than 400 percent higher than in the same quarter of 2006, according to DataQuick Information systems.

    A total of 31,676 California homes were foreclosed in the last quarter of 2007, compared with only 6,078 in the fourth quarter of the year before. The total number of foreclosures in 2007 was 84,375, or more than six times the 2006 total of 12,672.

    It was the most foreclosures since DataQuick began keeping records in 1988, and more than two times the previous high of 15,418 in the third quarter of 1996.

    Read moreCalifornia Home Foreclosures Skyrocket by Over 400 Percent

    Central bank body warns of Great Depression

    The Bank for International Settlements (BIS), the organisation that fosters cooperation between central banks, has warned that the credit crisis could lead world economies into a crash on a scale not seen since the 1930s.

    In its latest quarterly report, the body points out that the Great Depression of the 1930s was not foreseen and that commentators on the financial turmoil, instigated by the US sub-prime mortgage crisis, may not have grasped the level of exposure that lies at its heart.

    According to the BIS, complex credit instruments, a strong appetite for risk, rising levels of household debt and long-term imbalances in the world currency system, all form part of the loose monetarist policy that could result in another Great Depression.

    Read moreCentral bank body warns of Great Depression

    Total Notional Value Of Derivatives Outstanding Surpasses One Quadrillion

    The notional value of all outstanding derivatives now totals approximately $1.144 QUADRILLION.

    This appears to be Bank of International Settlement Spin to announce the largest gain in derivatives outstanding since they started to report. As of the last report it appeared that both listed and OTC derivatives was under $600 trillion. Now listed credit derivatives alone stood at $548 Trillion. The OTC derivatives are shown as $596 trillion notional value, as of December 2007. One can only imagine what number they are at now.

    Well we hit a QUADRILLION. We have more than $1000 trillion dollars in all derivatives outstanding. That is simply NUTS because notional value becomes real value when either counterparty to the OTC derivative goes bankrupt. $548 trillion plus $596 trillion means $1.144 quadrillion.

    It would be an interesting piece of research to see what the breakdown is of listed derivatives according to exchange to see if it adds up to the reported number. Spin is now everywhere.

    This means that no OTC derivative house can be allowed to go broke. This means that whatever funds are required to rescue failing international investment banks, banks and financial entities will be provided.

    Keep this economic law in mind. Monetary inflation proceeds price inflation and is its primary cause in economic history from Rome to present.

    Nothing can stop the juggernaut of price inflation heading towards every nation like a runaway freight train down a mountain.

    Gold is going to at least $1650. I am probably way too low with that estimate.

    The US dollar will trade down to at least .5200 as measured by the USDX.

    Gold is the easiest market to trade for the aggressive investor. Sell 1/3 when the market looks like a Rhino Horn which you will see with your French Curves at the point of the rollover.

    Buy 1/3 back when the price of gold looks like a fishing line hanging off a fishing rod. Your maximum power down trend line will give you this.

    Read moreTotal Notional Value Of Derivatives Outstanding Surpasses One Quadrillion