Jack's Weekly Apocalypse Watch

Yeah, I renamed it. "Weekly Update" was just a little boring. Or "snorey", if you will. (Inside joke.)

Here's the news I found amusing this week.

Government No Longer Pretends To Be Anything Other Than an ATM for Bankers
In an utterly unsurprising development, the government has said it will guarantee unlimited number of losses at Fannie Mae & Freddie Mac for the next 3 years. You remember Fannie & Freddie, right? They were private companies that bought mortgages. This was their business model up till July 2008:

Step 1. Buy mortgages from banks that don't want to carry them because the mortgagees are bad credit risks.
Step 2. Lose trillions of dollars when those people who were bad credit risks quit paying.
Step 3. Pay their executive Big Bucks for doing a such a stellar job.

Then in July 2008, they couldn't pretend this was a viable business model anymore, so they called in their political debts and Congress handed them $700 billion dollars so they wouldn't have to officially declare themselves both Bankrupt and Insolvent. Congress assured us ignorant rubes that this was in our best interest, and that Things Would Be Better Now. Of course they were lying and of course we knew it. Fannie & Freddie are now even more broke, more insolvent and deeper in debt, so Congress - rather than writing a big check - just gave them a credit card with no limit.

Ain't it great to be a banker?

Never One To Miss an Opportunity To Look Idiotic, the TSA Outlaws Pooping and Peeing the Last Hour of a Flight
Unless you do it in your seat. Then it's okay. This in response to the guy who lit his underwear on fire. They also prohibited using electronics in the last hour and keeping anything in your lap the last hour.

Of course, a really CLEVER terrorist will find a way to make his poop and pee explosive, and then "detonate" it when they strap him into his seat.

I don't know why they don't just prohibit flying. Oh wait, yes I do. Where would all those mouth-breathers currently employed by the TSA go, the Post Office?

UPDATE: They caved on their stupid new rules.

James Cameron is in fact The King of Hollywood
We just got back from seeing Avatar, the latest movie from Titanic/Terminator creator/director James Cameron. It seems like every two months another movie is being touted as "ground-breaking-this" or "never-before-done-that" and invariably they all fail to live up to the hype. Avatar, however, exceeds the hype. I was blown away. It is a game changer. From now on, all movies will be either "Before Avatar" or "After Avatar". It really is that good. Go see it. You'll thank me.

More fun Graphs

I sincerely hope no one interprets my skewering of the Obama administration as an endorsement for Republicans. The only thing keeping Republicans from being the slimiest creatures on the planet is Democrats.

The REALLY fun part about all this is that the government has under-reported unemployment for more than two decades. John Williams at Shadow Government Statistics uses the government's pre-1982 formulas for calculating things like CPI and unemployment. He says the true unemployment rate, using the government'e earlier formula, is likely over 20%.

Now that's what I call "change we can believe in."

Too True to be Funny, Too Funny not to Share

I found this on Charles Goyette's website.

Rest in Peace - Ken Jessup

I lost an old friend today and don't much feel like talking about finance.

Rest in Peace, Ken.

Is Your Bank Doomed?

This list will tell you. Any number greater than 100 in the column labeled "Texas Ratio" means the bank is --uhm-- "less than healthy". How's that for politically correct?

If you consent to it, its not a crime

Interesting juxtaposition of headlines in the WSJ yesterday:

States Post Widespread Job Losses
Morgan Stanley Breaks a String of Losses
Wells Net Rises Despite Loan Losses

Rising unemployment. Big banks making tons of money and paying huge bonuses. Does this make any sense?

The U.S. Government is bought and paid for by the NY bankers. The government operates for the benefit of these banks. The bankers are raping us, and the government is the one providing the rope and duct tape.

The most profound insight on the nature of government comes from the Declaration of Independence: ...all government derives its just powers from the consent of the governed.

If you continue to consent to this type of government, then it is not rape, it is merely kinky, consensual sex.

Why the SEC will never rein in Goldman Sachs

Seriously, do you still believe this is a government "of the people, by the people, blah blah blah"?

From Bloomberg: The U.S. Securities and Exchange Commission hired Adam Storch, a 29-year-old former employee in Goldman Sachs Group Inc.’s business intelligence unit, as the enforcement division’s first chief operating officer, according to people familiar with the decision. The COO, who started Oct. 13, has “a great deal of background” in technology and managing processes and the pace of work, Robert Khuzami, head of enforcement, said yesterday in Washington. Storch, who worked since 2004 in a unit at Goldman Sachs that reviewed contracts and transactions for signs of fraud, will be charged with making the unit more efficient. Storch, reached by telephone at the SEC, declined to comment.

That's right - the chief enforcer for the SEC is a wet-behind-the-ears Goldman Sachs puppy. He worked at G-S since 1984 which means "since they hired him out of college." Yeah, that is some serious experience there.

I continue to assert that Goldman Sachs owns the government and runs things for their own benefit. How else to explain the fact that this time last year, the big banks - led by G-S - were begging for a government bailout and this year G-S is set to pay their biggest bonuses ever?

Remember: government derives its just powers from the consent of the governed. As long as "We the People" continue to assent to this government, then the crime syndicate that runs the biggest banks and by proxy the government will continue stealing from us and say it is for our own good.

What Happened to Global Warming?

That bastion of reactionary, luddite, head-in-the-sand hyperconservatism - the British Broadcasting Company, (yes, I am attempting to be sarcastic) - wants to know what happened to Global Warming.  Good story and worth your time.

Have you noticed that the Do-Gooders who always worry about things that cannot be changed have switched the object of their worry to Climate Change and away from Global Warming? Back in the mid 70s, the same nincompoops were up in arms about the coming New Ice Age but they had to change their tune in the late 80s because the Ice Age they predicted with such confident certainty was manifestly failing to... well, manifest.

That's when they changed to worrying about Global Warming.

I suppose after another 20 years of the Climate not Changing, they'll worry about The Sky Falling, or something equally unlikely and unpreventable. These people would be objects of pity and derision if they didn't wield so much power to harm the rest of us with their baseless schemes.

DOW at 10000? Whoop Tee Doo

The Dow Jones Industrial Average closed above 10,000 today for the first time in a while. It first crossed the 10,000 in 2000.

What does "Dow 10000" mean today?

In 2000, you'd need more than 30 ounces of gold to buy the Dow. Today, you'd need less than 10 ounces.

In 2000, your dollar would buy almost 30% more than it will today. (Check out the Bureau of Labor Statistics Inflation Calculator linked here on my site.) That's what inflation does to you.

In other words, the Dow at 10,000 today is equivalent to the Dow at about 7500 in 2000.

Whoop Tee Freakin' Doo.

Imagine how bad it would be if STUPID people were in charge..

The date is July, 2005. Can you guess who is answering the questions?

Q. "Can you give us your view of whether there is a housing bubble out there?"
A. "I don't know whether prices are exactly where they should be but I think they are supported by the strength of the economy."

Q. "So tell me, what is the worst case scenario, if in fact we were to see prices come down substantially across the country? "
A. "I don't buy your premise. It is a pretty unlikely possibility. We've never had a decline in house prices on a nationwide basis. I'm confident in the fact that the bank regulators will pay close attention to the kinds of loans that are being made, making sure that underwriting is being done right... I do think this is mostly a localized problem and not something that impacts the national economy."

In hindsight, it sounds like this person was not very well informed, doesn't it? But who could blame him?

You'd need to actually know what was going on inside the banks to realize that they were making loans they knew couldn't be repaid - and the only people who knew that were the bankers themselves.

And you'd need to know what was going on with the bank regulators to realize they weren't doing a thing about it - and the only people who knew that were the Bankers responsible for watching over the banks. No, the only possible way you could expect someone to know what was really happening with the banks would be the people in charge of the Federal Reserve. They were really the only ones who could possibly know, right?

So you could hardly blame this guy for being so completely clueless.

Good thing we have really well informed, intelligent and ethical individuals deciding how to save the economy.

/sarcasm

S&P 500 now trading at 140 Times Earnings

Greetings readers,

I will be away from my computer over the weekend for a much-needed vacation, so my "Weekly Update" will not be published. But I do want to pass along this news to you:

As of September 30, the S&P 500 was trading at 140 times earnings. Here's the link to the Standard and Poors website confirming this information.

The S&P 500 is an index of the 500 largest public companies in America. It is considered the most reliable proxy for the overall state of the entire stock market.  For comparison, over the last 80 years, the S&P 500 has traded at an average of 15 times earnings.

What does this mean to you?

It means that the rise in values in the stock market since March is not the result of improvements in business; it is the result of the government dumping a little over a trillion dollars into the five biggest banks. The banks were supposed to use that money to lend, but they have instead used it to speculate in the market. (Goldman Sachs is the worst offender. The others are Morgan Stanley, JP Morgan Chase, Bank of America and Citigroup.)

This is NOT the time to be putting money into the market. It is time to make sure your investments are protected from a stock market reversal. It is also time to be saving and getting out of debt.

See you all next week.

Mid-Week Update

Hello faithful readers,

Just a brief note to let you know why you have not heard from me in the last month. I am hard at work changing this update from a text-based to a video-based update. It's taking longer than I anticipated, but we will get there.

In the meantime, I want to share with you a couple of things:

The first is a video I just found today. This is from Dylan Ratigan's show on MSNBC back in July. (Don't know why it took me so long to find it.) Dylan is one of the very few people in the MSM who asks good questions and doesn't kow-tow to his corporate masters. I have the utmost respect for him. (When he left CNBC, I quit watching it.)

This video is the clearest, simplest explanation of what happened with the banks and the Fed in the last year. If you're not angry, you're not paying attention.

Of particular interest is the presence of Eliot Spitzer, the disgraced former governnor of New York who was forced to resign in March 2008 when it was discovered he had paid for sex. Spitzer was the most powerful public figure fighting corruption on Wall Street. His forced resignation occurred exactly one week prior to Bear Stearns being forced to sell itself to JPMorgan Chase. This was no coincidence.

The second is to recommend to you Matt Taibbi's article in the most recent issue of Rolling Stone. Taibbi is an investigative journalist of the highest quality. He has authored two of the best pieces I have read on the banking crisis. (Link is here.) It actually amazes me that he is still walking around, because he exposes malfeasance at the highest levels of our government and banking system. Please do yourself a favor and read it either online, (once it is posted) or pick up a copy at the newsstand today. It is the issue with U2 on the cover.

"I Gotcher Green Shoots Right Here"

One of the most reliable indicators of world economic conditions is shipping traffic. Here's a story in the UK's Daily Mail about the unprecedented decline in the amount of shipping world wide and - most shocking to me - the precipitous decline in the cost of renting a container ship.

This entire story is worth a read, but some of the highlights - if you are in a hurry are:

• A massive fleet of empty container ships sits idle in the waters off Singapore. Apparently, world ship owners are just parking them there
• The cost of chartering a bulk freighter has plunged from $300,000 last summer to $10,000 earlier this year.
• It takes 3 years from the time a new ship is ordered till it is delivered. Come 2011, the world's biggest ship-building companies in South Korea will have nothing to work on, because no one is ordering new ships.

Here's a sea-level photo of some of those idle ships:

The Impending Doom of the US Dollar

Here's a fascinating story from Larry Edelson at Money and Markets about the US Dollar.  He writes from Asia:

We are now the laughing stock of Asia. Our dollars are no longer respected; our ambitions, no longer mimicked. Our way of life, often based on consuming far beyond our means, is being flat-out rejected.

I can’t even exchange a $100 bill on the street here anymore: Most of the street money changers will take euros, Singapore dollars, even Chinese yuan. But fearful of losing their shirt with sinking exchange rates, they don’t want U.S. dollars. Not long ago, I never traveled without my American Express card. Now, it sits in my office safe. Many in Asia no longer accept the card anymore. MasterCard and Visa are still OK, but they’re also losing market share to locally grown cards like Aeon.

The running joke in Singapore, Hong Kong, Bangkok, and Kuala Lumpur is that the U.S. is the place where even your pet could get a credit card or a home mortgage. So to Asians, the crisis we’re going through is our own fault. And although it was also caused by blunders in Western Europe and other regions, truth be told, they are mostly right.

When foreigners hold dollars, and those dollars lose value against their home currencies, then they lose purchasing power. The US Dollar has lost of 15% of its value since March. That means a street vendor who accepted dollars in March can now buy 15% less with those dollars than he could just six months ago. And what happened six months ago to trigger this decline? The Federal Reserve began dumping something north of $700 billion freshly created-out-of-thin-air dollars into their member banks.

The dollar is doomed unless the government slashes spending, but you can bet every last depreciating dollar you own that will not happen.

Rights & Responsibilities

According to the wisdom of the day, healthcare is a universal human right. When the term "universal right" is used, I cannot help but think of the Bill of Rights, where rights such as free speech, freedom of assembly and freedom of religion are enumerated. However, as best as I can tell, the people who use the term "universal right" as applied to healthcare mean something different than what I think of when I hear the term.

As I understand it, every right possessed by Person A implies a responsibility on the part of Person B. For example:

- my right to speak my mind means you have the responsibility to NOT prevent me from speaking my mind.
- my right to freedom of assembly means you the responsibility to NOT prevent me from assembling with whomever I want.
- my right to worship as I see fit means you have the responsibility to NOT prevent me from worshiping as I see fit.

However, there are also limits to your responsibility:
- you are not responsible to publish my speech
- you are not responsible to drive me to my meeting place
- you are not responsible to contribute to my religion

In other words, your responsibilities to my rights are negative - you are obligated to NOT PREVENT me from doing something. This is the simplest way to test whether something is really a universal right. The cool thing about this system of universal rights and obligations is that it requires no effort on my part to NOT PREVENT you from doing something. I don't have to take action nor do I have to spend time or money or effort to allow you to exercise your rights. My responsibility to you is to do nothing.

Does "universal healthcare" pass this test? Nope, not in the slightest.

In the current debate, if you have a right to healthcare, it obligates someone else to provide that care, does it not? If you have a right to be treated for cancer, then obviously some doctor has an obligation to treat you for cancer. If you have a right to diabetes medicine, then some drug company has the obligation to provide you that medicine, some doctor has the obligation to write the prescription, and some pharmacist has the obligation to prepare the medicine. And if the doctor, pharmacist or drug company somehow fail to provide that care, treatment and medicine properly, then apparently you have the right to sue them for malpractice which service - no doubt - some schmuck lawyer will be obligated to provide you.

Whatever else this may be, it is not a universal right. It sounds a lot like slavery to me: forcing someone else, against their will or their best interests, to provide time, labor and/or money for your wishes, wants and desires.

Those who claim that everyone has a "right" to universal healthcare obviously mean something different by the word "right" than the Founders meant when they penned the Bill of Rights.

Forgive me, but I fail to see how you have any right to obligate me to provide you healthcare. I just don't see it.

How much is a trillion?

Very well done slide show demonstrating the kinds of money required to keep Goldman Sachs, Morgan Stanley, Bank of America, Wells Fargo and Citibank from collapsing.

A Private Swiss Bank Is Pulling Out of America

This is a long read, but worthwhile. Wegelin & Co is a private Swiss bank founded in 1754. It is divesting itself of all American securities and will no longer act as an intermediary for clients who wish to own American securities through them.

What Does It Mean: The IRS is making it ever more difficult and complex for foreigners to invest in America. The IRS is trying to increase tax revenues, but the effect of these new policies will be a decrease in foreign investment in America. Wegelin & Co estimates the US will need an additional $2 Trillion in tax revenues to make up for the losses from foreign investors.

This is a terrific paper with a lot of very good information. It is well worth your time to read.

One of the most damning quotes comes in  the first few paragraphs. Remember, this is a Swiss bank's view of America:

...let us briefly recall the sort of tax authorities we are dealing with, and the sort of state they serve: a country that, over the last 60 years, has unquestionably been one of the most aggressive nations in the world. The USA has fought by far the largest number of wars, sometimes with, but mostly without a UN mandate. It has broken the international laws of war, maintained secret prisons, and fought an absurd war against drugs, with serious consequences both abroad (Columbia, Afghanistan) and at home (according to reliable sources, the tentacles of the narcotics mafia now reach well into political circles). With breathtaking moral duplicity, the USA maintains enormous offshore havens in Florida, Delaware and others of its states. The moralizers have joined sides with a nation that still makes extensive use of the death penalty, and that has a legal system under which lawyers can get rich on the misfortunes of their clients. Liability cases often end in verdicts with exorbitant damages, which makes business activity extremely risky, for medium-sized enterprises in particular. The moralizers provide intellectual support for a country that allows its infrastructure to collapse, and then stuffs convicts into hopelessly overfilled jails, after what are not infrequently dubious proceedings. They fund a nation that tolerates – or rather, causes – regular crises in the global financial system that it manages. A country whose underclass enjoys neither the benefits of an adequate education, nor a halfway functional health care system; a country whose economic system is increasingly inclined to over consumption, and in which saving and investing have increasingly become alien concepts, a situation that has undoubtedly been one of the driving forces behind the current recession, with all its catastrophic consequences for the whole world.

What Can You Do: The Declaration of Independence declares that "government derives its just powers from the consent of the governed." Once we - the people of these united States - cease to consent to this government, it will cease to possess any just powers, and will in fact be nothing more than a criminal organization, exactly like the mafia. What we can do is cease to consent to this government.

But Is It Right?

Graham Summers has a terrific article at Seeking Alpha that asks a simple question about the Goldman Sachs bailout:

Never mind the legality of this issue… it’s simply NOT RIGHT. End of story.



Some animals are more equal than others...

If Insiders Know What's Happening, What Does It Mean When They Sell?

Because executives in public companies have access to data that the rest of the public does not have, any time they buy or sell their own stock, they are required to file notice of those transactions with the SEC. This lets the rest of us know what the insiders are doing, and - by extension - be able to make informed guesses about what those transactions mean.

Multiple news sources report that insider selling - as reported to the SEC - outnumbers insider buying by a 30:1 margin.

Here, Trim Tabs CEO Charles Biderman discusses what it means for the retail stock purchaser. (Trim Tabs actually tracks this data for investors.)

You DO have Stop-Loss orders in place now, don't you?

Income Up and Tax Receipts Down. Huh?

According to this chart from the Department of the Treasury, income tax receipts were down substantially in July. In fact, it's the 4th straight month of declines and we are now well below levels seen at the bottom of the 2002 recession.

According to this report from the Bureau of Economic Analysis, personal income was up in July, albeit marginally.

How can income be up marginally while income tax receipts are down significantly?

I guess it makes sense in a world where the cure for a hangover is more whisky.

Weekly Update 29 August 2009

Before I get to the meat of today's update, I want to bring your attention to an article at Zero Hedge regarding the price of the S&P 500 as a ratio of money in the economy. Here's the link to the article.

For those of you who don't get off on all things financial-geeky, here's the gist of it:

The Federal Reserve is responsible for "...conducting the nation's monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates,".

The S&P 500 is a proxy for the entire stock market, because it is an index composed of the 500 largest publicly traded companies. You can see the exact make-up here.

When the value of the S&P 500, (and by extension - the overall value of the stock market), is expressed in terms of the money supply, (which is controlled by the Federal Reserve), then the market has actually done nothing since the crash of 2000 and is in fact significantly lower than it was during the depths of the 2002 recession. In other words, all the extra money that the Federal Reserve has pumped into the economy has done NOTHING for real values.

On to the News Of the Week

WHAT IT IS: As I mentioned last week, the S&P 500 is currently trading at about 143 times earnings. At the height of the dot com bubble in the late 90s, the highest the S&P ever traded was 45 times earnings.
WHAT IT MEANS: Historically, the S&P trades at an average of 15 times earnings. In other words, this market is grossly overheated and a massive correction is due.
WHAT YOU CAN DO ABOUT IT: Many of you lost a lot of money in your portfolios last fall, and have watched in relief as the market has regained some of that lost ground. I want you to protect yourself this time, and not make the same mistake when the market collapses again. Here's how: You must place a "Stop Loss Order" for every stock you own. So what is a "Stop Loss Order"?

A Stop Loss is an order to sell the stocks you own IF and ONLY IF the price falls to your Stop Loss price. So for example, if you own 100 shares of FroBozz Corp, and it is currently trading at $45 a share, you might want to enter a Stop Loss order for 100 shares at $40.50, which would be 10% below the current price. If the price falls to $40.50, then your Stop Loss will be executed. If it doesn't fall that low, then you will continue to own the stock.

How do you calculate the price at which to enter your Stop Loss? That is a matter of personal preference. William O'Neill, in his classic book How to Make Money in Stocks, recommends using an 8% stop. Another way to calculate a stop amount is by looking at a chart and finding historical support levels, then placing your stop just below those levels. A more sophisticated form of stop-loss is the trailing stop. A trailing stop trails the price of the stock as the price rises, but does not move if the price of the stock falls.

Returning to our previous example of FroBozz Corp, let's again assume it is trading at $45. You could place a $4.50 Trailing Stop Order. If FroBozz rose to $50, then your Trailing Stop would rise with it, and would now be at $45.50. If the price of the stock then falls back to $45, your Trailing Stop would be executed at $45.50.

The subject of Stops is a little more complex than this, but that should give you some idea of how to protect your profits rather than take a huge loss. Make no mistake - a massive correction is coming in this market. Don't get caught this time.

Monday morning - call your broker - place Stop Loss orders. Don't let him talk you out of it.

Till next time.

DHS - Surfing to Protect Us

Some of you may remember that last spring, the Department of Homeland Security issues a threat assessment about rightwing extremism. The title of the report was alarming all by itself: Rightwing Extremism: Current Economic and Political Climate Fueling Resurgence in Radicalization and Recruitment.

Your federal government, diligently looking out for your safety. And how did they arrive at their conclusions?

[wait for it]

[wait for it]

By surfing the web!

That's right, kids. The same people who can give $700 billion dollars to Hank Paulson so he can make sure his buddies on Wall Street still get their bonuses can't spend any more than the cost of a web connection to research threats to the republic. Thanks to a Freedom of Information Act request, we now have a list of all the "research" Janet Napolitano's DHS did before labeling half of America "security threats".

Don't these people have the CIA, FBI, NSA, ICE and god-knows-what-other police and paramilitary forces at their beckon call? And they best they can come up with is a list of websites?

This is what it has come to: Government of the clowns, by the clowns and for the clowns.

[Janet Napalitano on a bad hair day]

The Stratified US Consumer

The money quote from a post at Zero Hedge today:

...so far the lower and middle classes have borne the brunt of the recession. Is it safe to say that the wealthy have managed to game the system yet again and avoided a significant loss of wealth, while maintaining sufficient access to credit?

You bet it's safe to say that.

Other interesting facts from this report:

A sobering observation is that while 90% of the population holds 50% or more of its assets in residential real estate, the Upper Class only has 25% of its assets in housing, holding the bulk of its assets in financial instruments and other business equity...The other observation is that only 10% of the population has truly benefited from the 50% market rise from the market's lows: those better known as the Upper class.


And to add insult to injury, the segment of housing that has been impacted most adversely in the current downturn, is lower and middle-priced housing: that traditionally occupied by the lower and middle classes. The double whammy joke of holding a greater proportion of net wealth in disproportionately more deflating assets is likely not lost on the lower and middle classes.

Weekly Update 22 August 2009

About That Bull Market...

Hello folks. I hope this note finds you well. I literally have too much news to summarize this week, so I am going to give you lots of appetizers instead of one big entree'. Here's the headline we will start with.

Housing Gooses Stock Market

WHAT IT IS: The market rose on Friday on news that sales of existing homes jumped at the fastest rate in 10 years.
WHAT IT MEANS: The WSJ article I linked here has a side-bar with this odd headline: "...But Prices are Still Falling..." They make it sound as if the link between falling prices and increasing sales is mysterious. Quick economics lesson: When prices are too high, buyers stay away. When prices come down far enough, buyers come back. It's that whole supply & demand thing. So what this story means is that housing is finally starting to get affordable.
WHY IT MATTERS: Well, here’s where it gets tricky. The perma-bulls, talking heads and government shills say that it means that the economy is stabilizing and things are looking up. But that is deceptive. For every positive sign the economy is stabilizing, there are hundreds that say we are not nearly through the storm yet.

This week I read an excellent analysis called "The New Bull Market Fallacy". It is a lengthy read, but well worth the time. Here are some juicy tidbits I pulled from it.

Housing

• Wells Fargo, via their purchase of Wachovia, now holds about $115 billion in Option ARMs on their books. They are valuing this stuff at 85 cents on the dollar - a 15% mark down.
• The Fed took a bunch of mortgages onto their books as collateral when they swapped Treasuries for Mortgages with the big banks. They took a 30%-40% markdown on the Maiden Lane properties.
• JPMorgan-Chase has $90b of Option ARMs on their books.
• Citibank is marking their residential and commercial real estate loans at 90% of loan value.
• Housing prices nationwide have fallen an average of 50%.
• The International Monetary Fund says that there will be $4.1 trillion in real estate related losses in 2010. So far, only $1t of that has been marked.
  

If Wells values their Option ARM portfolio at $115b after a 15% mark down, in reality it is probably worth something in the neighborhood of $67b. If that were the case, Wells Fargo would be insolvent under the banking rules prior to April 1st, but since the FASB changed the rules on that date, Wells gets to carry this stuff on their books at any value they want to, rather than at market value. Thus, they get to pretend to be solvent. Same situation with JPMorgan. Same with Citi and most of the other big banks that got all the government money are in the same situation. It is nothing but accounting tricks and collusion with regulators that keeps these giant banks afloat.

Here's Professor Elizabeth Warren explaining on MSNBC how the banks cheat.

23% of all single family home mortgages are greater than the value of the homes. Deutsche Bank analysts have predicted that such "underwater loans" could reach 48% of all mortgages by Q1 2011.

Finally, the "second wave" of mortgage resets - Option ARMs and Alt-A's - is scheduled to start in 2010. The dollar amount of mortgages scheduled to reset in this second wave is actually higher than the amount of resets during the sub-prime wave.



What are those banks gonna do then? We the people have already been soaked for well over $2 trillion because these vampire banks were supposedly "too big too fail". What happens next year when they are in even worse shape?

Oh, and the FDIC - which as recently as April said they'd need no more money - is bankrupt as of last Friday with the failure of Colonial Bank. Prior to the failure, they had $641m in assets. Colonial alone had over $2b in deposits which the FDIC had to cover. Betcha didn't hear about that on the news, did you?

Jobs

The number of jobs lost in July was less than the rolling 3 month average, but the reason for the drop is that the number of people who have quit looking for a job increased dramatically. These people are not counted in the government's new unemployment statistics.

Growth?

The federal government increased spending by 11% year over year in the second quarter. Many states are bankrupt. Tax receipts at the federal level are down 28% year over year, while the federal deficit has tripled.

Over the last several weeks, as the market makes new high after new high, insider selling outnumbers insider buying by about a 23:1 margin. In other words, the people who know what is coming are selling.

The S&P 500 as of the close Friday is valued at 143 times earnings. By comparison, the historical average of the S&P 500 runs about 15, so the S&P 500 is currently valued 10 times higher than its historical average. Is this supposed to be a bottom? Historical values for market bottoms run about 8 - 9 times earnings.

According to this chart, China is starting to divest themselves of US Treasury debt. Since they are the largest holder of US debt, if the US defaults, they have the most to lose. If the US economy is strong and growing, it's kinda stupid to divest themselves of treasuries.

By every possible definition, the stock market is once again a bubble. The government and the bankers, (**cough** Goldman-Sachs 8*cough**) have succeeded in creating yet another bubble. The 90s bubble was dot coms, the early 2000s was real estate, and this one is nothing but government money. It will end badly.

WHAT CAN YOU DO: This is important. If you are invested in the market, please please please protect your profits. That means put a Stop-Loss order into the market now. When the correction comes - and it WILL come - it will be mean, nasty, ugly and fast. A lot of people lost a lot of money last fall, and it will happen again - likely sooner rather than later. Don't get caught short.

WHAT ELSE CAN YOU DO: Save like crazy. Get out of debt. Don't buy on credit. All those things our grandparents learned in the 30s, we get to learn again.

Till next time...

Whistling Past the Graveyard

Today I am laughing - yet again - at the grand farce that passes for "law" and "justice" under the federal government. The theme of today's entertainment is banking. I know, you’d probably rather gnaw off your own leg than read about banking, but trust me – you’ll get a kick out of this.

Our banks - at least the ones who took all our tax money last fall - are members of the Federal Reserve system. It's called Federal because its territory is the entire country. It's called Reserve because it is a banking system based on reserves.

Reserves is the word used to describe the money that a bank is required to keep on hand to cover the deposits made by their customers. The idea behind a reserve is that if you deposit $100 in the bank, you might want to withdraw that $100 later. If you show up at the bank wanting to withdraw your money, the bank better have money to give you. It may surprise you to know that the banks are not required to keep a dollar on hand for every dollar that is on deposit. They are required to keep some fraction of that money on hand. That is why our banking system is called "fractional reserve banking".

In the Federal Reserve system, that fraction ranges between 3% and 14%. In other words, for every $100 deposited with the bank, the bank is required to keep between $3 and $14 on hand.

(By the way, I am simplifying quite a bit here. If you are really interested in the arcana of reserve requirements, there are some interesting links here and here. And God bless you if you are.)

So what happens to all the rest of the money? The bank loans it out. This is where the alchemy of fractional reserve banking occurs. Watch carefully now - nothing up my sleeves.

Assume we have two people, you and me. I buy things and take out loans, and you sell things and make deposits. And finally assume we have a bank, Bank A, that will take your deposits, will make loans to me and has a reserve requirement of 8%.You deposit $100 with the Bank. Bank A keeps $8 on reserve, and loans me the balance, $92.

I buy $92 worth of goods from you with that money and you deposit that $92 in Bank A. Bank A keeps 8% of that money on deposit and loans me 92% of it, about $85. I buy $85 worth of goods from you with that money I borrowed. You take that money and deposit it in Bank A.

Bank A takes your $85, keeps 8% of it, and loans me the remaining 92% of it, about $78. I buy $78 of stuff from you with the money I borrowed. You deposit that $78 in the Bank. They keep 8% of it and loan me the remaining $72. I buy $72 worth of stuff from you, and the game goes on and on and on...

So from a single $100 deposit, Bank A can make over $1000 in loans. If I repay those loans, then the bank has magically created profits of over $1000 on a mere $100 worth of deposits.

Pretty sweet little business, huh?

But what happens if I don't pay those loans?

Ah, here's where the magic goes all wanky. Instead of creating $1000 in profit out of thin air, the banks have created $1000 in debt out of thin air.

Most banks require that you put up some collateral before they give you a loan. If they loan you money to buy a car, they keep title to the car until you pay off the loan. If you don’t pay the loan, they take your car and sell it to satisfy the loan. Sometimes the car fetches enough to pay off the loan, sometimes it doesn’t.

You pays yer money and you takes yer chances.

This is where the Big Banks got caught. They loaned money to people who couldn’t repay it so that they could buy houses that were overpriced in the first place. Who would have ever imagined they'd have problems?

So why did they make such stupid loans?

Greed, plain and simple. They were lusting after the profits they could create out of thin air and were ignoring the risks that they were creating debts out of thin air instead.

Of course, it wasn’t $1000. It was more like $4 trillion.

According to Federal Reserve rules, if the amount of money a bank actually has on reserve falls below the minimum required amount to cover deposits, then that bank is - by definition - insolvent and must be shut down. There is more to it than that, but that is the important part.

Last fall, the Big Banks were insolvent. But since they are big, and since they own most of Congress, most of the executive branch, and probably several judges, they maneuvered their way out of that tight spot. They arranged it so that you and I – people who had nothing to do with the loans – would bear the losses.

Like I said, it’s a pretty sweet business.

News of the Week coming up tomorrow...

Weekly Update 1 August 2009

This week we've got a doozy, and it is related to the Cash for Clunkers program. Congress appropriated a billion dollars - Yes, it is tax money. Yes, you are paying for it. - to pay car dealers extra money when they take an old car on a trade-in for a new car. The theory is that by taking money from the middle class taxpayer and giving it to GM and Chrysler, everyone benefits. (Don't try to understand it - it is so stupid only the extremely educated and the extremely powerful can pretend to get it.)

"The course of history shows that as a government grows, liberty decreases. – Thomas Jefferson"

The program has been so popular in its first week that billion dollars has already been soaked up. Congress, in its infinite stupidity, has added another two billion dollars to the program.Oh joy.

But that's not the real reason for the update this week. No, the real reason is the website that the government has established to provide information on the Cash for Clunkers program: cars.gov. I am intentionally NOT providing a link because you REALLY don't want to go there.

WHAT IT IS: If you use the cars.gov site, your computer then is considered to become the property of the Federal Government and they assume the right to access anything and everything on that computer.

This is not an exaggeration.
This is not a scare tactic.
This is not a mis-reading or twisting of information to suit my own purposes.

Here is the actual text from the cars.gov website describing the terms of use for the site:

"This application provides access to the DoT CARS system. When logged on to the CARS system, your computer is considered a Federal computer system and is the property of the US Government.

Any or all uses of this system and all files on ths system may be intercepted, monitored, recorded, copied, audited, inspected, and disclosed to authorized CARS, DoT, and law enforcement personnel, as as authorized officials of other agencies, both domestic and foreign."

WHY IT MATTERS: My simple goal for this weekly update is to highlight the news of the week that affects our freedom. I focus on the ways the government, (and their masters on Wall Street), steal our freedom by stealing our wealth. So, do I really need to spell out why this matters?

The federal government has now ceased to even pretend to be the servant of the people. They now treat us as slaves.

• They take our property when they want: cars.gov.
• They take our money when they want and give it to whomever they wish: the bank bailouts.
• They take our liberty when they want: habeus corpus is suspended for anyone suspected to be a “terrorist threat".
• They even take our lives whenever they want: Waco, Rudy Ridge and who knows what else that didn’t make the headlines.

WHAT YOU CAN DO: Two things - both very simple, but one easy and one very difficult:
First, refuse to use cars.gov. This is for your own protection. Tell everyone you know about this property grab by the government. Forward this link to your mailing list.

Second, make the decision today to be a free person and not a slave. A slave has only whatever freedom the master chooses to give it. If you acknowledge the government as your master, then you are already their slave.

But if you instead claim that your freedom belongs to you simply because you are human, and - most importantly - if you live that out, then you are a free man.

Just because they don’t use the terms “slave” and “master” doesn’t mean they don’t act as if they are the masters and we are the slaves. It doesn’t matter what they say, it matters what they do.

Freedom starts between your ears. No one can MAKE you be free, nor can you VOTE yourself freedom. You must choose to be free and then live that way. Starting today, choose to be free. Choose to live, think, work, act and play as a free person and not as a piece of property that the ruling class in Washington and Wall Street can move around and dispose of as they wish.

Do I sound like an extremist to you?

Perhaps I am. If so, I am in good company. A couple of quotes from Barry Goldwater.

"A government that is big enough to give you all you want is big enough to take it all away."

"Extremism in the defense of liberty is no vice. Moderation in the pursuit of justice is no virtue. "

Yours for Freedom...

Weekly Update 25 July 2009

The news this weeks is misnamed mostly because - as the writer of Ecclesiastes said - there is nothing new under the sun. As the Government/Wall Street/Mainstream Media cartel go into full-on propaganda mode to tell us how everything is just peachy, we can continue to give thanks that Al Gore invented the internet, thus allowing us to bypass the "official" news and get our information straight and undiluted. I doubt that was really what Al had in mind.

According to the cartel, since things are getting worse slower than they were getting worse last year, things are officially getting better. Never mind that the jobless rate is climbing, debt is officially out of control, and the administration is determined to take on even more debt (healthcare) and hobble the economy even more (cap and trade). Never mind that by every meaningful measure, the economy is down in the basement and still digging. If you haven't read Alice in Wonderland, don't sweat it. Lewis Carroll never imagined anything as surreal as the reality we are living every single day.

Obama, (or as my friend Patrick calls him "Teleprompter Jesus"), apparently intends to be the new FDR, and he is following the script to perfection. The Great Depression was only "the depression" till FDR took over. His radical power grabs made the economy worse, (look it up for yourself), although in fairness he did get a lot of concrete poured and pecan trees planted. FDR's economy made no appreciable recovery throughout the 30s, so I guess we can prepare for three things - the economy will continue to suck, we'll be looking for another way - preferably a big one - and Obama will be sanctified if not outright deified by the same geniuses in the main stream media who used to NOT be bought and paid for by Wall Street.

Yeah, it's been that kind of week.

The news that interested me this week:

Schumer wants to curb traders' flash orders
What It Is: Senator Chuck Schumer is saying the right things about putting an end to "High Frequency Trading", a euphemism for the blatant market manipulation which Goldman Sachs & company have been engaging in for the last several years.
What It Means: As I have reported previously, Goldman Sachs is the biggest, most powerful, most corrupt and most corrupting influence in the US today. (The other big banks are complicit as well, but Goldman is by far the worst.) If Schumer has his way, Goldman will have to compete on an even playing field with the rest of the investors in the market.
Why It Matters: Though I doubt Goldman will allow Congress to stop this practice, and I am certain the SEC will do nothing to stop it, Schumer is at least shining a light on a very dirty practice that is robbing ordinary investors and is amplifying every move in the market, making rises and falls more violent and damaging.
What It Means To You: If you lost money in last year's market plunge, blame Goldman for the speed and violence of it all. If you know anyone who works for Goldman, you should shame them publicly. Seriously, outside of radical Islam, this bank is the most morally corrosive force in the world today.

End Note: I do not expect Congress to do anything about this because Congress and the Administration are bought and paid for by Wall Street. Believe me, Congress knows where the money that keeps them in power is coming from. So I no longer believe in lobbying Congress. They will not listen and the administration is a joke.

But I do believe it is time for you to bone up on your American history, specifically to read the list of reasons the colonies initially declared independence from the Mother Country. When neither the law nor morality matters to those in positions of power, it is time for us to say "no more". If I were you, I would learn what "non-violent civil disobedience" means. I'd start learning about Martin Luther King and Mahatma Gandhi and what action they took when they decided that the status quo had to be challenged.

Our government is no longer moral by any stretch of the definition of morality. Wall Street - specifically Goldman - is a den of thieves, Washington is their hand-puppet and the Main Stream Media their p.r. firm. Don't depend on those in power to relinquish their power. We - the people, by whose consent they govern - must cease to give our consent. That doesn't merely mean "vote 'em out of office." It means coming to the point where we declare with our actions that liberty is more precious than life.

Yeah, it's that serious.

Weekly Update 11 July 2009

Happy week after Dependence Day.

I didn't publish the weekend of July 4th. I hope you survived. I'm back this week stories stories from the world of finance and economics that are interesting and pertinent to those who care about the cause of freedom. But first...

...I received a note this week from someone who was hysterical about the impending nationalised healthcare debacle. Before I make my comments, let me make one thing clear:

I am opposed without reservation to nationalized healthcare.

With that said, I want to respond to some of the scare-mongering coming from "my side".

The letter I was sent warned that seniors in England and Canada who need various sorts of cardio procedures cannot get them because they are too expensive. This is not true. In England and Canada, anyone who can afford to pay for healthcare outside the public system can still get whatever healthcare they want. That is just like America today, and just like it will be in America after healthcare is nationalized. If you can afford to pay for it, you will be able to get it.

It doesn't help us to claim that "old people won't be able to get healthcare". Seniors who cannot afford to pay for healthcare today will get less healthcare in the future. Those who can afford to pay for it will still be able to get it.

2. Many Americans who oppose nationalized healthcare talk as if the current American system works. It does not. Our current healthcare system is hopelessly broken. We have medical cartels, rules against publishing prices, price gouging, fraud and a ridiculous bureaucracy. I am not remotely in favor of nationalizing healthcare, but it is lunacy to argue that the current system is not broken.

If you truly care about individual liberty, then you must take responsibility to think for yourself. Personal Freedom and Personal Responsibility are the two sides of the same coin. Don't mindlessly parrot arguments - think for yourself.

Now, on to the headlines:

Artificial Trading Volume on the NYSE
What It Is: The biggest banks in the world - Goldman-Sachs, Morgan-Stanley, BofA, Deutsche Bank, UBS, et.al - are exploiting a loophole in securities laws to artificially drive up trading volume on the NYSE.
Why It Matters: These banks are making money simply by creating artificial volume. It is manipulation without being technically illegal.
What It Means to the World: Once again, the largest financial institutions in the world are cheating. They are literally stealing from investors.
What It Means to You: The recent rise in the market in the last 3 months is bogus. If you are long stocks, keep your stops tight; a reversal is coming.

Emails indicate EPA Suppressed Report Skeptical of Global Warming
What It Is: Exactly what the headline says: EPA scientists submitted a 98 page report that warned against making hasty "decisions based on a scientific hypothesis that does not appear to explain most of the available data." An EPA official told the scientists that the Obama adminstration had already decided what to do and that this report was not welcome.
Why It Matters: Politics - not hard science - is driving the "Climate Change" agenda. Anyone who questions it is - at the moment - merely an irritant. In coming days, those who question the political orthodoxy will be treated as enemies of the state.
What It Means to the World: Not much. Were the US not running pell-mell down the path of economic destruction with all the debt the government has already incurred, the economic lunacy of the Kyoto Convention would be alarming. But the Billionaire Banker Bailout will destroy us long before the EPA can.
What It Means to You: Trading carbon-emission credits is going to be big business. If you own a business, it is time to educate yourself in "cap and trade".

Goldman-Sachs is the Epicenter or Evil in the World Today - if you read nothing else this week, please read this article.
What It Is: Matt Taibbi documents all the ways that Goldman Sachs has manipulated the financial markets in the last 20 years, how they have callously destroyed the bank accounts and the lives of literally millions of people, and how they are still doing it.
Why It Matters: There is no more evil organization in the world today. Those who defend GS thinking they are paragons of capitalism don't know what they are talking about. GS does not compete like a capitalist, they compete like a Mafia don. In fact, the Mob has nothing on GS.
What It Means to the World: GS operates for the benefit of GS and no one else. Laws that allow GS to lie, cheat, still and kill must be applied to these people.
What It Means to You: Goldman Sachs is directly, (although not solely) responsible for the financial crisis, the rise in your taxes, the rise in unemployment and the destruction of many large companies. They are enriching themselves at your expense and the government is acting as their agent. Just like the Mafia, as long as you tolerate it, they will continue it.

Weekly Update 27 June 2009

Curse the Darkness or Light a Candle?

These are indeed interesting times we live in, and we must be careful not to be people who complain yet do nothing to improve the world in which we live. There is no glory in saying "I told you so" when your dire predictions of doom prove to have been accurate. If you see trouble coming, don't merely talk about it - or worse, complain about it - do something constructive. Light a candle.

This week I finally started reading The Sovereign Individual: Mastering the Transition to the Information Age. It's been on my "must read" list for several years, but I didn't get to it until just today. The authors pinpoint many of the challenges facing our modern world, including the collapse of the economy, but their message is optimistic, not "gloom and doom". They consider the nation-state a relic of the industrial age and predict the end of nation-states as viable political entities. To put that into terms we can understand, they predict that the Government of The United States of America will cease to have political authority over Americans. What it does not mean is "the end of America".

As I was telling a friend this week, it is important that we make a clear distinction between the government and our country. The US government is a dying pig that makes promises it cannot keep and bullies people around. America is a country, an idea and a people who share that idea and that geography. America can get along just fine without that ravenous, lying, violent government. In fact, we will get along a lot better without it. The transition will cause a lot of pain and fear, but we can take hope knowing that the end state is going to be a lot better.

With that in mind, let's see what's happened in the world this week.

Headlines of the Week

What it is: Goldman-Sachs to pay record bonuses Goldman-Sachs told employees this week to expect the biggest bonuses ever.
Why it matters: When the government gave AIG some $80 billion late last year to "save them", AIG turned right around and sent $15 billion of that money to Goldman-Sachs. So your tax money is paying bonuses to the richest, most corrupt bankers on the planet. Think about that Goldman-Sachs banker sipping rare scotch on the porch of his vacation home in the Hamptons when you are trying to figure out how to make your mortgage payment.
What it means to the world: GS continues to make sure everyone else pays for their mistakes. If you or I had sold a bunch of worthless bonds to investors and then bought a bunch of worthless credit- default swaps on those bonds from AIG, we would first go broke and then go to jail when the government found out we had committed fraud. Not Goldman-Sachs though.
What it means to you: Your tax bill will be higher for years to come so that a handful of GS bankers can keep their vacation homes in the Hamptons. Remember that when the government fails, we won't have to put up with this kind of crap anymore.

What it is: Riots in CHina After months of calm, there have recently been a spate of riots being reported in the Chinese media, or on the internet. Is this because media restrictions have been lifted, allowing news of riots to spread, or has there been a genuine increase in social tension in the countryside? It is impossible to tell. China no longer publishes the figures for how many riots take place each year, but most people put the figure at around 80,000 and the vast majority go totally unnoticed.

Why it matters: The nattering boobs of the talking-head media machine are convinced that China will recover from the recession first and then lead the world into a brighter consumer future. But China is not recovering and in fact has deep, intractable issues that must be resolved before any sort of recovery or growth can occur.

What it means to the world: There are several pieces to this puzzle:

• China has millions of people who used to be peasants, then achieved middle class status, and are now out of work - people who will not willingly accept peasant status now. How you gonna keep 'em down on the farm (after they've seen Paree)
• Political leaders always try to divert attention from their failings.
• War is the most potent diversion there is.
• China has a huge army.
• China has a huge imbalance between the number of young men and marriageable women.

Put the pieces together.

What it means to you: Do not plan on China pulling the US economy out of its slump. It's not gonna happen. You need to make plans to survive without the help of the Chinese dragon.

What it is: China - Economic Catastrophe Unfolding This falls into the category of "Important" as opposed to "Urgent" news. I urge you to read this entire article.

China has a real estate bubble just like we do, and a stock market bubble, just like we did, and an unwillingness to book losses, just like Japan did. In addition, they have a huge population of peasants who moved to the cities during the boom, (as the article says, "the largest migration of a population in human history"), and now they cannot find jobs. Exports are plummeting, the government is lying about the numbers, and - as per the previous story - riots are breaking out all over the country.

Why it matters: China is a tinderbox and we'd better pray that there are no budding Lenins, Stalins, Hitlers or Maos whiling away their time in a Chinese prison right now.

What it is: Insider Selling is the Fastest in 2 Years The people inside the largest publicly held companies in the us - people with intimate knowledge of their companies' propsects for the future, believe that the stock prices in their companies are going down, not up.
Why it matters: Since March 6th, the S&P500 index of the 500 largest companies in America has risen by more than 40%, from a low of 666 to a high of about 950. That means that the "dumb money" is driving this rally. The smart money is selling in anticipation of a fall.
What it means to the world: This stock market rally is a classic bear-market rally that traps the unsuspecting and destroys them. It is not a new bull market.
What it means to you: If you hold any long positions in the market, make sure you are either hedged or have stop-loss orders in place to protect your profits when the market falls.

What it is: Some additional updates on the bearer bonds saga:

• This was either the biggest smuggling operation in history or the biggest counterfeiting operation in history. Either way, why did the Italian governments release the two men caught with the bonds?
• One of the quickest ways to sabotage and usher in the death of a currency is to raise legitimate questions about its ability to withstand counterfeiting efforts. Prove that counterfeiting is not only possible but highly likely, and the world’s confidence in the sabotaged currency will undoubtedly plummet. This certainly has the "smell" of an attack against the US dollar as the world's reserve currency, and yet why would a counterfeiter be skilled enough to create almost perfect $500 million bearer bonds and then create a counterfeit of a $1 billion bearer bond that "never existed"?
• What organization would make nearly perfect counterfeits of bonds they could never hope to cash?

Nothing about this story makes sense, other than this: worldwide confidence in the ability of the US government to pay its debts is growing increasingly shaky.

Till next week: Light a candle!

Weekly Update 20 June 2009

This week is a little less eventful than last. We have no update on the rumored Federal Government Trading account at State Street, but we're keeping an eye on it. The government is saying that the $134 billion in bonds recovered by Italian border police last week were fakes, but they let the two guys go. Nothing about this story makes any sense - nothing. We may never get to the bottom of this, but I will point out that the men carried Japanese passports and that $134B is about 1/4th of Japan's holding of US debt. Draw your own conclusions.

This week's stories focus on the continuing effort by the media and the government to rob from us and enslave us. Enjoy:

Headlines of the Week
ABC TURNS PROGRAMMING OVER TO OBAMA; NEWS TO BE ANCHORED FROM INSIDE WHITE HOUSE
What It Is: ABC news is giving the Obama administration an hour of free air time to promote its Health Care plan.
Why It Matters: ABC and the White House are colluding to violate the FCC fairness doctrine, (but don't expect the FCC to do anything about it.)
What It Means To The World: The paper-thin divide between the government and the media is now officially shredded. Regardless of what you believe about nationalized health care, this cooperation between a government-protected and allegedly non-partisan broadcast company and the Executive Branch of government is nothing less than state-sponsored propoganda.
What It Means to You: It means nothing if you don't watch or if you watch and do nothing. But if you write ABC, their owners The Disney Corporation and their advertisers and declare your intent to boycott them all unless they give equal time to opposing viewpoints, it will mean a great deal.

What It Is: NY Times story from 2002 confirms that housing bubble was intentional
Why It Matters: The "Official Story" about the housing bubble and subsequent collapse is that "No one could have predicted it." This is patently false, as many people predicted it, among them Karl Denninger, Mish Shedlock, Nouriel Roubini and Peter Schiff. I'm sure there are others, but those are the four I know about who sounded the warning as early as 2005
What It Means To The World: The people currently in charge of "fixing" the economic mess are the same people who not only created it, but created it intentionally. This is not to say they intended to crash the world economy, only that they intentionally did all the stupid, illegal and immoral things that created the crash. Therefore, it is safe to assume that whatever they do, they will not be able to fix the problem.
What It Means to You: You should stop believing anything said by Hank Paulson, Ben Bernanke, Alan Greenspan, Timothy Geithner or anyone who is now or ever was employed by Goldman Sachs. These are the criminals who have consistently been wrong about everything, but they get rich anyway. They are proven to be liars of the worse sort and it is foolhardy to believe a liar.

What It Is: Chinese Analysts Pinpoints the Achilles Heel in the Economic Recovery
Why It Matters: He makes several important points:
1. The financial industry is a disproportionate size compared to the rest of the economy.
2. The financial industry salaries are several times higher than comparable positions in other industry
3. The finanical press has no incentive to be truthful in its reporting, and great incentive to always be bullish.
What It Means to the World: The talk of "green shoots" in the economic recovery is mere propaganda. The economy is not improving.
What It Means to You: Two things - first, this should confirm for you that you have other sources of economic news you can trust besides the Federal Reserve, the Treasury Department and their lapdogs in the financial press. Second, do NOT make financial commitments based on the erroneous belief that the economy is improving. There is a lot more pain to come.

What It Is: Moody's Warns of Multi-Level Downgrade of California Debt, California Aid Request Turned Down by US (two different stories)
Why It Matters: California's economy is the eighth largest in the world. This downgrade means that California will have to pay much higher interest rates to borrow money than it has had to in the past. The Federal government is saying they won't give California money, which means the legislature will have to get serious about making cuts to services. No one seriously believe's California has any chance of repaying its debt, but a downgrade by Moody's makes that opinion official.
What It Means to the World: All this talk of green shoots is baloney. California is essentially bankrupt. The federal government will undoubtedly loan the state more money, but it won't fix the problem anymore than all the other bailout programs have failed to fix the underlying problem.
What It Means to You: Expect interest rates to continue to rise. Make sure you know whether or not you hold any California state government bonds in your portfolio. A downgrade will hurt you.

And finally, in the category of "Interesting and a Little BBit Alarming" is this story about tapping your cellphone.

As always, if you don't want to get these updates anymore, just drop me a note, but if you DO like them, please pass them on.

Spot On Financial Analysis from a Chinese Analyst

This is some of the most succinct and compelling analysis I have seen yet. Here's the money quote:

"The Greenspan era has nurtured a vast financial sector. All the people in this business need something to do. Since they invest other people's money, they are biased toward bullish sentiment. Otherwise, if they say it's all bad, their investors will take back the money, and they will lose their jobs. Governments know that, and create noise to give them excuses to be bullish.

This institutional weakness has been a catastrophe for people who trust investment professionals. In the past two decades, equity investors have done worse than those who held U.S. market bonds, and who lost big in Japan and emerging markets in general. It is astonishing that a value-destroying industry has lasted so long. The greater irony is that salaries in this industry have been two to three times above what's paid in other sector."

Weekly Update 13 June 2009

Last year, 2008, I spent the months of March, April, May, June & July bombarding you with emails imploring you to bombard your congressman with phone calls, letters, faxes and emails. The reason for my alarm was the financial time-bomb that was ticking and that I hoped Congress would have the courage and foresight to defuse. In July, Congress ignored us and voted to gift $800 billion to "bail out" Fannie Mae and Freddie Mac. That was the point that I realized the game was over. The American government was no longer "of the people, by the people and for the people". We had told Congress - by a ratio of 300:1 - not to bail out Fannie Mae & Freddie Mac, and they ignored us. I could no longer ignore the reality that Congress was owned by the bankers.

I quit sending out updates at the point because I could not imagine wasting any more energy trying to get Congress to do the right thing. And I am glad I didn't because it would have been a waste of energy. Washington is owned by the bankers, and Washington does whatever the bankers say. I don't even feel a need to explain that assertion. If it is not obvious, then you are not paying attention.

That brings me to the substance of this letter.

As some of you know, I make my living as a trader. I'm involved in the markets all day, every day, and I spend most of my spare time in research, hoping to understand what is happening in the world that will affect my work. I love what I do. What I have recently begun to realize is that most of you do not have the time or the inclination to study what I study, and yet your lives are likely to be affected by the things I am discovering. For that reason, I have decided to do a weekly update of the news that I think is important for you to know and an analysis of why it is important. This is my view, my opinions, and is certainly subject to my own biases, so "Handle With Care".

I hope you enjoy it. If you don't want to get these updates, just drop me a line and I will remove you from the list. On the other hand, if you DO enjoy them, please let me know and always feel free to pass them along to others.

Headlines of the Week
Italian Border Patrol Confiscates $134 Billion
What It Is: Two men carrying Japanese passports tried to smuggle $134 billion in US Government Bonds into Switzerland from Italy. The US press has not reported this story. Conflicting reports on whether the bonds are real or counterfeit.
Why It Matters 1: $134B is an amount of money so large that only governments, the World Bank and the IMF would deal in those. If this is stolen, then what in the world is wrong with these governments or banks that they can't keep track of their investments? If it is not stolen, then why was it being smuggled into Switzerland?
Why It Matters 2: If they are counterfeit, it means that there are more counterfeit bonds out there, which could de-stabilize the already precarious bond market. If they are real, it means someone is trying to unload US Government bonds without selling them through the open market process, which could destabilize the already precarious bond market.
What It Means To The World: Big bond holders are worried that the US may default on its debt. Japan this week made a formal announcement that they are fully confident that the US will pay its debts. This is code for, "we are very worried about the US paying its debts."
What It Means to You: The cost of credit just took another body blow. If you are trying to buy or re-finance a house, the window to get a low-interest rate loan is closing fast. If you are trying to get a business loan, either for new credit or to roll over an existing loan, the cost of credit is going higher and higher. This is going to work against the government's attempt to goose the economy.

Government possibly interfering in the market via State Street
What It Is: An unsubstantiated report that the government has opened several private trading accounts with State Street Securities and is buying and selling securities through a single broker there.
Why It Matters: If true, it means the government is using government money to speculate in the market. Because of the nature of the account, the type of broker that State Street is and - most importantly - the amount of money the government has available to it, then the government is not merely speculating, it is directly influencing the market.
What It Means to the World: Nothing until substantiated, but could be very, very important if proven true.
What It Means to You: Nothing yet, but watch it.

Federal Reserve Transparency Act has 222 Sponsors
What It Is: A Ron Paul-sponsored bill to conduct a pricvate audit of the Federal Reserve.
Why It Matters: In theory, an audit of the Fed will show how their money is being used. The belief is that the Fed is violating its charter by buying and selling securities that are not 100% backed by the full faith and credit of the US government.
What It Means to the World: Nothing. The Congress will do whatever the bankers tell them to do. Even if this passes, nothing will change. Congress will not bite the hand that feeds it.
What It Means to You: You should learn to watch what the government does rather than listen to what they say. The government works hand-in-hand with the bankers. Ron Paul has his heart in the right place, and this makes for good political theatre, but Congress had the chance to do something meaningful last summer when we bombarded them with requests to not bail-out Fannie Mae & Freddie Mac. They instead obeyed their masters on Wall Street. Do not expect the government to do ANYTHING that harms the big bankers.

Government Overturns Contract Law in GM & Chrysler Bankruptcies
What It Is: The government ignored contract law when they compelled GM and Chrysler into bankruptcy. Senior debt holders who - under the terms of contract law - should have been first in line to be paid under the bankruptcy, were pushed to the back of the line and will get something like 17 cents on the dollar for their investment.
Why It Matters: The sanctity of private property and contracts is central to the functioning of a free society. This action by the government strikes at the heart of our free society. It also provides a disincentive for future investors to put their money into bonds for fear that the terms of the bond contract will be overthrown if the government deems it "necessary".
What It Means to the World: Investors will be far less likely to buy bonds issued by any company or municipality that has the slightest whiff of instability for fear that the government will simply ignore the law and trash the contract if they think it necessary. This will serve to drive the cost of credit higher, it will reduce the pool of available credit, and it will drive down the value of existing municipal and corporate debt.
What It Means to You: If you hold any sort of corporate or municipal bonds in your investment portfolio, you should find out exactly what those bonds are. If they are bonds backing any sort of entity that is at risk, you should consider moving into something less at risk of government intervention.

One Trillion Dollar Bill - Not news but funny

Almost Legendary Heist - Foiled!

Viva Italiana! Sometime in the last week, the Italian border patrol stopped a couple of Japanese nationals with $134 billion dollars in US Bearer Bonds trying to cross into Switzerland.

A hundred and thirty four BILLION!

If these are counterfeit, it's the greatest counterfeiting job in history. If they are real, then this is even bigger news.

Doncha wonder why this isn't being reported ANYWHERE in US papers of record like say, the New York Times, Washington Post or Wall Street Journal? (Bloomberg has a wee bit.)

Maybe the bankers and their lapdogs at Treasury are scared spitless about this. Maybe they should be.

The REAL Role of the Fed

Excellent article on what the Federal Reserve is really in business to do. Key point, "pay attention to what they do, not to what they say."

The Symphony Orchestra and the Remote Control

Proof that there are still magnificent musicians in the world - and proof that they know how to entertain.

Parting Company

Walter Williams explains that political divorce is more peaceful than actual murder. An awful lot of people seem to think that actual murder (war) is better than political divorce. Why?

Criminals For Gun Control

Funny and true.

Hack Your Brain

I love this!

Who Do You Believe?

Obama and AIG: the numbers tell one story, Obama tells a different one. Which do we believe?

I have NEVER seen a dressing down of a head of government to compare to this.