Archive for September 26th, 2008

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…)