Archive for September, 2008

Worry laundry list

Monday, September 29th, 2008

Here’s a sobering detail: For the last 15 years, the U.S. money supply has grown about twice as fast as GDP. Federal government liabilities, meanwhile, have grown three times as fast. It now has more financial obligations than assets. It is, effectively, broke.

Really, I hate having to deal with this much angst in the marketplace first thing on a Monday. It ruins the joy strong coffee and rude internet humor. Here are the items we’re concerned about (in no particular order):

1. One or more major hedge funds collapsing

2. The Paulson Plan passing in its present form (we’re not keen on a benevolent dictatorship via the Treasury Sec)

3. One or multiple bank failures that precipitate the bankruptcy of the FDIC

4. Commercial real estate experiencing the same level of “haircut” that the residential sector is undergoing.

5. Implosion of the $2.4 trillion consumer credit card industry

6. Implosion of one or more major state pension funds

7. The Paulson Bailout ‘inadvertedly’ allowing a confiscation of the US Treasury bills from the Social Security trust fund to satisfy bailout payments to banks.

8. Draconian measures meted out on individuals as a result of the above scenarios (debt peonage, forced relocations, termination of Social Security, Medicare and other social services)

9. Delaying the reality factor that the full bailout cost will be around $5 trillion or so, which will actually enlarge and prolong the losses upwards of $7 trillion.

10. Other non-productive activities designed to distract the populace from the financial issues (war with Iran, Russia, Cookie Monster, etc. , any other conveniently timed ‘terrorist activities’, or domestic detonation of nukes).

11. Failure to have an election or failure to transition to the newly elected president

12. Massive hyperinflation due to printing several trillion dollars without any corresponding value to back up that money. Or massive inflation from a run to redeem dollars from our foreign creditors before they devalue any further.

13. Massive shortages stemming from halted goods imports from foreign creditors no longer willing to accept devalued dollars (or from pricing shooting skyward from devaluation).

14. Cutoff in funding our debts from our existing creditors.

Yeek. If I go any further it gets all X-Files. Did I miss anything? Let us know.

Day of Reckoning

Sunday, September 28th, 2008

Full story here.

“How did the United States of America, the richest nation on earth, whose economy represents 30 percent of the Global Economy, arrive at the precipice of a financial panic and collapse?

The answer lies in the abject failure of both America’s financial elite and the political elite of both parties â?? the same elites now working together to determine how much of our wealth will be needed to bail the nation out of the crisis of their own creation. (more…)

Weekly Commentary Sept 29 through Oct 3

Friday, September 26th, 2008

This Friday we saw traders hold Wall Street ransom for their bailout out from Congress. When it looked like no deal was going to be done, the Market was down over 200 points. In the afternoon when it was announced that a deal was probably forthcoming, the Market closed up 120 points. Bankers basically told Washington…my way or the highway.
This week we saw Republican Congress men and women stop the heads of their own party, Bush and Paulson. We saw the GOP implode, arguing and bickering among themselves. The GOP normally always presents an undivided front. It is generally the Democrats that seem undivided. But not this week. GOP members were sneering at each other, all saying me me me me. (more…)

Too Big to Bail

Friday, September 26th, 2008

Full story here.

 ”In listening to the myriad of U.S. lawmakers this past week, it’s pretty clear to see that panic has officially set inâ?¦and it ain’t budging. But with all these meddlers and world-improvers about, we’re convinced it’s only going to get worse. Bill Bonner explainsâ?¦

TOO BIG TO BAIL
by Bill Bonner

“Bankruptcy of Neo-Capitalism,” shouted a headline in Wednesday’s Paris press. Scarcely since Hitler blew his brains out has the type been bigger or the contentment broader.  (more…)

Bailing out Wall St won’t save Main St.

Friday, September 26th, 2008

Full story here.

“Wall Street must be saved for the sake of Main Street, Secretary Paulson and Chairman Bernanke tell us. First, everyone has toxic financial instruments in their 401k’s; and second, these instruments are clogging the credit system. But in fact neither claim is true.  (more…)

Plop, plop, fizz, fizz

Friday, September 26th, 2008

Words fail me this week. We haven’t posted as much since the sheer magnitude of the madness and stupidity in finance and politics tested our credulity rather heavily. We were cheered up when we heard that people were seen taking to the streets to protest the ill-conceived “bailout” of the greedy and stupid bankers (Or is it gangsters? Perhaps they are synonyms at this point). Since the dollar, now like Blanche DuBois, relies upon the kindness of strangers, I’m surprised that none of our officials has decided to go make nice with the rest of the world. It was enough to make me hum the old Alkaseltzer jingle (“Plop, plop, fizz, fizz, oh what a relief it is”). But no relief for the average American, who would in fact be doubly saddled with more debt, and the near-certainty of that debt being at a higher interest rate.  I wonder aloud how someone can propose become undisputed ruler who controls all the money (read that provision in the bailout that the Treas Sec is not up for legal review and does not have to abide by contract law) and not be called out as treasonous or arrested. This makes the Enron and WorldCom scandals pale in comparison.

Of course, we’re not over this stupidity yet. Nouriel Roubini has a mouthful to say on this topic. Washington Mutual did fail this week, not surprising but still disturbing all the same. Prior predictions of a major bank and a major brokerage (WaMu, Lehman Bros) have come true. Man, hasn’t JPMorgan had a bang up year? First they get Bear Stearns for a song, now WaMu. They’re now the 2nd largest bank in America. Unfortunately, it’s still a long way til the end of the year. Next will be some hedge fund failures, even some larger funds may go away. I’ll throw it out there as a “maybe”: Bank Of America goes under or gets nationalized in the next 6-12 months. I’ve got no money on this long or short, I’m not privy to any insider data, I just see that they have a mountain of problems. And now the convention of “too big to fail” has turned into a guarantee of failure, since BofA is the biggest bank, let’s see if they do a spectacular belly flop into the pools of insolvency. Marc Faber, whose book “Tomorrow’s Gold” totally changed my viewpoint as a trader, also has a lot to say, the distilled version is that the real bailout would need to be about $5 trillion. The existing bailout is only 1/7 of the correct estimation of effort. If you or I approached a problem that way, of course it would fail.

We are indeed living in “interesting times”, as the Chinese curse states. Of course as a solution, we encourage you to trade with ShadowTraders, make money, get out of debt, don’t leave your cash in dubious institutions. Do us a favor this week: unplug the TV, do a family meeting and get your big goals in order. The usual operating basis no longer applies! Act like it and get moving.

China’s dollar millstone

Friday, September 26th, 2008

Full story here. Another piece from one of my favorites, Henry CK Liu. Sometimes we need to know history in order to understand the present. Plus, this is a nice break from the constant stream of financial disasters that are happening on a daily basis. China has an interesting dilemma in that it’s taken a big bunch of monopoly money (a/k/a dollars) and now its purchase power is diminishing.

“Over the course of the 19th century, enough gold was known to have been accumulated by Britain to make it credible for the British Treasury to introduce paper currency backed by its gold to force the demonetization of silver in Europe to advance British monetary imperialism.

Many historians inaccurately ascribe to 19th century mercantilism as the policy of accumulating gold for a country through export of merchandise. The fact is that gold accumulation can only be achieved by a purposeful policy of monetary imperialism. Mercantilism under bimetallism gave a trade surplus country both silver and gold. Only monetary imperialism could cause an inflow of gold with an outflow of silver. (more…)

Morgan,Goldman seek deposits; Banks are “Lunch”

Tuesday, September 23rd, 2008

Full story here. Yeek! When the mainstream media gets this frank, you’d better pay attention.

“Morgan Stanley and Goldman Sachs Group Inc., the two largest remaining independent U.S. securities firms, may add to the $81 billion of financial services deals unveiled during the past week as they morph into banks.

Morgan Stanley plans to sell as much as a 20 percent stake for $8.4 billion to Mitsubishi UFJ Financial Group Inc., Japan’s largest bank, to shore up capital. Goldman Sachs said that its new status as a bank will help it purchase assets.  (more…)

Paulson plan throws oil on the fire

Tuesday, September 23rd, 2008

Full story here.

“With the creation of the so called Mortgage and Financial Institutions Trust (MFI), the unfolding financial crisis, considered by many to be the worst in over 60 years, has become ever-more dangerous.

While such an institution has not existed in any country, the MFI could prove to be disastrous for US public finance, economic growth, the dollar, relations with major foreign holders of dollars, the global financial system, and could ignite the worst inflation in the economic history of the United States and reverse globalization to levels not seen since the Great Depression.

The initial cost of the MFI, put at US$700 billion, could easily escalate to trillions of dollars. At the same time, the Congressional Budget Office had previously projected a record fiscal deficit of US$500 billion for 2009. The MFI will further blow up the deficit to an unprecedented level, exceeding US$1.4 trillion. US debt, jumping with the takeover of Fannie Mae and Freddie Mac to 86% of GDP, has moved to an unsustainable level. (more…)

Bank cure worse than the crisis?

Monday, September 22nd, 2008

Full story here. This, my friends, is some heavy stuff happening here. We are concerned that those who have (but don’t own a congressman or a lobbyist) will be parted from their money in due time. Then the debtors will be parted from their possessions if they fail to pay usurious interest rates. If you don’t like that scenario, we’d suggest you get trading with ShadowTraders, and make sure your money is accessible to you. No sense waking up to a broken ATM card.

“Saturdayâ??s $700 billion junk mortgage bailout is the largest and worst giveaway since a corrupt Congress gave land grants to the railroad barons a century and a half ago. If it goes through, it will shape the coming century by giving finance unprecedented power over debtors â?? homebuyers, industry, state and local government, and the federal government as well. (more…)