Below the radar, there was a meeting this weekend of 43 European and Asian nations in Beijing to prepare a “comprehensive reform of the international monetary and finance system.” The U.S. was not invited. At the Nov. 15 international financial summit in Washington, D.C., we can expect the rest of the world to present their … Continue reading U.S.’s creditors to be knocking on the door soon

I’ve always been told that “he who has the gold, makes the rules” and hope that is not always true. For decades, the Russians have wanted better refueling operations in the north Atlantic for its Navy. A few weeks ago, Iceland nearly went bankrupt and was very desperate. Immediately, Russia was there with a $3 … Continue reading Russia and China positioning smartly amid crisis

In the movie classic Casablanca, the corrupt local government official, who goes to the casino every night, indignantly admits to being “shocked” there is gambling there. Yesterday’s congressional testimony by Alan Greenspan reminded me of that movie. He said he was shocked that Wall Street would take on excessive risk. In theory, a firm would … Continue reading Greenspan revives Casablanca character

While we have been through many recessions in the past, there is one thing very different about this one. It is the first one in a truly globalized world. There are reasonable arguments on both sides as to whether globalization will make the recession better or worse. While it is far too early to have … Continue reading Leadership shifting to Europe

The Dow fell 231 points yesterday because of concerns about the global recession and disappointing earnings announcements — but that is great news! Like the dog Sherlock Holmes noticed that didn’t bark, there is no mention of the credit crisis, which has totally dominated the news for the last two months. While it is certainly … Continue reading Dow fell 231 points — but that’s great news

Are we at the bottom of the economic cycle yet? Absolutely not. There is a lot of pain ahead for us. Are we at the bottom of the financial cycle yet? Just maybe . . . yesterday’s strong bull performance must be confirmed by the bond market, which was closed yesterday. If the bond market … Continue reading Bad economic cycle not finished yet

It has been a long time since I was a kid in a candy store who wanted everything he sees, but I’m starting to feel that way when I look at the stock market now. There are so many good companies to buy, and they’re 40% off. It may be time to start nibbling again!!

With stock markets crashing around the world, it is important to understand who is selling, besides the routine panic-seller. Two other things are also pushing the markets down strongly. First, the stock markets are the only source of new liquidity right now, as the credit markets are frozen. If you think you’ll need cash to … Continue reading Sept. 30 statements caused havoc

One of the concerns I have about all the recent government efforts to repair the credit crisis is that we’re creating a “Moral Hazard,” which means we’re rewarding bad behavior. Examples would be CEOs getting huge pay packages for poor management or unscrupulous homebuyers getting bailed out. I was discussing this today with another economist, … Continue reading Rewarding bad behavior must not be repeated

Yesterday’s headlines obscured the news. The headline was the global coordinated interest rate cut of half a percent, which calmed the markets nicely . . . for about five minutes. But, lower interest rates will not end the current credit crisis, nor will more liquidity. We need to reduce bank leverage. There are two ways … Continue reading Credit crisis leadership shifts to London

I recently talked with a senior official of the IMF about the global credit crisis. He thought a global crisis required a global solution, but there is no “decider-in-chief.” The U.S. can no more solve the global credit crisis than Virginia can solve the American credit crisis. Interesting! By coincidence, the G-7 conference is this … Continue reading No ‘decider-in-chief’ for global crisis

Long-time readers know I have railed about the potential problems from credit derivatives, such as credit default swaps. They must have been designed by financial engineers gone wild! Because they are not regulated nor traded on any exchanges, there is far too little information to evaluate the problem. On Sunday, I talked with the Fed’s … Continue reading Credit derivatives gone wild