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Brace for a global recession (update 1) – ‘you can’t talk or buy your self outta this one’ (re governments and central banks). Commodity producing countries will take big hit’s.

Posted by Adrian on October 9, 2008

In the Art of War by Sun Tzu, there is a passage that details the force of momentum, once it’s in process it’s like ‘rocks rolling down a mountain’; nothing can stop it – until it reaches the bottom. The markets are in a downward momentum now, let them run through their course. Make no mistake, this is a crash, one that has yet to find a bottom. The governments and it’s incumbent central banks are stubborn and wasting taxpayers monies trying to avert this, as I wrote in morbius glass quote of the month (June 2008 ) – The Spring and Autumn Annals, Ben Bernanke and our old friend Mohammed Saeed al-Sahhaf, the smaller side becomes a captive of the larger side. What governments should be doing is, although I think the English Central bank hasn’t done a bad thing here (buying shares in failing banks, hence re-capitalizing them) as long as the English taxpayer gets a guaranteed on returns (since it is his and her tax monies being used). The worst is the US Federal Reserve and Treasury that seem totally out of the depths here and placing the US taxpayer in greater risk – by buying valueless crap from zombie banks (that should fail). Insurance of bank deposits isn’t a bad decision either. But all and all, we can’t win this; we are not supposed too. If you believe in the free markets and capitalism, if you play the stock market and other markets. Eventually it goes bust, has throughout history and will continue to do so ad infinitum (as long as we have this economic model, since there is nothing to else replace it – it’s here for good). But the governments should also prop up social security and social services to protect the many that will be effected by a global recession and market crash. If they don’t, it will be at the mercy of social unrest. So time will tell on that one.

The big worry is commodity export nations such as Australia, Brazil and Argentina; I have discussed their vulnerability in Argentina, Brazil high inflation, energy issues could lead to sharp decline on Stockmarket and Inflation – Asia, Southern Hemisphere. China has just cut it’s rates as all the central banks have cut rates at the same time – this is of course is pointless, but what it does show is the slowing of the world economy and the problems in now faces. Commodity export countries that have been fueling China’s growth will come under pressure as the commodity markets decline. This as discussed in Brace for a global recession, has been occurring for awhile.

The Australian dollar has essentially crashed as has the Brazilian Real and Argentinian Perso (cross rates with USD) ; good indicators of sell off of high risk and overinflated currencies that were inflated by high interest rates tackling inflation (and investor buying risk). Since the countries that I mentioned are now cutting rates aggressively, the high yield commodity backed currencies are now declining rapidly. This is also because the majority of GDP is from commodity exports of those countries. One can’t rule out sharper economic downturns in Australia, Brazil and Argentina. More particularly Australia relying heavily on commodity exports for GDP. Australia’s markets boomed in the last 10 years, with reliance on a overleveged corporate and domestic sector, namely housing.

AUD/USD

USD/BRL (Brazilian Real) USD/ARS (Argentinian Peso).

US Dollar been bought, devaluing the BRL and ARS

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One Response to “Brace for a global recession (update 1) – ‘you can’t talk or buy your self outta this one’ (re governments and central banks). Commodity producing countries will take big hit’s.”

  1. […] Watch currencies, as they are good indicators used by the market to see what countries are at risk. As discussed in Brace for a global recession (update 1) – ‘you can’t talk or buy your self outta this one’ (re… […]

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