Category Archives: News

A potential future?

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I’ve had this nagging in the back of my head saying something foul might be looming out in the near future.  Normally I don’t watch Bush on TV or listen to him on the radio as I can’t stand it.  That aside I watched and listened to his speech today.  It sounded good… all this talk about suporting the free markets and free trade… mind you we have neither.  It felt like a pep talk to make everyone feel warm and fuzzy inside when the exact opposite was going on behind the curtain.

He mentioned revamping the current financial systems and having a organization oversee markets.  Without saying it he was essentially saying yeah free markets are great in theory, but this was all caused by free markets.  Therefore we are going to create more bureaucracy in the name of the free market to prevent a future failure.

Last time I checked business come and go, the economy goes up and down, and that is okay.

So what is this potential future I speak of?  …>

The election is over yet the transfer of power hasn’t occurred.  What could happen to delay the transfer? A major crisis of sorts would do just that. Why isn’t Obama going to the G20 meeting? Why is he so reluctant to play a larger role during the transition?

Did anyone notice how Bush was almost smirking when he was talking about the wealth destruction that has occurred in people’s retirement accounts. I had this sinking feeling that he was telling someone that it is time to initiate plan X (whatever that may be).  He said GLOBAL MELTDOWN in a very strange way.  He said it a couple times with an emphasis and as though it was a joke.  It really seemed as though he was telling someone something.

To create the larger oversight organizations on an international scale there will have to be a crisis of much larger magnitude than at present. People will have to be in full panic mode and asking to be saved. Once people are in that frame of mind the government will be able to usurp all the power they want. Best of all they won’t have to take it because the people are freely giving it to them.

What might cause such a ripple….
War: Iran, Russia, Pakistan…
Financial Crisis:
Domestic Riots:
Terrorist Attack:

These are a few and there exist others. Hopefully none of this will transpire, but I find it difficult to believe that our present financial panic is the last in a string of events that began with 911. From this perspective I think it prudent to see it as a real possibility if minimal, but possible. Really no different from preparing for an earthquake, hurricane, or tornado.

Lastly, war is generally considered the acceptable means to get out of a financial crisis.

Look both ways before crossing the street

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I received an email from a friend and here is my response.  You ought to be able to decipher what the questions were about.  These are my opinions of the present situation, and are by no means recommendations.  

—-
1) Voting for McCain…

I really don’t think voting for A or B is going to matter.  I’m voting for Ron Paul because I believe that change has to come from going against the herd.  I refuse to be partially responsible for either of them being in office.

The odds are in favor of the democrats getting into office and taking over Congress.  I’m actually a bit frightened by this, but either situation is grim. Hopefully it will be better than the last 8 years.

2) Deflation / Inflation
This is tricky and something I’ve been trying to better understand.  There are many many many factors at work here.  We are headed into a MAJOR recession… thus your cutting spending was a wonderful idea.  A recession is a drag on the stock market.  Many think that after a brief rally it is going to drop much further.  I know you are invested at the moment.  One way to hedge against a drop is to invest in a inverse ETF fund such as SDS, QID, DXD, or TWM (these are leveraged 2x FYI).  These ETFs have saved me much pain.  The overall trend in the market is down.  Bear market rallies tend to be severe and swift to the upside, while the markets overall continue to decline.

As for Deflation and Inflation what this means is a decrease or increase in the money supply.  Generally during inflation when the Fed is creating money prices of everything goes up because there is a surplus of money that has to go somewhere.  When the money supply contracts either by the Fed reducing the money supply or debt is paid off.  Then prices decrease.  However, under a fiat monetary system credit and continued inflation are essential to keep it up.  At the moment with the Fed creating TONS of money we are looking at the potential for hyperinflation in the future, which nobody wants.  So, the Fed is walking a tightrope between deflation and inflation.  I imagine they will lean towards inflation over deflation ultimately.  At the moment we are primarily seeing deflation as prices are coming down everywhere (commodities, housing, stocks).

During deflation the market will come down as will all prices.  I think that regardless the markets will continue their descent due to the upcoming recession, decrease in consumer spending, decrease in imports and exports, and increase in unemployment.  Once the recession takes hold and the effects of the monetary inflation occurring now start to be felt we will probably start to see increases in commodity prices across the board.b  With companies facing difficult times I don’t foresee the created money moving into equity markets.

3) War with Iran
The conflict between Iran and Israel is heating up.  I received a report that said Israel won’t be doing anything until after the election, but who knows.  In this case we would see the value of gold skyrocket, oil go through the roof, and the dollar go through the floor.  This is slowly moving from a remote to more plausible reality.  I hope this doesn’t happen as the US can’t afford to be involved in another conflict.  We are already spread so thin.  Because of this and the enormous debt load the US government (its citizens) now carries I fear for the support and longevity of the dollar.  At this point I think it important to own some gold and have some money invested in foreign currencies.  <Thank you Gary North and Chris Martenson>  These are for the long-term and may lose significantly in the short term.  There are many uncertainties at the moment.

Oh and least I forget… At this juncture in the Republicans and Democrats are but different sides of the same coin.

Black Monday 2008?

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Black Monday?

Really bad news, and I’m going to the store to get some consumer staples, and cash. If the banking system collapses then cash may not be good for anything. I don’t know if everything is going to crash in one day, but the next week is going to be very interesting. My blood pressure is rising. The entire banking system may be frozen next week… yes this is extreme I know, but look at the facts:

I love how HUGE matters occur over the weekend, and particularly on a Sunday. The market was listless on Friday. As I watched it fluctuate from positive to negative I had a sinking feeling in my gut that I didn’t do much about. Something told me this weekend was going to be big as far as news went, and it wasn’t probably going to be good. Just watching the prices of financial stock you had to wonder that something might be amiss. Merrill Lynch last week took a big hit, which concerned me.

  • Well the Dow December futures are down about 300 points
  • The dollar opened sharply lower on ForEx markets
  • Lehman is insolvent, and nobody wants to buy them
  • Bank of America may be merging (saving) with Merrill Lynch
  • AIG is doing a reorganization, and may sell off it airline insurance arm as well as trying to raise $40 billion in additional capital.
I don’t know about you, but this looks like a major issue. Oh and I haven’t mentioned that the ISDA (International Swaps and Derivatives Association) is saying that if Lehman doesn’t file bankruptcy by midnight tonight that the trades in credit, derivatives, commodities, and currencies will be canceled.
Yikes! What does this mean?
Well, at the moment dealers who had agreements with Lehman are trying to match up with each other. Essentialy for every trade there is someone on the other side. So, I’m long and trading with Lehman and you are short also trading with Lehman if we don’t match up with each other by midnight our trade is now gone. Thus, effectively taking Lehman out of the picture and now those trades are with eachother and not Lehman. At least that is the hope as traders only had from 2pm till 6pm EST today.
Checkout the Bloomberg article.

Probable Future Outlook for the United States

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What concerns me most is looking at the highly probable future outlook…

The gov’t is looking to bail out the Freddie and Fannie (dependent upon congressional approval), which will help out new, but not existing home buyers. By adding their debt the gov’t is using our tax dollars and inflation adjusted dollars to secure them. However, we are projecting a $500 billion dollar short fall this year in the budget, and the national debt is at about 9.7 trillion, and growing ever so rapidly. If we tack on unfunded liabilities now we are talking anywhere from 50-70 trillion in obligations. Effectively the government is insolvent. Now what happens when the gov’t revenues begin to decline due to the slowing economy, baby boomers starting to take their retirements, baby boomers soon to be taking Medicare, and the continuation of the Iraq war / Afghan war / maybe Iran war?

I’m failing to see the light at the end of the tunnel.

Consumers purchased houses as money was cheap. Everyone felt rich so they purchased more consumables, which had no productive value. These weren’t investments into something that would have future economic value, but only immediate gratification and immediate depreciation. Look at who is producing and who is consuming… we in the USA are primarily guilty of the latter and it is all funded through the rest of the world’s savings. At some point the rest of the world is going to tire of this. Then after our HELOCs were maxed out we started to use our credit cards.

What happens if the United States dollar loses its status as the reserve currency? Then everyone with dollars will flood the markets and purchase any tangibles possible. Money is a commodity just like gold and silver, but it can easily be created. However, due to the nature of its existence it is a exchangeable commodity and considered legal tender. As people want dollars the price rises and as people desire them less the price falls. Why would anyone want dollars when you look at the future for the US economy besides necessity and political reasons.

People are already losing their HELOCs because banks are worried that consumers won’t be able to afford them. Legal or not this is happening. I also heard from a Real Estate agent in Seattle that banks are asking for 25% down on new mortgages.

In an earnings call in late January 2008, Bank of America executives said credit card delinquencies in California, Florida, Arizona, and Nevada—states with high foreclosure rates—increased five times as fast as in other states, suggesting that consumers struggling with their mortgage debt are also finding their credit card bills hard to pay. “We’re focused on getting paid for the risk we take,” said Joe Price, chief financial officer. – US News and World report 2/28/2008 — Link to the story

The GSE bailout will help to prolong the issues that the financial industry is facing. The USG will do everything in its power to support the system through its tax system. It also gives individuals and institutions more time to pull their money out of the dollar. An immediate collapse would make that very difficult and costly.

And Gary North just posted this lovely article that illustrates that nobody has a clue as to the extent of what is really going on. Link to the article Unfortunately this is for members only, which I highly recommend subscribing to. I don’t get paid a dime on referrals.

I’m getting the sense that things could get a whole lot worse than any of us imagine. In that case I’d consider moving out of the county. Sure the dollar is rallying, and commodities are falling, but how long will this last? Peak oil has passed so we are biding our time before demand outstrips supply. Without oil or with really expensive oil life becomes much more difficult. Panic would ensue in the streets.

For those of us who believe in the concept of revision to the mean take a look at the Case Schiller index since 1890. Looking at the graph we have never seen housing prices rise so dramatically so quickly. Every boom period was followed by a bust or contraction and revision to the mean. We are beyond the mean… we are in outer space. Thank you Fed for the cheap money, and for removing banking reserve restrictions, and inflating the money supply. Hey it had to go somewhere and housing seemed the place to be. Then it went to commodities, which are now taking a fall as well. However, I see no reason that the long term forecast for commodities won’t be higher. The commodities I speak of in this case are precious metals, petroleum, and food. Essentially all the necessities to keep the world moving.

As for housing it will have to come back down to reasonable values. If we encounter a period of hyperinflation then housing will be a good asset to hold onto. However, if we have a depression I could argue the opposite. In a depression the purchasing power of your dollar increases. Depression means contraction of the money supply, which isn’t necessarily a bad thing. In fact part of the Fed’s charter is to contract the money supply when needed, but that hasn’t been the case as of late.


Full Story from Mises.org

And what’s next? Commercial Real Estate?
NEW YORK: U.S. commercial real estate prices are likely to tumble over the next 12 to 18 months as more borrowers default on their loans and regulators crack down on banks, pushing even more properties onto the market. Since the market’s peak in 2007, the availability of debt – the lifeblood of commercial real estate – has dried up and choked off sales.

Borrowers have resisted selling because of falling prices. Banks have not sold off their troubled loans, fearing a huge write-down of all commercial real estate loans. But it looks as if the clock is running down. “We’re going to see a whole lot more trouble going forward,” said Peter Steier, vice president of Inland Mortgage Capital in New York.
Link to the article

It continues:

Commercial real estate sales in the United States are expected to fall 66 percent this year from $467 billion to an estimated $159 billion. This is because debt, especially securitized debt in the form of commercial mortgage-backed securities, or CMBS, is either unavailable or prices are too high and the terms too strict for borrowers, Reis said.

“One of our biggest problem areas is pretty much the state of Ohio,” said Kevin Donahue, senior vice president Midland Loan Services, a CMBS servicer that steps in when a loan is showing signs of imminent trouble. “If we keep going, by the second quarter of 2009, I think the entire state of Ohio will become a subsidiary of Midland.”

I discoved this last bit from Chris Martenson @ www.chrismartenson.com.

Fannie Mae and Freddie Mac… A governmental department

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I was originally going to write a post about how we always hear about the “New World Economy” prior to any boom / bust period.  This time I think the rules have finally changed as the United States is losing if it hasn’t already lost its status as the number one superpower, we are now the largest debtor in the world, and continuing to bail out thee who fails.  

Whether or not this time is different and we will recover is debatable.  What concerns me is the continuation of the Feds backing up private industry.  Had the United States government let Fannie and Freddie fail what would have happened?  Well, the stock market would have surely taken a tank, interest rates would have gone up versus dropping about .5%, and the dollar would have probably fallen dramatically.  

So what do we get?  – The Dow rises 290.04 points or 2.58%, the NASDAQ rises 13.88 or 0.62% and the S&P rises 25.48 to 2.05%.  Wait a minute here… The taxpayers meaning you and I get to foot the bill for this.  At a minimum the treasury is ready to pump in $100 billion into each company… oh wait are they really companies or departments of the government.  I guess that is up for the next presidency to decide.  Nothing like passing along the responsibility of the crisis.  

So, I present a question about all of this.  This being the cancer’s on the balance sheets of financial companies, a negative GDP that is still positive according to the gov’t, a extremely high CPI, and declining production and consumption.  

– Is it possible that we are going to see extreme volatility in the markets until the elections?  Probable, but as we have seen with every governmental intervention since 2007 there is a quick boom, and then continuation of the contraction.  Contraction meaning declining stock market prices.  The USG lagged in making a decion on the Fannie and Freddie debacle due to the upcoming election.  The longer they take the closer the election takes place.  Due to the recency effect people recall things closer to the present then the past.  Let’s just say that the economy looks somewhat okay going into the election.  What are the odds that McCain will have a better chance of winning over Obama?  Considering the past two elections…

I didn’t mean for this to go into a conspiracy theory or that I believe there is manipulation in the markets, but nothing seems to make sense at the moment.  What does make sense is that my dollar is losing its purchasing power, my condo is declining in value, prices are rising, and the US is bankrupt.  Oh but wait we can continue to print dollars like in the Posted in Debt, Economy, Federal Reserve, Finance, Investing, News, United States Dollar | Tagged , , , , , , , , , | Leave a reply

Double Standards

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I’m pissed to say the least…  First Bear Stearns and now the Macs.  Why do I as a taxpayer get the privilege of helping these overextended companies stay in business?  It is bad enough that the Fed keeps “printing” money, which keeps the interest rate low and provides liquidity to an illiquid financial industry.  Each time they inject money into the system they are effectively stealing from each and everyone of us who holds US dollars.  

My original intent in this entry is to write about the gold standard… well, actually the lack of it.  Ever since we have been off the gold standard interest rates have swung wildly, and the boom / bust of the economy much more severe.  

When the “tech bubble” popped in 2000 interest rates were lowered (money supply increased) and it did nothing to prop of the tech market, but went to the housing market, which is now in drastic decline.  

The fed is what we need to be talking about in the news.  Instead people in the media are talking about speculators and manipulation of markets.  Today the SEC is preventing naked shorts on financial stocks.  Well, why do people short a equity in the first place?  Answer: They think it is going to drop in value.  Is there a reason financials are dropping in value?  YES  So, instead of looking at how we got to this point we are going to find a scapegoat (speculators) and continue what has been done over and over again.  What new regulations will be in place after all this is over?  Will the US gov’t now be in the housing and banking industries?  So, if automakers start to fail is the fed going to open the discount window to them as well?  As a taxpayer I’m excited to be loaning money to failing companies.

$1,000,000,000,000.00

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A trillion dollars is for most of us an unfathomable amount of money. However, it seems that the IMF sees that large of a write down due to the unfolding credit crisis. For a more detailed account of what happened check out the book:

I haven’t personally read it, but it is on its way.

I remember when this whole crisis started to unfold, the market peaked, write offs ensued, and that leads us to where we are today. The market seems to think there is light at the end of the tunnel, but I have yet to see it. How is there optimism unless it is blind optimism with an estimated $1 trillion dollar in write-downs, which are beginning the showings of moving into Commercial Mortgages, Credit Cards, Credit Default Swaps, and where will it end.

The present “rally” seems to be hope based on bad news. Or perhaps the markets are being manipulated so that the manipulators get out before all hell breaks loose.

I myself am in a someone state of denial. Everything is starting us in the face waiting to explode, but we want to ignore it as long as possible. The situation is similar to the installation of a stop light. Many times a light isn’t installed until numerous accidents occur, and many fatal. If that is where we are today I’m truly frightened.

My present course of action would dictate the following:
1) Have a decent portion of hard cash on hand. — In USD, NZD, ASD, EUR, and CNY
2) Purchase gold, silver, and platinum numismatics (they weren’t confiscated during the last gov’t gold recall due to them being collectors items versus simply a precious metal).
3) Purchase raw materials, but at the moment I wonder if the market is still overbought. I’ve been hoping for a further correction especially with currencies, but I question if that is prudent. What if one day we wake up to learn that the US Government is bankrupt, it recalling gold and making it illegal to own, we now have a dual currency, and feel free to add to this list.