Wednesday, December 26, 2007
Tuesday, December 25, 2007
But wait—there is more. While ACA is relatively small, S&P yesterday put two large bond insurers—MBIA and Ambac---on negative watch, meaning that it may downgrade their ratings in the near future, although it confirmed their triple A status for now. In addition MBIA, in a surprise move, indicated that it guarantees $8.1 billion of so-called CDOs-squared that have chances of losses. CDOs-squared repackage other CDOs and securities linked to subprime mortgages. If leading bond insurers were downgraded some $2 trillion of insured securities would lose their triple A rating, leading to another surge of massive writedowns at financial institutions throughout the globe along with additional severe credit problems in the world financial system. --Bob Chapman, The International Forecaster
- Local and state tax-exempt bonds
- A wide range of corporate bonds
- Government-sponsored agencies like Fannie Mae and Freddie Mac
- Commercial paper
- Bond market mutual funds, and even ...
- Certain money market funds, such as those that have invested heavily in commercial paper.
At the same time, investors will rush to buy ...
- Treasury securities
- Treasury-only money market funds
- Safe-haven foreign currencies like the Japanese yen and the Swiss franc
- Gold, gold ETFs and mining shares, plus ...
- Virtually any investment perceived to be immune from the ratings collapse.
Needless to say, the Fed will respond with massive money pumping. And if MBIA can receive a massive capital infusion, a bond market panic may be avoided for now.
But any capital infusion is unlikely to be more than a temporary band-aid. No matter how the crisis is ultimately resolved, you're bound to see a substantial flight to safety. http://www.moneyandmarkets.com/Issues.aspx?NewsletterEntryId=1301
Friday, December 21, 2007
Five years ago, 86 US cents could buy one euro. Today one needs some 147 US cents to buy one — meaning, in terms of euro, the dollar has fallen by 75 per cent in five years. Benchmarked with gold, less than $275 could get an ounce of gold in 2002; today $800 cannot. So, the dollar, rated with gold, has depreciated by over 290 per cent.
Take the black gold — crude. One needed, as 2002 turned, $21 to buy one barrel of crude which now costs $90. Rated in crude prices, the dollar has fallen by 430 per cent.
As of the second quarter 2007, the total forex reserves held by different countries is $5.7 trillion.
Assuming two-thirds of it is invested in dollars, the global forex reserves invested in the dollar will top $3.8 trillion. That others hold $3.8 trillion means that they hold US securities or assets. Like bank deposits are to a bank, the $3.8 trillion held by others is a debt, a liability of the US to other countries.
Why did this huge debt occur? In one word: the Fed. In less than 15 years, by calibrated strokes of the pen, the US Fed has habituated the once responsible American households to spend beyond their current income and turned them into reckless gluttons.
See how the US Fed achieved this result. By repeated interest cuts, from 20 per cent to just 1 per cent in 20 years from 1981 to 2001, the US Fed got US households addicted to buying regardless of needs. At rates of 1 per cent interest, US households saw no meaning in saving. No wonder they felt justified in spending beyond their income.
The fallout? The US savings rate to GDP, which was 18 per cent in 1970s, first came down to 9 per cent in 1990, then to an average of 2.8 per cent in 10 years from 1996 to 2005 and finally to a negative figure of 0.6 per cent in 2006. This drift directly led to households getting addicted to borrow and to spend.
The US household dues on credit cards rose from $338 billion in 1990, when the Fed rates were around 8 per cent, to $1.5 trillion in 2003, when the Fed rate became 1 per cent. Today the dues on credit cards are over $2.46 trillion and the number of credit cards in use is 1.2 billion.
An average American is addicted to 13 credit obligations, nine credit cards and four instalment loans! It is difficult to de-addict them today. The result, in just 15 years, US households have handed over all their money to the corporates and become indebted.
The Fed’s spend-beyond-incomes policy risked domestic inflation. To de-risk against it, the US government had to go for liberalised imports, cut the import tariffs and make import of foreign goods cheap in the US. So trade liberalisation became more a domestic compulsion of the US rather than, as it pretends, a global obligation.
Consequently, the US began buying more goods and services from the rest of the world, than it supplied to them. This led to in increasing deficit on the US current account with the rest of the world. Once this trend started, it intensified like virus.
The numbers are startling. For the 10-year period from 1990 to 1999, the aggregate deficit of the US was $300 billion.
In the subsequent five years from 2000 to 2004 alone, the deficit had aggregated to $2.5 trillion – more than eight times the aggregate for the previous 10 years! Meaning that during the five years 2000-2004, the US has borrowed $2.5 trillion from other countries to settle its current account deficit.
Yes, it is true that today US consumption drives global economy. But who funds the US consumption? The very countries that sell goods to the US, like China and Japan, Korea and Taiwan, Malaysia and Indonesia, Hong Kong and Singapore, and finally, India too.
Their dollar reserves represent moneys lent to the US to help the US buy goods from them, like a shopkeeper lending money to his clients and asking them to buy his goods. It’s worse in fact. It is more like the shopkeeper selling his goods on credit against the client’s pro-notes.
After all, in the end, the $3.8 trillion securities held by other countries are merely pro-notes of the US. So all that those who exported goods or securities to the US have on hand are the accumulated pro-notes for $3.8 trillion. Are they not just unpaid vendors? The pro-notes held by them are losing value by the day and hour against the euro, gold, oil and also against the rupee.
Startling statistics aren't they? To see how all these pieces of debt fit together, and spell the demise not only of the US Dollar, but perhaps our "American way" of life, please read the entire essay The $3.8 trillion pro-notes depreciating by the hour by S. GURUMURTHY here:
What is perhaps most staggering is the insignificance of the World's Dollar Reserves when stacked up against the towering mountain of derivatives debt that is about to go nuclear in a Financial Armageddon never imagined. A conservative estimate by Jim Sinclair puts the "shaking mountain of derivatives debt" at $20 trillion. In effect, the debt bomb the US has unleashed on the planet is almost three times the size of the World's Dollar reserves. The World's Dollar reserves combined with the US $13 Trillion economy barely equal two thirds of that. How in God's name are we going to come up with the cash to extinguish the Debt Bomb? Print it? Yeah, that's the ticket!
Consider this: The $500 Billion that the European Central Bank "loaned out" [yeah right, loaned out, LOL] this past week equals 13% of the World's US Dollar reserves. As if $500 Billion would even put a dent in a cancer that is $20 Trillion strong. You have got to be kidding. That $500 Billion would be akin to giving a death bed patient morphine to ease their pain as they slipped into the afterlife. It will neither solve or save the World's Banking System from it's inevitable demise caused be The Death Of The US Dollar.
Most often in a currency collapse, the last ones to realise their is a problem with their money, are those that use it every day and take it for granted. Americans, as a whole, have little understanding and even less of an idea of what is about to literally destroy their "way of life". Few if any realise that they don't work for "their boss", they work for their
creditors...indentured servants of their banks. The least of Americans worries should be "terrorists", for the real terror is just over the horizon: Financial Armageddon. American's need not worry abouta collapse by being attacked from the outside, they're doing a good enough job from within, via the Death Of The Dollar.
Ah, but what the hell! It's Christmas damn it! Get out that platic and spend, spend, spend. It may be the last spending we do for a long, long, long time. Very soon it will be time to pay for all that spending.
I'd like to thank everybody and anybody that reads these blog entries of mine. I love writing them as it allows me to get this stuff out of my head. I hope everybody benefits and profits from the information I pass along. What good is information, if it isn't shared?
Merry Christmas! I hope your Holiday Season is filled with Silver and Gold!
Wednesday, December 19, 2007
Investors Stunned by ECB's E350 Billion
Short-term market interest rates in the eurozone plunged at their fastest rate for more than a decade on Tuesday after the European Central Bank stunned investors by pumping a record E348.6 billion worth of funds into the markets.
The size of the injection -- which was intended to calm the markets over the critical year-end period -- was twice as big as the ECB had indicated would have been needed in normal circumstances.
The bank said some 390 private-sector banks in the eurozone had requested funds, which have been offered for two weeks at 4.21 per cent, well below the previous prevailing market rate.
"The sheer magnitude of the operation caught the market off guard," said Win Thin, Brown Brothers Harriman's senior currency strategist, who said there was talk that banks from the US and UK might have taken funds at lower rates than they could secure from their own markets.
The emergency operation, which followed last week's co-ordinated effort by Western central banks to ease pressures in the financial system, prompted the two-week euro London interbank offered rate (Libor) to fall a record 54 basis points to 4.40 per cent. The one-month and three-month rates recorded their biggest falls for nearly six years.
Fed Loans Banks $20 Billion
WASHINGTON (AP) -- Cash-strapped banks took the Federal Reserve up on its offer of $20 billion in short-term loans to help them overcome credit problems, but the interest rate wasn't as low as some had hoped.
The central bank said Wednesday that it had received bids for $61.6 billion worth of loans, more than three times the amount that was made available. The loans carried an interest rate of 4.65 percent, which is slightly less than the 4.75 percent the Fed charges banks on emergency loans through its "discount" window.
There were 93 bidders for the loans, the Fed said. Each bank could submit up to two bids. The auction for the 28-day loans was conducted on Monday, and the results released on Wednesday.
Asked how the first auction fared, T.J. Marta, a fixed-income strategist at RBC Capital Markets, replied: "I was standing next to two seasoned traders and one thought this auction was fantastic and another one thought it was horrible."
For his own part, Marta said it was "unsatisfying" because investors had thought the rate on the loans would have been lower, around 4.30 percent or 4.40 percent, rather than 4.65 percent.
"There was a hope that things really weren't that bad and that the market would have been able to bid down the Fed and take the money at a cheaper rate," Marta explained. "The fact that the market wasn't really willing to, was evidence of the stress."
GOLD AND SILVER – Green Flags!
Throughout history, once a nation embarked on the inflationary route, there has only ever been one final outcome: total destruction of the currency. Since 1913 the Fed, (supposedly created to protect the US dollar – must read: ‘The Creature of Jekyll Island”), has managed to destroy 95% of the purchasing power of the dollar. Does anyone really believe the remaining 5% is safe?
Currencies in a number of countries are being inflated at double digit rates, while the gold supply can only be increased at about 1.6% per year. All the gold ever mined, piled up, would form a cube of less than 20 meters, growing by 12 cm per year. Most of the gold in this hypothetical cube is in the form of jewelry. The driving force behind the current bull market in gold is the fact that fiat money is being created some twelve times faster than gold. In 1980, when gold topped out at 850.00, the US M3 money supply was 1.8 trillion dollars. Today gold is pegged at 800.00, but M3 is now 13 trillion dollars (www.nowandfutures.com). A ratio similar to 1980 puts the potential gold price at $5,600.00.
Morgan Stanley's Subprime Submergence
On Wednesday, the investment firm announced a jaw-dropping $9.4 billion in write-downs for the fourth quarter.
Before, the opening bell, Morgan Stanley said it lost 3.6 billion, or $3.61 a share, versus a profit of $2.0 billion, or $1.87 a share, a year earlier. It also announced it was turning to China to help shore up its balance sheet.
The rapidly depreciating value of mortgage-related assets and the general turmoil in the credit markets has punished Morgan Stanley and most of the rest of Wall Street. On Wednesday, the firm said it took $5.7 billion in write-downs in November. This loss is on top of the $3.7 billion already announced, putting the total for fourth quarter write-downs at $9.4 billion. The new batch of write-downs will be in addition to the $940 million announced in the third quarter.
Meanwhile, Morgan Stanley is mobilizing to improve its cash position. As investment firms lick their wounds, a bevy of foreign investors from China and Middle East have swooped in with cash infusions. On Wednesday, the investment firm also announced that the Chinese government-owned, China Investment will be injecting $5 billion into Morgan Stanley, for a maximum 9.9% stake in the company. The company said CIC will have no special rights of ownership and no management role. Morgan Stanley is far from alone. Last month, the an Abu Dhabi investment fund injected $7.5 billion into Citigroup.
WILL THE VICIOUS CREDIT VIRUS AFFECT THE REAL ECONOMY?
By Dr. Marc Faber
WILL THE VICIOUS CREDIT VIRUS AFFECT THE REAL ECONOMY?By Dr. Marc Faber
Will rate cuts be of much help to the asset markets and the economy? I believe we are in a war between two major adversaries. On the one side we have the Fed (and other central banks) pumping liquidity into the system in a desperate attempt to support the asset markets and the economy. On the other side we have the private sector, which, as Hatzius explained, is being forced to curtail lending due to heavy losses in the credit market and to fight the Fed's reflation efforts by widening credit spreads. Complicating matters is the fact that both adversaries have powerful allies.
The Fed has the Treasury and the government, as well as the Wall Street elite, as allies. The government could implement massive tax cuts in order to stimulate economic activity; the Treasury could bail out financial institutions, which in reality should be punished by bankruptcy; and the monied Wall Street elite will ensure that politicians and the Fed make it possible for them to continue their con-game. The private sector has allies in the form of inflation, a weak dollar, and a dissatisfied public (declining consumer confidence and lack of trust in government, which is reflected by the strong showing of Ron Paul), all of which form a powerful phalanx when battling the Fed's reflation attacks. Inflation is a powerful ally for the private sector because it squeezes corporate profits and curbs personal consumption.
According to David Rosenberg, with 90% of companies reporting, third quarter operating EPS fell 8.5% year-on-year; while reported earnings, which include charge-offs, fell 28% year-on-year! Rosenberg also notes that "at $15.29 reported EPS for the S&P 500 in the third quarter of 2007, the P/E multiple on this basis is a lofty 23x - not the 18x 'cheap' multiple (or 14x on forward estimates) that is constantly being bandied about in the media." He adds dryly: "[T]he current $15.29 estimate for reported EPS is the lowest level of earnings since the fourth quarter of 2004. And where was the S&P 500 trading at that time? Answer: It averaged about 1,162 that quarter - just in case you were thinking of buying this dip." (I can't wait to hear the Goldilocks' crowd's positive spin on these dismal earnings.)
The war between the Fed and the private sector will, in my opinion, be very protracted. The Fed will win some battles, which - along with much brouhaha in the media - will see Pyrrhic victories such as the stock market rally of August to early October, which led in dollar terms to new highs but failed to do so in Euro and gold terms, and was followed in Euro terms by renewed severe weakness. (Just for the record, as of this writing, the S&P 500 is down 9% year-to-date in Euro terms, having peaked out in June.)
Other battles will be won by the private sector, which through its contraction (recession) amidst inflation will lead to sharp downward movements in equity prices.
I am well aware that the Bureau of Labor Statistics and the Bureau of Economic Analysis will continue to use bogus figures when reporting inflation, and hence real GDP growth, but they won't be able to hide the squeeze on corporate profits and the consumer from rising prices. I am writing this report at Thanksgiving, an opportune time to point out that the American Farm Bureau Federation has calculated that the cost to feed ten people dinner in 2007 is US$42.26, up 10.9% from last year and the biggest year-on-year increase in over ten years (David Rosenberg has compiled a Thanksgiving cost-of-giving index, which amalgamates the prices of turkey, sweet potatoes, cranberries and gifts, as well as travel expenses: it rose this year by 7.9%.) I don't suppose these indexes took into account the rise in heating and electricity costs for the festivities, or the cost of a nice Bordeaux wine and bottle of Cognac, due to the weakness of the dollar. (I might add that in Switzerland it wouldn't be possible for ten people to be served Christmas dinner for that amount.)
But the point is simply this: cost-of-living increases vastly exceed the reported inflation figures and are squeezing the consumer, which leads to revenue pressure for the corporate sector. (According to the Kaiser Family Foundation, health insurance premiums have risen 78% since 2001, while wages have gained only 19% and "the government's inflation measure during that stretch was 17%".) At the same time, corporations are faced with a squeeze on margins due to rising costs.
Pressure on revenues and cost increases contributed to the dismal performance of earnings in the third quarter of 2007. For example, Starbucks (SBUX) increased prices by an average of 9 cents a cup in July. However, customer visits to US stores fell 1% for the quarter ended September 30. Starbucks' CFO noted that a "similar decline may occur in the fourth quarter although they will be positive for the full year". (This would seem to indicate that the economy slowed down considerably in the second half.) According to him, "unbeknownst to us, we saw economic headwinds that quite frankly came up probably stronger than I thought." Earlier, Starbucks' CEO had remarked: "The consumer is being faced with rising costs in every sector of their lives, and so part of that is reflecting on us." An informed friend of ours suggested that declining traffic at Starbucks stores in the US is of particular concern, since Starbucks serves all income levels.
Therefore, declining traffic is not just a "sub-prime problem"! I should now like to reiterate what I have explained on a number of previous occasions. Rather than paying too much attention to the media and to analysts' positive spins, it will pay to watch the market action of equities as a forecaster of business prospects. Starbucks' stock made a double top between May 2005 and November 2006. After that its shares went downhill, although the stock market continued to rise to its final peak in mid-October 2007. This should have been a warning sign that Starbucks fundamentals were deteriorating.
Similarly, the fact that retail stocks failed to better the July high in the recent August 16 to October 11 rally, which led to a new all-time high for the S&P 500 in dollar terms (but not, as we have shown, in Euro terms), isn't a good omen for retail sales, consumption, and the economy. I am not the only person who questions the economic statistics published by the US government: writing recently for Kate Welling (welling.weedenco.com), Lee Quaintance and Paul Brodsky of QB Partners observed:
"…the credit markets finally clogged towards the end of Q2 2007, closing the major private sector artery policymakers had been using to synthesize domestic output (expressed in nominal dollar terms through nominal GDP growth). True to form, they began creating U.S. dollars out of thin air at an accelerated rate in Q3 2007 (14.7% annualized). The Bureau of Economic Analysis (BEA) published nominal U.S. GDP growth at an annualized rate of 4.7% in Q3 2007. Taking the BEA's figure at face value and subtracting the annualized rate of monetary inflation, we believe inflation-adjusted U.S. GDP contracted at about a 10% annual rate in Q3 2007. This rate of economic contraction would seem to be consistent with the analysis of the corporate profit slump discussed above, and with the observations made in earlier reports that the US economy is already in recession.
One in Five Expect to Borrow to Heat Homes This Winter
For perhaps as many as 27 million American adults, keeping warm this winter will mean borrowing money and 20 million will use credit cards to be able to afford their heating bills, according to a CreditCards.com poll.
Nearly 12 percent of Americans say they will need to borrow money to pay winter heating bills; 9 percent will need to use credit cards to be able to afford their heating bills.
A world-wide credit crisis has only just begun. A world wide Bull Market in Gold has only just begun. Ignore the spin. Stick to your convictions. Gold Bulls are taking year end profits. Dollar Bears are taking year end profits. Nothing, absolutely NOTHING, has changed fundamentally that will lend support to the US Dollar, or steal it from Gold. If the PPT and the Gold Cartel could really suppress Gold, it would still be $260 an ounce. Take advantage of the Holiday Sale Prices, back up the truck, and hang on for the most profitable ride of your life.
Tuesday, December 18, 2007
Monday, December 17, 2007
Friday December 14, 7:15 pm ET
WASHINGTON (AP) -- Led by higher gasoline prices, consumer inflation shot up in November by the largest amount in more than two years.
In a troubling juxtaposition, the rise in inflation is coming at a time when economic growth is slowing sharply under the weight of a steep slump in housing and a severe credit crunch.
"We are in store for a period of very weak if not recessionary growth and uncomfortably high inflation," said Mark Zandi, chief economist at Moody's Economy.com. "People are going to get hit with both a weaker job market and having to pay more to fill their gas tanks and buy groceries."
It's called STAGFLATION, and it is absolutely Dollar negative, and Gold positive. In speech Sunday night by former Fed Chairman Alan Greenspan, Mr Obvious said that "stagflation" -- simultaneous inflation and economic slowdown -- is a possibility, given last week's data showing spiking consumer prices. I guess now that the messiah has spoken, people will begin to listen?
There are four important data points released today. All should be Dollar negative, much as all of last weeks cost and inflation headlines were. These data points are The Current Account, The Treasury International Capital (TIC) flows report, the National Association of Home Builders is scheduled to release its housing market index, and The NY Empire State Manufacturing Index.
Not one iota of news in the past ten days has been Dollar positive, unless you believe the spin: "higher inflation will stop Fed interest rate cuts". Look, if you have been short the Dollar, long Gold, and/or long stocks just because the Fed may continue to cut interest rates you are a fool. The Dollar is going to go down no matter what the Fed does from this day forward. The Fed has completely lost control of the interest rate markets and the Dollar. The only thing holding the Dollar up right now, today, is year end short covering AND European Central Bank intervention. The ECB is desperate to take some of the strength out of the Euro to save the regions export markets. The US Fed is desperate to prop up the Dollar. A lot more was talked about at last weeks "big meeting" than the Fed/treasury sending a few billion Dollars across the pond to help increase liquidity in the European banking system in a feeble attempt to lower the LIBOR rate.
The fact is, Gold has risen in a rising Dollar environment before, case in point, the second half of 2005. Gold is under pressure today, because of this Sucker's Rally in the Dollar. Silver is testing critical support on the back of Gold's "perceived" weakness. This Sucker's Rally in the Dollar is within hours of a complete reversal. Stick to your convictions! If you have the resources, buy more of both Gold and Silver at these Holiday Sale Prices.
Thursday, December 13, 2007
Thursday December 13, 10:11 am ET
Wed, Dec 12 2007, 13:49 GMT
Tuesday, December 11, 2007
Even if the Fed lowered its target for fed funds to zero ... if the LIBOR rate fails to decline in tandem, or worse, actually goes up, the Fed's power to avert an economic decline in the U.S. will be shot to pieces.
Monday, December 10, 2007
Europe's largest bank by assets plans to raise 13 billion francs ($11.5 billion) selling bonds that will convert into shares to Government of Singapore Investment Corporation Pte. and an unidentified Middle Eastern investor, Zurich-based UBS said in a statement today.
Friday, December 7, 2007
How many of you folks realize that most retailers, excluding food stores and home improvement stores, get at least 50% of their annual sales from the shopping period between the day after Thanksgiving and Christmas Eve. 50%! It's do or die time for the likes of Macy's , Target, Wal-Mart and Best Buy. The government PR machine is going to work overtime to spin the daily news into cotton candy in an effort to keep a halcyon induced smile on everybody's face.
No Quick Fix for Subprime Mortgages- AP
Be ready to wait if you want to get information from a toll-free hot line about freezing the interest rate on your subprime mortgage.
Case in point this hokey subprime mortgage freeze. Last summer Mr Bush comes out and says everything will be alright because subprime borrowers can refinance their mortgages with an FHA loan. There was joy in the streets, the President said exactly what the peeps wanted to hear. LOL! Never happened. You can't get a loan from the FHA with bad credit. And you can't get a rate freeze with bad credit either. More HOT AIR from Washington.
The Dollar has caught a tiny bid overnight in anticipation of this revered jobs report. Estimates are for 70K jobs in November. The overrated ADP payroll report claims 189k jobs were created. This number is trotted each month to help justify the jobs created by the Labor Departments "birth/death" model used to ESTIMATE job growth. These are "phantom" jobs the government "thinks" were created in the prior month. And that in a nutshell is the real truth about the monthly jobs report: IT IS ONLY AN ESTIMATE! How many jobs are actually created each month in the USA, nobody really knows.
Data Grim for U.S. Buck
So what about the greenback? Despite the talk of a bottom for the greenback—including the contrarian signal of The Economist cover—the commercial traders in U.S. dollar index futures have now reduced their net long position to a historically extreme low. The latest COTs data gives my dollar setup a renewed bearish signal. This caps a 10-week fall in the commercial net long position, which peaked in the Sept. 18 COTs report. This renewed signal is somewhat striking because it’s the first signal of any kind for this setup since the initial bearish signal that came way back in Oct. 2006. Look out below!
Gold and Silver mostly sat idle overnight awaiting the COMEX reaction to the lies out of Washington this morning. Gold sits poised to rocket higher on a break of 807. Silver did well yesterday to close above 14.40 and the neckline on our 4-hour head & shoulder reversal bottom. Today should be interesting as we close out the week in anticipation of next weeks sacred Fed meeting. A bid for both metals is building. Today, just another day in the noisy adventures of Gold & Silver's Trip To The Moon.
Wednesday, December 5, 2007
Sunday, December 2, 2007
WASHINGTON (AP) -- If lenders temporarily freeze low introductory interest rates on home loans made to risky borrowers before they soar, it would be a modest fix for the country's fractured housing market.