This may be one of the most important pieces of economic news in many months, yet is did not receive much mainstream news coverage when the wire story was circulated yesterday: Beijing’s derivative default stance rattles market. This implications of state-owned Chinese industries being given carte blanche to nullify derivatives contracts are enormous. You’ll probably recall that I have been warning about derivatives counterparty risk for almost three years. And it was there that I specifically warned about the risk of “disappearing counterparties”. This new turn of events will likely shake the very foundations of the global derivatives markets. If the derivative contract holders fail to call the bluff of the Chinese (or if their respective national governments don’t back then up), then the entire derivatives market may disintegrate into chaos-or perhaps fracture into regional subsets. But if they do call their bluff, and the Chinese then decide to play hard ball (read: non-participation in US Treasury Note auctions, for starters), then it is impossible to predict how this might spin out of control. Entire currencies and even governments may topple. Expect to see some votes of no confidence in some of the parliamentarian states, and perhaps even rumors of war. Do you remember my analogy of “kingdom towing” that I posited back in 2007? Such events are starting to look even more likely.
And, speaking of derivatives… Wall Street Stealth Lobby Defends $35 Billion Derivatives Haul
I found this linked over at TotalInvestor.com (one of my favorite news aggregation sites): Lefrak: Commercial Real Estate Will Kill 500 Small Banks
This Reuters article was linked over at Total Investor: Cerberus clients overwhelmingly want out: report. The troubled times for hedge funds that I predicted back in Aught Seven are far from over. As long as the global credit markets remain in turmoil, anyone that borrows short and lends long will will continue to be in deep trouble.
Bradley recommended a “must see” videotaped interview posted over at the Lew Rockwell site: Faber: Central Banks Blowing New Bubble. JWR’s comment: Faber’s predictions are quite possibly right, although he is a bit fuzzy on timeframes. He said: “One stimulus package will lead to the next one, and more money printing, and so in five to ten years time the real crisis will break out, when the whole system collapses — that will be the end.” Faber reiterated his earlier advice to the same Aussie journalist, that goes beyond economics and gets down to quasi-Rawlesian survivalism: “Buy a farm and a gun…”
Odds ‘n Sods:
Several readers sent this: The Farmer’s Almanac’s Frigid 2010 Forecast. Have you cut and stacked plenty of firewood?
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LJ in England sent this: Blackout Britain warning as Government predicts severe power shortages within a year
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Steve S. recommended these two Lifehacker articles: Boost Your Map Skills for when GPS Fails You and, Get to Know Your Edible Berries with a Simple Mnemonic
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Tom B. mentioned this: ‘Preppers’ get ready for the worst; Movement to stockpile for emergency at all-time high