G20: G-WHIZ!

The NON-event of this perpetually unfolding global financial crisis has to be this weekends G20 summit. Agreeing to agree, nothing substantive or productive was accomplished by this gathering of floundering politicos. We can sum up the meeting in one sentence: "We can't let this happen again."

Sadly amusing, we must point out that the present global financial crisis is far from being behind us yet, and these political hacks are worried about stopping the next one. What in the hell do they plan to do about this one? Oh, print more money and make credit easier to get. Hey! How about more of the same that got the world in this mess.

Transparency seemed to be a word bandied about a lot this weekend. I wonder if Bumbling Ben Bernanke and Hanky Panky Paulson were in the room for that discussion. Transparency is not in these two crooks vocabulary. The greatest feat accomplished over this "short" weekend summit was the restraint of world leaders not to point the finger squarely at the source of this global financial fiasco: The United States Federal Reserve, with abundant assistance from the United States Treasury Department. How these guys managed to bite their tongues on this obvious "problem" for the world financial system going forward is anybody's guess. Perhaps they were told before dinner that if they talked outrageously during the meal, they would get no dessert.

It would appear then, that for the immediate future we can expect more of the same from the world financial community. More bailouts and monetary infusions as the worlds central banks continue in their efforts to simply "manage" the unraveling of the global financial system via under the table inflation. Don't get too used to $2 a gallon gasoline, the inflation monster is incubating, soon to be unleashed upon an unsuspecting global consumer.

G-20 Summit: Little Action, Many Promises
Expectations for the weekend summit of global leaders from the Group of 20 countries in Washington, D.C., were low. And they were fully met.

After a state dinner at the White House on Friday night, Nov. 14, and five hours of meetings on Saturday, Nov. 15, the heads of state from nearly two dozen countries agreed to continue working closely together to take the needed steps to bring stability back to the global financial system.

"Our nations agree that we must make the financial markets more transparent and accountable," said President George W. Bush soon after the summit drew to a close. "We agree that we need to improve our regulation and to ensure that markets, firms, and financial products are subject to proper regulation and oversight."

All of the leaders backed the importance of continued monetary and fiscal stimulus to juice the globe's staggering economies. And there was plenty of agreement on the need to improve regulatory regimes—in individual countries as well as the coordination between countries—so that all financial markets, financial players, and financial products are better regulated. There was much talk, too, of how critical markets, such as credit default swaps, or critical players, such as giant global banks and the influential credit ratings agencies, are regulated and monitored both nationally and internationally.
http://www.businessweek.com/bwdaily/dnflash/content/nov2008/db20081115_899204.htm?chan=top+news_top+news+index+-+temp_news+%2B+analysis

That's great Mr. Lame duck President. Does that mean the Fed will be coming clean this week regarding the toxic waste they have been absorbing from American banks? Probably not. The world has learned a tough lesson from the United States: The laws apply to everyone BUT the United States. That, and US officials tend to lie a lot. Listening to Hanky Panky Paulson the past 18 months would make you wonder if this guy is absolutely full of sh*t or completely clueless.

-April 20 2007 — "I don't see (subprime mortgage market troubles) imposing a serious problem. I think it's going to be largely contained."

-March 16, 2008 — "I have great, great confidence in our capital markets and in our financial institutions. Our financial institutions, banks and investment banks, are strong. Our capital markets are resilient. They're efficient. They're flexible."

-May 16, 2008 — "Looking forward, I expect that financial markets will be driven less by the recent turmoil and more by broader economic conditions and, specifically, by the recovery of the housing sector."

-November 12, 2008 — "This market has for all practical purposes ground to a halt. Today, the illiquidity in this sector is raising the cost and reducing the availability of car loans, student loans and credit cards. This is creating a heavy burden on the American people and reducing the number of jobs in our economy."

And that is just a handful of Paulson's verbal flotsam. Has the man gotten anything right throughout this entire crisis? Not in the eyes of the American taxpayer he hasn't, but for his banking buddies on Wall Street he is more popular than the tooth fairy. This man is a criminal of the highest order. He has stolen trillions from the US taxpayer and handed it to his fellow crooks on Wall Street. As he prepares to leave office one can only imagine the more damage he can do to this country's balance sheet.

Government Bailouts Multiply as Paulson Prepares to Leave Washington
Hank Paulson knows he has two months left until he leaves Washington. Therefore, he must feel he needs to pass out as much free cash to his friends in banking and finance before he leaves town. Or, at least so it seems.

The US banking system is certainly in need of recapitalization. But I must confess this looks a lot like crony capitalism.

Look at who is in line for free money from the U.S. government:


-Banks have gone to the Federal Reserve with dodgy assets and received trillions of dollars in loans at low rates (Fed Funds is 1% now) in return. However, the Federal Reserve refuses to reveal what assets it is taking on. Bloomberg News has sued to find out.

-Money center banks received $125 billion in equity capital under TARP.

-Regional and local banks received another $125 billion dollars in equity capital.
AIG (AIG) has received $40 billion in equity capital and a line of credit of $150 billion. See my post, "Doubling down at AIG."

-Morgan Stanly and Goldman Sachs (GS) became bank holding companies in order to secure low cost funding.

-American Express (AXP) became a bank holding company for the same reason
GMAC (GJM) and GE Capital (GE) want to be bank holding companies for the same reason. Last time I checked. GMAC was a auto finance company and GE Capital was a private equity shop. They are not banks.

-GE Capital has received a blanket guarantee for $139 billion in debt from the FDIC which regulates and makes money available for depositary institutions. GE Capital is not a depositary institution.

This whole charade is a bit of a head scratcher because it confirms the notion that financial interests are clearly winning out over consumer interests. How many people do you know getting mortgage loan modifications or debt relief? Not may I suspect. Wall Street is still getting a lot more dosh than Main Street. And it's all happen right under our noses in plain view for all to see.
http://seekingalpha.com/article/105997-government-bailouts-multiply-as-paulson-prepares-to-leave-washington

The Humpty Dumpty Economy
By: Peter Schiff, Euro Pacific Capital, Inc.
Before the current economic crisis became apparent to all, the most popular fable used to describe America’s uncanny economic resiliency was the story of Goldilocks. It was argued that our economy was skipping down a sunny path of moderate growth, low inflation and rising asset prices. However, a much better parable for our economy over the last decade would have been the story of Humpty Dumpty: a bloated, fragile shell perched on the top of a dangerously high stone wall. This week, all the government’s horses and all of its men scrambled to put Humpty Dumpty back together again. Here is a look at some of this week’s highlights:

No doubt prodded by the administration, Fannie Mae and Freddie Mac announced a new attempt to stop the fall in home prices and foreclosures through a loan modification program that would cap mortgage payments so that a homeowner’s total housing expenses would not exceed 38% of household income for home owners who are 90 days delinquent.

With the Big Three auto makers now in a plainly visible death spiral, the automotive bailout debate is kicking into overdrive. The disagreement hinges on whether a bailout is necessary to support an important industry or whether the unprofitable dinosaurs of the past should be allowed to fail as America focuses on an information-age, service sector, and alternative energy future.

This week, the bankruptcy filing by Circuit City and a profit warning from Best Buy, served as proof positive that America’s national shopping spree is over. As I have long said, the business model of importing cheap goods for Americans to buy with credit cards was unsustainable. We were told to “Shop till we dropped,” and we did.

Americans two primary sources of spending money, home equity extractions and unlimited credit card availability, have been shut down. With only dwindling paychecks to rely on, Americans are justifiably economizing. As a result, many more retailers will file for bankruptcy over the next few years, and those that remain solvent will only do so by drastically cutting their capacity.

In a desperate move to arrest this necessary process, Treasury Secretary Paulson announced his intention to use part of the $700 billion TARP (Troubled Asset Recovery Program) funds to re-liquefy consumer lending.

Reminiscent of his Bazooka maneuver, quick draw Paulson reversed course quickly with his decision to not use any TARP funds to buy the assets that the plan was specifically funded to procure. Instead, he will simply dole out the loot to his buddies on Wall Street and use it for whatever seemingly worthy initiative strikes his fancy.

Although Congress loves to grandstand about oversight, it has thus far shown no courage to interfere, or even question, the change in strategy. Paulson claims that he is simply rolling with the punches. The truth however, is that the original plan was flawed from inception, as I clearly pointed out in a string of commentaries following his proposal. How could the Treasury

Department, with all its funding and PhD’s, not make similar predictions? Paulson is either a liar or completely incompetent. My guess is he is both.
It is mindboggling to consider that all of these developments took place in just one week. As the remnants of America’s shattered economy continue to ooze out over the pavement, look for even more bizarre, draconian, unworkable, and downright dangerous policies to emerge from Washington.
http://news.goldseek.com/EuroCapital/1226696121.php

Stable Money Is the Key to Recovery
At the bottom of the world financial crisis is international monetary disorder. Ever since the post-World War II Bretton Woods system -- anchored by a gold-convertible dollar -- ended in August 1971, the cause of free trade has been compromised by sovereign monetary-policy indulgence.

Today, a soupy mix of currencies sloshes investment capital around the world, channeling it into stagnant pools while productive endeavor is left high and dry. Entrepreneurs in countries with overvalued currencies are unable to attract the foreign investment that should logically flow in their direction, while scam artists in countries with undervalued currencies lure global financial resources into brackish puddles.

To speak of "overvalued" or "undervalued" currencies is to raise the question: Why can't we just have money that works -- a meaningful unit of account to provide accurate price signals to producers and consumers across the globe?

Consider this: The total outstanding notional amount of financial derivatives, according to the Bank for International Settlements, is $684 trillion (as of June 2008) -- over 12 times the world's nominal gross domestic product. Derivatives make it possible to place bets on future monetary policy or exchange-rate movements. More than 66% of those financial derivatives are interest-rate contracts: swaps, options or forward-rate agreements. Another 9% are foreign-exchange contracts.

In other words, some three-quarters of the massive derivatives market, which has wreaked the most havoc across global financial markets, derives its investment allure from the capricious monetary policies of central banks and the chaotic movements of currencies.
In the absence of a rational monetary system, investment responds to the perverse incentives of paper profits. Meanwhile, price signals in the global marketplace are hopelessly distorted.

If we are to "build together the capitalism of the future," as Mr. Sarkozy puts it, the world needs sound money. Does that mean going back to a gold standard, or gold-based international monetary system? Perhaps so; it's hard to imagine a more universally accepted standard of value.
http://online.wsj.com/article/SB122663373660027575.html?mod=article-outset-box

COMEX Commercials Least Net Short Gold In Years
ATLANTA (ResourceInvestor.com) -- Regardless of whether or not the world is near the end of the giant financial “Charlie Foxtrot” we have all endured up to now, the largest of the largest traders of gold futures now have the fewest bets that the U.S. dollar price of gold will fall further than they have had in years.

As of Tuesday, November 4, traders classed by the Commodities Futures Trading Commission (CFTC) as commercial held a collective net short position (LCNS) of just 76,406 out of a total 303,908 contracts on the COMEX, division of NYMEX in New York. A net short position means that the trader profits if the commodity goes lower in price.

Yes, the current COMEX commercial gold net short positioning is the lowest in years. Indeed, we have to go all the way back to June 7, 2005 to find a reporting week which shows a lower LCNS (67,052 then), back when gold closed at $424.87.

That doesn’t mean that gold can’t go lower still, it can. It just means that the big dogs in the futures trading arena are not positioning like they think it will. To the contrary.
http://www.resourceinvestor.com:80/pebble.asp?relid=47779

Gold seldom performs well after these big G-Whiz pow-wows. We expect more of the same this week. However, bear in mind that the December futures contracts in Gold, Silver, and Oil expire on Thursday. This "could" prove to be a major turning point in commodities prices. However with the threat of further hedge fund liquidations into the year end, expectations of a big rally in Gold any time soon should be tempered going forward. Volatility will most likely remain with us for the near term. A bullish case for both Gold and Silver can not be endorsed until Gold convincingly takes out 776 and Silver clears 10.50. Until then, continue to accumulate at sale prices.