Here's part of an article from Prudent Bear. No matter what you think
of that fund, these are the facts. As I've said elsewhere, NASDAQ and
NYSE Margin requirements are now down to 25%. Gas on the fire!!
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And look at derivatives. Somehow, Greenspan long ago joined Wall
Street as a proponent
of derivatives as instruments for reducing risk. As a
result, never before have there been 40
million of open stock option contracts at the Chicago
Board Options Exchange, having
almost doubled in 4 months. Certainly, this explosion
of option positions is related to
speculating and not risk management. Never before have
there been $100 trillion in
outstanding derivative positions. Never before have US
banking system portfolios had $28
trillion of interest rate derivatives, having almost
doubled in two years. Never before has the
largest US bank with total assets of $380 billion and
shareholders equity of $23 billion had
almost $13 trillion of derivative positions, never.
Never before have 3 quasi-governmental
institutions increased their lending by more than $500
billion in 21 months. These institutions
now have total assets of about $1.5 trillion supported
by about $600 billion of short-term
debt and equity of about $51 billion. Never have the
four largest US brokerage firms had
assets of $1.1 trillion supported by equity of $47
billion. Never before have there been
about $400 billion in assets in the hedge fund
community utilizing huge leverage. Never
before has there been a financial system as leveraged
and rife with speculation as the one
that exists today.
For households, mortgage debt has increased by more
than 20% in just the past two years.
Total mortgage debt has increased by almost $1
trillion. And if households are running to
borrow, corporations are sprinting. Total corporate
debt has increased almost $900 billion,
or 26% during the past two years. And throughout the
over-zealous financial sector, the
greatest credit expansion in history. During the past
24 months, the financial sector has
increased borrowings by $2 trillion, or more than 40%.
Yet this patently excessive credit
growth is disregarded. Instead of sound analysis, the
current fad is to hype the new era
and celebrate new paradigms.
But the fact of the matter remains that the same
dynamics that have for more than a decade
fostered ugly booms and busts around the globe are now
planted firmly here at home. And
with the credit system unrelentingly out of control,
egregious speculation and endemic credit
excesses combine to covertly malign the real economy.
And post boom, this is where the
damage will prove the most difficult to overcome.
Never before has an economy so gutted
its productive capacity while, at the same time,
accumulating a mountain of foreign debts.
Never before has the structure of the US economy been
more dependent on imports to
support its standard of living, while at the same time
less capable of producing tradable
goods. Never before has it been so apparent that the
present course is unsustainable,
while, ironically, never before have so many been so
convinced that the financial and
economic booms will last forever. This is as tragic as
it is unbelievable. So many lessons
were not learned; so many warnings blindly ignored.
-- Gregg (g.abbott@starting-point.com), December 17, 1999.