Jul 22 2008
Sober thinking from Jim Rogers. What’s most worrisome is how entrenched mainstream thinking is in the two journalists doing the interviews. While some might suggest that these two are just financial talking heads, their objections are straight from the standard list of most apologists of the fractional reserve financial system and the current spate of bailouts to “save the system from even worse.”
What a racket.
Apr 17 2008
“I think we were really on the verge of a financial collapse of unbelievable proportions that we haven’t seen since the 1930’s.”
– Former U.S. Treasury Secretary Paul O’Neill describing the Bear Stearns bailout in an April 16, 2008 interview on Bloomberg
Read that quote again by Paul O’Neill – because, yep folks, that’s really where things stand. Our financial system effectively patched together by an inflationary, money printing band-aid. And, as the real estate markets in England, along with those in Spain, Ireland, et al. continue to melt down, we maintain our belief that the whole fiasco is far from over. (Our regular readers know we said the same when conventional pundits said the worst was over in 2007).
The interesting thing about economics is that people have been conditioned to believe in the charade that it is a mysterious, complex, science – and to be successful at understanding it, explaining it to the great unwashed, and at running large portfolios – one must be a superior mathematician educated at the most prestigious of universities. As we watch the same geniuses educated at said universities – some of whom had supposedly developed mathematical models which had eradicated risk – continue to drive hedge funds (and at least one major Wall Street brokerage firm) valued in the $ billions straight over the cliff – we say – “oh really?”
We instead choose to take Harry Truman’s quote — “There is nothing new in the world but the history you do not know” – to heart when we look at economics. History is in fact the study of human behavior – of what has worked, and what has failed. To ignore historical facts one must be either arrogant, a fool – or an arrogant fool. So, as Sir Alan Greenspan and his knights at the Fed Round Table repeatedly cut rates earlier this decade – we warned that the unfolding scenario looked a whole lot like Japan in the 1980’s and 90’s! A Stock market bubble, followed by a stock market crash – and subsequent economic pain. Then came massive interest rate cuts to supposedly “stimulate” – which instead caused a real estate bubble – followed by a real estate collapse, and a severe, prolonged recession.
Sound familiar?
What next? We see the bailouts continuing — simply because the alternative is the severe and necessary corrective pain to clean out the mess and get prices of all things back in line. And what politician, Wall Street banker, investor, or voter wants to deal with that reality? And bailouts spell inflation. Not the fudged low-ball inflation that’s used to calculate Social Security payment increases or “official” economic growth. We’re talking about real inflation. The rapidly rising kind you are seeing at the supermarket and the gas pump on a daily basis. As these inflationary bailouts continue – look for prices of all things tangible to increase dramatically.
Commodities bubble? We think not – because bubbles require excessive stockpiles/inventory/supply – and we don’t see that at all – in anything. And we see inflationary (money printing/bailout) policies accelerating.
Oil at $125 in the near future anyone? $5 Dollar gas at the end of the year? Food prices continuing through the roof? It would not surprise us at all.
Mar 26 2008
Regulators “are playing with fire,” said Allan Meltzer, a Fed historian and economics professor at Carnegie Mellon University in Pittsburgh. “With good luck, none of these liabilities will come due. We can’t expect that good luck, and we haven’t had it.”
– Bloomberg (March 26, 2008)
The reason you want solid collateral to secure a loan is obvious. You want to protect adequately against the borrower’s potential inability to pay you the loan back. How interesting that the Fed is taking 30 $ Billion of illiquid mortgage securities as collateral from otherwise insolvent Bear Stearns to bail the Wall Street firm out. As intriguing (alarming) — is the Treasury’s encouragement of Fannie Mae and Freddie Mac to buy more mortgage-backed bonds.
We ask — who in their right mind would lend out their own money backed by such risky collateral? Who today would buy mortgage backed bonds with their own money?
Ah, there lies the rub! It’s not their money which backs these shenanigans – it yours!
Mar 21 2008
We’ve continually warned about the bailout addicted U.S. Another voice of clarity and reason all along has been Bill Fleckenstein. As usual, he nails it in his latest commentary, “Catering to the Bailout Nation.” BTW, Bill’s recently released book Greenspan’s Bubbles: The Age of Ignorance at the Federal Reserve – is definitely worth a read! We wonder — has anyone ever been un-knighted? Can they do that?
Any reasonable person knows that bailouts beget more (and larger) bailouts. Like a drunk having another drink, it’s just going to make the hangover (and resulting inflation) even worse.
Also, ask yourself this one – why are big Wall Street banks getting bailed out (with taxpayer money) – when the 5 largest recently paid themselves 39 $Billion in bonuses?
Think long and hard about the answer to that one – because you are paying for it – in overt taxes, and the great hidden tax – accelerating real inflation.
Mar 18 2008
With today’s 75 basis point rate cut – we see continued evidence as to whom the Fed really serves. As we have long said, it’s not you and I – it’s the Big Wall Street Banks. The “Big Rip-Off” of your savings continues. Jon Markman gets right down to it…
Mar 17 2008
A list of articles worth perusing to grasp the depth of our problems:
Jan 22 2008
NEW YORK — Wall Street was expected to plunge at the opening of trading Tuesday, extending its huge losses from last week and taking more cues from heavy selling that has spread throughout the world. Indicators showed the Dow Jones industrial average was set to fall by more than 500 points when trading begins.Fears of a recession in the United States that could pull down the global economy as well have infected markets around the world, and those declines further unnerved U.S. investors who were unable to trade Monday, when Wall Street was closed for Martin Luther King Jr. Day. Meanwhile, U.S. bond prices soared as investors fled the stock market, and the price of oil skidded as investors dumped futures in the belief that a recession would slash demand for energy.
It looks like the markets are finally taking the credit crisis and recessionary risks seriously. It was as if a switch was flicked at the turn of the year, from “will there be a recession?”, to “Yikes! A recession! How long and how deep?”
Our answer? Deep. Long. And very liquid.
Continue Reading »
Dec 02 2007
In today’s New York Times, Ben Stein writes an article pointing out that Goldman Sachs has sold $ billions in Collateralized Mortgage Obligations (C.M.O.’s) — including during a period where current Treasury Secretary Hank Paulson led the firm. In his piece, Mr. Stein also mentions that while Goldman was selling C.M.O.’s – it was also shorting them through index sales.
We don’t agree with Mr. Stein’s belief that the Fed will be able to save the lending day with injections of liquidity – because (among other reasons) we believe the resulting inflation will be painful and destructive. Also, after raising the “Spock Eyebrow” over the nexus between Treasury and one major investment bank – perhaps he should cast the same discerning gaze towards the Fed and it’s true loyalties.
That said, his article certainly poses quite interesting and intelligent questions — which should make any rational person think long and hard. An interesting read, indeed!
Nov 20 2007
We’ve suggested for probably a year now that the U.S. is in recession for those at lower income levels who are feeling the real effects of rising prices and degrading job opportunities, and that a deeper recession for all was inevitable. Now, in recent weeks its grown more fashionable among analysts and pundits to suggest one is nearing despite assurances from Ben Bernanke and other policy makers that the economy is just kicking through a bump that won’t be too bad. Nonetheless, a scant few analysts are even joining us in predicting stagflation.
Yet, discussions of recession in the ivory tower of Wall Street and on finance and economy blogs is one thing. Perceptions on mainstreet are quite another. Official pronouncements of either recession or inflation are therefore managed meticulously by policy makers bandying around statistics simply because once consumers realize their feelings are confirmed, they will react accordingly. Continue Reading »
Nov 18 2007
A decline in foot traffic in U.S. stores lead the Starbucks’ stock down about the price of a cup of their coffee ($2.25) at the open of trading on Friday.
We won’t make too much out of this other than to question if the highly popular java joint might not be sharing the pains of consumers who are increasingly strapped for cash as the economy slows. Those on the margin are unquestionably cutting back, and with the mortgage, housing, and credit industries shedding jobs left and right, we can only imagine more than a few folks are cutting back on their weekly consumption of café lattés and mochachinos.
We’ll reserve judgment for now, but it wouldn’t surprise us if that’s a trend that’ll continue as consumers are finally forced to cut back on their profligate ways.
Nov 11 2007
Our long–term readers know we have continually cautioned about serious economic consequences to come. Not because we’re “doom and gloomers” – but because we feel the best way to take advantage of the truth – is to first acknowledge it. Our opinion has been that when these truths gain increasing acceptance – the full brunt of their effect will soon to be felt. While those in the mainstream conventional camp have long been in denial over unpleasant, troublesome, displeasing economic facts (i.e. the truth) – things are beginning to change.
In today’s New York Times, Bob Herbert writes an “on the money” op-ed titled, “Recession? What Recession?” In it he describes increasingly looming economic eventualities we have long warned about – and he does not sound optimistic – at all.
We feel the consequences of unhealthy, dysfunctional economic policies will, for the uninformed – and those in stubborn denial – have sadly devastating effects. One being their savings & purchasing power inflated into oblivion. However, for those who acknowledge the truth – and act appropriately — this is a time of incredible opportunity.
The window is closing. The boat is pulling away. There is still time. Are you prepared?
Nov 08 2007
You know, we’re continually amazed as we witness an extremely interesting phenomena. Really amazed. Turn on any evening financial television show and you’ll hear the pundits demagogue on how Treasury Secretary Paulson must defend the Dollar. Bemused, we ask –“with what?” Today, Mr. Paulson accused the Chinese of unfair competition for not letting their currency appreciate. He also intimated that letting the Yuan strengthen would help stave off protectionist sentiment in the U.S.
The Chinese must be shaking in their boots! A debt addicted, debt laden, cheap foreign import dependent U.S. — much of who’s debt is financed by and cheap goods imported from the very same Chinese, effectively threatens said Chinese with protectionism if they don’t let their currency strengthen further. What?!
Common sense tells any rational person that the Chinese hold all the cards – are playing them well – and evidently intend to continue doing so. The Chinese have sat back silently and watched us bleed money (which we’ve had to borrow) — in Iraq. Just yesterday, they announced they will likely follow supermodel Gisele Bundchen – and begin to divest themselves of the rapidly depreciating Dollars they are awash in. Will they buy Gold? Silver? Agriculture? Oil? Corporations? We think all of the above – and more. China dumping Dollars is bad for the U.S. Soon the world will follow – and a nation addicted to debt will have to raise interest rates to continue to borrow. The last thing any person, business, or country severely in debt wants is the cost of their debt service rising.
And if the Yuan does strengthen dramatically, the cost of Chinese imports will rise correspondingly. What do you think that will do to the price of goods at Wal-Mart, Target, et al? How will paycheck-to-paycheck mainstream America handle that? We think not well.
An ancient Chinese curse states, “May you live in interesting times.” Well this is going to be interesting.
Protect yourself accordingly.
Oct 18 2007
Nothing new or surprising here:
We expect that eventually Euro policy makers will worry about loss of exports and work to destroy the gained purchasing power of the Euro, thus inflating away the benefits to European citizens.
Meanwhile, despite official government stats that attempt to convince us otherwise, nearly half of Americans think the U.S. economy is in a recession according to a CNN-Opinion Research Poll. That continues to reaffirm the departure from reality we’ve noticed with many stats, such as CPI and GDP, which purport to explain real inflation and economic growth. We continue to believe that there is a dual economy in the U.S. Those at the high end of wages are doing quite nicely, whereas those on the lower end of the wage scale are having more and more trouble making ends meet with prices of commonly required goods rising far higher than the official CPI — reported at a modest 2.7%.
Some, such as econometrics pro, John Williams, argue that methods used to calculate these figures have been politicized and changed substantially from their more genuine former selves. Per Williams, were we to use older calculations for CPI and GDP, we’d see the numbers closer to 9-10% and -2.5% respectively. Those numbers would confirm the sentiments found in the CNN Research Poll and might even sync up with the abysmally low approval ratings of both Congress and the President.
Oct 05 2007
Well, we’ve warned about what’s now going down for a long time. The other shoe is dropping right through the floor — and it’s a Clodhopper!
Just this week we’ve learned from the National Association of Realtors that the number of Americans signing up to buy previously owned homes in August dropped 6.5 percent from July. Over the past year, pending home sales are down over 20%. We also learn from Moody’s that the most recently created (2007) sub-prime mortgage backed bonds contain loans growing delinquent at literally a record pace. But wait — the reckless, loose money caused fiasco is hardly contained to the U.S! Moody’s also reports that loan delinquencies in Spain could grow 15 times by the close of 2008!
We’ve said it before, and we’ll say it again. You can’t borrow your way to prosperity. There is a yin to every yang. What goes up must come down. Every action has an equivalent reaction.
As things become critical in an era where the “pundits” seem to make everything so illogically complicated — we encourage you to find consultants who believe they understand the basic laws of financial physics.
Sep 09 2007
“And you can kiss it Goodbye!”
— Former Pittsburgh Pirates broadcaster, Bob Prince
The legendary Bob Prince would utter that call, as Pittsburgh Pirates hitters of a bygone era would knock ‘em out of the ballpark. Today, you can say the same thing about your U.S. Dollar.
After the drubbing the markets took at the end of last week – things seem unlikely to get better. To be honest – odds are they will get a lot worse. The well-established housing slump continues its nosedive. Job losses seem poised to mount. President Bush has directed the FHA to guarantee loans for delinquent borrowers (a massive bailout). Foreign ownership of U.S. government debt is dropping. Nobody knows what time bombs tick regarding mortgage-backed securities, as massive amounts of adjustable mortgages begin to reset.
And — what we have long warned about – is in no uncertain terms, coming to pass. The Dollar is getting crushed.
The Fed – along with U.S. policymakers are stuck between a rock and a hard place. The lowering of interest rates to re-stimulate the credit based American economy would certainly have an inflationary effect. A bailout of mortgage borrowers & lenders (via money printing) would also. Not only would a further acceleration in price increases be the result of such policies – so would the continued degradation of the value of American savings. Even more disconcerting is the potential that foreign lending to debt addicted America would continue to dry up at an extremely quick pace. (Why get paid back down the road with far more worthless Dollars)? Like all bad creditors – the U.S. may soon be required to pay a higher cost (interest rates) to continue borrowing. And that is never good for the bottom line.
So – will U.S. policy makers swallow the necessary bitter medicine? Will they let more hedge funds sink? Will they not bail out Wall Street. Will they let homeowners who got themselves into ridiculous, unrealistic mortgages either tighten their belts and cut spending in other areas – or become renters again? Will they let home values sink to more realistic levels? Will they watch the cleansing effects of a recession (caused by the artificial bubbles they created) take its course? Will they let the Dollar fundamentally strengthen?
Or will they try to take the easy, short-term solution way out – by greasing the wheels via the easing of credit and printing of money?
We predict the latter. But they are running out of rope.
Kiss that Dollar Goodbye!
