Another Sign of Coming Blowup?

Last week I asked:

Look at the following graph from the St. Louis Fed. It is the amount of deposits at the US Fed from foreign official and international accounts, at rates that are next to nothing. It is higher now than in 2008. What do they know that you don’t?

Here’s another sign that powerful insiders are increasingly running scared.

From Zero Hedge:

Back in the summer of 2007 two important things happened: the market hit an all time high, and the smart money realized what was about to happen (following the subprime and the Bear hedge fund blow up, it was pretty clear to all but Jim Cramer) and bailed out of stocks and into bonds, with Treasury holdings of Primary Dealers soaring at the fastest pace in history.

Finally, disgraced ex-President of the IMF Dominique Strauss-Kahn has weighed in, to confirm what everyone already knew.

From the Wall Street Journal:

The former International Monetary Fund’s Managing Director, Dominique Strauss Kahn, Sunday said Greece is unable to pay its debt and its creditors will have to take losses on the debt they hold.

“Greece got poorer, we can say Greeks will pay on their own, but they can’t,” Strauss Kahn said in an interview on French TV channel TF1. “There is a loss and it must be taken by governments and banks,” he said.

Yes — and so the real question, which nobody in a position of global or national authority has addressed — is just how will the global financial system be made to cope with the another Lehman-style cascade of defaults?

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13 thoughts on “Another Sign of Coming Blowup?

  1. Very interesting thanks. I can see how if the smart money thinks the stock market is about to plunge again it would jump into bonds.

    Presumably this is reflected also in a massive move to gold? Can you comment on that?

  2. but through 2008 gold dropped $1000 to almost $700. if everything now is like pre-Lehman-event, should we prepare for upcoming sell off in gold? (that would be wonderful xmas present!)

    still, majority of institutions do not see gold as hedge/heaven/money like we do, they often prefer liquid USDs.. flexibility – it’s their (legacy) concept of “safety”.

    • The fundamentals in gold right now are a little different to 2008 — Chavez may well have sparked a hunt for physical possession and central banks in the developing world are extremely hungry for gold. Even European central banks recently became net buyers. And now gold is the best performing major asset class of the last 10 years, I think there will be enough interest from pension and mutual funds to make gold stable to positive in the presence of a Lehman-type event. There might be a dip (down to $1700? $1600? $1500?) during the event itself, but as the dust settles, I would expect gold to rocket past $2,000.

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  4. The old adage in betting is “follow the money”. You don’t need to know why a horse is having masses of money suddenly being placed on it to win. The simple fact of large monies going on it means that someone knows something you don’t, and they’re prepared to put their money on it, so its worth doing the same.

    BTW Aziz, what do you think about the Australian treasurer, Wayne Swan getting named “World’s best treasurer”? Most Australians suspect the guy can’t even count beyond his fingers!

    • He’s just another textbook Keynesian — lucky for him, he’s a Keynesian sat on top of a relatively dynamic resource-driven economy with a very strong currency (you can devalue a strong currency to your hearts’ content).

      As for his award, look at the competition — Tim “No risk of downgrade, I don’t pay taxes” Geithner, anyone? Gordon “Sell all of Britain’s gold at the bottom of the market” Brown?

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