Tuesday, January 5, 2010

America’s Real Problem Is Itself

"Obama came up with this really wonderful quote early in December saying we're going to spend our way out of the recession. My question is—if we spent our way into this recession, how the hell are you going to spend your way out of this recession? Spending is what got us into trouble in the first place."
-Bob Moriarty, 321gold founder

Pending home sales fall 16 percent in Nov
WASHINGTON (AP) -- The number of buyers who agreed to purchase previously occupied homes fell sharply in November, a sign sales will fall this winter, undermining last summer's recovery.

The National Association of Realtors said Tuesday its seasonally adjusted index of sales agreements fell 16 percent from October to a November reading of 96. It was the first decline following nine straight months of gains and the lowest reading since June.
The drop was far larger than the 2 percent expected from economists surveyed by Thomson Reuters, and analysts were surprised.

"This was bound to happen at some point, although not by this much," wrote a startled Jennifer Lee, senior economist with BMO Capital Markets. "Gulp," she added.

Last summers "recovery"?

GMAC expects $5B 4Q loss, selling mortgage assets
WASHINGTON (AP) -- GMAC Financial Services, the consumer lender now majority owned by the government, said Tuesday it expects to report a loss of about $5 billion in the fourth quarter thanks to deep writedowns on underperforming mortgage loans it plans to sell.

The main driver of the anticipated loss is a $3.8 billion writedown taken as GMAC prepares to sell parts of a troubled mortgage arm that CEO Michael Carpenter called "a millstone around the company's neck."

GMAC received a $3.8 billion federal bailout last week -- the third round of aid that now totals $16.3 billion. With the additional funds, the government's stake in GMAC stands at 56 percent, up from 35 percent. That could go to nearly 80 percent if the government opts to convert more of its stake to common equity.

A $3.8 BILLION writedown quickly followed by a $3.8 BILLION government bailout? Hmmm, is the government the new proud owner of $3.8 BILLION of GMAC garbage?

This Is The Government: Your Legal Right To Redeem Your Money Market Account Has Been Denied
by Tyler Durden
...the primary purpose of money markets is to provide virtually instantaneous access to a portfolio of practically risk-free investment alternatives: a typical investor in a money market seeks minute investment risk, no volatility, and instantaneous liquidity, or redeemability. These are the three pillars upon which the entire $3.3 trillion money market industry is based.

Yet new regulations proposed by the administration, and specifically by the ever-incompetent Securities and Exchange Commission, seek to pull one of these three core pillars from the foundation of the entire money market industry, by changing the primary assumptions of the key Money Market Rule 2a-7. A key proposal in the overhaul of money market regulation suggests that money market fund managers will have the option to "suspend redemptions to allow for the orderly liquidation of fund assets." You read that right: this does not refer to the charter of procyclical, leveraged, risk-ridden, transsexual (allegedly) portfolio manager-infested hedge funds like SAC, Citadel, Glenview or even Bridgewater (which in light of ADIA's latest batch of problems, may well be wishing this was in fact the case), but the heart of heretofore assumed safest and most liquid of investment options: Money Market funds, which account for nearly 40% of all investment company assets. The next time there is a market crash, and you try to withdraw what you thought was "absolutely" safe money, a back office person will get back to you saying, "Sorry - your money is now frozen. Bank runs have become illegal." This is precisely the regulation now proposed by the administration. In essence, the entire US capital market is now a hedge fund, where even presumably the safest investment tranche can be locked out from within your control when the ubiquitous "extraordinary circumstances" arise. The second the game of constant offer-lifting ends, and money markets are exposed for the ponzi investment proxies they are, courtesy of their massive holdings of Treasury Bills, Reverse Repos, Commercial Paper, Agency Paper, CD, finance company MTNs and, of course, other money markets, and you decide to take your money out, well - sorry, you are out of luck. It's the law.

Since the 1950s, Americans have serially and collectively blamed communists, socialists, hippies, feminists, Mexicans, environmentalists, gays, abortion, entitlements, Japan, China, etc. for their mounting problems; and, like the veritable alcoholic, the real cause of its problems is always assiduously avoided.

It is little wonder that as America’s serial enemies have come and gone, America’s problems have increased. This is because the real cause of America’s problems is not others—America’s real problem is itself.


Bernanke Is Either A Complete Idiot OR An Unambiguous Liar...
In some respects, I would say that both descriptions apply. With regard to his speech yesterday - which has attracted quite a bit of attention as well as raised a lot of eyebrows - I would assert that Bernanke has taken the "politically pragmatic" tact, which would otherwise be known as "lying one's ass off and passing the buck."

Bernanke asserts that the low interest rates were not responsible for fueling the housing bubble and that regulation was "too late" to stop the whole process. This is utter and complete nonsense. Quite frankly, in many years of watching and evaluating statements made by policy-making officials, I have never seen a statement as absurd and lacking credibility as ones made by Bernanke yesterday. I find it hard to believe that Bernanke actually believes this garbage explanation - and if he does then his role as Fed Chairman should be terminated immediately, because his academic, intellectual and professional credibility would be called into question.

By vronsky
It is painfully obvious China has a pressing need to diversify its ever mounting Foreign Reserves derived from its perennial Trade surplus. This begs the question, how much gold does China need relative to its gargantuan level of Foreign Reserves? To objectively answer this, it is necessary to compare China's positions to that of other highly industrialized countries - like the USA, GERMANY, ITALY and FRANCE.

Presently, China has 27 TIMES MORE the total Foreign Reserves of the USA. In fact China has more than 4 TIMES the total Foreign Reserves of USA, Germany, Italy and France, combined !!

China is truly the Goliath of Total Foreign Reserves.

However, this Goliath has an Achilles Heel. Only a minuscule 1.5% of its Total Foreign Reserves is gold. Most of the rest is in US greenbacks. Consequently, China is subject to and a slave of the vagaries of the US dollar.

China is grossly if not obscenely deficient in diversifying its pernicious US dollar reserves into traditional value storage gold. But what might be a prudent gold diversification for The Peoples Bank of China?

The above four major industrialize countries hold a prudent 65% of their Total Foreign Reserves in gold. If one assumes China may soon recognize the sensible merits of gold's risk diversification, The Peoples Bank of China would need to buy an additional 44,619 tonnes of the shiny yellow. It is imperative to put this quantity into perspective by comparing it to two bench marks:

The world's total existing above ground gold is only 166,000 tonnes

The world's total yearly mine production is only about 2,500 tonnes

China's gold deficit represents 27% of the total existing above ground gold (166,000). Furthermore, if China were to buy up all newly mined gold in the world, it would take 18 years to accumulate 44,619 tonnes.

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