Understanding Contagion – Something Politicians Remain Clueless About
The crisis in Long-term Capital Management that began with Russian debt spread and hit every market with lightening speed. Even the dollar/yen fell from 147 to 103 in just days. Why? It is called contagion. Major investment is spread-out internationally. As a crisis unfolds for one region, it spreads by forcing liquidation of other markets to raise cash because of an unrelated market implosion.
This is what we are seeing in Slovenia where the government is discussing the impact of a possible bailout of its banks because Austrian banks in need of capital at home are forced to liquidate investments in Slovenia.
The Slovenian Prime Minister, Alenka Bratusek is confronted with the crisis in the national banking sector that is emerging as a very major problem in yet another Eurozone country. The Slovenian economy is in crisis because of Austria and the withdrawal of Austrian banks from the country is exposing what some say if about 20% of the GDP is in the category of bad loans.
Today’s Closings
In the Dow Jones Industrials, the index would only yield a sell signal on a month-end closing below 13890. On the Cash S&P500 we are looking at 1340 for a sell signal. In Gold we need a month-end close above 1620 and a sell signal comes in below 1321. In Silver we need a closing below 2111 for a sell signal today.
How Eminent is the Pension Crisis in USA?
QUESTION: How eminent is this? Should I exit my IRAs now?
ANSWER: This is still in the planning stages. It will most likely become critical in the USA after 2015.75. Pay attention to our forecasts on the US share market, for there we still have the potential for a Phase Transition starting next year.
DEBT – PENSION CRISIS – Fuel Behind A Stock Rally
I cannot emphasize how serious a situation we are in on two fronts (1) Sovereign Debt Crisis and (2) Pension Crisis. These are really global problems that are going to explode in our faces. In Europe we have the Sovereign Debt Crisis has spilled over into the banking system since banks were required to have sovereign debt as their reserves. Create unsound government debt and you simultaneously undermine the banking system That is killing two birds with one stone.
Then there is the Pension Crisis. This is widespread throughout Europe and America. Pensions have needed 8% on average to meet obligations. But governments need low interest rates to reduce deficits. This is a battle that will end very badly because they will be unable to keep rates down artificially and as pension funds are forced to invest privately, rates will rise.
Japanese savers are expected now to begin pumping in almost $700 billion into the stock market under tax free incentives.The Japanese government is now trying to deal with the Pension Crisis facing the nation with the world’s oldest population and lowest interest rates. The Japanese the Pension Crisis is reaching critical mass. The Nippon Individual Savings Account program, will now begin allowing individuals to buy 1 million yen ($10,145) a year of risk assets that are EXEMPT from taxes on dividends and capital gains for five years. The plan is expected to draw in as much as 68 trillion yen through 2018, with 65 percent of users pulling money out of bank deposits to purchase securities. Here too, we should expect to see this pressure push interest rates higher.
Expect this trend to also filter over and feed into the US share market. There will be equity funds and US shares that pay good dividends unlike those in Japan. This is part of the potential Phase Transition on the horizon for the US share Market into 2015.75.