Oil rises as Dolly threatens Gulf of Mexico
NEW YORK (Reuters) - Oil rose on Monday as Tropical Storm Dolly barreled into the Gulf of Mexico, stoking concerns of disruptions to U.S. offshore oil and gas production.
U.S. crude settled up $2.16 at $131.04 a barrel after concerns about U.S. demand knocked prices from record highs over $147 a barrel last week. London Brent crude rose $2.42 to settle at $132.61 a barrel.
The U.S. National Hurricane Center warned the storm could reach hurricane strength on Tuesday. The U.S. Energy Information Administration said on its current path, Dolly was likely to miss major oil producing areas but could threaten some coastal refineries later in the week.
http://biz.yahoo.com/rb/080721/markets_oil.html
Fannie Mae and Freddie Mac - End of illusions [A MUST READ]
After a headlong plunge in the two firms’ share prices (see chart 1), Hank Paulson, the treasury secretary, felt obliged to make an emergency announcement on July 13th. He will seek Congress’s approval for extending the Treasury’s credit lines to the pair and even buying their shares if necessary. Separately, the Federal Reserve said Fannie and Freddie could get financing at its discount window, a privilege previously available only to banks.
The absurdity of this situation was highlighted by the way the discount window works. The Fed does not just accept any old assets as collateral; it wants assets that are “safe”. As well as Treasury bonds, it is willing to accept paper issued by “government-sponsored enterprises” (GSEs). But the two most prominent GSEs are Fannie Mae and Freddie Mac. In theory, therefore, the two companies could issue their own debt and exchange it for loans from the government—the equivalent of having access to the printing press.
http://www.economist.com/finance/displaystory.cfm?story_id=11751139
Eat My Shorts! A Naked Shorting Primer for CEOs. [A MUST READ]
In its simplest terms, naked shorting involves selling shares of stock that don’t exist. It’s performed routinely by market-makers to keep an orderly market, but it is illegal when done to manipulate a company’s stock price. Only when someone intends to drive down the stock price is naked shorting breaking the law. Throughout the rest of this overview, any reference to naked shorting will refer to the illegal variety.
It’s also worth noting the important distinction between shorting and naked shorting. The former is perfectly legal and occurs extensively as either a way for an investor to mitigate risk or as a bet that a company’s share price will decrease (i.e. the short-seller or “short” believes the company is overvalued). Despite the wary glances often cast upon them, shorts are an essential part of a robust market and are often the first to discover financial fraud, as in the case of Enron.
A short will sell borrowed shares as a bet against a company because he believes the price will eventually drop. These borrowed shares come from his broker, which loans the short a certain number of shares (not dollars). As soon as the short receives the borrowed shares in his account, he sells them immediately for cash, which goes to his brokerage account. The short still has that pesky loan to pay back, though, and does so by waiting for the price of the stock to drop. Then he buys some cheaper shares using money from the same pool of cash he received after the original sale, gives the broker his shares back, and keeps whatever cash is left in his account.
Naked shorts, in contrast, are much more manipulative – they sell short shares that don’t exist and then attempt to actively lower the company’s share price through constant short-selling pressure. By using pretend shares, of which there is an unlimited supply, naked shorts can effectively control the share price through this constant pressure, eventually driving the price of a company’s shares into the basement.
Where do these fake shares come from? Naked shorts can create them out of thin air, depending on your point of view, due to either (a) glaring inefficiencies in the back-office world of certificate transfers, or (b) institutionalized fraud on a massive scale. Either way, the effects can be disastrous for companies who are victimized.
http://www.americanmicrocaps.com:80/featuredcolumn2.htm
Gold price manipulation is spelled out to CFTC
A financial planner from Chicago, Marcus C. Rodriguez, has written a wonderful letter to the U.S. Commodity Futures Trading Commission documenting the manipulation of the price of gold on U.S. commodities exchanges and urging the commission to compare that manipulation with the huge gold derivative positions held by JPMorganChase, Bank of America, and Citibank. It could only help if other Americans wrote to the CFTC in support of an investigation of the issue Rodriguez has raised.
You can find Rodriguez's letter to the CFTC here:
http://www.gata.org/files/RodriguezLetterCFTC07-20-2008.pdf
Monday, July 21, 2008
Sunday, July 20, 2008
Blow Wind, Blow
Paulson braces public for months of tough times
WASHINGTON (AP) -- Treasury Secretary Henry Paulson sought to reassure an anxious public Sunday that the banking system is sound, while also bracing people for more troubled times ahead.
"I think it's going to be months that we're working our way through this period -- clearly months," he said.
Paulson said the number of troubled banks will increase as they struggle to cope with big losses on bad mortgages. The government this month took over IndyMac after a run led it to become the largest regulated thrift to fail.
"Of course the list is going to grow longer given the stresses we have in the marketplace, given the housing correction. But again, it's a safe banking system, a sound banking system. Our regulators are on top of it. This is a very manageable situation," he said in broadcast interviews.
"We're going through a challenging time with our economy. This is a tough time. The three big issues we're facing right now are, first, the housing correction which is at the heart of the slowdown; secondly, turmoil of the capital markets; and thirdly, the high oil prices, which are going to prolong the slowdown," he said.
"But remember, our economy has got very strong long-term fundamentals, solid fundamentals. And you know, your policy-makers here, regulators, we're being very vigilant."
"I'm very optimistic that we're going to get what we need from Congress here, because Congress understands how important these institutions are," Paulson said.
"Our first priority today is the stability of the capital markets, the stability of the system. And these institutions have investors all around the world ... and those investors need to know that we in the United States of America understand the importance of these institutions to our capital markets and to our economy and to our housing market," he added.
Cover your ears... Henry Paulson is FULL OF SH*T. He has been since day one of this financial crisis. He has repeatedly lied and told half-truths about every aspect of this financial crisis. The jug heads in the Congress lap up every one of his lies as fact because they themselves are completely clueless as to what is going on. "He's Henry Paulson, Goldman Sachs honcho and Treasury Secretary, he must know what's really going on and how to fix it."
Henry Paulson is the "fox in the hen house". He is more than responsible for this financial tragedy, and now he wants carte blanche from the Congress to "fix the mess". Congress should be demanding this crooks head, not bowing to his whims.
Henry Paulson should be dragged through the streets of Washington chained to a Dodge pickup while angry taxpayers throw empty beer bottles at him. This man is a traitor to the nation. This man and his cabal of banking criminals at the Fed have jeopardized the sovereignty of our nation, and deserve nothing less than the price all traitors must pay: the DEATH PENALTY.
Months? Let's see Hank, 12 months equal a year. I guess "months" just sounds better, eh Hank? Very strong long-term fundamentals? Hank, you and your cronies have burdened this nation with an insurmountable debt load. A debt load that is in EXCESS of $45 TRILLION. A debt load that is at this time COMPLETELY unfunded. And you expect even the dolts in Congress to believe this puff of smoke about "strong long term fundamentals"? Congress doesn't understand jack. Aren't all public servants required to take random drug tests? Vigilant? You have been vigilant in your destruction of our financial system, of that you can be sure. You have no interest at all in the American taxpayer and how this financial crisis that you and your cabal at the Fed have engineered will burden them for possibly the next two generations. You have but one priority, to save the sorry asses of all those that have been a part of this financial flim-flam operation of yours. If Americans in general weren't so stupid and apathetic, you'd have been out of a job months ago. Bailout Fannie Mae and Freddy Mac? They have been stealing from the public trough long enough...let them die on the vine. If you and your predecessors were so "vigilant", how did these two government sponsored scams fall into such disarray to begin with? That is the question of the day, Hank. Vigilant? You are absolutely FULL OF SH*T.
Gold and Silver both finished the week just ended down. This was the first week in the last FIVE that Gold and Silver did not close up. Both have retested their recent breakouts, and should be expected to resume their treks higher shortly. If you are looking to buy Gold and Silver mining stocks, now is the time.
Oil at $130 reamins VERY expensive. The rumors of Inflations demise are pathetic. Inflation has barely gotten out of the gate... The current uptrend in Oil remains intact unless or until it breaks below $124. Tropical Storm Dolly bears watching as it enters The Gulf Of Mexico this week. The Hurricane season is spooling up right on schedule. Tropical Storm Cristabol raked the Carolina Coasts this weekend, and a tropical wave exiting the coast of Africa early this week holds the potential for a dandy storm to develop by this time next week. All this should be good for a bit of a bounce in the Oil markets this week.
The Philadelphia Bank Index has hit a wall of resistance here, and we expect the recent rally in banking stocks to parrish shortly, and take the stock markets back down with them as the pros sell into this suckers rally. CNBC is pulling your chain if you believe one word of their drivel about a bottom in banking stocks...not even close folks. There are TRILLIONS of Dollars still to be written off by these zombie banks before there is even a hint that a bottom is in.
FIRST FACE OF MELTDOWN
I CONTEND THAT FANNIE MAE IS THE PRIMA FACIE OF THE END OF THE US FINANCIAL EMPIRE. Fannie Mae, the national US secondary mortgage supplier and vast agent to assist in controlling interest rates, is failing. Their high jinks maneuvers a few years ago to buy their own debt securities constituted self-dealing and self-propelled Ponzi methods, doomed to disaster. Denials are thin. All talk about not nationalizing the firm is confirmation of eventual nationalization. All talk about its equity not being destroyed is confirmation of an eventual zero stock price for FNM shares. All claims that Fannie Mae remains structurally sound are about as false as a claim that USGovt statistics are accurate. All denials of their insolvency serve as confirmation that they are indeed badly over-burdened by debt obligations in excess of assets. All claims that their implosion, meltdown, and failure are unlikely should be heard as clear confirmation of precisely that risk.
I CONTEND THAT FANNIE MAE IS THE PRIMA FACIE OF THE END OF THE US FINANCIAL EMPIRE. Fannie Mae, the national US secondary mortgage supplier and vast agent to assist in controlling interest rates, is failing. Their high jinks maneuvers a few years ago to buy their own debt securities constituted self-dealing and self-propelled Ponzi methods, doomed to disaster. Denials are thin. All talk about not nationalizing the firm is confirmation of eventual nationalization. All talk about its equity not being destroyed is confirmation of an eventual zero stock price for FNM shares. All claims that Fannie Mae remains structurally sound are about as false as a claim that USGovt statistics are accurate. All denials of their insolvency serve as confirmation that they are indeed badly over-burdened by debt obligations in excess of assets. All claims that their implosion, meltdown, and failure are unlikely should be heard as clear confirmation of precisely that risk.
-Jim Willie CB
JP Morgan’s Dimon: Prime Mortgages Look “Terrible”
“Our expectation is for the economic environment to continue to be weak – and to likely get weaker – and for the capital markets to remain under stress,” he said in a press statement. “We remain conscious that since substantial risks still remain on our balance sheet, these factors will likely affect our business for the remainder of the year or longer.” Part of that weak economic outlook can clearly be attributed to mortgages. In a surprisingly short conference call with analysts, Dimon suggested that losses in JP Morgan’s prime mortgage book could triple in the foreseeable future as the credit mess moves out of subprime and into Alt-A and jumbo loans.
As faith in bank bailouts dims, losses set to deepen
Saturated with bad news, investors appear to have thrown in the towel. As they do this, the risks that both consumers and businesses will face further retrenchment at the same time is growing.
Bernanke appeared conscious of this possibility, using his testimony to back away from earlier assertions that the risks to economic growth had diminished.
"The possibility of higher energy prices, tighter credit conditions, and a still-deeper contraction in housing markets all represent significant downside risks to the outlook for growth," he said, even while stressing concerns about inflation.
Back in April, the International Monetary Fund got some criticism for offering an estimate of total crisis-related losses, including insurance and home equity, that reached the $1 trillion mark. At the time, many analysts believed that number was too high. With the crisis deepening, the estimate may have prove conservative.
It recently emerged that the Federal Deposit Insurance Corporation, or FDIC, has a secret list of about 90 banks that could run into trouble. Developments surrounding Fannie and Freddie suggest that list could get longer.
The International Forecaster
What you are witnessing is the acceleration of a complete systemic breakdown of the US and world financial systems and economies. It is happening right before your eyes. It is in your face. The Scylla and Charibdis of real estate finance, Fannie Mae and Freddie Mac, which are currently in possession of, or have insured, over 5 trillion dollars worth of mortgages, a good portion of which are nothing but toxic waste, have imploded and will now be nationalized in the most egregious example of moral hazard in the history of the world. As this socialism for the rich transpires, IndyMac Bank has gone up in smoke. This is the second largest bank failure in US history and the largest such failure in over 23 years. Adding insult to injury, 10% to 20% of the FDIC's insurance reserves have just gone up in smoke along with IndyMac just as the hundreds, and what may eventually turn out to be thousands, of bank failures that are anticipated get started in earnest. What does that leave for future failures if only one bank failure wipes out a fifth of the FDIC's reserves? Next up on the chopping block may be Downey, First Federal, Wachovia and Washington Mutual, which are not small fry by any means. Mattresses and freezers may soon be the savings vehicles of choice for those who can't afford a home safety vault as Depression Era mentality becomes the psychology du jour.
You must not allow these reprobates and sociopaths to steer our country in this direction. Fannie and Freddie, like the Wall Street bankster fraudsters, must be allowed to fail, and their various shareholders and bondholders must suffer the consequences. Otherwise, we have only been pretending to have markets that are run on capitalist principles. What Paulson and Bernanke are proposing is the next step toward an evil, corporatist, fascist system of government which consists primarily of governmental partnerships with elitist transnational conglomerates where moral hazard is the market mantra, a system which would have made Hitler and Mussolini green with envy. The Illuminati want to consolidate their power by bailing those they want to survive, and by allowing those they want to destroy to fail. The failures which they allow to happen will be absorbed by surviving elitist companies, consolidating their power into fewer and fewer entities for easier and tighter control over resources and production. The Illuminati also want a far greater grant and centralization of regulatory power in the Fed, or in any successor organization, which they might create if they decide to kill off the Fed with all the toxic waste from Fannie, Freddie and the Wall Street fraudsters. Any such replacement organization will be a super entity that makes the Fed look like a paragon of virtue, and the excuse given for its creation will be a cessation to all the corruption, turmoil and abuse of which the owners of the Fed, or of the new super entity, have themselves been the main cause. This is the Hegelian Dialectic on steroids. Create the problem and suggest the solution. And if the solution suggested is not desired by the people, stuff it down their throats anyway but whatever cunning and deceit is necessary in true Machiavellian fashion.
Fear in the Streets – The Real Deal
A necessary skill for investors during this time is patience. In the coming weeks and months we suspect that fear will become our friend, driving many investors into our sector for the first time. Inflation is now in the daily news and everyone will soon know that they must have gold or silver in their portfolios.
-Dudley Pierce Baker
Thursday, July 17, 2008
Ignoring The Obvious Won't Make It Disappear
The perversion that is Wall Street has once again left us dumbfounded this evening. Banks with cratering earnings, "but beating the street estimates" are recognized as "market leaders" as the Dow extends it's suckers rally off it's technical low in an expanding Bear Market. Oil prices drop for a third day in a row, and my heavens, the threat of inflation has evaporated before our very eyes. New housing starts rise on the back of new apartment construction. Have any of you gotten a mortgage to buy an apartment? Initial jobless claims last week were not as bad as expected, but there were thousands more than the week before...fears of rising unemployment evaporate before our eyes. Gold prices, that fell 5% as Oil prices rose 37% between March 16 and July 16, dropped as Oil prices fell again today. Does that make a damn bit of sense? On March 16 Oil was $100 a barrel, and Gold was $1000 an ounce. Today Oil closed at $130 a barrel and Gold is still below $1000. Does that make a damn bit of sense?
Wall Street surges again on falling energy prices
NEW YORK (AP) -- Wall Street shot higher Thursday, extending its rally into a second session as tumbling energy prices bolstered an already upbeat mood that followed stronger-than-expected quarterly reports from big names like JPMorgan Chase and United Technologies. The Dow Jones industrial average rose more than 200 points, bringing their two-day advance to more than 480.
"The sentiment has just been so negative that even a whiff of positive news is driving the markets," said Kevin Dorwin, principal at wealth management firm Bingham, Osborn & Scarborough in San Francisco. "Oil the key factor right now because inflation has been on the top of investors' minds and a reduction in the price of oil signals that perhaps inflation will not get out of hand. That's very positive for both the stock and bond markets."
The two-day surge lifted the major indexes out of bear market territory, which is defined as a 20 percent drop from the market's recent high, which was in October. However, given the great uncertainty that remains about the economy and earnings, the market may well fall back into bear territory.
Wall Street also appeared placated by economic figures. A Commerce Department report showed construction of homes and apartments rose in June by 9.1 percent. The gain follows a change in New York laws that has given a boost to apartment building. Construction of single-family homes fell by 5.3 percent to the slowest pace in 17 years. Applications for building permits, one indicator of future activity, rose by 11.6 percent.
The Labor Department said the number of newly laid-off people seeking unemployment benefits rose by 18,000 last week to 366,000. However, the increase was below the number economists expected.
"There were some better-than-expected numbers out of the banks. I think we're maybe getting a little bit of a sigh of relief rally. Things had gotten so scary there for a few days," said Denis Amato, chief investment officer at Ancora Advisors in Cleveland.
http://biz.yahoo.com/ap/080717/wall_street.html
As John Gordon, radio voice of my Minnesota Twins is so fond of saying when one of the Twins hits one over the fence, "Touch 'em ALL." Only in the US financial press could a sack of burning dog pooh on your front porch be spun into a gift from Santa Clause for a Christmas in July. What a JOKE.
JP Morgan's profits dropped 53%! In just ONE quarter! There is NOTHING positive about that. They will be as bad or worse next quarter. Beat the Street? LOOOOOOOOOOOL! "...a reduction in the price of oil signals that perhaps inflation will not get out of hand." Are you freaking kidding me? Would you let somebody with this ridiculous notion manage your wealth? Pal, inflation is going to get so far out of hand it is going to destroy all the wealth you pretend to manage, and it won't need a penny of help from Oil prices. Home building projects started in June surprisingly rose 9.1 percent due chiefly to a change in New York City building codes that, if it were ignored, would have seen starts decrease by 4.0 percent . A lot of people are STILL losing their jobs, but not as many as were expected, so let's just ignore those that have met this misfortune. Doomed I tell you, DOOMED. The entire investment community has become delusional, unable to see or admit the truth.
Despite another day of shenanigans, misinformation, and the absurd notion that falling Oil prices will eradicate inflation, Gold and Silver held up fairly well...until the after hours Crimex Crew got their hands around them. Both are hanging tough around the support that has developed near their broken resistance levels, 952 Gold and 18.50 Silver. A quick thought on the fall in Oil prices... This action was to be expected because Oil is way overbought, but Oil is "seasonally weak" in mid July annually. Also, consider that with Oil coming with in a whisper of the $150 prediction by Goldman Sachs late this Spring, it would be no surprise that they have been madly selling futures contracts at the behest of their puppet masters in Washington and maximizing their profits. Look for "predictions" about Gold prices soon from Goldman Sachs as they look for a home for all their Oil profits.
White Lies Save the Day
Our leaders are getting closer each day to acknowledging the dire condition of the economy, even if their statistician have yet to cop to the fact that the country has been in deepening recession since around December. President Bush, Treasury Secretary Paulson, and Fed Chairman Bernanke all made public appearances yesterday to soothe frayed nerves in the wake of the Fannie/Freddie “mess” and a run on California’s IndyMac bank. Echoing Hoover, the President advised people “to take a deep breath” because the financial “system basically is sound.” No un-truer words have ever been spoken about the economy, but we should forgive Mr. Bush this white lie, since, except in times of war, it has never been a President’s job to tell it like it really and truly is.
Nor is it Mr. Bernanke’s, although we do wonder what the Day After would look like on Wall Street if the Fed chairman took to the airwaves and said, in so many words, that “we are effed!” Would investors send stocks into bullish spasms because the air had finally been cleared? Or would they take the message to heart and dump stocks as they have not been dumped since October, 1929? Whatever the case, America has no choice but to rise to the challenges presented by a bankrupt financial system and a political system that is ineffectual at best, hopelessly corrupt at worst. It’s hard to believe that, unpopular as President Bush is right now, Congress sits even lower in the polls.
Paulson told some white lies of his own, such as that “continued confidence in the GSEs is important to maintaining financial-system and market stability.” No one could quibble with the importance of this task – just that there is almost no confidence left to maintain. And while it can’t hurt Fannie Mae and Freddie Mac to have the explicit guarantee of U.S. backing that was only rumored before, investors should not be cheered by the fact that all of us, collectively, may be taxed into bankruptcy to provide that backing. We don’t think John Q. Taxpayer is in great shape to shoulder the additional $5Tr burden represented by the GSEs, on top of all of the other liabilities that will come with seeing the Baby Boomers through their golden years.
http://news.goldseek.com/RickAckerman/1216188060.php
Don’t Buy the Head Fake
This week, we were treated to strong statements by both Treasury Secretary Hank Paulson and Fed Chairman Ben Bernanke about the desirability of a “strong dollar”, and the intention of policy makers to pursue strategies that will enhance its value. To the relief of many, the dollar responded to the moral support and managed a mild rally. The move is inconsequential. The harsh realities have not changed in the slightest, and the dollar is set to continue its overall decline.
http://news.goldseek.com/GoldSeek/1216311551.php
They’re dumping oil, because it will inevitably and eventually respond to the drop in economic activity. But they’re buying gold, because they also want safety – from the dollar...from defaults...from bankruptcies...and from the claptrap solutions of public officials.
-Bill Bonner, The Daily Reckoning
Gold to Replicate Oil's Parabolic Move; 30-yr Treasury Yields to Soar
In essence, what is happening is that the US government is taking on very large amounts of debt at the same time that their revenue base (i.e. tax collection) is declining due to higher unemployment and high inflation, which curbs consumer spending on discretionary items and hence produces slower growth for US corporations and therefore less corporate tax generation. Think of the US as a large company with debt levels climbing significantly and revenue and profit declining. What usually happens in a situation like this? Well, lenders usually begin to become much less willing to lend capital at prevailing rates, and at the same time the debt-laden institution is more likely to want to raise additional capital to maintain sufficient debt to equity ratios (and/or bailout failing financial institutions. The rising debt levels coupled with declining income lead to the perception of higher probability of default (even if slightly), and the higher probability gets priced into borrowing costs in the form of higher rates needing to be paid to lenders.
What will happen is that demand for newly issued treasuries will begin to wane and large current holders of bonds (i.e. China and Japan) will likely be more inclined to reduce their holdings of US debt as risk levels associated with these bonds rise in conjunction with the fact that the value of these bonds continue to decline due to the devaluation of the dollar.
http://seekingalpha.com/article/85236-gold-to-replicate-oil-s-parabolic-move-30-yr-treasury-yields-to-soar?source=d_email
Bankers Bullsh*t & Bullion
We are at the end of an era. Capitalism, itself, is a misnomer. It should instead be called creditism or referred to by its subsequent state, debtism, for capital de facto is credit, not money. This does not mean credit is not important. Credit is an integral part of functioning economies but its use should be constrained within gold and silver based monetary systems in order to prevent its abuse.
But in its present form where credit-based money (fiat money) completely replaced gold and silver based currencies (savings-based money), central bank originated credit has led to today’s unsustainable levels of debt.
Trillions of dollars of that debt are now beginning to default and, as a consequence, credit is being withdrawn by banks, the intermediaries of credit in today’s system. It will soon begin to appear that money is becoming scarce. But that’s an illusion. The money was never there in the first place. It was only credit.
Real money, gold and silver currencies, were the first victims of central banking in the US. The latest victims are those who are about to be affected by the collapse of the US and global economy. Central banking and its spawn, credit and debt, are now everywhere and, unfortunately, so are the consequences.
http://www.24hgold.com/viewarticle.aspx?langue=en&articleid=287173_Bankers+Bullsh*t+%26+Bullion
Wall Street surges again on falling energy prices
NEW YORK (AP) -- Wall Street shot higher Thursday, extending its rally into a second session as tumbling energy prices bolstered an already upbeat mood that followed stronger-than-expected quarterly reports from big names like JPMorgan Chase and United Technologies. The Dow Jones industrial average rose more than 200 points, bringing their two-day advance to more than 480.
"The sentiment has just been so negative that even a whiff of positive news is driving the markets," said Kevin Dorwin, principal at wealth management firm Bingham, Osborn & Scarborough in San Francisco. "Oil the key factor right now because inflation has been on the top of investors' minds and a reduction in the price of oil signals that perhaps inflation will not get out of hand. That's very positive for both the stock and bond markets."
The two-day surge lifted the major indexes out of bear market territory, which is defined as a 20 percent drop from the market's recent high, which was in October. However, given the great uncertainty that remains about the economy and earnings, the market may well fall back into bear territory.
Wall Street also appeared placated by economic figures. A Commerce Department report showed construction of homes and apartments rose in June by 9.1 percent. The gain follows a change in New York laws that has given a boost to apartment building. Construction of single-family homes fell by 5.3 percent to the slowest pace in 17 years. Applications for building permits, one indicator of future activity, rose by 11.6 percent.
The Labor Department said the number of newly laid-off people seeking unemployment benefits rose by 18,000 last week to 366,000. However, the increase was below the number economists expected.
"There were some better-than-expected numbers out of the banks. I think we're maybe getting a little bit of a sigh of relief rally. Things had gotten so scary there for a few days," said Denis Amato, chief investment officer at Ancora Advisors in Cleveland.
http://biz.yahoo.com/ap/080717/wall_street.html
As John Gordon, radio voice of my Minnesota Twins is so fond of saying when one of the Twins hits one over the fence, "Touch 'em ALL." Only in the US financial press could a sack of burning dog pooh on your front porch be spun into a gift from Santa Clause for a Christmas in July. What a JOKE.
JP Morgan's profits dropped 53%! In just ONE quarter! There is NOTHING positive about that. They will be as bad or worse next quarter. Beat the Street? LOOOOOOOOOOOL! "...a reduction in the price of oil signals that perhaps inflation will not get out of hand." Are you freaking kidding me? Would you let somebody with this ridiculous notion manage your wealth? Pal, inflation is going to get so far out of hand it is going to destroy all the wealth you pretend to manage, and it won't need a penny of help from Oil prices. Home building projects started in June surprisingly rose 9.1 percent due chiefly to a change in New York City building codes that, if it were ignored, would have seen starts decrease by 4.0 percent . A lot of people are STILL losing their jobs, but not as many as were expected, so let's just ignore those that have met this misfortune. Doomed I tell you, DOOMED. The entire investment community has become delusional, unable to see or admit the truth.
Despite another day of shenanigans, misinformation, and the absurd notion that falling Oil prices will eradicate inflation, Gold and Silver held up fairly well...until the after hours Crimex Crew got their hands around them. Both are hanging tough around the support that has developed near their broken resistance levels, 952 Gold and 18.50 Silver. A quick thought on the fall in Oil prices... This action was to be expected because Oil is way overbought, but Oil is "seasonally weak" in mid July annually. Also, consider that with Oil coming with in a whisper of the $150 prediction by Goldman Sachs late this Spring, it would be no surprise that they have been madly selling futures contracts at the behest of their puppet masters in Washington and maximizing their profits. Look for "predictions" about Gold prices soon from Goldman Sachs as they look for a home for all their Oil profits.
White Lies Save the Day
Our leaders are getting closer each day to acknowledging the dire condition of the economy, even if their statistician have yet to cop to the fact that the country has been in deepening recession since around December. President Bush, Treasury Secretary Paulson, and Fed Chairman Bernanke all made public appearances yesterday to soothe frayed nerves in the wake of the Fannie/Freddie “mess” and a run on California’s IndyMac bank. Echoing Hoover, the President advised people “to take a deep breath” because the financial “system basically is sound.” No un-truer words have ever been spoken about the economy, but we should forgive Mr. Bush this white lie, since, except in times of war, it has never been a President’s job to tell it like it really and truly is.
Nor is it Mr. Bernanke’s, although we do wonder what the Day After would look like on Wall Street if the Fed chairman took to the airwaves and said, in so many words, that “we are effed!” Would investors send stocks into bullish spasms because the air had finally been cleared? Or would they take the message to heart and dump stocks as they have not been dumped since October, 1929? Whatever the case, America has no choice but to rise to the challenges presented by a bankrupt financial system and a political system that is ineffectual at best, hopelessly corrupt at worst. It’s hard to believe that, unpopular as President Bush is right now, Congress sits even lower in the polls.
Paulson told some white lies of his own, such as that “continued confidence in the GSEs is important to maintaining financial-system and market stability.” No one could quibble with the importance of this task – just that there is almost no confidence left to maintain. And while it can’t hurt Fannie Mae and Freddie Mac to have the explicit guarantee of U.S. backing that was only rumored before, investors should not be cheered by the fact that all of us, collectively, may be taxed into bankruptcy to provide that backing. We don’t think John Q. Taxpayer is in great shape to shoulder the additional $5Tr burden represented by the GSEs, on top of all of the other liabilities that will come with seeing the Baby Boomers through their golden years.
http://news.goldseek.com/RickAckerman/1216188060.php
Don’t Buy the Head Fake
This week, we were treated to strong statements by both Treasury Secretary Hank Paulson and Fed Chairman Ben Bernanke about the desirability of a “strong dollar”, and the intention of policy makers to pursue strategies that will enhance its value. To the relief of many, the dollar responded to the moral support and managed a mild rally. The move is inconsequential. The harsh realities have not changed in the slightest, and the dollar is set to continue its overall decline.
http://news.goldseek.com/GoldSeek/1216311551.php
They’re dumping oil, because it will inevitably and eventually respond to the drop in economic activity. But they’re buying gold, because they also want safety – from the dollar...from defaults...from bankruptcies...and from the claptrap solutions of public officials.
-Bill Bonner, The Daily Reckoning
Gold to Replicate Oil's Parabolic Move; 30-yr Treasury Yields to Soar
In essence, what is happening is that the US government is taking on very large amounts of debt at the same time that their revenue base (i.e. tax collection) is declining due to higher unemployment and high inflation, which curbs consumer spending on discretionary items and hence produces slower growth for US corporations and therefore less corporate tax generation. Think of the US as a large company with debt levels climbing significantly and revenue and profit declining. What usually happens in a situation like this? Well, lenders usually begin to become much less willing to lend capital at prevailing rates, and at the same time the debt-laden institution is more likely to want to raise additional capital to maintain sufficient debt to equity ratios (and/or bailout failing financial institutions. The rising debt levels coupled with declining income lead to the perception of higher probability of default (even if slightly), and the higher probability gets priced into borrowing costs in the form of higher rates needing to be paid to lenders.
What will happen is that demand for newly issued treasuries will begin to wane and large current holders of bonds (i.e. China and Japan) will likely be more inclined to reduce their holdings of US debt as risk levels associated with these bonds rise in conjunction with the fact that the value of these bonds continue to decline due to the devaluation of the dollar.
http://seekingalpha.com/article/85236-gold-to-replicate-oil-s-parabolic-move-30-yr-treasury-yields-to-soar?source=d_email
Bankers Bullsh*t & Bullion
We are at the end of an era. Capitalism, itself, is a misnomer. It should instead be called creditism or referred to by its subsequent state, debtism, for capital de facto is credit, not money. This does not mean credit is not important. Credit is an integral part of functioning economies but its use should be constrained within gold and silver based monetary systems in order to prevent its abuse.
But in its present form where credit-based money (fiat money) completely replaced gold and silver based currencies (savings-based money), central bank originated credit has led to today’s unsustainable levels of debt.
Trillions of dollars of that debt are now beginning to default and, as a consequence, credit is being withdrawn by banks, the intermediaries of credit in today’s system. It will soon begin to appear that money is becoming scarce. But that’s an illusion. The money was never there in the first place. It was only credit.
Real money, gold and silver currencies, were the first victims of central banking in the US. The latest victims are those who are about to be affected by the collapse of the US and global economy. Central banking and its spawn, credit and debt, are now everywhere and, unfortunately, so are the consequences.
http://www.24hgold.com/viewarticle.aspx?langue=en&articleid=287173_Bankers+Bullsh*t+%26+Bullion
Wednesday, July 16, 2008
There's A Fool Born Every Minute
Net Long-Term TIC Flows Up to $67.0 Billion, Total Flows Down to -$2.5B
(CEP News) - Net long-term TIC flows came in below the consensus forecast, totalling $67.0 billion in May, while total TIC flows for the month fell to -$2.5 billion, according to data released by the U.S. Treasury on Wednesday morning.
TD's Charmaine Buskas wrote, "There was a broad-based scaling back in appetite for U.S. Treasuries by foreign investors who purchased only $7.7 billion in May, compared to $76 billion in April. The steady appetite for U.S. securities in April is encouraging to the extent that it funds the May trade gap of $59.8 billion, but it is clear that U.S. securities are looking a lot less attractive to foreigners lately."
U.S. June CPI up 1.1 pct; core CPI up 0.3 pct, headline figure at 26-yr high
WASHINGTON (Thomson Financial) - The largest increase in commodity prices on record pushed consumer inflation in June to its fastest monthly rise since the early 1980s, the Labor Department said today.
Overall prices rose 1.1 pct, the fastest monthly gain since June 1982, while core inflation, which strips out volatile food and energy prices, rose 0.3 pct in the month. Economists polled by Thomson Reuters IFR Markets expected a 0.8 pct increase for the headline number and a 0.2 pct core increase.
Overall inflation has risen an unadjusted 5.0 pct in the year ending in June, the largest annual rise since May 1991. Core inflation has risen an unadjusted 2.4 pct over the last 12 months, matching March's yearly gain.
On a seasonally adjusted basis, overall inflation rose at a 7.9 pct annualized pace in the last three months. Core inflation has risen at a 2.5 pct annualized pace in the past three months, well above the Federal Reserve's "comfort zone" of around 2.0 pct.
Energy prices rose 6.6 pct in June after rising 4.4 pct in May, while food prices rose 0.8 pct after rising 0.3 pct in May. Commodities prices rose 1.9 pct in June, the largest ever monthly gain since the department began collecting records in 1956.
The inflation pressures left real average weekly earnings down 0.9 pct for the month, the third straight month when wages have not kept up with rising prices and the sharpest drop in real earnings since August 1984.
For the year, real average weekly earnings fell 2.4 pct, the largest annual drop since September 2005. Average hourly earnings, which are not adjusted for inflation, rose 0.3 pct for the second consecutive month.
This is VERY bad news for the buck. Inflation is accelerating and nobody wants to buy this nations debt. And the Dollar rose? LUDICROUS! They say there's a fool born every minute. The birth canal for fools must have burst this morning. "With inflation like this, the Fed will have to begin raising interest rates ASAP." Yeah, right. The US Financial Industry is on the brink of extinction, and the Fed is going to raise interest rates? Yeah, right...again. Wise up fools! There are NOT going to be ANY interest rate increases at the Fed anytime soon. The Fed is now 100% committed to printing money as fast as they can, and as much of it as they can. How else could they hope to bailout the floundering Mortgage Twins?
Oil prices tanked again today. So what! Oil is WAY OVERDUE for correction. Will we get a 20% correction in Oil prices? It remains to be seen... But again, so what! Oil is NOT the cause of inflation, the printing of money around the clock by the US Federal Reserve is. A drop in Oil prices is NOT going to make inflation go away. Selling your Gold and Silver positions on a drop in Oil prices is STOOPID, a fool's game. The headlines above give you all the reason you need to buy and KEEP Gold and Silver as protection against the ravages of monetary inflation. Relative to Oil, Gold and Silver remain SCREAMING BUYS.
Tuesday, July 15, 2008
Damn Mr. President, things couldn't be better...
Customers furious in Day 2 of IndyMac fed takeover
LOS ANGELES (AP) — Police ordered angry customers lined up outside an IndyMac Bank branch to remain calm or face arrest Tuesday as they tried to pull their money on the second day of the failed institution's federal takeover.
Worried customers with deposits in excess of insured limits flooded IndyMac Bank branches on Monday, demanding to withdraw as much money as they could or get answers about the fate of their funds.
http://ap.google.com:80/article/ALeqM5hUsHq4hmx_WYzcFWVjAsPnbQHB9AD91UCKI01
It's just one bank out of 6000 that face this possible demise...insolvency. The question then? Are there enough police?
Stocks Shed Losses as Oil Sinks
Wall Street recouped its steep early losses and traded mixed Tuesday as oil plunged, giving investors hope that lower energy prices could help revive the flagging economy.
I found this late morning headline particularly amusing. "...hope that lower energy prices could help revive the flagging economy." LOOOOOOOOOOOOOOL! Oil is down ONE day and hope springs eternal? How stupid a supposition is that? Only in the US media... Recall that Oil prices were down early last week $10, and Oil closed the week at new ALL-Time highs. Yes, Oil is due for a fall...a correction even...but it will in no way be "enough" to "revive the flagging economy". The problems in our economy run a whole lot deeper than the cost of energy. Are falling energy prices going to miraculously boost home prices? Reliquidate the banks? End the war in Iraq? Of course Wall Street found away instead to revive losses, and close down near 100 points on the day. So much for falling Oil prices.
It was even more amusing the reason given for the falling prices...lower demand on a weaker economy. How many times has this supposition been made to explain lower Oil prices, only to see the prices move even higher. Oil demand no longer revolves around the US. It revolves around the emerging world economies, in particular China, India, and Russia. The three combined now use as much Oil as the gluttonous USA. Demand is NOT dropping in these economies, it is increasing...and increasing faster than it is falling here.
It was particularly annoying, to see the prices of Gold and Silver wither on the falling prices of Oil. The Euro hit a new ALL-TIME high versus the Dollar today. It is high time we see a disconnect between Oil and the Precious Metals. Oil is up because of a weaker Dollar, and so is Gold and Silver. The Dollar was down all day today. Gold did close up on the day, but well off it's highs because of falling Oil prices? Nobody ever claimed that the clowns at the Crimex are very smart. Gold and Silver have a lot of catching up to do versus Oil. Should Oil sell off, the money leaving it is going to flow into Gold and Silver. Take that to you bank and ask for your money.
Bernanke: Economy faces 'numerous difficulties'
WASHINGTON (AP) -- Federal Reserve Chairman Ben Bernanke told Congress Tuesday the fragile economy is facing "numerous difficulties" despite the Fed's aggressive interest rate reductions and other fortifying steps.
The situation, he said, poses "significant challenges" for Fed policymakers as they try to chart the best course for keeping the economy growing, while making sure inflation doesn't dangerously flare up. All the economy's problems -- including slumping home values, which threaten to make people feel less wealthy and less inclined to spend in the months ahead -- represent "significant downside risks" to economic growth.
Over the rest of this year, the economy will grow "appreciably below its trend rate" mostly because of continued weakness in housing markets, high energy prices and tight credit conditions, Bernanke said.
http://biz.yahoo.com/ap/080715/bernanke.html
Bush Says U.S. Economy Still Fundamentally Strong
President Bush sought yesterday to reassure shaky markets and frightened consumers about worsening financial conditions, and he blamed congressional Democrats for not acting quickly enough to tackle the nation's economic troubles.
And with one large California bank already taken over by the federal government, Bush even offered a brief tutorial on the mechanics of bank runs. "I happened to witness a bank run in Midland, Texas, one time," Bush told reporters at the White House. "I'll never forget the guy standing in the bank lobby, saying, 'Your deposits are good. We got you insured. You don't have to worry about it if you got less than $100,000 in the bank.' The problem was, people didn't hear."
"My hope is, is that people take a deep breath and realize that their deposits are protected by our government," he added.
...Bush sought to balance his trademark optimism with assurances that the economic troubles facing Americans will subside.
He said that "it's been a difficult time" for American families but that "we will come through this challenge stronger than ever before." There is "no short-term solution" to energy problems, Bush said, but it is "urgent" for Congress to lift its ban on offshore oil drilling. He said the unique status of mortgage giants Fannie Mae and Freddie Mac required a "special step" to show that the government will stand behind the companies' mortgages, but he added that conventional private enterprises should not expect a government bailout.
"I think the system basically is sound, I truly do," Bush said. "And I understand there's a lot of nervousness. . . . But the economy is growing, productivity is high, trade is up, people are working. It's not as good as we'd like, but . . . to the extent that we find weakness, we'll move."
http://www.washingtonpost.com/wp-dyn/content/article/2008/07/15/AR2008071501490.html
Now that's leadership! How did this Muppet ever become president of the United States? As if his words are going to magically make everything better. I'm sorry Mr. President, but when it comes to the economy, you don't know your ass from a hole in the ground. Please, just shut up...and go away. The system isn't sound, the FDIC doesn't have enough "cash" to insure depositors in ANY bank, FEWER people are working, and your government has done a damn thing to fix anything, only make it worse.
Downturn gains steam as inflation roars ahead
WASHINGTON (AP) -- The U.S. economic downturn gained steam Tuesday, with a report of the highest inflation since the early 1980s, more bad news for banks and automakers and a suggestion by the Federal Reserve chief that worse days are ahead.
The Labor Department said wholesale inflation, driven by skyrocketing gas and food costs, rose by 9.2 percent for the 12 months ending in June -- the fastest pace since the summer of 1981, during another energy crunch.
At the same time, consumers hit the brakes hard despite a massive infusion of government stimulus checks. Retail sales turned in their poorest showing in four months.
Outside Washington, there was plenty more bad news. On Wall Street, the Dow Jones industrials closed below 11,000 for the first time in two years, and shares of troubled mortgage giants Fannie Mae and Freddie Mac tumbled again. Fannie shed 27.3 percent and Freddie lost 26 percent.
http://biz.yahoo.com/ap/080715/economy.html
Damn Mr. President, things couldn't be better...
Is that progress...or what?
As if the pretensions and conceits of the financial industry weren’t comic enough...we’re now going to see a hilarious farce. The same people who set up a government sponsored enterprise to jack up the mortgage market...and created the biggest housing bubble the world has ever seen...now come to the rescue when the bubble pops.
How, exactly, are they going to rescue America’s mortgage industry? Henry Paulson says they’re going to lend more money to Fannie and Freddie. And he wants the feds to buy their stock too. That should do it. Fannie and Freddie, in their heyday, put their hands on 80% of all the new mortgages in the entire country. Now, they have a book of business that includes more than $5 trillion in liabilities – an amount equal to about half the outstanding mortgages in the country...and a third of the nation’s total GDP.
In other words, Fannie and Freddie are probably the two most important businesses in the consumer economy. Now, nearly three decades after the Reagan Revolution, they will be nationalized. Is that progress...or what?
Yes, dear reader...this is what it has come to. It’s not just a war between inflation and deflation. It’s also a fight between the forces of delusion..and the forces of reality. The delusion is that you can make the problems caused by too much credit go away – by giving more credit! A related delusion: that you can make people richer by printing up more money for them. Yet another: that you can spend your way out of a slump caused by too much spending. And here’s another: the federal bureaucrats can manage the economy better than it can manage itself. And how’s this: that hedge fund hustlers such as Mr. Devaney can make you rich by making huge gambles with your money. Or this: that if you just allow capitalism to work, we’ll all get rich.
The reality is that you can’t get something for nothing. Asians are gaining wealth because they work for peanuts and save their money. Americans are losing wealth because they spend too much and don’t save at all. And when a bubble is ready to pop, it will pop...no matter what you do. Sometimes you can delay it...or push the damage onto to someone who doesn’t deserve it – such as the taxpayer. But all interventions just make the situation worse...causing more, and bigger problems elsewhere.
Bill Bonner
The Daily Reckoning
LOS ANGELES (AP) — Police ordered angry customers lined up outside an IndyMac Bank branch to remain calm or face arrest Tuesday as they tried to pull their money on the second day of the failed institution's federal takeover.
Worried customers with deposits in excess of insured limits flooded IndyMac Bank branches on Monday, demanding to withdraw as much money as they could or get answers about the fate of their funds.
http://ap.google.com:80/article/ALeqM5hUsHq4hmx_WYzcFWVjAsPnbQHB9AD91UCKI01
It's just one bank out of 6000 that face this possible demise...insolvency. The question then? Are there enough police?
Stocks Shed Losses as Oil Sinks
Wall Street recouped its steep early losses and traded mixed Tuesday as oil plunged, giving investors hope that lower energy prices could help revive the flagging economy.
I found this late morning headline particularly amusing. "...hope that lower energy prices could help revive the flagging economy." LOOOOOOOOOOOOOOL! Oil is down ONE day and hope springs eternal? How stupid a supposition is that? Only in the US media... Recall that Oil prices were down early last week $10, and Oil closed the week at new ALL-Time highs. Yes, Oil is due for a fall...a correction even...but it will in no way be "enough" to "revive the flagging economy". The problems in our economy run a whole lot deeper than the cost of energy. Are falling energy prices going to miraculously boost home prices? Reliquidate the banks? End the war in Iraq? Of course Wall Street found away instead to revive losses, and close down near 100 points on the day. So much for falling Oil prices.
It was even more amusing the reason given for the falling prices...lower demand on a weaker economy. How many times has this supposition been made to explain lower Oil prices, only to see the prices move even higher. Oil demand no longer revolves around the US. It revolves around the emerging world economies, in particular China, India, and Russia. The three combined now use as much Oil as the gluttonous USA. Demand is NOT dropping in these economies, it is increasing...and increasing faster than it is falling here.
It was particularly annoying, to see the prices of Gold and Silver wither on the falling prices of Oil. The Euro hit a new ALL-TIME high versus the Dollar today. It is high time we see a disconnect between Oil and the Precious Metals. Oil is up because of a weaker Dollar, and so is Gold and Silver. The Dollar was down all day today. Gold did close up on the day, but well off it's highs because of falling Oil prices? Nobody ever claimed that the clowns at the Crimex are very smart. Gold and Silver have a lot of catching up to do versus Oil. Should Oil sell off, the money leaving it is going to flow into Gold and Silver. Take that to you bank and ask for your money.
Bernanke: Economy faces 'numerous difficulties'
WASHINGTON (AP) -- Federal Reserve Chairman Ben Bernanke told Congress Tuesday the fragile economy is facing "numerous difficulties" despite the Fed's aggressive interest rate reductions and other fortifying steps.
The situation, he said, poses "significant challenges" for Fed policymakers as they try to chart the best course for keeping the economy growing, while making sure inflation doesn't dangerously flare up. All the economy's problems -- including slumping home values, which threaten to make people feel less wealthy and less inclined to spend in the months ahead -- represent "significant downside risks" to economic growth.
Over the rest of this year, the economy will grow "appreciably below its trend rate" mostly because of continued weakness in housing markets, high energy prices and tight credit conditions, Bernanke said.
http://biz.yahoo.com/ap/080715/bernanke.html
Bush Says U.S. Economy Still Fundamentally Strong
President Bush sought yesterday to reassure shaky markets and frightened consumers about worsening financial conditions, and he blamed congressional Democrats for not acting quickly enough to tackle the nation's economic troubles.
And with one large California bank already taken over by the federal government, Bush even offered a brief tutorial on the mechanics of bank runs. "I happened to witness a bank run in Midland, Texas, one time," Bush told reporters at the White House. "I'll never forget the guy standing in the bank lobby, saying, 'Your deposits are good. We got you insured. You don't have to worry about it if you got less than $100,000 in the bank.' The problem was, people didn't hear."
"My hope is, is that people take a deep breath and realize that their deposits are protected by our government," he added.
...Bush sought to balance his trademark optimism with assurances that the economic troubles facing Americans will subside.
He said that "it's been a difficult time" for American families but that "we will come through this challenge stronger than ever before." There is "no short-term solution" to energy problems, Bush said, but it is "urgent" for Congress to lift its ban on offshore oil drilling. He said the unique status of mortgage giants Fannie Mae and Freddie Mac required a "special step" to show that the government will stand behind the companies' mortgages, but he added that conventional private enterprises should not expect a government bailout.
"I think the system basically is sound, I truly do," Bush said. "And I understand there's a lot of nervousness. . . . But the economy is growing, productivity is high, trade is up, people are working. It's not as good as we'd like, but . . . to the extent that we find weakness, we'll move."
http://www.washingtonpost.com/wp-dyn/content/article/2008/07/15/AR2008071501490.html
Now that's leadership! How did this Muppet ever become president of the United States? As if his words are going to magically make everything better. I'm sorry Mr. President, but when it comes to the economy, you don't know your ass from a hole in the ground. Please, just shut up...and go away. The system isn't sound, the FDIC doesn't have enough "cash" to insure depositors in ANY bank, FEWER people are working, and your government has done a damn thing to fix anything, only make it worse.
Downturn gains steam as inflation roars ahead
WASHINGTON (AP) -- The U.S. economic downturn gained steam Tuesday, with a report of the highest inflation since the early 1980s, more bad news for banks and automakers and a suggestion by the Federal Reserve chief that worse days are ahead.
The Labor Department said wholesale inflation, driven by skyrocketing gas and food costs, rose by 9.2 percent for the 12 months ending in June -- the fastest pace since the summer of 1981, during another energy crunch.
At the same time, consumers hit the brakes hard despite a massive infusion of government stimulus checks. Retail sales turned in their poorest showing in four months.
Outside Washington, there was plenty more bad news. On Wall Street, the Dow Jones industrials closed below 11,000 for the first time in two years, and shares of troubled mortgage giants Fannie Mae and Freddie Mac tumbled again. Fannie shed 27.3 percent and Freddie lost 26 percent.
http://biz.yahoo.com/ap/080715/economy.html
Damn Mr. President, things couldn't be better...
Is that progress...or what?
As if the pretensions and conceits of the financial industry weren’t comic enough...we’re now going to see a hilarious farce. The same people who set up a government sponsored enterprise to jack up the mortgage market...and created the biggest housing bubble the world has ever seen...now come to the rescue when the bubble pops.
How, exactly, are they going to rescue America’s mortgage industry? Henry Paulson says they’re going to lend more money to Fannie and Freddie. And he wants the feds to buy their stock too. That should do it. Fannie and Freddie, in their heyday, put their hands on 80% of all the new mortgages in the entire country. Now, they have a book of business that includes more than $5 trillion in liabilities – an amount equal to about half the outstanding mortgages in the country...and a third of the nation’s total GDP.
In other words, Fannie and Freddie are probably the two most important businesses in the consumer economy. Now, nearly three decades after the Reagan Revolution, they will be nationalized. Is that progress...or what?
Yes, dear reader...this is what it has come to. It’s not just a war between inflation and deflation. It’s also a fight between the forces of delusion..and the forces of reality. The delusion is that you can make the problems caused by too much credit go away – by giving more credit! A related delusion: that you can make people richer by printing up more money for them. Yet another: that you can spend your way out of a slump caused by too much spending. And here’s another: the federal bureaucrats can manage the economy better than it can manage itself. And how’s this: that hedge fund hustlers such as Mr. Devaney can make you rich by making huge gambles with your money. Or this: that if you just allow capitalism to work, we’ll all get rich.
The reality is that you can’t get something for nothing. Asians are gaining wealth because they work for peanuts and save their money. Americans are losing wealth because they spend too much and don’t save at all. And when a bubble is ready to pop, it will pop...no matter what you do. Sometimes you can delay it...or push the damage onto to someone who doesn’t deserve it – such as the taxpayer. But all interventions just make the situation worse...causing more, and bigger problems elsewhere.
Bill Bonner
The Daily Reckoning
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