Saturday, January 19, 2008

Gata strikes back

GATA - The Gold Anti-Trust Action Committee is calling out the U.S. government over decades of gold price suppression in their obviously failing attempt to legitimize the fiat money in general and the U.S. dollar in particular.

To this end the Wall Street Journal has agreed to run a full page ad, seen here in PDF calling for a full independent auditing of the U.S. gold reserves, which many industry insiders including Citigroup and Sprott Asset management believe have been loaned, leased or sold away to manipulate the gold price.

This is not just some wild conspiracy claim, Allen Greenspan himself admitted in Congressional testimony that Central Banks were "ready to lend gold in increasing quantities should the price rise."

I'm surprised the Wall Street Journal took the add but I'm glad Gata has managed to strike back for the little guy, me!

I'm off to vacation and would probably have missed this story if I'd not seen it elsewhere so thanks to LadyBroadoak

Friday, January 18, 2008

A Deluge of money

Bernanke and Bush have agreed to back a new stimulus plan intent on saving the economy. Today’s announcement endorses a $145 billion plan that will include possible $600 personal tax rebates, longer unemployment benefits, a targeted housing tax break, tax breaks for business and rebates for research.

Let’s look at this piece by piece , $600 tax rebate = a few weeks of groceries, a weekend away, the minimum monthly payment on a mid tier credit card balance, or 1 months difference on a reset ARM. Big deal! Sure it will make the public all warm and fuzzy but a single shot of heroin is never enough to make a junkie happy and America’s debt junkies will find little relief from this one off fix, which of course will have to be financed through foreign credit. Whooweee what a deal!!!

Longer unemployment benefits. That’s funny because the government has stated for a long time that employment was strong and as such was an indicator that the economy was healthy. Surely that one month blip to 5% was not enough to convince them there was an issue!
Oh, but of course, the Bureau of Labour statistics knows very well that unemployment is much higher than the stats let on, after all it’s their birth/death model and other voodoo accounting that has created the unrealistic low numbers for years.

Targeted house tax breaks, Well, if the targets are stupid people who bought houses they could not afford then this is just wasted money meant to reward fools, and fraudsters. The people who need this the most are those who took the biggest risks and those who should not get bailed out at the expense of the rational members of society.

Tax breaks for business and research credits are both good things but who gets them. I truly believe that this will just be another way of funneling money to big oil and the military industrial complex. Don’t expect to see small manufacturers, solar, wind or geothermal companies get a cent, do however expect to see Exxon and Halliburton at the head of the line. If money has to be spent to stimulate, build clean power plants with domestic technology and begin the process of weaning the U.S. off the greasy teat of Big Oil. After all energy is one of the largest components of the U.S. trade deficit, if stimulus were used to build energy self sufficiency, you create jobs, lower the trade deficit and enhance national security, giving you 3 wins for the debt you will incur. This new package will achieve little but still create debt.

The real significance of this announcement is the validation of Bernanke’s claims that he would drop money from helicopters to thwart any major recession. The copters are on the pads and all fueled up and there is not a hope in hell anyone in Congress would actually ask, “Where will we get the money?”.

This will be the first of many attempts to reinflate and will invariably lead the U.S. into a hyper inflationary episode as the deluge of money falls from the sky.

Try to avoid handling this new money too much, not only is it created with money borrowed from China but I suspect it will be printed there as well, likely with high lead ink.

Wednesday, January 16, 2008

Teetering at the abyss

So is Citigroup really a functional entity, or simply like some brain dead stroke victim lingering on permanent life support while the family, courts and the Government fight over the validity of pulling the plug?

Yesterday Citigroup announced another write down on mortgage investments to the tune of 18 Billion dollars, and a quarterly loss of 8.63 billion. This basically means that the 7.5 Billion that was injected by Abu Dhabi in November may as well been taken out to the desert, doused in gasoline and used for a Bedouin camp fire.

Despite this raging camp fire and the unbearable whine of industrial shredders in the offices of 1000s of Banks, regional lenders, Fanny and Freddy, CitiGroup announces they are selling another $14.5 billion worth of preferred stock to a new batch of apparent morons including the government of Singapore. What do they see that I don’t see?

The Mortgage Bankers association’s September numbers shows the mortgage default rate at 5.6% and still trending up all while the majority of ARM style mortgages have yet to reset. Just how much more of Citigroup’s $214 billion mortgage portfolio can go south? Certainly more than the newest 14.5 billion bail out, I would guess!

It’s not just mortgages any more either, default rates for car loans have hit 5% and credit card defaults are already creeping up, how much does Citigroup have in these categories? How many bad mortgage holders have credit lines, car loans, and several pieces of plastic.

What is really ludicrous was the Standard & Poor's rating of Citigroup that was lowered from AA to AA-, you’ve got to out of your freaking mind. You take multi billion dollar losses, write off billions more, drop the stock price by ½ in a year and require $25 Billion in asset and stock sales to keep afloat and you get your credit rating lowered by 1 insignificant level.

Of course rating agencies are the lynch pin of the entire system and they are likely under severe pressure not to do their job. The day rating agencies give the banks and especially the bond insurers legitimate ratings is the day the lights will go off on Wall Street.

Huge volumes of bonds are held by institutions and pension funds, these funds have strict rules allowing only investment grade products are held. Once the rating agencies downgrade the insurers these downgrades will taint the bonds and force many 100s of Billions worth of bonds will be dumped on the market crashing their prices.

This is the big one! Unlike the banks that will continue to nickel and dime us with repeated write downs and quarterly loses the bond market will go off like Krakatoa. Their only option is for the rating agencies to lie as long as possible and hope they can fend off law suites claiming fraud by those who bought the bonds. In the meantime the insurers will continue taking loses on failing mortgages bonds, burning through their remaining capital on the road to bankruptcy. Like the banks, some insurers like MBIA are raising fresh cash through stock sales and like Citigroup they will burn through this cash far too quickly.

This approach of lie and flounder won’t stop bond insurers from going bankrupt but this scenario might allow the impact to be staggered, the end result will be the same however a destroyed and discredited bond market that will add to the world credit freeze.

Today’s economy is like that Persian diplomat in the movie 300, standing with his back to a deep well. It's obvious that we are teetering at the abyss and any number of foreseeable and quite a few unforeseeable factors could act like King Leonidas and boot us into the pit.

I was most gratified to find that the Wall Street Journal linked my article but of course they are neither as bearish or pessimistic as I am.(I prefer the label "starkly realistic")
I was quite startled that bond insurers were even mentioned in the news, figuring that this segment of the puzzle would be verboten to the main steam media. Of course the real danger to the market should they fold was ignored!

Apparently calling the rationality of the Singapore investment community into question got me a plug here too.

Monday, January 14, 2008

Canadian Blog Awards 2007 nomination

Ok, I'll admit it right off the top, this post is a shameless plug for my site. The Canadian Silver Bug blog has been nominated for the Canadian Blog Awards under the category of best Business/finance Blog.

Whether I’m worthy or not is up for debate but alas, some poor slob was kind enough to nominate me.

If this site has been useful or informative and you can spare 20 seconds and feel I'm worthy, feel free to vote here.

Thank you,
We will now return to your regularly scheduled programing.

Gold and silver are both up, bwahahahahaha!