Ongoing market turmoil : The Asian Housewife Connection.

Most esteemed readers,

I apologize for the length of this post. But, I feel that the volume of information conveyed here justifies such a worthless collection of ramblings.

Forgive me.

All things considered, it has been a wild week in the financial markets. Volatility is the name of the game, as the central banks of the world struggle to prop up the unstable global economy.

My readers will note that I have linked to the Federal Reserve, the European Central Bank, and the Bank of Japan websites. These are the key players in the ongoing sub prime drama, and those of you who are market junkies should browse these sites at your leisure.

Regrettably, although the Big Banks are gamely trying to put the best face on a bad situation, they are fighting, I'm afraid, a losing battle.

Consider this commentary from the Excellent Prudent Investor blog:

The European Central Bank poured one more for banks suffering from a backlog in clogged deals now believed to hover around the $500 billion mark.

It allocated 256 billion Euros in its regular tender, 46 billion more than last week.

While it is a bit difficult, to say the least, to navigate the ECB website, the latest weekly financial statement shows that the monetary expansion has slowed and the ECB has temporarily drained 65 billion Euros and shrunk the balance sheet a cool 60 billion Euros to a total of 1.16 trillion Euros. Gold sales have come to a virtual halt in the last week of August.

UK MP's to Grill BoE about Credit Crunch

The Independent informs us that British parliamentarians will grill Bank of England officials about the current credit crunch that forced Barclays Bank to borrow 1.9 billion Pounds at the emergency credit facility.

Likely subjects for questions will include the Bank of England's emergency credit facility, the role of the credit rating agencies, and the stability of the financial system.

"We will ask how the emergency facility is being used, what the Bank's view of liquidity is, how we got into this position, and what reassurances the Bank can provide as to the stability of the entire system," Michael Fallon, the senior Conservative member on the committee, said.

Textbook Economic Decline In the USA

The outlook in the USA is not better. Plunging car sales come as the second milestone on the path of bursting bubbles after housing. Next will be credit cards. The Boston Globe runs a story that says credit card offers aimed at sub prime debtors jumped 41% in the first half of 2007. Offers to those in the best credit grade fell 13%, paradoxically. Debtors paying their mortgage with their credit card. And you still want to own bank shares?

Dear readers; I would respectfully avoid BANK SHARES at the present time.

Also, please note the the Barclay's borrowing, to the tune of $3.8 BILLION U.S. Dollars. If a bank with a market capitalization of 77.97 Billion U.S. is borrowing money from the Bank of England, I would be a little concerned about that.

Moving forward, we have headlines like these:

AP
Countrywide to Cut Up to 12,000 Jobs
Friday September 7, 6:38 pm ET
By Alex Veiga, AP Business Writer

Countrywide to Cut As Many As 12,000 Jobs Because Company Sees 2008 Loan Originations Dropping

AP
Stocks Drop After Weak Jobs Report
Friday September 7, 6:26 pm ET
By Tim Paradis, AP Business Writer

Stocks Fall Sharply, Bond Prices Soar Following Weak Employment Report

The fact of the matter is, the global economy is in serious trouble. If we are fortunate, we are looking at a recession, at best.

Why are you so bearish Kumo? you might be asking at this point.

The reason is simple: the Asian housewife.

Now, before you turn that dial, allow me to plead my case.

For those who don't know, the Asian woman is duty bound to save as much money for the future as humanly possible. The Japanese wife especially, has a long tradition of making the ends meet under the most extreme of circumstances.

We live in a changing world, and I am well aware that there are pockets of Asian women, especially in Urban areas, that are spending money like there is no tomorrow. However, such women are the exception rather than the rule, and furthermore, most of these high spending women tend to be single rather than married with children.

Now as every man married to a Japanese woman knows, spending money willy-nilly is the greatest of sins, punishable by such insidious methods as Withholding, Assault With a Deadly Pillow, The Silent Treatment, and other forms of torture outlawed by the Geneva Convention.

So maybe you think I am insane.

Please think again. Just as our free spending American woman [a][b][c] correlates to our status as the biggest debtor nation in the whole wide world, we find that the countries where the typically penny pinching East Asian woman [1][2][3] lives have the highest savings rates (foreign currency reserves) on Planet Earth.






(The Egyptian goddess Isis, beloved symbol of Egypt in the Ancient World)




(Ishtar/Astarte, Sumerian/Babylonian/Canaanite/Israelite goddess)




(Britain's Britannia, goddess of the Romans.)





(Marianne as the Spirit of France. She is also a representation of the ancient goddess Ishtar.)




(The American "goddess" Columbia. Image is the sole property of Columbia Pictures and company.)





As you can see, the practice of personifing forces of nature and even nation states is a very ancient practice. It should be plain then, that my comparison of countries to housewives is purely allegorical. For our purposes however, it is an appropriate one. Please bear with me.






(Obedient and utterly charming, the Japanese woman has a long history of defending her home with the edge of a sword. Don't sleep.)




Consider that Japanese foreign currency reserves are at record high levels:

TOKYO, Sept 7 (Reuters) - Japan's foreign reserves, the world's second largest, rose to a record $932.157 billion at the end of August as lower interest rates inflated the value of bonds held in the reserves, the Ministry of Finance said on Friday.

They were up from $923.718 billion at the end of July, rising for the third straight month and marking a record high for the second month in a row.

The reserves at the end of August included $785.602 billion in securities and $125.265 billion in deposits. The rest includes IMF reserve positions, special drawing rights and gold.

Japan's reserves, second only to those of China, ballooned after yen-selling intervention amounting to a record 20 trillion yen ($175 billion) in 2003 and a further 15 trillion yen in the first three months of 2004, as Tokyo tried to keep a rapid rise in the yen from derailing a then-fragile economic recovery and accelerating deflation.

Tokyo has kept out of the market since then, but the reserves have continued to grow steadily, partly on interest rate income.

The government does not disclose the currency breakdown of the external reserves. But historical data on Japan's currency intervention, which has mostly taken the form of dollar buying, suggests most of Tokyo's hefty reserves are in dollars.

Unlike some other countries which have been diversifying their forex reserves recently, Japan has been reluctant to significantly change the make-up of its reserves, fearing such action could disturb currency markets...

The two East Asian titans, Japan and China, hold the keys to our collective castle, literally.

If (or when) our financial weakness becomes a threat to their economic well-being, as I believe it will be, then they will have no choice but to dump our dollars and seek greener (and more stable) pastures. The Asian housewife, who holds all the powers of HELL at home, would demand nothing less.





(The Pride of China, my favorite Street Fighter, and the most popular embodiment of the female fighting spirit in the last 16 years. Underestimate her at your own peril.)


Turning to China, we can see that they are getting restless:

Is China quietly dumping US Treasuries?
By Ambrose Evans-Pritchard

A sharp drop in foreign holdings of US Treasury bonds over the last five weeks has raised concerns that China is quietly withdrawing its funds from the United States, leaving the dollar increasingly vulnerable.

China threatens `nuclear option' of dollar sales

Data released by the New York Federal Reserve shows that foreign central banks have cut their stash of US Treasuries by $48bn since late July, with falls of $32bn in the last two weeks alone.

"This comes as a big surprise and it is definitely worrying," said Hans Redeker, currency chief at BNP Paribas.

"We won't know if China is behind this until the Treasury releases its TIC data in November, but what it does show is that world central banks are in a hurry to get out of the US. They don't seem to be switching into other currencies, so it is possible they are moving into gold instead. Gold is now gaining momentum across all currencies and has broken through resistance at 500 euros," he said...

Hmm.

Speaking of precious metals, we should heed the wise words of Mr. Robert Kiyosaki, Asian Investing Guru Extraordinaire:

The sub prime mess is widespread, and it seems to be getting worse. It's certainly worse if you're about to lose your home.

The stock market is schizoid -- up one day and down the next. If you're a day trader, this volatility is pure heaven; if you're getting ready to retire, it's likely to give you a heart attack.

Big Deal

As for commercial real estate, it's a great market. I just bought a 350-unit apartment house in Tulsa with an assumable loan at a 4.9 percent interest rate. Rents are low, the oil business is creating jobs, and demand for apartments is high.

As with any market, the real estate business is terrible for some people and couldn't be better for others (like me).

But as much as I love real estate, I believe the biggest opportunity today is in silver. I think this precious metal is about to become the most spectacular investment in recent history -- bigger than oil, even bigger than Google...

... As a precious metal, silver is also money. And as the U.S. dollar drops, gold and silver are seen as a hedge against a loss of value. As more and more people wake up to the reality that their cash is trash, real estate is a gamble, and the stock market is too volatile, silver may be a great safe haven.

As I write, silver is approximately $13 an ounce. If industrial consumption continues and monetary panic sets in, who knows how high the price will go? Between 1979 and 1980, silver went to $48 an ounce. In today's dollars, that would be the same as $80 an ounce.

And recently, exchange traded funds in silver have been added as a way for investors to hold silver. The reason I find the silver ETF so intriguing is because an ETF represents real money -- not fake money like the U.S. dollar.

Fake money? The U.S. dollar?

Strong words friend, but utterly true. Mr. Kiyosaki, being of Japanese heritage, surely knows better than most about how strict the Asian housewife can be when it comes to managing money.

And, unfortunately for us, she is well aware of the hollowness of our dollar. And allowing her family to starve because of the foolish actions and lifestyles of others is absolutely unacceptable in her eyes.

Consider this story in the Asia Times:

... When risky assets are purchased wholesale, no one knows for sure how valuable these assets are and therefore how much loss the banks have to take.

In this environment, banks stopped trusting one another. LIBOR has jumped well past the circuit-breakers such as penal overnight borrowing that exist, because of this lack of trust. Even as the US Federal Reserve cut its discount rate to just 50 basis points over the target rate, banks found it difficult to convince one another of their stability and solvency.

That lack of confidence among banks has put paid to any central-bank efforts to hike rates, as required by looking at rising global economic growth and inflationary pressures. Instead, the Federal Reserve has signaled a willingness to cut rates this month, and the European Central Bank, which pre-announced a hike for September just last month, had to backtrack hastily this week and keep rates on hold. Even all of that flip-flopping has not helped in the interbank market, because LIBOR remains stubbornly high.

What to do

When trust breaks down across banks, investors have no option but to walk away from financial assets. This has already happened, as gold prices surged above $700 an ounce, and oil prices hit a new high for the year (US$77 a barrel). The preference for commodities is bothersome for central banks, as high input prices make the task of cutting interest rates (as demanded by banks) less defensible.

More important, central banks in the US and Europe have lost credibility with investors. They are no longer trying to prevent inflation, but appear more concerned with preserving the lot of bankers. This suggests greater value destruction for global investors, particularly for Asians investing in financial assets in Europe and North America.

Neither the US dollar nor the euro has any credibility in this situation, which means that the average Asian saver has no option but to purchase gold as a store of value. Even as US dollar bills proudly carry the motto "In God We Trust", I think it's time for Asians to put their trust in gold instead.

Note the repeated references to "trust" and "credibility."

I believe that last sentence says it all.

Our Asian housewife will ensure that her family is protected, the thoughts, feelings, and suffering of outsiders be damned. After all, it's not her fault that others were not as prudent as she, nor is it her responsibility to compell people in other lands to respect wealth generating institutions, such as marriage and family, that have proved their resilience, worthiness, and dependability over thousands of years of civilized history.

It simply can't be helped.

In essence,

While Market watchers should consider what the Fed, the financial press, and other professionals have to say about such matters, they should also be prudent and consider the viewpoints of others, such as the Asian housewives who, indirectly, control untold amounts of wealth, and ultimately, the destinies of nations.

Be Chinese, take heed, and make sure that you visit the precious metals site of your choice. I fear that the acquisition of commodities might be a very necessary hedge in our current environment, because the future is uncertain.

Kumogakure.