RED ALERT: FX Dislocation In Process

Market Ticker ^ | 2-16-2009 | Karl Denninger

[dangermouse]

8:17 CT

I do not know what is going on here, and I don't think I want to.

Someone, apparently someone in Asia, wants dollars. A LOT of dollars. There is a forced-liquidation event underway that is massive, it is against all asset classes and it is spreading.

It originated at approximately 7:15 CT this evening and originated out of Asia somewhere. All of the primary currency crosses got hit at once - Euro, Pound, Yen - all weakened dramatically against the dollar and it is still going on. The Asian stock markets got walloped at the same time in coordinated waves of forced selling.

At the same time the US futures markets got nailed as well, down some six handles on the /ES in a near-vertical drop. While this sounds "not that big" to move these markets in a coordinated fashion like this is a trillion-dollar enterprise - this is not some small company that went bankrupt, or even a large company.

There is no news coverage at the present time identifying the source of this but it is not small and contrary to some reports it is not "automatic selling"; this is forced liquidation.

Folks, if this translates into Eastern Europe where there are severe instabilities already brewing literally everything in the financial world could come apart "all at once."

The worse news is that if this happens Bernanke will have killed us (in the US) by extending those swap lines all over the planet during the last six months. These will become utterly uncollectable and they are massive, in the many hundreds of billions of dollars.

To those who are reading this, I hope if you're in the markets you are prepared for extreme levels of violence. You must expect that the authorities will try to arrest the destruction if they are able, but you must also be prepared for the possibility that we have reached a "critical mass" point beyond which "duck and cover" is the only winning strategy.

Unfortunately.

I hope I'm wrong; this is going to be a long night.

[Quix]

Thanks.

Rush just talking about Carter’s Brezenski predicting riots if there isn’t a national

SOLIDARITY FUND for the poor or some such.

Sounds to me like they are

seeding the thoughts . . . a la Neuro-Linguistic Programming . . . to riot . . . so they can bring on the gestapo.

[autumnraine]

They are definitely planting the seed for rioting. And Obama already signed the Civilian Security Force Executive Order to “restore order”.

[Rushmore Rocks]

Riots..............

I guess when you rob Peter to pay Paul, you get a sore Peter.

[BP2]

As I was watching the world market unwind in Asia early, early this morning on Bloomberg, and then the European markets, it seems as if rats were jumping off a sinking ship. All the commentators were noting how the overseas markets REALLY do not like Obama's financial plans or have faith in the people he's putting in senior key position in the Administration dealing with finances.

$8 Billion is a drop in the bucket really (see stories below), but it depends on how the fraud it interlaced with Credit Default Swaps or other shady dealings. It may be the tip of the iceberg:

U.S. agents enter Stanford Financial Houston office
http://www.reuters.com/articlePrint?articleId=USN1736672620090217
Tue Feb 17, 2009 12:59pm EST

By Anna Driver

HOUSTON - Federal agents entered the Houston office of Stanford Financial Group on Tuesday, according to a Reuters eyewitness on the scene.

About 15 people, some wearing jackets identifying them as U.S. marshals, entered the lobby of Stanford's office in the Houston Galleria area, the eyewitness said.

Houston-based Stanford Financial Group, which says it oversees more than $50 billion of assets, is being investigated by U.S. regulators, according to a person familiar with the matter.

The New York Times reported that U.S. securities regulators had accused three top Stanford executives, including Robert Allen Stanford, of fraud.

The Houston office of the U.S. Marshals Service had no immediate comment. A Stanford spokesman was not immediately available to comment.

(Reporting by Anna Driver; editing by John Wallace)

Related stories here:
U.S. Accuses Texas Financial Firm of $8 Billion Fraud
http://www.nytimes.com/2009/02/18/business/18stanford.html?_r=1

and here:
Stanford Financial Gets More Scrutiny
http://online.wsj.com/article/SB123457038088986331.html

[BP2]

I use the LIBOR as the standard to tell me what's going on in the global market:

To me, the 6-MONTH RANGE looks relatively stable. Money is still being lent to the banks and at a consistent interest rate, although I know large institutional borrowers are getting a body cavity search from the underwriters.

When the LIBOR goes up, like it did in early October, THAT'S when the BIG lenders that have been around for CENTURIES think that the risk is too high to loan money to the banks and for commercial investments and the set a higher lending rate. Now that the prime lending rate is near ZERO in the US and the UK, the LIBOR is obviously affected.

There IS also a tipping point, especially when the money ISN'T flowing that even the LIBOR will drop lower because they can't find enough large institutions to loan money to (supply and demand).

For now though, the LIBOR seems stable, when looking at the 6-MONTH RANGE. But if the large dominoes start to fall, watch the LIBOR rise sharply.

NOW, ALL OF THAT SAID... NOTE THE ONE-MONTH LIBOR RANGE (just after Inauguration Day):

[autumnraine]

So that’s a bad thing, right?

[Quix]

Therefore your summary about all this would be?

And your advice for someone likely moving to Asia?

[Old Professer]

Can you translate the above?

[BP2]

The second graph confirms what I heard from the overseas financial reporters at 2 am... they don’t trust Obama’s financial policies to stop a continued downward spiral.

[BrerLion]

you get a sore Peter.

I'll pretend I didn't see that, and not comment. /juvenile snicker

[azishot]

... they don’t trust Obama’s financial policies to stop a continued downward spiral.

***How much longer can this last? The whole country has been in a downward spiral since his creepy little head first popped up.

One, just one of these lawsuits has to be heard. Thanks for your hard work and for keeping us informed.

[penelopesire]

Thanks for the ping and the info. Anyone that has faith in ZERO needs their head examined. The man looks like he is on a mission to destroy this country. I just turned 50 last month and have never feared for my country in all of those 50 years the way I do right now.

[luv2ski]

One, just one of these lawsuits has to be heard.

There is absolutely NO WAY that even the SCOTUS is going to take BHO out of office now. Even if it were made clear that he does not actually qualify per his citizenship, they would not remove him. He has been inaugurated. There is no way. Can you imagine the howls of partisanship? The 2000 election would be a hiccup in comparison. Plus the blacks would riot big time. Seriously.

[familyop]

I don’t know that there was any particularly orchestrated mass sell, but there was a coordinated attempt from market opinion column writers to instigate fear and selling through hyberbole. They managed to get the USD up a cent or two here and there for the time being with their rhetorical Viagra.

[familyop]

"I wonder if this is when they propose a new Global currency and ram it down our throats?"

There is such a plan, but that's only a contingency against a US default, should that become more eminent and near. In that scenario, the USA would, in essence, only be paying about 10% of the values of loans back to investors--including foreign investors.

[little jeremiah]

Thanks for your defeatism. /sarc

[Danae]

Ugh.

I am afraid that is exactly whats gonna happen.

[nyconse]

We export almost nothing these days thanks to stupid trade laws which have destroyed this country.

[okie01]

We export almost nothing these days thanks to stupid trade laws which have destroyed this country.

How is it that "almost nothing" adds up to almost $2 trillion...

[rb22982]

Best I can tell it’s just a hedge in case the Fed/Gov’t does something stupid and causes the US T market to dislocate. It’s about the only commodity that hasn’t tanked in the last 6 months although it was down 30% at one time. It may break out again....