The Credit Virus Spreads Worldwide

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Mike Larson takes a closer look at how the credit virus has now spread throughout the world. In this issue of Money and Markets, Mr. Larson discusses many currencies that are recently on the decline due to the credit virus.

Mike Larson takes a closer look at how the credit virus has now spread throughout the world. Mr. Larson discusses many currencies that are recently on the decline due to the credit virus.

Back in 1997, a minor currency crisis in Thailand rattled a few regional market players. But the rest of the world ignored it, at first. They said it wouldn't matter to the U.S. and would be just a blip on the radar screen.

But soon the decline in Thailand's currency, the baht, accelerated. It went from a gentle slide to a full-scale rout. Before long, currencies in the Philippines, Indonesia, and South Korea began to fall out of bed. Then regional stock indices later crashed.

The U.S. Dow suffered what was then one of the largest point declines on record. And the International Monetary Fund was forced to step in and bail out several economies. It was a scary time. But compared to what is happening now, the 1997 crisis looks like a day at the beach. Right now, in the corners of the world as diverse as Iceland, Hungary, Argentina, India, and elsewhere currencies aren't just declining. They're crashing. Stock markets aren't just falling. They're collapsing. Foreign investors aren't just walking for the exits. They're running and trampling anyone in their paths.

Through research and observation Mr. Larson has concluded that the virulent credit virus has spread worldwide. And that could have serious implications for investors. In Hungary, the currency has been plunging for weeks on end as global investors pare risk and withdraw funds from higher-risk emerging markets. The forint recently traded at 214 against the dollar, a huge decline from the 143 level back in July. In other words, one U.S. dollar buys many more forints than it did a few months ago. That prompted a serious reaction from the Magyar Nemzeti Bank, Hungary's central bank just recently. It jacked up the nation's benchmark rate to 11.5% to defend the currency and stem the flight of capital.

Meanwhile, in Argentina, the country said it plans to seize $29 billion of private pension funds. This caused bond yields in the country to surge. The Merval stock index plunged 11% on Tuesday, October 21, then another 10% on Wednesday. It is down more than 55% on the year. The government last raided pension fund investments to service its debt in 2001. But it didn't help. Argentina then defaulted in a move that sent shockwaves throughout the global capital markets.

As for Iceland, the market has all but collapsed. The country's three biggest banks have been nationalized. Its currency has lost more than half its value in the past two years. It's being forced to pursue a multi-billion dollar bailout from its Scandinavian neighbors and the IMF. Its benchmark stock market gauge, the OMX ICEX 15 index, has plunged 89% year to date.

Even bigger countries, like India, are running into trouble. Overseas funds dumped a record $12 billion of Indian shares so far this year. Foreign exchange reserves have dwindled by $42 billion as the Indian rupee has imploded. It recently slumped from 39.20 against the dollar to 49.50, a record low. The bottom line is that the credit virus is now spreading its sickness to the four corners of the world.

Some experts have made a big deal about the recent improvement in certain domestic and developed market credit indicators. The gains stem from the Federal Reserve's and Treasury's largesse, as well as the banking bailouts being put into effect in continental Europe, the U.K. and Canada, among other places. But the improvements have been minor when compared to the hundreds of billions of dollars in aid that has been thrown at the markets. There are also disturbing signs that the aid isn't getting at the core of the problem, the housing market.

One indicator of ongoing weakness there: The latest Mortgage Bankers Association figures on home loan applications. The group's index, which tracks demand for home purchase and refinance loans, plunged 17% in the most recent week. The purchase application sub-index is now plumbing depths not seen since October 2001, a sign that housing demand remains anemic.

"All of these problems are now coming to the U.S. stock market. The Dow plunged 232 points on Tuesday, October 21 and another 514 points on Wednesday. Despite the bounce on the 23rd, it appears to be headed much lower over time. Understand this is a dangerous, treacherous economy and a market with many potholes, time bombs, and hazards ahead. You have to come at it with a clear head and a realistic approach," Larson states.

To read this issue online, please visit:

About Mike Larson and Money and Markets

Mike Larson joined the company in 2001, and has more than 10 years of experience researching and writing about personal finance, investing, and the housing and mortgage industry. In 2003, Mr. Larson was named associate editor of the company's monthly Safe Money Report. In this role, he is responsible for writing and editing as well as analyzing trading opportunities for clients. Mr. Larson is also a regular contributor to the company's daily e-letter, Money and Markets.

Before joining Weiss Research, Mr. Larson was a personal finance reporter for, where he wrote extensively on mortgage lending, banking, residential real estate, and Federal Reserve Board policy. His responsibilities included analyzing economic data and interest rate trends for a weekly column and developing rate forecasts for a regular index feature. Previously, Mr. Larson held positions at Bloomberg News and the Boston Herald.

Recognized as an interest rate and mortgage market expert, Mr. Larson's views have been quoted in the Washington Post, Chicago Tribune, Dow Jones Newswires, Reuters, Sun-Sentinel and the Palm Beach Post. He has also appeared as an investment expert to discuss the housing market on CNBC, CNN, and Bloomberg Television. His writing has been acknowledged by both the National Association of Real Estate Editors and the Massachusetts Press Association.

Among the first analysts to call the housing slide, Mr. Larson's new policy paper, "How Federal Regulators, Lenders and Wall Street Created America's Housing Crisis: Nine Proposals for a Long-Term Recovery" has received broad media coverage following its July 2007 submission to the Federal Reserve and FDIC. Mr. Larson holds B.A. and B.S. degrees from Boston University.

Money and Markets ( is a free daily investment newsletter from Dr. Martin Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Weiss Research, Inc. is located in Jupiter, Florida. For more information about our editors, or to set up an interview, please contact Jennifer Moran at 561-627-3300 or visit


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