The Triple Crisis Strikes Harder
by Martin D. Weiss, Ph.D.
Dear ________,
Martin D. Weiss, Ph.D.
Last week, I warned you about the unique and unprecedented convergence of three crises in one time and place — a severe U.S. recession, surging inflation, and close encounters with a Wall Street meltdown.
Now, just seven days later, news on each of these crises has burst onto the scene with gale force, wiping away the last vestiges of sugar-coating by Pollyanna analysts ... creating the conditions for a bond market disaster ... and driving the U.S. stock market into a tailspin:
* Deepening the U.S. recession, vehicle sales are expected to plunge to 15-year lows. Dealer lots are overflowing with gas-guzzling trucks and SUVs. But they can't get their hands on enough fuel-efficient cars, limiting sales in the most popular models. Another warning sign: S&P has just put GM, Ford and Chrysler on "credit watch negative." End result: Don't be surprised if one of the Big Three — Ford, GM or Chrysler — is soon forced to file for bankruptcy.
* Bankruptcy has already struck over 20 airlines worldwide, with many more on the way. In the U.S alone, the top 10 U.S. airlines are expected to post pre-tax losses of nearly $18 billion this year and next. At the same time ...
* U.S. inflation is surging. In May, producer prices jumped 7.2% compared to a year earlier; import prices catapulted 17.8%, the biggest rise ever recorded; and even the so-called "core" producer prices (excluding food and energy) rose at the fastest pace since 1991! Adding to this explosive mix ...
* The bond insurance disaster I've been writing about for many months has finally struck: In one fell swoop, Moody's has downgraded MBIA's ratings by five notches and Ambac's by three. In turn, this is threatening the finances of hundreds of thousands of states and local governments that are covered by these two giants of the industry.
The entire bond insurance system — whereby issuers of municipal bonds and mortgage bonds could effectively "buy" a higher rating simply by taking out some insurance — has always been questionable. Now it's a house of cards, and it's crumbling. Result: Another wave of bank losses and write-downs that could exceed the losses from the housing and mortgage crisis.
* All of this is bound to drive most U.S. stock sectors — especially financial stocks — into the gutter. Already, the benchmark banking sector index (BKX) is about to bust below the low set in 2003, during the depths of the last bear market. Expect the same for other sectors as well.
by Martin D. Weiss, Ph.D.
Dear ________,
Martin D. Weiss, Ph.D.
Last week, I warned you about the unique and unprecedented convergence of three crises in one time and place — a severe U.S. recession, surging inflation, and close encounters with a Wall Street meltdown.
Now, just seven days later, news on each of these crises has burst onto the scene with gale force, wiping away the last vestiges of sugar-coating by Pollyanna analysts ... creating the conditions for a bond market disaster ... and driving the U.S. stock market into a tailspin:
* Deepening the U.S. recession, vehicle sales are expected to plunge to 15-year lows. Dealer lots are overflowing with gas-guzzling trucks and SUVs. But they can't get their hands on enough fuel-efficient cars, limiting sales in the most popular models. Another warning sign: S&P has just put GM, Ford and Chrysler on "credit watch negative." End result: Don't be surprised if one of the Big Three — Ford, GM or Chrysler — is soon forced to file for bankruptcy.
* Bankruptcy has already struck over 20 airlines worldwide, with many more on the way. In the U.S alone, the top 10 U.S. airlines are expected to post pre-tax losses of nearly $18 billion this year and next. At the same time ...
* U.S. inflation is surging. In May, producer prices jumped 7.2% compared to a year earlier; import prices catapulted 17.8%, the biggest rise ever recorded; and even the so-called "core" producer prices (excluding food and energy) rose at the fastest pace since 1991! Adding to this explosive mix ...
* The bond insurance disaster I've been writing about for many months has finally struck: In one fell swoop, Moody's has downgraded MBIA's ratings by five notches and Ambac's by three. In turn, this is threatening the finances of hundreds of thousands of states and local governments that are covered by these two giants of the industry.
The entire bond insurance system — whereby issuers of municipal bonds and mortgage bonds could effectively "buy" a higher rating simply by taking out some insurance — has always been questionable. Now it's a house of cards, and it's crumbling. Result: Another wave of bank losses and write-downs that could exceed the losses from the housing and mortgage crisis.
* All of this is bound to drive most U.S. stock sectors — especially financial stocks — into the gutter. Already, the benchmark banking sector index (BKX) is about to bust below the low set in 2003, during the depths of the last bear market. Expect the same for other sectors as well.
