Business-Insider

If you happened to read my "Close To The Bottom" article from Sunday let me give you an update on that by telling you that my opinion there was completely wrong. The facts are that descent has not even really begun.

If you want to accuse me of flip-flopping a bit here that's your prerogative, but the idea for me is to get things right. Besides, my Bearishness has been evidenced here since last summer so I hope that allowing me one day of being wrong is not too much to ask of you. Be that as it may, I welcome your comments as always and I thank everyone who reads my posts. Let's get to it.

A deeper perusal into the Citigroup data is what's got me back into a bear-like hibernation as far as any type of equity investment goes, because when I looked at it the hairs on the back of my neck stood up and a wave of fear stabbed me in the gut. What Citi had to do (and what every lender will be doing) and the implications for the U.S. consumer-led global economy will tend to do that to you.

The shock in the Citigroup report was the big jump in credit costs to $5.4B which included a charge of $3.31B to increase US consumer loan loss reserves. The provision is up from just $127M a year ago, a 2500% increase!

And it's not just Citigroup. Have a look at American Express (higher-end consumers) and Capital One. They're taking losses on their on their consumer portfolios and making higher loan loss provisions as well.

The problems go beyond first mortgages. Sub prime is so 2007. The new thing will be the disaster that's about to befall second mortgages, unsecured personal loans, credit cards and auto loans as the sub prime contagion spreads to those areas in 2008. The increase in reserves clearly indicates that Citi believes the health of the U.S. consumer is likely to get far worse going forward as the U.S. and thereby the global economy heads into a downturn that could possibly be more deep and dark then you want to be thinking about. The only thing is that we all better start thinking about and preparing for this now and I mean right now.

Grab some popcorn, because you are about to see a movie called Night Of The Living Dead Economy, aka Dead Economy Walking. Only this ain't no movie-it's real, it's here and I for one am not going to get caught in this theater after they lock the doors.

We are talking about a U.S. consumer led global recession that no economy will escape. Perhaps some economies won't fall as far, but they will all be affected. Decoupling is dead as a concept-it's all about Re-Coupling (RE: Nouriel Roubini) and that includes the export-driven emerging markets-Brazil, Russia, India and China (BRIC's).

Yes, I'm yelling Fire! and you know what? There's no 911 to call and put it out before a massive amount of damage can be done. Forget rate cuts and forget fiscal stimulus. The economy is about to get it with Hurricane Katrina and the San Diego Fire at the same time. That's what the effects of a massive slowdown and contraction in consumer spending will have on the economy as a whole.

There is nothing that is going to prevent this U.S. consumer spending-led recession from occurring and spreading into a global disaster, much as those natural disasters couldn't be stopped from spreading their destruction. They can be fought and this will be too, but just as when a natural disaster strikes the only thing that can really be done is to fight the good fight and prepare for the damage to come because when this disaster has passed, the economy is going to look like New Orleans and San Diego rolled into one.

In this type of situation the best thing to do may be to buy, in no particular order, Gold, a Safe and some Concrete. Take the Gold and put it in the Safe. Then go into your backyard and dig a nice deep hole. Reinforce the hole with the Concrete. Place the Safe (with the Gold already inside it) into the Concrete-reinforced hole and cover it up.

As a currency trader, the pairs to trade are the carry trade pairs-GBP/JPY, EUR/JPY etc because when equities go down, carry trade pairs follow. But you still need to work the charts to get a good price.

Thanks for reading my post(s) and please use the box to vote. If you'd like to try trading this with me, you can join my room for just ten bucks a week (with no commitment). Join on my blog: thenewstraderfx.blogspot.com

Contact newstraderfx@yahoo.com with any questions
__________________

Blogged with Flock