Saturday, November 1, 2008
Friday, October 17, 2008
Nouriel Roubini a.k.a Dr Doom
How bad the current financial storm will get? This from Nouriel Roubini, Professor of Economics at the NYU Stern School of Business:
"The crisis was caused by the largest leveraged asset bubble and credit bubble in the history of humanity where excessive leveraging and bubbles were not limited to housing in the U.S. but also to housing in many other countries and excessive borrowing by financial institutions and some segments of the corporate sector and of the public sector in many and different economies: an housing bubble, a mortgage bubble, an equity bubble, a bond bubble, a credit bubble, a commodity bubble, a private equity bubble, a hedge funds bubble are all now bursting at once in the biggest real sector and financial sector deleveraging since the Great Depression.
"At this point the recession train has left the station; the financial and banking crisis train has left the station. The delusion that the U.S. and advanced economies contraction would be short and shallow - a V-shaped six month recession - has been replaced by the certainty that this will be a long and protracted U-shaped recession that may last at least two years in the U.S. and close to two years in most of the rest of the world. And given the rising risk of a global systemic financial meltdown, the probability that the outcome could become a decade long L-shaped recession - like the one experienced by Japan after the bursting of its real estate and equity bubble - cannot be ruled out.
"At this point the risk of an imminent stock market crash - like the one-day collapse of 20% plus in U.S. stock prices in 1987 - cannot be ruled out as the financial system is breaking down, panic and lack of confidence in any counterparty is sharply rising and the investors have totally lost faith in the ability of policy authorities to control this meltdown.
"A vicious circle of deleveraging, asset collapses, margin calls, and cascading falls in asset prices well below falling fundamentals, and panic is now underway."
NYT call Dr Roubini as Dr Doom, the professor who predicted the current credit crisis two years ago.
Buy gold safe haven, price of gold had drop good time to buy a gold coin or two for safe keeping.
Read disclaimer/comments policy.
"The crisis was caused by the largest leveraged asset bubble and credit bubble in the history of humanity where excessive leveraging and bubbles were not limited to housing in the U.S. but also to housing in many other countries and excessive borrowing by financial institutions and some segments of the corporate sector and of the public sector in many and different economies: an housing bubble, a mortgage bubble, an equity bubble, a bond bubble, a credit bubble, a commodity bubble, a private equity bubble, a hedge funds bubble are all now bursting at once in the biggest real sector and financial sector deleveraging since the Great Depression.
"At this point the recession train has left the station; the financial and banking crisis train has left the station. The delusion that the U.S. and advanced economies contraction would be short and shallow - a V-shaped six month recession - has been replaced by the certainty that this will be a long and protracted U-shaped recession that may last at least two years in the U.S. and close to two years in most of the rest of the world. And given the rising risk of a global systemic financial meltdown, the probability that the outcome could become a decade long L-shaped recession - like the one experienced by Japan after the bursting of its real estate and equity bubble - cannot be ruled out.
"At this point the risk of an imminent stock market crash - like the one-day collapse of 20% plus in U.S. stock prices in 1987 - cannot be ruled out as the financial system is breaking down, panic and lack of confidence in any counterparty is sharply rising and the investors have totally lost faith in the ability of policy authorities to control this meltdown.
"A vicious circle of deleveraging, asset collapses, margin calls, and cascading falls in asset prices well below falling fundamentals, and panic is now underway."
NYT call Dr Roubini as Dr Doom, the professor who predicted the current credit crisis two years ago.
Buy gold safe haven, price of gold had drop good time to buy a gold coin or two for safe keeping.
Read disclaimer/comments policy.
Wednesday, October 15, 2008
LIBOR Rate Hardly Moved.
Despite multi trillion liquidity injection to the entire world financial systems the London LIBOR 1 month and 3 months interest rates hardly moved! Banks free and easy lending it's coming to the end sad to say. From now onwards ordinary folks like us getting bank loans will be proved harder then going to planet Mars because banks doesn't even want to lend to one another despite all this mambo jumbo trillion dollars rescue package, maybe the Maltian have some extra dollars to save or spare the earth from this credit crunch and helps earthling from falling to an economic deathly spiral into abyss.
One month LIBOR is normally some small percentage (say 15-30 basis points) above the Fed Funds Rate. It is now 297 basis points above the Fed Fund Rate.The key issue with LIBOR is the huge number of adjustable rate mortgages that are tied to it. Bernanke went on a slash and burn campaign of cutting interest rates from 5.25 all the way to 1.50 (375 basis points) yet LIBOR only picked up about 100 of them.
The current stock market bull run euphoria hardly proves anything to the bankers because the issues of counter parties risk still had not been totally and honestly encountered. Feds will have to ultimately separate the hays from the wheats. FDR during the world first depression in 1930 close down all American banks for one week so that government regulators can assessed the health of individual banks, savage those can be save and bankrupt those can't be savage. Only after that Feds pump in massive liquidity into the financial systems to jump start the economy.
Further more forcing the bankers to start lending facilities it's almost impossible when bank don't even trust one another.
Bloomberg : Treasury Secretary Henry Paulson persuaded nine major U.S. banks to accept $125 billion in government investment. Getting them to lend it out may prove a tougher sell.The equity stakes the government is purchasing in Citigroup Inc., Morgan Stanley and seven other big institutions come with no guarantee that the investments will spur lending and unfreeze credit markets. Nor do they give the government board seats or any other leverage to demand that that the firms actually use the money to help the economy.``The truth of the matter is, they can't put a gun to their head and say you have to lend this money,'' said Charles Horn, a former official at the Office of the Comptroller of the Currency, part of the Treasury Department, and now a partner at the Mayer Brown law firm in Washington.
Treasury officials acknowledge they can't force banks to get the taxpayer money into the hands of their customers. Instead, officials are betting that the government's investment will create conditions where banks have a greater incentive to earn profits from lending than to hoard money to shore up their balance sheets.``It's in their economic interest,'' said David Nason, the Treasury's assistant secretary for financial institutions, in an interview with Bloomberg Television. ``When you give them a stronger capital position and you also provide a certain amount of government backstop to their funding sources, it's incumbent upon them to go out and continue to lend.
Therefore central bankers will not only need to pump massive amount of liquidity into the market systems they also need to ensure sound lending environment of trust exist before the credit expansion begins. Anything lesser then that will be exercise in futility, markets negative sentiments towards the health of the real economy will simply overwhelmed whatever the central bankers initiatives to jump start the economy. This crisis of confidence in the financial system will take times and years of consistent efforts not a few quarters kind of problems but at least minimum 2 years or more to solve. For banks to starts lending again after the current crisis, at the moment seams impossible to do anything accurately right anyway, Feds will have to concentrate in having the right measures and responsed to bring the American economy to it's feet's again. Sound lending equal sound economy!
Meanwhile gold price it's one of the commodities most stable plus some upward trend compare with others commodities. Gold safe haven characteristics proved the most valuables assets in time of severe economy crisis.
Buy Gold!
Kindly Read Disclaimers/Comments Policy.
One month LIBOR is normally some small percentage (say 15-30 basis points) above the Fed Funds Rate. It is now 297 basis points above the Fed Fund Rate.The key issue with LIBOR is the huge number of adjustable rate mortgages that are tied to it. Bernanke went on a slash and burn campaign of cutting interest rates from 5.25 all the way to 1.50 (375 basis points) yet LIBOR only picked up about 100 of them.
The current stock market bull run euphoria hardly proves anything to the bankers because the issues of counter parties risk still had not been totally and honestly encountered. Feds will have to ultimately separate the hays from the wheats. FDR during the world first depression in 1930 close down all American banks for one week so that government regulators can assessed the health of individual banks, savage those can be save and bankrupt those can't be savage. Only after that Feds pump in massive liquidity into the financial systems to jump start the economy.
Further more forcing the bankers to start lending facilities it's almost impossible when bank don't even trust one another.
Bloomberg : Treasury Secretary Henry Paulson persuaded nine major U.S. banks to accept $125 billion in government investment. Getting them to lend it out may prove a tougher sell.The equity stakes the government is purchasing in Citigroup Inc., Morgan Stanley and seven other big institutions come with no guarantee that the investments will spur lending and unfreeze credit markets. Nor do they give the government board seats or any other leverage to demand that that the firms actually use the money to help the economy.``The truth of the matter is, they can't put a gun to their head and say you have to lend this money,'' said Charles Horn, a former official at the Office of the Comptroller of the Currency, part of the Treasury Department, and now a partner at the Mayer Brown law firm in Washington.
Treasury officials acknowledge they can't force banks to get the taxpayer money into the hands of their customers. Instead, officials are betting that the government's investment will create conditions where banks have a greater incentive to earn profits from lending than to hoard money to shore up their balance sheets.``It's in their economic interest,'' said David Nason, the Treasury's assistant secretary for financial institutions, in an interview with Bloomberg Television. ``When you give them a stronger capital position and you also provide a certain amount of government backstop to their funding sources, it's incumbent upon them to go out and continue to lend.
Therefore central bankers will not only need to pump massive amount of liquidity into the market systems they also need to ensure sound lending environment of trust exist before the credit expansion begins. Anything lesser then that will be exercise in futility, markets negative sentiments towards the health of the real economy will simply overwhelmed whatever the central bankers initiatives to jump start the economy. This crisis of confidence in the financial system will take times and years of consistent efforts not a few quarters kind of problems but at least minimum 2 years or more to solve. For banks to starts lending again after the current crisis, at the moment seams impossible to do anything accurately right anyway, Feds will have to concentrate in having the right measures and responsed to bring the American economy to it's feet's again. Sound lending equal sound economy!
Meanwhile gold price it's one of the commodities most stable plus some upward trend compare with others commodities. Gold safe haven characteristics proved the most valuables assets in time of severe economy crisis.
Buy Gold!
Kindly Read Disclaimers/Comments Policy.
Tuesday, October 14, 2008
A £516 trillion derivatives 'time-bomb'
Can't help it kind of feeling you may say, last few blogging have seen myself dwelling in the issues of derivatives. How we can whether through this financial turmoil will depends on the process of unwinding those derivatives that put a strangle hold on the financial system worldwide.
Bankrupted Lehman Brothers still had 400 billion of credit default swap (CDS), how and when this derivatives CDS going to unwind it's anybody guess. Like Buffet said he prefer holding cats by it's tail then rather trying to unwind a derivatives business. Who is holding the bags eventually it still anybody guess work, counter parties risk still a worrisome things.
Total derivatives worldwide it's £516 trillion! A massive financial thermonuclear time bombs.
Stock market it's up steeply from Australia to Europe today, do it signify that the current financial turmoil it's done and over. At the Chinese saying said "good things is at the back stage", a lots of issues from counter parties risk to the issues of bank solvency still had not been solved by Central banker. By pumping liquidity to the banking systems only solved one parts of the many problems arises from this credit crunch. The true pictures will come into play when unwinding the massive derivatives time bomb!
Read the following article : A £516 trillion derivatives 'time-bomb'
By Margareta Pagano and Simon Evans.
Buy gold no counter parties risk!
Kindly read Disclaimer/Comments Policy.
Bankrupted Lehman Brothers still had 400 billion of credit default swap (CDS), how and when this derivatives CDS going to unwind it's anybody guess. Like Buffet said he prefer holding cats by it's tail then rather trying to unwind a derivatives business. Who is holding the bags eventually it still anybody guess work, counter parties risk still a worrisome things.
Total derivatives worldwide it's £516 trillion! A massive financial thermonuclear time bombs.
Stock market it's up steeply from Australia to Europe today, do it signify that the current financial turmoil it's done and over. At the Chinese saying said "good things is at the back stage", a lots of issues from counter parties risk to the issues of bank solvency still had not been solved by Central banker. By pumping liquidity to the banking systems only solved one parts of the many problems arises from this credit crunch. The true pictures will come into play when unwinding the massive derivatives time bomb!
Read the following article : A £516 trillion derivatives 'time-bomb'
By Margareta Pagano and Simon Evans.
Buy gold no counter parties risk!
Kindly read Disclaimer/Comments Policy.
Monday, October 13, 2008
Financial Armageddon
Financial Armageddon, serious words indeed. below it;s the except from Micheal Panzner book Financial Armageddon (hopefully Michael won’t mind me posting so much of his text desperate time requires desperate measure as someone said):
Eventually, with a decades-long orgy of credit expansion unraveling fast; the meltdown of stock, bond, commodity, and other markets; a cratering economy; and more of the nation’s largest financial institutions precariously on the edge, the Federal Reserve and Washington as a whole will have reached a critical juncture. There will be widespread pressure, bordering perhaps on hysteria, for somebody, somewhere to take action and stem the rapidly rising tide of disaster.
Only then, after being unwilling to react quickly and forcefully enough early on, the Federal Reserve will abruptly shift gears, no longer fearing the consequences of an aggressive monetary response. In a sense, they will have nothing to lose. With immediate effect, they will give up their self-imposed yoke of restraint and move wholeheartedly into money-creation mode. That will mark the beginning of the second phase of the great unraveling.
Sound familiar? Here’s some more from Chapter 6 (”Systemic Crisis”)
No doubt a systemic meltdown will provoke a similar response. For the financial system and the markets, however, the fallout will likely be worse than any downturn in many decades, owing to a unique combination of modern developments and incendiary circumstances. The explosive growth of derivatives trading and leveraged hedge fund investing, hidden behind a shroud of lightly regulated secrecy, means that few people will have a handle on where dangerous risk is concentrated or overall levels of exposure — not until it’s too late…
-SNIP-
Simply put, people will find it difficult to react in timely, logical or focused fashion to the unfolding calamity…
-SNIP-
Despite increased levels of sophistication and the broad use of modern risk management systems, no one can be sure how new or exotic instruments and markets will behave when conditions take an ominous turn. The sheer scale of the unfolding financial crisis—in terms of the number of participants, firms, regulators, products, countries, and markets—will make it difficult to penetrate the problems…
-SNIP-
This time, however, a vast and efficient global communications network will ensure that destructive energies are rapidly transmitted to billions of people. So, too, will trading technology that facilitates and encourages traders and investors to act on their impulses. Many will find it too easy to shoot first — or point and click — and ask questions later in a 21st-century rush for the exits.. Not only will the fastest or sharpest operators look to get out. Firms that have come to depend on leverage, including hedge funds, brokers, and even banks, will also face immediate and rapidly growing pressure to scale back positions because of demands for additional cash collateral or reduced access to financing. Meanwhile, those who still have the wherewithal to initiate fresh positions or act independently will look to dive in and take advantage of the stampede.
-SNIP-
A constant global ripple effect will occur as positions are adjusted to take account of risk management strategies or cash-raising demands. The widespread use of flawed models will further aggravate the situation.
-SNIP-
By the time the systemic crisis is full-blown, there will almost certainly have been a domino-like collapse of more than a few large intermediaries and allegedly sophisticated global financial firms, including hedge funds, insurers, and brokers. As the number of failures grows, concerns over counterparty risk will take center stage. Lenders, investors, and risk managers will fret and gossip about which institution is next. Worries about fraud and chicanery will boost anxiety to a fever pitch. Even firms not in dire straits may suddenly find themselves at risk. In times of upheaval, a lack of information and concern about the ability of others to manage their exposure often spurs a self-fulfilling prophecy, where idle chatter alone leads to institutions being squeezed or cut off—just when they need access to financing most.
-SNIP-
Few areas of the financial system will be unaffected when the meltdown rages. In the insurance sector, for example, debt downgrades and defaults will occur at a quickening pace… At least some of the $2 trillion held in money market funds will anxiously flee to safer pastures as the prices of one or more pools fall below par — “breaks the buck” — because of shaky markets and holdings that turn out to be much riskier than expected.
Chilling the above prediction was unfolding right before our eyes for the pass few months, how far this current financial crisis will go on no one have a clue.
Buy Gold Safe Haven!
Kindly Read Disclaimer/Comments Policy.
Eventually, with a decades-long orgy of credit expansion unraveling fast; the meltdown of stock, bond, commodity, and other markets; a cratering economy; and more of the nation’s largest financial institutions precariously on the edge, the Federal Reserve and Washington as a whole will have reached a critical juncture. There will be widespread pressure, bordering perhaps on hysteria, for somebody, somewhere to take action and stem the rapidly rising tide of disaster.
Only then, after being unwilling to react quickly and forcefully enough early on, the Federal Reserve will abruptly shift gears, no longer fearing the consequences of an aggressive monetary response. In a sense, they will have nothing to lose. With immediate effect, they will give up their self-imposed yoke of restraint and move wholeheartedly into money-creation mode. That will mark the beginning of the second phase of the great unraveling.
Sound familiar? Here’s some more from Chapter 6 (”Systemic Crisis”)
No doubt a systemic meltdown will provoke a similar response. For the financial system and the markets, however, the fallout will likely be worse than any downturn in many decades, owing to a unique combination of modern developments and incendiary circumstances. The explosive growth of derivatives trading and leveraged hedge fund investing, hidden behind a shroud of lightly regulated secrecy, means that few people will have a handle on where dangerous risk is concentrated or overall levels of exposure — not until it’s too late…
-SNIP-
Simply put, people will find it difficult to react in timely, logical or focused fashion to the unfolding calamity…
-SNIP-
Despite increased levels of sophistication and the broad use of modern risk management systems, no one can be sure how new or exotic instruments and markets will behave when conditions take an ominous turn. The sheer scale of the unfolding financial crisis—in terms of the number of participants, firms, regulators, products, countries, and markets—will make it difficult to penetrate the problems…
-SNIP-
This time, however, a vast and efficient global communications network will ensure that destructive energies are rapidly transmitted to billions of people. So, too, will trading technology that facilitates and encourages traders and investors to act on their impulses. Many will find it too easy to shoot first — or point and click — and ask questions later in a 21st-century rush for the exits.. Not only will the fastest or sharpest operators look to get out. Firms that have come to depend on leverage, including hedge funds, brokers, and even banks, will also face immediate and rapidly growing pressure to scale back positions because of demands for additional cash collateral or reduced access to financing. Meanwhile, those who still have the wherewithal to initiate fresh positions or act independently will look to dive in and take advantage of the stampede.
-SNIP-
A constant global ripple effect will occur as positions are adjusted to take account of risk management strategies or cash-raising demands. The widespread use of flawed models will further aggravate the situation.
-SNIP-
By the time the systemic crisis is full-blown, there will almost certainly have been a domino-like collapse of more than a few large intermediaries and allegedly sophisticated global financial firms, including hedge funds, insurers, and brokers. As the number of failures grows, concerns over counterparty risk will take center stage. Lenders, investors, and risk managers will fret and gossip about which institution is next. Worries about fraud and chicanery will boost anxiety to a fever pitch. Even firms not in dire straits may suddenly find themselves at risk. In times of upheaval, a lack of information and concern about the ability of others to manage their exposure often spurs a self-fulfilling prophecy, where idle chatter alone leads to institutions being squeezed or cut off—just when they need access to financing most.
-SNIP-
Few areas of the financial system will be unaffected when the meltdown rages. In the insurance sector, for example, debt downgrades and defaults will occur at a quickening pace… At least some of the $2 trillion held in money market funds will anxiously flee to safer pastures as the prices of one or more pools fall below par — “breaks the buck” — because of shaky markets and holdings that turn out to be much riskier than expected.
Chilling the above prediction was unfolding right before our eyes for the pass few months, how far this current financial crisis will go on no one have a clue.
Buy Gold Safe Haven!
Kindly Read Disclaimer/Comments Policy.
Saturday, October 11, 2008
Derivaties Bubble Central Bankers Worst Nightmare.
Did Greenspan policies during his tenure as Feds chief contributed to the present financial mess worldwide? Many analysis pointed at Greeenspan years of low interest rate ( blowing up the housing market bubble ) and his insistence of not regulating the derivatives market ( blowing up the derivatives market to become a multi trillion problem ), will be remember by many of his peers either as by omission or commission in allowing the bankers excessive greed and relentless/shameless way of securinitzation the mortgage loans through Frandie and Fannie Mae. Which contributed greatly on the current credit crisis in the Western world.
Read the following except from The NYT:
"George Soros, the prominent financier, avoids using the financial contracts known as derivatives 'because we don't really understand how they work.' Felix G. Rohatyn, the investment banker who saved New York from financial catastrophe in the 1970s, described derivatives as potential 'hydrogen bombs.'
And Warren E. Buffett presciently observed five years ago that derivatives were 'financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.'
"One prominent financial figure, however, has long thought otherwise. And his views held the greatest sway in debates about the regulation and use of derivatives - exotic contracts that promised to protect investors from losses, thereby stimulating riskier practices that led to the financial crisis. "
For more than a decade, the former Federal Reserve Chairman Alan Greenspan has fiercely objected whenever derivatives have come under scrutiny in Congress or on Wall Street. 'What we have found over the years in the marketplace is that derivatives have been an extraordinarily useful vehicle to transfer risk from those who shouldn't be taking it to those who are willing to and are capable of doing so,' Mr. Greenspan told the Senate Banking Committee in 2003. 'We think it would be a mistake' to more deeply regulate the contracts, he added.
"The derivatives market is $531 trillion, up from $106 trillion in 2002 and a relative pittance just two decades ago. Theoretically intended to limit risk and ward off financial problems, the contracts instead have stoked uncertainty and actually spread risk amid doubts about how companies value them.
"If Mr. Greenspan had acted differently during his tenure as Federal Reserve chairman from 1987 to 2006, many economists say, the current crisis might have been averted or muted."
With a $531 trillion derivatives value, a mere 10% of them turn bad will be enough to turn all of us back to the stone age, that's why Buffet call derivatives market the " financial weapon of mass destruction's". No body really knows how and by what means those derivatives are slice, dice and being sold ultimately to mutual funds, municipals and investors. Besides turning bad the cost of unwinding those derivatives positions will takes months if not years to determine who own what and the amount of loses that carries with it. The unwinding of all these derivatives position will definitely bring us nearer to Financial Armageddon because there are so huge and intertwined across the globes, no nations will be spared from it's effects.
G7 finance ministers will have to deal with these issues above head on if they are serious in solving the current credit crisis. Any effort to undermine or sweep under the carpet the above problem will prolong the problems itself, it's unenviable position definitely, in one hand you strife to stabilised the financial markets yet in reality these so called financial ingenuity call derivatives are hurting the bankers worldwide. No knows exactly how to have a painless unwinding. Even Soros doesn't knows how this derivatives works!
Any effort to bypass the long unwinding process will make many of the banks look like living zombies because without openly realising those loses cause by this toxic derivatives banks cannot function properly, bank solvency headache will be the issues. Ending up like right now whereby bank don't trust banks in short term lending facilities ( high Libor rates ).
"Clive Maund at clivemaund.com says, "Payback time for Wall St and Washington will be when foreign investors fail to turn up at the bond auctions to finance the bailout plan, whose $800+ billion will have to be created out of thin air. So the bonds will have to be monetized, which will mean an immediate spike in inflation, which will cause the rate of corporate bankruptcies to soar as failing companies take down others in a chain reaction because the losses will be highly leveraged by credit default swaps etc. This is the underlying reason why banks won't lend to each other - they can't calculate the counterparty risk. All of this will set off a massive derivatives meltdown that will bring the whole system crashing down"
Tim Wood at FinancialSense.com put it more succintly, who uses it to say "manipulation will ultimately not work" and that it will "make matters worse in the end. Yet, the Fed, the Treasury and the politicians continue to think that they can 'fix' the problem by throwing more money at it. They do not understand that they can't 'fix' this economic crisis. They also do not understand that it is their trying to 'fix' things in the past that has created the current situation."
Everybody knows this time the multi trillion financial markets mess is far bigger then any available rescue plans that the central bankers has. As been said earlier no one knows what to do currently, do you damn; don't do you also damn!
Buy Gold!
Kindly read Disclaimer/Comments Policy.
Read the following except from The NYT:
"George Soros, the prominent financier, avoids using the financial contracts known as derivatives 'because we don't really understand how they work.' Felix G. Rohatyn, the investment banker who saved New York from financial catastrophe in the 1970s, described derivatives as potential 'hydrogen bombs.'
And Warren E. Buffett presciently observed five years ago that derivatives were 'financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.'
"One prominent financial figure, however, has long thought otherwise. And his views held the greatest sway in debates about the regulation and use of derivatives - exotic contracts that promised to protect investors from losses, thereby stimulating riskier practices that led to the financial crisis. "
For more than a decade, the former Federal Reserve Chairman Alan Greenspan has fiercely objected whenever derivatives have come under scrutiny in Congress or on Wall Street. 'What we have found over the years in the marketplace is that derivatives have been an extraordinarily useful vehicle to transfer risk from those who shouldn't be taking it to those who are willing to and are capable of doing so,' Mr. Greenspan told the Senate Banking Committee in 2003. 'We think it would be a mistake' to more deeply regulate the contracts, he added.
"The derivatives market is $531 trillion, up from $106 trillion in 2002 and a relative pittance just two decades ago. Theoretically intended to limit risk and ward off financial problems, the contracts instead have stoked uncertainty and actually spread risk amid doubts about how companies value them.
"If Mr. Greenspan had acted differently during his tenure as Federal Reserve chairman from 1987 to 2006, many economists say, the current crisis might have been averted or muted."
With a $531 trillion derivatives value, a mere 10% of them turn bad will be enough to turn all of us back to the stone age, that's why Buffet call derivatives market the " financial weapon of mass destruction's". No body really knows how and by what means those derivatives are slice, dice and being sold ultimately to mutual funds, municipals and investors. Besides turning bad the cost of unwinding those derivatives positions will takes months if not years to determine who own what and the amount of loses that carries with it. The unwinding of all these derivatives position will definitely bring us nearer to Financial Armageddon because there are so huge and intertwined across the globes, no nations will be spared from it's effects.
G7 finance ministers will have to deal with these issues above head on if they are serious in solving the current credit crisis. Any effort to undermine or sweep under the carpet the above problem will prolong the problems itself, it's unenviable position definitely, in one hand you strife to stabilised the financial markets yet in reality these so called financial ingenuity call derivatives are hurting the bankers worldwide. No knows exactly how to have a painless unwinding. Even Soros doesn't knows how this derivatives works!
Any effort to bypass the long unwinding process will make many of the banks look like living zombies because without openly realising those loses cause by this toxic derivatives banks cannot function properly, bank solvency headache will be the issues. Ending up like right now whereby bank don't trust banks in short term lending facilities ( high Libor rates ).
"Clive Maund at clivemaund.com says, "Payback time for Wall St and Washington will be when foreign investors fail to turn up at the bond auctions to finance the bailout plan, whose $800+ billion will have to be created out of thin air. So the bonds will have to be monetized, which will mean an immediate spike in inflation, which will cause the rate of corporate bankruptcies to soar as failing companies take down others in a chain reaction because the losses will be highly leveraged by credit default swaps etc. This is the underlying reason why banks won't lend to each other - they can't calculate the counterparty risk. All of this will set off a massive derivatives meltdown that will bring the whole system crashing down"
No foreign investors turn up at the auctions to finance the bailout plan! In short nobody want to lent money to Uncle Sam anymore, Feds only had one methods left "create it from thin air".
Not surprisingly the G7 media conference offers little tangible efforts in solving above problems today, questions is, are how the G7 finance ministers going to solve the above problems is it by creating more debts? Creating another debts to cover another debts it's a problems by itself we will as good leave it to another day to discuss it. Whatever financial weapons available( reduce interest rates/pump liquidity into banks ) have been used by the world central banker yet the crisis of confidence and fears in the financial markets hardly subsides instead it went up a few notches!
Tim Wood at FinancialSense.com put it more succintly, who uses it to say "manipulation will ultimately not work" and that it will "make matters worse in the end. Yet, the Fed, the Treasury and the politicians continue to think that they can 'fix' the problem by throwing more money at it. They do not understand that they can't 'fix' this economic crisis. They also do not understand that it is their trying to 'fix' things in the past that has created the current situation."
Everybody knows this time the multi trillion financial markets mess is far bigger then any available rescue plans that the central bankers has. As been said earlier no one knows what to do currently, do you damn; don't do you also damn!
Buy Gold!
Kindly read Disclaimer/Comments Policy.
Thursday, October 9, 2008
The Real Great Depression 1873
Did the current financial tsunami will brought us nearer to the last depression in 192o's. Below article written by Mr.Nelson show something more serious, he make the comparison between the great depression in 1873 and 1920. Results, the great depression in 1873 it's much more severe then the 1920. The 1873 depression was caused by unrelented spending and speculating in the commercial and real estate property, sound like what is happening now, read on..........
By SCOTT REYNOLDS NELSONFrom the issue dated October 17, 2008.
As a historian who works on the 19th century, I have been reading mynewspaper with a considerable sense of dread. While many commentators onthe recent mortgage and banking crisis have drawn parallels to the GreatDepression of 1929, that comparison is not particularly apt. Two yearsago, I began research on the Panic of 1873, an event of some interest tomy colleagues in American business and labor history but probablyunknown to everyone else. But as I turn the crank on the microfilmreader, I have been hearing weird echoes of recent events.
When commentators invoke 1929, I am dubious. According to mosthistorians and economists, that depression had more to do with overlargefactory inventories, a stock-market crash, and Germany’s inability topay back war debts, which then led to continuing strain on British goldreserves. None of those factors is really an issue now. Contemporaryindustries have very sensitive controls for trimming production asconsumption declines; our current stock-market dip followed bankproblems that emerged more than a year ago; and there are no seriousinternational problems with gold reserves, simply because banks nolonger peg their lending to them.
In fact, the current economic woes look a lot like what my 96-year-oldgrandmother still calls “the real Great Depression.” She pinched penniesin the 1930s, but she says that times were not nearly so bad as thedepression her grandparents went through. That crash came in 1873 andlasted more than four years. It looks much more like our current crisis.
The problems had emerged around 1870, starting in Europe. In theAustro-Hungarian Empire, formed in 1867, in the states unified byPrussia into the German empire, and in France, the emperors supported aflowering of new lending institutions that issued mortgages formunicipal and residential construction, especially in the capitals ofVienna, Berlin, and Paris. Mortgages were easier to obtain than before,and a building boom commenced. Land values seemed to climb and climb;borrowers ravenously assumed more and more credit, using unbuilt orhalf-built houses as collateral. The most marvelous spots for sightseersin the three cities today are the magisterial buildings erected in theso-called founder period. But the economic fundamentals were shaky. Wheat exporters from Russiaand Central Europe faced a new international competitor who drasticallyundersold them. The 19th-century version of containers manufactured inChina and bound for Wal-Mart consisted of produce from farmers in theAmerican Midwest. They used grain elevators, conveyer belts, and massivesteam ships to export trainloads of wheat to abroad. Britain, thebiggest importer of wheat, shifted to the cheap stuff quite suddenlyaround 1871. By 1872 kerosene and manufactured food were rocketing outof America’s heartland, undermining rapeseed, flour, and beef prices.The crash came in Central Europe in May 1873, as it became clear thatthe region’s assumptions about continual economic growth were toooptimistic. Europeans faced what they came to call the AmericanCommercial Invasion. A new industrial superpower had arrived, one whoselow costs threatened European trade and a European way of life.
As continental banks tumbled, British banks held back their capital,unsure of which institutions were most involved in the mortgage crisis.The cost to borrow money from another bank - the interbank lending rate- reached impossibly high rates. This banking crisis hit the UnitedStates in the fall of 1873. Railroad companies tumbled first. They hadcrafted complex financial instruments that promised a fixed return,though few understood the underlying object that was guaranteed toinvestors in case of default. (Answer: nothing). The bonds had sold wellat first, but they had tumbled after 1871 as investors began to doubttheir value, prices weakened, and many railroads took on short-term bankloans to continue laying track. Then, as short-term lending ratesskyrocketed across the Atlantic in 1873, the railroads were in trouble.When the railroad financier Jay Cooke proved unable to pay off hisdebts, the stock market crashed in September, closing hundreds of banksover the next three years. The panic continued for more than four yearsin the United States and for nearly six years in Europe.
The long-term effects of the Panic of 1873 were perverse. For thelargest manufacturing companies in the United States - those withguaranteed contracts and the ability to make rebate deals with therailroads - the Panic years were golden. Andrew Carnegie, CyrusMcCormick, and John D. Rockefeller had enough capital reserves tofinance their own continuing growth. For smaller industrial firms thatrelied on seasonal demand and outside capital, the situation was dire.As capital reserves dried up, so did their industries. Carnegie andRockefeller bought out their competitors at fire-sale prices. The GildedAge in the United States, as far as industrial concentration wasconcerned, had begun.
As the panic deepened, ordinary Americans suffered terribly. A cigarmaker named Samuel Gompers who was young in 1873 later recalled thatwith the panic, “economic organization crumbled with some primevalupheaval.” Between 1873 and 1877, as many smaller factories andworkshops shuttered their doors, tens of thousands of workers - manyformer Civil War soldiers - became transients. The terms “tramp” and“bum,” both indirect references to former soldiers, became commonplaceAmerican terms. Relief rolls exploded in major cities, with 25-percentunemployment (100,000 workers) in New York City alone. Unemployedworkers demonstrated in Boston, Chicago, and New York in the winter of1873-74 demanding public work. In New York’s Tompkins Square in 1874,police entered the crowd with clubs and beat up thousands of men andwomen. The most violent strikes in American history followed the panic,including by the secret labor group known as the Molly Maguires inPennsylvania’s coal fields in 1875, when masked workmen exchangedgunfire with the “Coal and Iron Police,” a private force commissioned bythe state. A nationwide railroad strike followed in 1877, in which mobsdestroyed railway hubs in Pittsburgh, Chicago, and Cumberland, Md.
In Central and Eastern Europe, times were even harder. Many politicalanalysts blamed the crisis on a combination of foreign banks and Jews.Nationalistic political leaders (or agents of the Russian czar) embraceda new, sophisticated brand of anti-Semitism that proved appealing tothousands who had lost their livelihoods in the panic. Anti-Jewishpogroms followed in the 1880s, particularly in Russia and Ukraine.Heartland communities large and small had found a scapegoat: aliens intheir midst.
The echoes of the past in the current problems with residentialmortgages trouble me. Loans after about 2001 were issued to first-timehomebuyers who signed up for adjustable rate mortgages they could likelynever pay off, even in the best of times. Real-estate speculators,hoping to flip properties, overextended themselves, assuming that homeprices would keep climbing. Those debts were wrapped in complexsecurities that mortgage companies and other entrepreneurial banks thensold to other banks; concerned about the stability of those securities,banks then bought a kind of insurance policy called a credit-derivativeswap, which risk managers imagined would protect their investments. Morethan two million foreclosure filings - default notices, auction-salenotices, and bank repossessions - were reported in 2007. By thentrillions of dollars were already invested in this credit-derivativemarket. Were those new financial instruments resilient enough to coverall the risk? (Answer: no.) As in 1873, a complex financial pyramidrested on a pinhead. Banks are hoarding cash. Banks that hoard cash donot make short-term loans. Businesses large and small now face apotential dearth of short-term credit to buy raw materials, ship theirproducts, and keep goods on shelves.
If there are lessons from 1873, they are different from those of 1929.Most important, when banks fall on Wall Street, they stop all thetraffic on Main Street - for a very long time. The protractedreconstruction of banks in the United States and Europe createdwidespread unemployment. Unions (previously illegal in much of theworld) flourished but were then destroyed by corporate institutions thatlearned to operate on the edge of the law. In Europe, politicians foundtheir scapegoats in Jews, on the fringes of the economy. (Americans, onthe other hand, mostly blamed themselves; many began to embrace whatwould later be called fundamentalist religion.)
The post-panic winners, even after the bailout, might be those firms -financial and otherwise - that have substantial cash reserves. Awidespread consolidation of industries may be on the horizon, along witha nationalistic response of high tariff barriers, a decline ininternational trade, and scapegoating of immigrant competitors forscarce jobs. The failure in July of the World Trade Organization talksbegun in Doha seven years ago suggests a new wave of protectionism maybe on the way.
In the end, the Panic of 1873 demonstrated that the center of gravityfor the world’s credit had shifted west - from Central Europe toward theUnited States. The current panic suggests a further shift - from theUnited States to China and India. Beyond that I would not hazard aguess. I still have microfilm to read.
Scott Reynolds Nelson is a professor of history at the College ofWilliam and Mary. Among his books is Steel Drivin’ Man: John Henry, theUntold Story of an American legend (Oxford University Press, 2006).
By SCOTT REYNOLDS NELSONFrom the issue dated October 17, 2008.
As a historian who works on the 19th century, I have been reading mynewspaper with a considerable sense of dread. While many commentators onthe recent mortgage and banking crisis have drawn parallels to the GreatDepression of 1929, that comparison is not particularly apt. Two yearsago, I began research on the Panic of 1873, an event of some interest tomy colleagues in American business and labor history but probablyunknown to everyone else. But as I turn the crank on the microfilmreader, I have been hearing weird echoes of recent events.
When commentators invoke 1929, I am dubious. According to mosthistorians and economists, that depression had more to do with overlargefactory inventories, a stock-market crash, and Germany’s inability topay back war debts, which then led to continuing strain on British goldreserves. None of those factors is really an issue now. Contemporaryindustries have very sensitive controls for trimming production asconsumption declines; our current stock-market dip followed bankproblems that emerged more than a year ago; and there are no seriousinternational problems with gold reserves, simply because banks nolonger peg their lending to them.
In fact, the current economic woes look a lot like what my 96-year-oldgrandmother still calls “the real Great Depression.” She pinched penniesin the 1930s, but she says that times were not nearly so bad as thedepression her grandparents went through. That crash came in 1873 andlasted more than four years. It looks much more like our current crisis.
The problems had emerged around 1870, starting in Europe. In theAustro-Hungarian Empire, formed in 1867, in the states unified byPrussia into the German empire, and in France, the emperors supported aflowering of new lending institutions that issued mortgages formunicipal and residential construction, especially in the capitals ofVienna, Berlin, and Paris. Mortgages were easier to obtain than before,and a building boom commenced. Land values seemed to climb and climb;borrowers ravenously assumed more and more credit, using unbuilt orhalf-built houses as collateral. The most marvelous spots for sightseersin the three cities today are the magisterial buildings erected in theso-called founder period. But the economic fundamentals were shaky. Wheat exporters from Russiaand Central Europe faced a new international competitor who drasticallyundersold them. The 19th-century version of containers manufactured inChina and bound for Wal-Mart consisted of produce from farmers in theAmerican Midwest. They used grain elevators, conveyer belts, and massivesteam ships to export trainloads of wheat to abroad. Britain, thebiggest importer of wheat, shifted to the cheap stuff quite suddenlyaround 1871. By 1872 kerosene and manufactured food were rocketing outof America’s heartland, undermining rapeseed, flour, and beef prices.The crash came in Central Europe in May 1873, as it became clear thatthe region’s assumptions about continual economic growth were toooptimistic. Europeans faced what they came to call the AmericanCommercial Invasion. A new industrial superpower had arrived, one whoselow costs threatened European trade and a European way of life.
As continental banks tumbled, British banks held back their capital,unsure of which institutions were most involved in the mortgage crisis.The cost to borrow money from another bank - the interbank lending rate- reached impossibly high rates. This banking crisis hit the UnitedStates in the fall of 1873. Railroad companies tumbled first. They hadcrafted complex financial instruments that promised a fixed return,though few understood the underlying object that was guaranteed toinvestors in case of default. (Answer: nothing). The bonds had sold wellat first, but they had tumbled after 1871 as investors began to doubttheir value, prices weakened, and many railroads took on short-term bankloans to continue laying track. Then, as short-term lending ratesskyrocketed across the Atlantic in 1873, the railroads were in trouble.When the railroad financier Jay Cooke proved unable to pay off hisdebts, the stock market crashed in September, closing hundreds of banksover the next three years. The panic continued for more than four yearsin the United States and for nearly six years in Europe.
The long-term effects of the Panic of 1873 were perverse. For thelargest manufacturing companies in the United States - those withguaranteed contracts and the ability to make rebate deals with therailroads - the Panic years were golden. Andrew Carnegie, CyrusMcCormick, and John D. Rockefeller had enough capital reserves tofinance their own continuing growth. For smaller industrial firms thatrelied on seasonal demand and outside capital, the situation was dire.As capital reserves dried up, so did their industries. Carnegie andRockefeller bought out their competitors at fire-sale prices. The GildedAge in the United States, as far as industrial concentration wasconcerned, had begun.
As the panic deepened, ordinary Americans suffered terribly. A cigarmaker named Samuel Gompers who was young in 1873 later recalled thatwith the panic, “economic organization crumbled with some primevalupheaval.” Between 1873 and 1877, as many smaller factories andworkshops shuttered their doors, tens of thousands of workers - manyformer Civil War soldiers - became transients. The terms “tramp” and“bum,” both indirect references to former soldiers, became commonplaceAmerican terms. Relief rolls exploded in major cities, with 25-percentunemployment (100,000 workers) in New York City alone. Unemployedworkers demonstrated in Boston, Chicago, and New York in the winter of1873-74 demanding public work. In New York’s Tompkins Square in 1874,police entered the crowd with clubs and beat up thousands of men andwomen. The most violent strikes in American history followed the panic,including by the secret labor group known as the Molly Maguires inPennsylvania’s coal fields in 1875, when masked workmen exchangedgunfire with the “Coal and Iron Police,” a private force commissioned bythe state. A nationwide railroad strike followed in 1877, in which mobsdestroyed railway hubs in Pittsburgh, Chicago, and Cumberland, Md.
In Central and Eastern Europe, times were even harder. Many politicalanalysts blamed the crisis on a combination of foreign banks and Jews.Nationalistic political leaders (or agents of the Russian czar) embraceda new, sophisticated brand of anti-Semitism that proved appealing tothousands who had lost their livelihoods in the panic. Anti-Jewishpogroms followed in the 1880s, particularly in Russia and Ukraine.Heartland communities large and small had found a scapegoat: aliens intheir midst.
The echoes of the past in the current problems with residentialmortgages trouble me. Loans after about 2001 were issued to first-timehomebuyers who signed up for adjustable rate mortgages they could likelynever pay off, even in the best of times. Real-estate speculators,hoping to flip properties, overextended themselves, assuming that homeprices would keep climbing. Those debts were wrapped in complexsecurities that mortgage companies and other entrepreneurial banks thensold to other banks; concerned about the stability of those securities,banks then bought a kind of insurance policy called a credit-derivativeswap, which risk managers imagined would protect their investments. Morethan two million foreclosure filings - default notices, auction-salenotices, and bank repossessions - were reported in 2007. By thentrillions of dollars were already invested in this credit-derivativemarket. Were those new financial instruments resilient enough to coverall the risk? (Answer: no.) As in 1873, a complex financial pyramidrested on a pinhead. Banks are hoarding cash. Banks that hoard cash donot make short-term loans. Businesses large and small now face apotential dearth of short-term credit to buy raw materials, ship theirproducts, and keep goods on shelves.
If there are lessons from 1873, they are different from those of 1929.Most important, when banks fall on Wall Street, they stop all thetraffic on Main Street - for a very long time. The protractedreconstruction of banks in the United States and Europe createdwidespread unemployment. Unions (previously illegal in much of theworld) flourished but were then destroyed by corporate institutions thatlearned to operate on the edge of the law. In Europe, politicians foundtheir scapegoats in Jews, on the fringes of the economy. (Americans, onthe other hand, mostly blamed themselves; many began to embrace whatwould later be called fundamentalist religion.)
The post-panic winners, even after the bailout, might be those firms -financial and otherwise - that have substantial cash reserves. Awidespread consolidation of industries may be on the horizon, along witha nationalistic response of high tariff barriers, a decline ininternational trade, and scapegoating of immigrant competitors forscarce jobs. The failure in July of the World Trade Organization talksbegun in Doha seven years ago suggests a new wave of protectionism maybe on the way.
In the end, the Panic of 1873 demonstrated that the center of gravityfor the world’s credit had shifted west - from Central Europe toward theUnited States. The current panic suggests a further shift - from theUnited States to China and India. Beyond that I would not hazard aguess. I still have microfilm to read.
Scott Reynolds Nelson is a professor of history at the College ofWilliam and Mary. Among his books is Steel Drivin’ Man: John Henry, theUntold Story of an American legend (Oxford University Press, 2006).
Wednesday, October 8, 2008
Ingots We Trust!
"We face extreme danger. Unless there is immediate intervention on every front by all the major powers acting in concert, we risk a disintegration of global finance within days. Nobody will be spared, unless they own gold bars. " Ambrose Evans-Pritchard.
Nikkei sheds more then 9 points worst record in 21 years and Hang Seng more then 8 points, well our Mr Ambrose is right there are extreme danger out there.......... unless you own gold bars!
Confidence had eroded the equity market worldwide, bank even don't lent to one another ( Libor near to 7% point ). Commercial paper market dried up, good corporation with healthy balance sheet can't get short term loans from banks. Money market frozen, the list can go on and on almost like a funeral procession coming out from the world financial markets.
Nobody seems to be trust anybody and the Russians is talking about having a gold base rubles ............... at last Ingots We Trust!
Buy Gold!
Disclaimers/Comments Policy.
Sunday, October 5, 2008
Thursday, October 2, 2008
Did Mr Paulson Rescue Himself Or The America Economy?
Paulson’s impressive interest conflicts in the US700billion bailout of Wall Street financial crisis will go down in history as the most obscene acts of human greed, following except was gather from Financial Sense:-
"The actions of Treasury Secretary Paulson since the first outbreak of the Financial Tsunami in August of 2007 have been directed with one apparent guiding aim—to save the obscene gains of his Wall Street and banking cronies. In the process he has taken steps which suggest more than a mild possible conflict of interest. Paulson, who had been chairman of Goldman Sachs from the time of the 1999 Glass-Steagall repeal to his appointment in 2006 as Treasury head, had been one of the most involved Wall Street players in the new securitization revolution of Greenspan. Under Paulson, according to City of London financial sources familiar with it, Goldman Sachs drove the securitization revolution with an endless rollout of new products. As one London banker put it in an off-record remark to this author, “Paulson’s really the guilty one in this securitization mess but no one brings it up because of the extraordinary influence Goldmans seems to have, a bit like the Knights Templar order of old.’ Naming Goldman chairman Henry Paulson to head the Government agency now responsible for cleaning up the mess left by Wall Street greed and stupidity was tantamount to putting the wolf in charge of guarding the hen house as some see it.
Paulson showed where his interests lay. He is by law is the chairman of something called the President's Working Group on Financial Markets, the Government’s financial crisis management group that also includes Fed Chairman Bernanke, the Securities & Exchange Commission head, and the head of the Commodity Futures Exchange Commission (CFTC). That is the reason Paulson, the ex-Wall Street Goldman Sachs banker, is always the person announcing new emergency decisions since last August.
In mid September, in between other dramatic failures including Lehman Bros., and the bailout of Fannie Mae and Freddie Mac, Paulson announced that the US Treasury, as agent for the United States Government, was to bailout the troubled AIG with a staggering $85 billion. The announcement came a day after Paulson announced the Government would let the 150-year old investment bank, Lehman Brothers, fail without Government aid. Why AIG and not Lehman?
What has since emerged are details of a meeting at the New York Federal Reserve bank chaired by Paulson, to discuss the risk of letting AIG fail. There was only one active Wall Street banker present at the meeting—Lloyd Blankfein, chairman of Paulson’s old firm, Goldman Sachs.
Blankfein later claimed he was present at the fateful meeting not to protect his firm’s interests but to ‘safeguard the entire financial system.’ His claim was put in doubt when it later emerged that Blankfein’s Goldman Sachs was AIG’s largest trading partner and stood to lose $20 billion in a bankruptcy of AIG. Were Goldman Sachs to go down with AIG, Secretary Paulson would have reportedly lost $700 million in Goldman Sachs stock options he had, an interesting fact." Read full article here.
Secretary Treasury Paulson to lost US700million if AIG go under! This bailout under the Emergency Stabilization Act it's full with personal greed and cronyism at it's worst, wonder the Feds or Paulson saving Wall Street, themselves or main street the reader will have to decides, history they say it's the best judge but our concern whether how much of history left after this so called bailout failed to deliver.
The price of greed only the gods know meanwhile Buy Gold!
Disclaimer/Comments Policy.
"The actions of Treasury Secretary Paulson since the first outbreak of the Financial Tsunami in August of 2007 have been directed with one apparent guiding aim—to save the obscene gains of his Wall Street and banking cronies. In the process he has taken steps which suggest more than a mild possible conflict of interest. Paulson, who had been chairman of Goldman Sachs from the time of the 1999 Glass-Steagall repeal to his appointment in 2006 as Treasury head, had been one of the most involved Wall Street players in the new securitization revolution of Greenspan. Under Paulson, according to City of London financial sources familiar with it, Goldman Sachs drove the securitization revolution with an endless rollout of new products. As one London banker put it in an off-record remark to this author, “Paulson’s really the guilty one in this securitization mess but no one brings it up because of the extraordinary influence Goldmans seems to have, a bit like the Knights Templar order of old.’ Naming Goldman chairman Henry Paulson to head the Government agency now responsible for cleaning up the mess left by Wall Street greed and stupidity was tantamount to putting the wolf in charge of guarding the hen house as some see it.
Paulson showed where his interests lay. He is by law is the chairman of something called the President's Working Group on Financial Markets, the Government’s financial crisis management group that also includes Fed Chairman Bernanke, the Securities & Exchange Commission head, and the head of the Commodity Futures Exchange Commission (CFTC). That is the reason Paulson, the ex-Wall Street Goldman Sachs banker, is always the person announcing new emergency decisions since last August.
In mid September, in between other dramatic failures including Lehman Bros., and the bailout of Fannie Mae and Freddie Mac, Paulson announced that the US Treasury, as agent for the United States Government, was to bailout the troubled AIG with a staggering $85 billion. The announcement came a day after Paulson announced the Government would let the 150-year old investment bank, Lehman Brothers, fail without Government aid. Why AIG and not Lehman?
What has since emerged are details of a meeting at the New York Federal Reserve bank chaired by Paulson, to discuss the risk of letting AIG fail. There was only one active Wall Street banker present at the meeting—Lloyd Blankfein, chairman of Paulson’s old firm, Goldman Sachs.
Blankfein later claimed he was present at the fateful meeting not to protect his firm’s interests but to ‘safeguard the entire financial system.’ His claim was put in doubt when it later emerged that Blankfein’s Goldman Sachs was AIG’s largest trading partner and stood to lose $20 billion in a bankruptcy of AIG. Were Goldman Sachs to go down with AIG, Secretary Paulson would have reportedly lost $700 million in Goldman Sachs stock options he had, an interesting fact." Read full article here.
Secretary Treasury Paulson to lost US700million if AIG go under! This bailout under the Emergency Stabilization Act it's full with personal greed and cronyism at it's worst, wonder the Feds or Paulson saving Wall Street, themselves or main street the reader will have to decides, history they say it's the best judge but our concern whether how much of history left after this so called bailout failed to deliver.
The price of greed only the gods know meanwhile Buy Gold!
Disclaimer/Comments Policy.
Tuesday, September 30, 2008
Now Banks Don't Even Trust One Another!
Just want to show you how serious the financial markets worldwide is, banks doesn't want to lent money among themselves. So far the entire crisis developing before our naked eyes majority of the banks currently are having crisis of confidence not only to normal lending facilities but also worry of counter parties risk when lending among themselves. Did the US650billion pump into the financial market by the Feds through or coincides with other worldwide central banker will provide the magic to unshackled the capital market? If we look closely all the pumping it's absolved by the majority of banker but they didn't lent it out, fear of counter parties risk and consumers ability to borrow and repay stock the financial market.
As someone said the banking sector or industries currently didn't have liquidity problems but solvency problems! It's the banking still solvent? Having lost US600billion up to today from the current derivatives crisis and unassure futures losses, solvency it's the biggest headache. Europe just nationalised two banks in the last 48hours; Fortis in Europe and B&B in England. Read the below cut out article :-
By Simone Meier
Sept. 30 (Bloomberg) -- Demand for cash from the European Central Bank soared as the global credit crisis deepened and banks stopped lending to each other.
The ECB today lent banks 190 billion euros ($273 billion) for seven days after initially estimating it needed to drain 40 billion euros from the system. Demand for dollars in Europe also surged, forcing the ECB to announce an additional auction of $50 billion in one-day funds. It lent $30 billion earlier at a marginal rate of 11 percent, almost six times the Federal Reserve's 2 percent benchmark interest rate. Banks had asked for $77.3 billion.
``The ECB is the only port of call at the moment,'' said Stefan Bielmeier, an economist at Deutsche Bank AG in Frankfurt. ``The money market is barely working. Central banks are increasingly playing the role of a clearing house.'' ``Funding markets are in complete disarray, central banks are unable to get banks to lend to one another, not to mention the outside world,'' said Christoph Rieger, a fixed-income strategist at Dresdner Kleinwort in Frankfurt. The flow of credit will be seriously impaired for some time.''
London interbank offered rate, or Libor, that banks charge each other for loans climbed 431 basis points to an all-time high of 6.88 percent today, the British Bankers' Association said.
The euro interbank offered rate, or Euribor, for one-month loans climbed to record 5.05 percent, the European Banking Federation said. The Libor-OIS spread, a gauge of the scarcity of cash, advanced to a record.
How we know banks don't trust one another? Well look at the inter banks offered rate (Libor), 6.88 percent today in England and 5.05 in Europe!
Big time banker is hoarding cash, if bank don't even trust their own peers who do they trust? Hard time is upon the financial market be prepare for the next six months or so they will be a lots of fireworks to see.
Buy gold ........................ definitely you didn't have counter parties headache.
Disclaimer/Comments Policy.
As someone said the banking sector or industries currently didn't have liquidity problems but solvency problems! It's the banking still solvent? Having lost US600billion up to today from the current derivatives crisis and unassure futures losses, solvency it's the biggest headache. Europe just nationalised two banks in the last 48hours; Fortis in Europe and B&B in England. Read the below cut out article :-
By Simone Meier
Sept. 30 (Bloomberg) -- Demand for cash from the European Central Bank soared as the global credit crisis deepened and banks stopped lending to each other.
The ECB today lent banks 190 billion euros ($273 billion) for seven days after initially estimating it needed to drain 40 billion euros from the system. Demand for dollars in Europe also surged, forcing the ECB to announce an additional auction of $50 billion in one-day funds. It lent $30 billion earlier at a marginal rate of 11 percent, almost six times the Federal Reserve's 2 percent benchmark interest rate. Banks had asked for $77.3 billion.
``The ECB is the only port of call at the moment,'' said Stefan Bielmeier, an economist at Deutsche Bank AG in Frankfurt. ``The money market is barely working. Central banks are increasingly playing the role of a clearing house.'' ``Funding markets are in complete disarray, central banks are unable to get banks to lend to one another, not to mention the outside world,'' said Christoph Rieger, a fixed-income strategist at Dresdner Kleinwort in Frankfurt. The flow of credit will be seriously impaired for some time.''
London interbank offered rate, or Libor, that banks charge each other for loans climbed 431 basis points to an all-time high of 6.88 percent today, the British Bankers' Association said.
The euro interbank offered rate, or Euribor, for one-month loans climbed to record 5.05 percent, the European Banking Federation said. The Libor-OIS spread, a gauge of the scarcity of cash, advanced to a record.
How we know banks don't trust one another? Well look at the inter banks offered rate (Libor), 6.88 percent today in England and 5.05 in Europe!
Big time banker is hoarding cash, if bank don't even trust their own peers who do they trust? Hard time is upon the financial market be prepare for the next six months or so they will be a lots of fireworks to see.
Buy gold ........................ definitely you didn't have counter parties headache.
Disclaimer/Comments Policy.
A Horrible Mess, and How We Got There!
A horrible mess, for the pass two weeks it's have been an exciting time for any economics knowhow. Cause amount happening in the financial markets will made good future study materials. Read below and find out how we got there.............
Bud Conrad, chief economist at Casey Research, wrote about the beginnings of our current problems back in March of 2007... before most people were even aware of the storms brewing just over the horizon.
"Faced with historic levels of debt, falling housing prices, and weaker economy, the pressure on housing would gain momentum as desperate homeowners either hand their keys back to the banks, or simply hit the bid on the best (low) offer they can get. A vicious cycle would set in, threatening to shove the economy into uncharted and unpredictable waters.
"The impending calamity - mass housing foreclosures, failing banks, Fannie Mae and Freddie Mac in ashes, millions of personal bankruptcies - is so dire, most people can't even conceive of it. And indeed, it may not hit us this year, or next, but the market always corrects itself, and this time will be no exception - sooner or later... That's why the coming crisis is so predictable: there's no way to avoid it."
I actually wish that his analysis had been flawed.
I also wish that the government officials had been right who have consistently claimed since then that the subprime crisis was contained and the markets would rebound in the second half of the year.
Unfortunately, this is not the case.
The Fed's recent attempts at quick fixes have not worked, and current events are reinforcing what Bud Conrad prognosticated almost two years ago: that this is much more than a normal cyclical correction. This is a disaster of biblical proportions.
As the Fed and the Treasury continue to intervene in the market, they continue to lose ground and credibility, caught between a sharp recession and strong inflationary pressures. In an effort to bail out the financial sector, they have no choice but to start injecting hundreds of billions in liquidity into a contracting market place.
This will contribute to the creation of a stagflation period that will make the '70s look like a tea party.
The Fed's never-ending injection of liquidity into the market has, and will continue to, devalue the dollar.
Ordinarily, a country threatened with currency collapse would lean toward tight money, perhaps contracting its domestic money supply. That would push interest rates upward and compensate foreigners for holding on to the currency despite the depreciation risk. And it would soften that risk.
But this time, things aren't ordinary... there is a difference that has turned what might otherwise be a disturbance into a disaster: the U.S. economy's inability to endure high interest rates.
Because of the corrections taking place now in the grossly distorted U.S. housing, commercial real estate, and personal credit markets, raising interest rates to protect the dollar would prove as calamitous as not raising interest rates.
The housing bubble fueled a blockbuster business in first mortgages, and then home equity loans. Homeowners drew down their equity to splurge on consumer goods, including shiploads of imports.
The relative attractiveness of U.S. financial instruments kept the game going into overtime. The foreigners who received all those U.S. dollars put them back into U.S. Treasury bills and other dollar-denominated instruments, thereby underwriting low interest rates for all U.S. borrowers.
The net result? Foreigners funded our housing boom. The amount of mortgage growth annually matched the amount of trade deficit, which foreigners dutifully invested back into the U.S.
And subprime lending was no mere sideshow. It was big business. In 2005, it accounted for 25% of all new mortgages - about $600 billion of high-risk paper, most of it with adjustable interest rates.
The collapse of the subprime market soon spread into other mortgage sectors... and the derivatives created on top of all those subprime mortgages made everything much worse. Given that the annual GDP of the U.S. economy is just $13 trillion, the $250 trillion in derivatives should have been seen as an accident waiting to happen.
The Feds is caught between the devil and the deep blue sea, Feds can continually poured money into the market that's will not helps until unless the US housing had bottomed out. Sad news is it will not bottomed out for at least another year or two. Losses currently form the housing market it's around US500billion, figure will or can go up to US2trillion in losses. At US500billion losses the financial system almost at meltdown level just think if it's reached peak at US2trillion the next few years.
This coming financial problems will be an epic proportions comparing with the 1930 great depression, therefore Buy Gold safe haven!
Disclaimer/Comments Policy.
Bud Conrad, chief economist at Casey Research, wrote about the beginnings of our current problems back in March of 2007... before most people were even aware of the storms brewing just over the horizon.
"Faced with historic levels of debt, falling housing prices, and weaker economy, the pressure on housing would gain momentum as desperate homeowners either hand their keys back to the banks, or simply hit the bid on the best (low) offer they can get. A vicious cycle would set in, threatening to shove the economy into uncharted and unpredictable waters.
"The impending calamity - mass housing foreclosures, failing banks, Fannie Mae and Freddie Mac in ashes, millions of personal bankruptcies - is so dire, most people can't even conceive of it. And indeed, it may not hit us this year, or next, but the market always corrects itself, and this time will be no exception - sooner or later... That's why the coming crisis is so predictable: there's no way to avoid it."
I actually wish that his analysis had been flawed.
I also wish that the government officials had been right who have consistently claimed since then that the subprime crisis was contained and the markets would rebound in the second half of the year.
Unfortunately, this is not the case.
The Fed's recent attempts at quick fixes have not worked, and current events are reinforcing what Bud Conrad prognosticated almost two years ago: that this is much more than a normal cyclical correction. This is a disaster of biblical proportions.
As the Fed and the Treasury continue to intervene in the market, they continue to lose ground and credibility, caught between a sharp recession and strong inflationary pressures. In an effort to bail out the financial sector, they have no choice but to start injecting hundreds of billions in liquidity into a contracting market place.
This will contribute to the creation of a stagflation period that will make the '70s look like a tea party.
The Fed's never-ending injection of liquidity into the market has, and will continue to, devalue the dollar.
Ordinarily, a country threatened with currency collapse would lean toward tight money, perhaps contracting its domestic money supply. That would push interest rates upward and compensate foreigners for holding on to the currency despite the depreciation risk. And it would soften that risk.
But this time, things aren't ordinary... there is a difference that has turned what might otherwise be a disturbance into a disaster: the U.S. economy's inability to endure high interest rates.
Because of the corrections taking place now in the grossly distorted U.S. housing, commercial real estate, and personal credit markets, raising interest rates to protect the dollar would prove as calamitous as not raising interest rates.
The housing bubble fueled a blockbuster business in first mortgages, and then home equity loans. Homeowners drew down their equity to splurge on consumer goods, including shiploads of imports.
The relative attractiveness of U.S. financial instruments kept the game going into overtime. The foreigners who received all those U.S. dollars put them back into U.S. Treasury bills and other dollar-denominated instruments, thereby underwriting low interest rates for all U.S. borrowers.
The net result? Foreigners funded our housing boom. The amount of mortgage growth annually matched the amount of trade deficit, which foreigners dutifully invested back into the U.S.
And subprime lending was no mere sideshow. It was big business. In 2005, it accounted for 25% of all new mortgages - about $600 billion of high-risk paper, most of it with adjustable interest rates.
The collapse of the subprime market soon spread into other mortgage sectors... and the derivatives created on top of all those subprime mortgages made everything much worse. Given that the annual GDP of the U.S. economy is just $13 trillion, the $250 trillion in derivatives should have been seen as an accident waiting to happen.
The Feds is caught between the devil and the deep blue sea, Feds can continually poured money into the market that's will not helps until unless the US housing had bottomed out. Sad news is it will not bottomed out for at least another year or two. Losses currently form the housing market it's around US500billion, figure will or can go up to US2trillion in losses. At US500billion losses the financial system almost at meltdown level just think if it's reached peak at US2trillion the next few years.
This coming financial problems will be an epic proportions comparing with the 1930 great depression, therefore Buy Gold safe haven!
Disclaimer/Comments Policy.
Monday, September 29, 2008
Happy "Unwinding" Mr Paulson
Ah finally US Congress had agreed on the draft for the US700billion mother of all bailout, at the hearts of this problems is the mortgage backed securities derivatives. How to unwind this multi billion derivatives? Well you can ask Warren Buffet, this is what he said after unwinding General Re couple of years back ,
" long ago, Mark Twain said: " A man who tries to carry a cat home by it's tail will learn a lesson that can be learned in no other way." If Twain were around now, he might try winding up a derivatives business. After a few days, he would opt for cats!" ( Cost of unwinding General Re is US400million )."
The problems is not in the US700billion bailout plan but it's in the underlying derivatives assets which had questionable values as, Buffet once said, " mark to market; no it's mark to myth".
How much it's the values of this mortgage backed securities assets worth it's the biggest headache, buy at too cheap the bank will suffer; buy at too high the tax payer will suffer. this problem was highlighted by the Director of Congressional Budget Office Mr Orszag, read below:-
The director of the Congressional Budget Office said yesterday that the proposed Wall Street bailout could actually worsen the current financial crisis.
During testimony before the House Budget Committee, Peter R. Orszag -- Congress's top bookkeeper -- said the bailout could expose the way companies are stowing toxic assets on their books, leading to greater problems.
"Ironically, the intervention could even trigger additional failures of large institutions, because some institutions may be carrying troubled assets on their books at inflated values," Orszag said in his testimony. "Establishing clearer prices might reveal those institutions to be insolvent."
In an interview later yesterday, Orszag explained using the following example: Suppose a company has Asset X, whose value is recorded on the books as $100. Because of the current economic decline, Asset X's real value has dropped to $50. If the company takes part in the government bailout and sells Asset X for $50, the company has to report a $50 loss on its books. On a scale of millions of dollars, such write-downs could ruin a company.
Such companies "look solvent today only because it's kind of hidden," Orszag said. "They actually are insolvent" already, he said. Read in full.
So whether the mother of all bailout works or not ultimately is not the concern at the moment, the most pressing issues right now it's by bringing those toxic assets out in the open it will reveal even more underlyin problems instead of solving it, a reverse effects of blowing up the banking financial problems even further. The scary parts it's they have no values, their values are like Buffet said, "mark to myth"!
Well let's opt for cats .......................... buy gold because the hidden values it's stronger then the Rock Of Gibraltar!
Disclaimer/Comments Policy.
" long ago, Mark Twain said: " A man who tries to carry a cat home by it's tail will learn a lesson that can be learned in no other way." If Twain were around now, he might try winding up a derivatives business. After a few days, he would opt for cats!" ( Cost of unwinding General Re is US400million )."
The problems is not in the US700billion bailout plan but it's in the underlying derivatives assets which had questionable values as, Buffet once said, " mark to market; no it's mark to myth".
How much it's the values of this mortgage backed securities assets worth it's the biggest headache, buy at too cheap the bank will suffer; buy at too high the tax payer will suffer. this problem was highlighted by the Director of Congressional Budget Office Mr Orszag, read below:-
The director of the Congressional Budget Office said yesterday that the proposed Wall Street bailout could actually worsen the current financial crisis.
During testimony before the House Budget Committee, Peter R. Orszag -- Congress's top bookkeeper -- said the bailout could expose the way companies are stowing toxic assets on their books, leading to greater problems.
"Ironically, the intervention could even trigger additional failures of large institutions, because some institutions may be carrying troubled assets on their books at inflated values," Orszag said in his testimony. "Establishing clearer prices might reveal those institutions to be insolvent."
In an interview later yesterday, Orszag explained using the following example: Suppose a company has Asset X, whose value is recorded on the books as $100. Because of the current economic decline, Asset X's real value has dropped to $50. If the company takes part in the government bailout and sells Asset X for $50, the company has to report a $50 loss on its books. On a scale of millions of dollars, such write-downs could ruin a company.
Such companies "look solvent today only because it's kind of hidden," Orszag said. "They actually are insolvent" already, he said. Read in full.
So whether the mother of all bailout works or not ultimately is not the concern at the moment, the most pressing issues right now it's by bringing those toxic assets out in the open it will reveal even more underlyin problems instead of solving it, a reverse effects of blowing up the banking financial problems even further. The scary parts it's they have no values, their values are like Buffet said, "mark to myth"!
Well let's opt for cats .......................... buy gold because the hidden values it's stronger then the Rock Of Gibraltar!
Disclaimer/Comments Policy.
Sunday, September 28, 2008
Gold Price To Hit US2,000/oz!
"Gold is the safest vehicle," said Afshin Nabavi, vice president of the MKS Finance division of the Swiss refining group, to Bloomberg this morning."People don't have much trust right now in the banking system...There's a lack of confidence in stocks."
Investor in US it's already talking on who is the next bank to fall, can't trust the bank and stock market going flat. Precious metal purchasing remains the logical choice.
Longer-term, says Roland Duss - co-chief investment officer at Gonet & Cie, the Swiss private bank based in Geneva - the price of Gold Bullion could reach $2,000 or more per ounce over the next decade.
Full story read here.
To those gold bugs outside there kindly hold on to your golds ...................if got spare cash Buy Gold!
Disclaimer/Comments Policy.
Investor in US it's already talking on who is the next bank to fall, can't trust the bank and stock market going flat. Precious metal purchasing remains the logical choice.
Longer-term, says Roland Duss - co-chief investment officer at Gonet & Cie, the Swiss private bank based in Geneva - the price of Gold Bullion could reach $2,000 or more per ounce over the next decade.
Full story read here.
To those gold bugs outside there kindly hold on to your golds ...................if got spare cash Buy Gold!
Disclaimer/Comments Policy.
Saturday, September 27, 2008
Earth To Feds; Please Stop It ( Part 2 )
Senator Jim Bunning hit it right to the dot, the problems it's Feds over the years of pumping cheap money to the financial system in keeping it afloat since the busting of tech bubble in the nineties that cause the current housing bubble to burst.
So by printing and pumping more money into the system will not solved the current credit crisis instead it'll worsen it in the long run as it has been proven since the tech bubble.
Read it here.
Buy gold!
Disclaimer/comments Policy.
So by printing and pumping more money into the system will not solved the current credit crisis instead it'll worsen it in the long run as it has been proven since the tech bubble.
Read it here.
Buy gold!
Disclaimer/comments Policy.
Earth To Feds; Please Stop It!
US700 Billion to bailout Wall Street, question it's not on the US700 billion but how the US government will going to fork out that amount of money! Having trade deficits running few hundred billions, saving at almost zero level the American government only left with two choices in rising this US700 billion that is to raise taxes and or run the Feds printing machine.
By the look at it "Helicopter Ben" printing machine will have to work overtime once congress approved the bailout plan by Paulson, cause to raise taxes in an American Presidential election years it's unthinkable.
Massive devaluation of the USD will happens once this US700 billion hit the street, how much it'll hurts the real economy when inflation rear it's ugly heads through this injection is anybody guess work. Definitely the world will never be the same again especially when the out look of the USD as the world reserve currency it's threatened by devaluation.
China official media had sounded their official displeasure on the devaluation of the USD, "the Bush administration today announced a plan to use hundreds of billions of dollars of taxpayer money to buy up up bad mortgages and other debts. The process of injecting more fiat money into an already over-inflated system had the desired effect - the Dow Jones shot up 450 points - but the dollar, following a brief jump, began to plummet.
According to numerous Chinese state media news sources today, the Federal Reserve’s continued zeal for propping up the market by injecting illusory liquidity is part of an agenda to gain trust and grease the skids for increased government intervention in financial markets.
China Finance , China News and Chaobao Financial News, all state owned media outlets, slammed the Fed for taking action that will only make long term economic conditions worse and devalue the dollar by “creating money that does not exist which leads to the inflation of liquidity,” a policy contrary to China’s position as a holder of vast reserves of US dollars."
China it's already urging for a new currency order, having holding more then One Trillion in US government treasury bonds, devaluation of the USD in such a massive scales will damper the bond long term price.
At current level of 17% increment of USD circulation p.a worldwide inflation level of average around 20%, with this massive increment of US700 billion only time will tell how much the entire earth will have to bear the consequences of double digit inflation through direct or indirect commodities push inflation.
Therefore the entire earth it's shouting please stop monetization the problems at Wall Street!
Earth to Feds; please stop monetization of Wall Street excessiveness.
When inflation gone north pole, gold price will follow the same direction.
Buy Gold!
Disclaimers/Comments Policy.
By the look at it "Helicopter Ben" printing machine will have to work overtime once congress approved the bailout plan by Paulson, cause to raise taxes in an American Presidential election years it's unthinkable.
Massive devaluation of the USD will happens once this US700 billion hit the street, how much it'll hurts the real economy when inflation rear it's ugly heads through this injection is anybody guess work. Definitely the world will never be the same again especially when the out look of the USD as the world reserve currency it's threatened by devaluation.
China official media had sounded their official displeasure on the devaluation of the USD, "the Bush administration today announced a plan to use hundreds of billions of dollars of taxpayer money to buy up up bad mortgages and other debts. The process of injecting more fiat money into an already over-inflated system had the desired effect - the Dow Jones shot up 450 points - but the dollar, following a brief jump, began to plummet.
According to numerous Chinese state media news sources today, the Federal Reserve’s continued zeal for propping up the market by injecting illusory liquidity is part of an agenda to gain trust and grease the skids for increased government intervention in financial markets.
China Finance , China News and Chaobao Financial News, all state owned media outlets, slammed the Fed for taking action that will only make long term economic conditions worse and devalue the dollar by “creating money that does not exist which leads to the inflation of liquidity,” a policy contrary to China’s position as a holder of vast reserves of US dollars."
China it's already urging for a new currency order, having holding more then One Trillion in US government treasury bonds, devaluation of the USD in such a massive scales will damper the bond long term price.
At current level of 17% increment of USD circulation p.a worldwide inflation level of average around 20%, with this massive increment of US700 billion only time will tell how much the entire earth will have to bear the consequences of double digit inflation through direct or indirect commodities push inflation.
Therefore the entire earth it's shouting please stop monetization the problems at Wall Street!
Earth to Feds; please stop monetization of Wall Street excessiveness.
When inflation gone north pole, gold price will follow the same direction.
Buy Gold!
Disclaimers/Comments Policy.
Tuesday, September 23, 2008
Fed Is The Systemic Risk?
Bunning Statement To The Senate Banking Committee On The Federal Reserve Monetary Policy Report.
Thank you, Mr. Chairman. I know we have a lot of ground to cover today, but I want to say a few things on the topic of this hearing and of the next.First, on monetary policy, I am deeply concerned about what the Fed has done in the last year and in the last decade. Chairman Greenspan’s easy money the late nineties and then following the tech bust inflated the housing bubble and created the mess we are in today. Chairman Bernanke’s easy money in the last year has undermined the dollar and sent oil to new record highs every few days, and almost doubling since the rate cuts started. Inflation is here and it is hurting average Americans.Second, the Fed is asking for more power. But the Fed has proven they can not be trusted with the power they have. They get it wrong, do not use it, or stretch it further than it was ever supposed to go.
As I said a moment ago, their monetary policy is a leading cause of the mess we are in. As regulators, it took them until yesterday to use power we gave them in 1994 to regulate all mortgage lenders. And they stretched their authority to buy 29 billion dollars of Bear Stearns assets so J.P. Morgan could buy Bear at a steep discount.Now the Fed wants to be the systemic risk regulator. But the Fed is the systemic risk. Giving the Fed more power is like giving the neighborhood kid who broke your window playing baseball in the street a bigger bat and thinking that will fix the problem. I am not going to go along with that and will use all my powers as a Senator to stop any new powers going to the Fed. Instead, we should give them less to do so they can do it right, either by taking away their monetary policy responsibility or by requiring them to focus only on inflation.
Third and finally, since I expect we will try to get right to questions in the next hearing, let me say a few words about the G.S.E. bailout plan. When I picked up my newspaper yesterday, I thought I woke up in France. But no, it turns out socialism is alive and well in America. The Treasury Secretary is asking for a blank check to buy as much Fannie and Freddie debt or equity as he wants. The Fed’s purchase of Bear Stearns’ assets was amateur socialism compared to this.And for this unprecedented intervention in the markets what assurances do we get that it will not happen again? None. We are in the process of passing a stronger regulator for the G.S.E.s, and that is important, but it allows them to continue in the current form. If they really do fail, should we let them go back to what they were doing before?
I will close with this question Mr. Chairman. Given what the Fed and Treasury did with Bear Stearns, and given what we are talking about here today, I have to wonder what the next government intervention in private enterprise will be. More importantly, where does it stop? (15/7/08).
You are right Senator, it's doesn't stop there! The American tax payer will have to fork out another US1.8Trillion to rescue Wall Street. A trillion here a trillion there very soon fed printing machine will make Weimer Republic hyperinflation look like minnow and then we will have a modern day United States Of Zimbabwe! If by printing more money, instead of letting those toxic mortgages or toxic assets liquidated, can solved Wall Street current financial crisis Robert Mugabe definitely will be one of the most influential or powerful president in the world.
"We must take care of Main Street. Small businesses in Ashland, Bowling Green, and Paducah are hurting because of high taxes, and energy costs. Those small businesses are the economic engines that fuel our economy. I hope in the closing days of this Congress we can pass legislation to help those good people on Main Street rather than helping the power brokers on Wall Street." Senator Bunning.
Amen to that Senator Bunning it time for U.S Congress to bailout business in main street not power brokers on the Wall Street! Spending US1.8Trillion to bailout some bondholder who during their heyday doesn't recognised what it's prudence investment instead of control by absolute greed. Putting the USD as a global world reserve currency hanging in the air because the Feds printing machine it's running very high just to cover some Wall Street greed it's a very high price to pay.
Buy Gold ....................... a bedrock standard bearer of world stability when everything else fails!
Disclaimer/Comments Policy.
Thank you, Mr. Chairman. I know we have a lot of ground to cover today, but I want to say a few things on the topic of this hearing and of the next.First, on monetary policy, I am deeply concerned about what the Fed has done in the last year and in the last decade. Chairman Greenspan’s easy money the late nineties and then following the tech bust inflated the housing bubble and created the mess we are in today. Chairman Bernanke’s easy money in the last year has undermined the dollar and sent oil to new record highs every few days, and almost doubling since the rate cuts started. Inflation is here and it is hurting average Americans.Second, the Fed is asking for more power. But the Fed has proven they can not be trusted with the power they have. They get it wrong, do not use it, or stretch it further than it was ever supposed to go.
As I said a moment ago, their monetary policy is a leading cause of the mess we are in. As regulators, it took them until yesterday to use power we gave them in 1994 to regulate all mortgage lenders. And they stretched their authority to buy 29 billion dollars of Bear Stearns assets so J.P. Morgan could buy Bear at a steep discount.Now the Fed wants to be the systemic risk regulator. But the Fed is the systemic risk. Giving the Fed more power is like giving the neighborhood kid who broke your window playing baseball in the street a bigger bat and thinking that will fix the problem. I am not going to go along with that and will use all my powers as a Senator to stop any new powers going to the Fed. Instead, we should give them less to do so they can do it right, either by taking away their monetary policy responsibility or by requiring them to focus only on inflation.
Third and finally, since I expect we will try to get right to questions in the next hearing, let me say a few words about the G.S.E. bailout plan. When I picked up my newspaper yesterday, I thought I woke up in France. But no, it turns out socialism is alive and well in America. The Treasury Secretary is asking for a blank check to buy as much Fannie and Freddie debt or equity as he wants. The Fed’s purchase of Bear Stearns’ assets was amateur socialism compared to this.And for this unprecedented intervention in the markets what assurances do we get that it will not happen again? None. We are in the process of passing a stronger regulator for the G.S.E.s, and that is important, but it allows them to continue in the current form. If they really do fail, should we let them go back to what they were doing before?
I will close with this question Mr. Chairman. Given what the Fed and Treasury did with Bear Stearns, and given what we are talking about here today, I have to wonder what the next government intervention in private enterprise will be. More importantly, where does it stop? (15/7/08).
You are right Senator, it's doesn't stop there! The American tax payer will have to fork out another US1.8Trillion to rescue Wall Street. A trillion here a trillion there very soon fed printing machine will make Weimer Republic hyperinflation look like minnow and then we will have a modern day United States Of Zimbabwe! If by printing more money, instead of letting those toxic mortgages or toxic assets liquidated, can solved Wall Street current financial crisis Robert Mugabe definitely will be one of the most influential or powerful president in the world.
"We must take care of Main Street. Small businesses in Ashland, Bowling Green, and Paducah are hurting because of high taxes, and energy costs. Those small businesses are the economic engines that fuel our economy. I hope in the closing days of this Congress we can pass legislation to help those good people on Main Street rather than helping the power brokers on Wall Street." Senator Bunning.
Amen to that Senator Bunning it time for U.S Congress to bailout business in main street not power brokers on the Wall Street! Spending US1.8Trillion to bailout some bondholder who during their heyday doesn't recognised what it's prudence investment instead of control by absolute greed. Putting the USD as a global world reserve currency hanging in the air because the Feds printing machine it's running very high just to cover some Wall Street greed it's a very high price to pay.
Buy Gold ....................... a bedrock standard bearer of world stability when everything else fails!
Disclaimer/Comments Policy.
Monday, September 22, 2008
The Shadow Banking System Is Unravelling
The shadow banking system is unravelling written by Nouriel Roubini.
Last week saw the demise of the shadow banking system that has been created over the past 20 years. Because of a greater regulation of banks, most financial intermediation in the past two decades has grown within this shadow system whose members are broker-dealers, hedge funds, private equity groups, structured investment vehicles and conduits, money market funds and non-bank mortgage lenders.
Like banks, most members of this system borrow very short-term and in liquid ways, are more highly leveraged than banks (the exception being money market funds) and lend and invest into more illiquid and long-term instruments. Like banks, they carry the risk that an otherwise solvent but liquid institution may be subject to a self-fulfilling and destructive run on its liquid liabilities.
But unlike banks, which are sheltered from the risk of a run – via deposit insurance and central banks’ lender-of-last-resort liquidity – most members of the shadow system did not have access to these firewalls that prevent runs.
A generalised run on these shadow banks started when the deleveraging after the asset bubble bust led to uncertainty about which institutions were solvent. The first stage was the collapse of the entire SIVs/conduits system once investors realised the toxicity of its investments and its very short-term funding seized up.
The next step(second stage) was the run on the big US broker-dealers: first Bear Stearns lost its liquidity in days. The Federal Reserve then extended its lender-of-last-resort support to systemically important broker-dealers. But even this did not prevent a run on the other broker-dealers given concerns about solvency: it was the turn of Lehman Brothers to collapse. Merrill Lynch would have faced the same fate had it not been sold. The pressure moved to Morgan Stanley and Goldman Sachs: both would be well advised to merge – like Merrill – with a large bank that has a stable base of insured deposits.
The third stage was the collapse of other leveraged institutions that were both illiquid and most likely insolvent given their reckless lending: Fannie Mae and Freddie Mac, AIG and more than 300 mortgage lenders.
The fourth stage was panic in the money markets. Funds were competing aggressively for assets and, in order to provide higher returns to attract investors, some of them invested in illiquid instruments. Once these investments went bust, panic ensued among investors, leading to a massive run on such funds. This would have been disastrous; so, in another radical departure, the US extended deposit insurance to the funds.
The next stage(fifth stage) will be a run on thousands of highly leveraged hedge funds. After a brief lock-up period, investors in such funds can redeem their investments on a quarterly basis; thus a bank-like run on hedge funds is highly possible. Hundreds of smaller, younger funds that have taken excessive risks with high leverage and are poorly managed may collapse. A massive shake-out of the bloated hedge fund industry is likely in the next two years.
Even private equity firms and their reckless, highly leveraged buy-outs will not be spared. The private equity bubble led to more than $1,000bn of LBOs that should never have occurred. The run on these LBOs is slowed by the existence of “convenant-lite” clauses, which do not include traditional default triggers, and “payment-in-kind toggles”, which allow borrowers to defer cash interest payments and accrue more debt, but these only delay the eventual refinancing crisis and will make uglier the bankruptcy that will follow. Even the largest LBOs, such as GMAC and Chrysler, are now at risk.
We are observing an accelerated run on the shadow banking system that is leading to its unravelling. If lender-of-last-resort support and deposit insurance are extended to more of its members, these institutions will have to be regulated like banks, to avoid moral hazard. Of course this severe financial crisis is also taking its toll on traditional banks: hundreds are insolvent and will have to close.
The real economic side of this financial crisis will be a severe US recession. Financial contagion, the strong euro, falling US imports, the bursting of European housing bubbles, high oil prices and a hawkish European Central Bank will lead to a recession in the eurozone, the UK and most advanced economies.
European financial institutions are at risk of sharp losses because of the toxic US securitised products sold to them; the massive increase in leverage following aggressive risk-taking and domestic securitisation; a severe liquidity crunch exacerbated by a dollar shortage and a credit crunch; the bursting of domestic housing bubbles; household and corporate defaults in the recession; losses hidden by regulatory forbearance; the exposure of Swedish, Austrian and Italian banks to the Baltic states, Iceland and southern Europe where housing and credit bubbles financed in foreign currency are leading to hard landings.
Run to Gold safe haven!
Disclaimers/Comments Policy.
Last week saw the demise of the shadow banking system that has been created over the past 20 years. Because of a greater regulation of banks, most financial intermediation in the past two decades has grown within this shadow system whose members are broker-dealers, hedge funds, private equity groups, structured investment vehicles and conduits, money market funds and non-bank mortgage lenders.
Like banks, most members of this system borrow very short-term and in liquid ways, are more highly leveraged than banks (the exception being money market funds) and lend and invest into more illiquid and long-term instruments. Like banks, they carry the risk that an otherwise solvent but liquid institution may be subject to a self-fulfilling and destructive run on its liquid liabilities.
But unlike banks, which are sheltered from the risk of a run – via deposit insurance and central banks’ lender-of-last-resort liquidity – most members of the shadow system did not have access to these firewalls that prevent runs.
A generalised run on these shadow banks started when the deleveraging after the asset bubble bust led to uncertainty about which institutions were solvent. The first stage was the collapse of the entire SIVs/conduits system once investors realised the toxicity of its investments and its very short-term funding seized up.
The next step(second stage) was the run on the big US broker-dealers: first Bear Stearns lost its liquidity in days. The Federal Reserve then extended its lender-of-last-resort support to systemically important broker-dealers. But even this did not prevent a run on the other broker-dealers given concerns about solvency: it was the turn of Lehman Brothers to collapse. Merrill Lynch would have faced the same fate had it not been sold. The pressure moved to Morgan Stanley and Goldman Sachs: both would be well advised to merge – like Merrill – with a large bank that has a stable base of insured deposits.
The third stage was the collapse of other leveraged institutions that were both illiquid and most likely insolvent given their reckless lending: Fannie Mae and Freddie Mac, AIG and more than 300 mortgage lenders.
The fourth stage was panic in the money markets. Funds were competing aggressively for assets and, in order to provide higher returns to attract investors, some of them invested in illiquid instruments. Once these investments went bust, panic ensued among investors, leading to a massive run on such funds. This would have been disastrous; so, in another radical departure, the US extended deposit insurance to the funds.
The next stage(fifth stage) will be a run on thousands of highly leveraged hedge funds. After a brief lock-up period, investors in such funds can redeem their investments on a quarterly basis; thus a bank-like run on hedge funds is highly possible. Hundreds of smaller, younger funds that have taken excessive risks with high leverage and are poorly managed may collapse. A massive shake-out of the bloated hedge fund industry is likely in the next two years.
Even private equity firms and their reckless, highly leveraged buy-outs will not be spared. The private equity bubble led to more than $1,000bn of LBOs that should never have occurred. The run on these LBOs is slowed by the existence of “convenant-lite” clauses, which do not include traditional default triggers, and “payment-in-kind toggles”, which allow borrowers to defer cash interest payments and accrue more debt, but these only delay the eventual refinancing crisis and will make uglier the bankruptcy that will follow. Even the largest LBOs, such as GMAC and Chrysler, are now at risk.
We are observing an accelerated run on the shadow banking system that is leading to its unravelling. If lender-of-last-resort support and deposit insurance are extended to more of its members, these institutions will have to be regulated like banks, to avoid moral hazard. Of course this severe financial crisis is also taking its toll on traditional banks: hundreds are insolvent and will have to close.
The real economic side of this financial crisis will be a severe US recession. Financial contagion, the strong euro, falling US imports, the bursting of European housing bubbles, high oil prices and a hawkish European Central Bank will lead to a recession in the eurozone, the UK and most advanced economies.
European financial institutions are at risk of sharp losses because of the toxic US securitised products sold to them; the massive increase in leverage following aggressive risk-taking and domestic securitisation; a severe liquidity crunch exacerbated by a dollar shortage and a credit crunch; the bursting of domestic housing bubbles; household and corporate defaults in the recession; losses hidden by regulatory forbearance; the exposure of Swedish, Austrian and Italian banks to the Baltic states, Iceland and southern Europe where housing and credit bubbles financed in foreign currency are leading to hard landings.
Run to Gold safe haven!
Disclaimers/Comments Policy.
Wednesday, September 17, 2008
AIG In Controlled Bankruptcy!
The ``punitive'' interest rate on the two-year loan ``makes it extremely clear that this is not a subsidy extended to keep the company afloat but rather a stranglehold that makes AIG unviable while ensuring that its obligations will be met,'' said Marco Annunziata, an analyst at UniCredit SpA, in a note to clients. ``This is to all extents and purposes a controlled bankruptcy.''
Yes, dear gold bugs the recent US85Billion loan from Fed extended to AIG for two years at interest rate of 11% ( give a big cry #*#@* ), with Feds market interest rate is at 2%, daylight robbery if you want to said it.
It was very clear the Feds is not "bailing out" as we thought so few hours back, as news coming in it is very clear what the Feds want is an orderly manner of selling AIG assets to cover losses it's incurred in the credit default swaps market. If AIG is to files for bankruptcy now, all it's assets will be put under hammer or force fire sells which will drive down even further it's core values assets.
At 11%p.a rates, spreads is definitely very high for comfort. Whichever way the AIG group it's toast for good having more then US400billion in derivatives holding in it's balance sheet plus another US57billion in securities tied up with sub prime mortgages back up by only US1.1Trillion in assets. Two years from now AIG will definitely cease to exist, it's assets will be strip off and sell off to the open market first to repay the US85billion loan @ 11% rates and then to it's debtors and etc.
How on earth a major company like AIG involved in such high leverage in derivatives market only can answered in one word GREED! If AIG allows to fail today it will cost the entire market a minimum sum of US180Billion, well this is where greed will leads you too eventually.
On realisation the shareholders will be wipe out eventually, AIG shares drop around 50% today, investors it's dumping AIG shares lock stock and barrel. GAME OVER FOR AIG!
DJIA drops another 3% (time of blogging ), but yellow metal rise more then 6%( give a big cry.....hurray I told you so! ).
Buy Gold!
Disclaimer/Comments Policy
Yes, dear gold bugs the recent US85Billion loan from Fed extended to AIG for two years at interest rate of 11% ( give a big cry #*#@* ), with Feds market interest rate is at 2%, daylight robbery if you want to said it.
It was very clear the Feds is not "bailing out" as we thought so few hours back, as news coming in it is very clear what the Feds want is an orderly manner of selling AIG assets to cover losses it's incurred in the credit default swaps market. If AIG is to files for bankruptcy now, all it's assets will be put under hammer or force fire sells which will drive down even further it's core values assets.
At 11%p.a rates, spreads is definitely very high for comfort. Whichever way the AIG group it's toast for good having more then US400billion in derivatives holding in it's balance sheet plus another US57billion in securities tied up with sub prime mortgages back up by only US1.1Trillion in assets. Two years from now AIG will definitely cease to exist, it's assets will be strip off and sell off to the open market first to repay the US85billion loan @ 11% rates and then to it's debtors and etc.
How on earth a major company like AIG involved in such high leverage in derivatives market only can answered in one word GREED! If AIG allows to fail today it will cost the entire market a minimum sum of US180Billion, well this is where greed will leads you too eventually.
On realisation the shareholders will be wipe out eventually, AIG shares drop around 50% today, investors it's dumping AIG shares lock stock and barrel. GAME OVER FOR AIG!
DJIA drops another 3% (time of blogging ), but yellow metal rise more then 6%( give a big cry.....hurray I told you so! ).
Buy Gold!
Disclaimer/Comments Policy
They're All Toast
This news article appear in the month of July this year by Roubini predicted then Lehman, Merill Lynch, Goldman and Morgan Stanley will ALL go bust in the coming months.
'They're All Toast': Roubini Says Brokers, Even Goldman, Can't Stay Independent.
Well less then two months later we see Lehman go bust, Merill force to merge with Bank Of America and Goldman and Morgan next on news................................
Meanwhile Buy Gold in this time of financial uncertainties.
Disclaimer/Comments Policy
'They're All Toast': Roubini Says Brokers, Even Goldman, Can't Stay Independent.
Well less then two months later we see Lehman go bust, Merill force to merge with Bank Of America and Goldman and Morgan next on news................................
Meanwhile Buy Gold in this time of financial uncertainties.
Disclaimer/Comments Policy
Global Market Turmoil, Gold Price Trend Upwards.
"In a total disaster," said Peter Bernstein, "where there is a run on paper currency, you'll get your biggest bang for your buck in gold…if everything hits the fan, gold should be worth several thousands dollars for an ounce.
Lehman files for bankruptcy, AIG got "bail out" by FEDS ( US85Billion), the questions in the market nowadays is who will be the next in line.
Washington Mutual(WaMu) the saving and loan bank next to come, watch out for the news as it's unfold it will cost the FEDs easily another US100billion if it's happen.
Freddie and Fannie has already cost the Federal Government in total US5.7Trillion in debts and liability, our questions is where on earth the Feds or US Treasury get all this money to rescued or bailouts all the financial mess, with no end in sight for next coming few years.
For the last 13 years, the U.S. money supply has been increasing at about 2 times the rate of GDP. This is known, to monetary sticklers, as "inflation." Inflation's is exported throughout the entire world because the USD it's world reserve currency, buying of commodities or business arrangement it's quoted at USD any increased in it's circulation will definitely bring about global inflation. The Feds non longer published M3 figure since March 2006, something sinister is happening because M3 shown the total money in circulation by hiding it the Feds can print as much USD bills without rising an eyebrow from foreign investor. An increased in monetary circulation will certainly cause inflation to jump.
Investors buy gold to protect themselves from inflation and future declining USD . Gold never overstates its earnings, understates its liabilities or declares bankruptcy. When everything else goes to Hell, gold is still there…still doing its job.
With the Federal debts currently close to US10Trillion, Uncle Sam got no money but it can turn to one of the Feds' tricks, one is particularly dangerous: they can print money or"helicopter money", that's right the US government with the collaboration of Feds can print unlimited amount of USD to save or bailout any of it's Wall Street honchos.
Well guys, when the going gets rough, the Feds always turn on the printing press because they can create money out of thin air, scary yet it's truth. How much inflation it will bring to our home for the next few years only God knows.
That's when owning gold really pays off..........................Buy Gold.
Disclaimer/Comments Policy.
Lehman files for bankruptcy, AIG got "bail out" by FEDS ( US85Billion), the questions in the market nowadays is who will be the next in line.
Washington Mutual(WaMu) the saving and loan bank next to come, watch out for the news as it's unfold it will cost the FEDs easily another US100billion if it's happen.
Freddie and Fannie has already cost the Federal Government in total US5.7Trillion in debts and liability, our questions is where on earth the Feds or US Treasury get all this money to rescued or bailouts all the financial mess, with no end in sight for next coming few years.
For the last 13 years, the U.S. money supply has been increasing at about 2 times the rate of GDP. This is known, to monetary sticklers, as "inflation." Inflation's is exported throughout the entire world because the USD it's world reserve currency, buying of commodities or business arrangement it's quoted at USD any increased in it's circulation will definitely bring about global inflation. The Feds non longer published M3 figure since March 2006, something sinister is happening because M3 shown the total money in circulation by hiding it the Feds can print as much USD bills without rising an eyebrow from foreign investor. An increased in monetary circulation will certainly cause inflation to jump.
Investors buy gold to protect themselves from inflation and future declining USD . Gold never overstates its earnings, understates its liabilities or declares bankruptcy. When everything else goes to Hell, gold is still there…still doing its job.
With the Federal debts currently close to US10Trillion, Uncle Sam got no money but it can turn to one of the Feds' tricks, one is particularly dangerous: they can print money or"helicopter money", that's right the US government with the collaboration of Feds can print unlimited amount of USD to save or bailout any of it's Wall Street honchos.
Well guys, when the going gets rough, the Feds always turn on the printing press because they can create money out of thin air, scary yet it's truth. How much inflation it will bring to our home for the next few years only God knows.
That's when owning gold really pays off..........................Buy Gold.
Disclaimer/Comments Policy.
Tuesday, September 16, 2008
Financial Weapons OF Mass Destructions.
The Coming Disaster In The Derivatives Markets.
"The derivatives genie is now well out of the bottle, and these instruments will almost certainly multiply in variety and number until some event makes their toxicity clear....[They] are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal."
-- Warren Buffett, Chairman and Chief Executive, from his Letter to Shareholders, 2002 Berkshire Hathaway annual report.
Speaking as a man who lost around US400 million few years back in unwinding one of it's subsidiaries General Re who got involved in derivatives market. Mark to market; no mark to myth said Warren Buffet when ask about the values of the world derivatives values. Do listen to a man who got his hand burned, whatever Lehman Brothers it's facing was so mind boggling. Trust Buffett will not be available for any advice on how to unwind the massive derivatives markets.
Who got burned and which dealers annihilated will be paraded in the next few months, the most worried part it's the size of the markets exposure of the major bank or investment bank in America
Read yourself above articles form Financial Sense.
Buy Gold!
Disclaimer/Comments Policy.
"The derivatives genie is now well out of the bottle, and these instruments will almost certainly multiply in variety and number until some event makes their toxicity clear....[They] are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal."
-- Warren Buffett, Chairman and Chief Executive, from his Letter to Shareholders, 2002 Berkshire Hathaway annual report.
Speaking as a man who lost around US400 million few years back in unwinding one of it's subsidiaries General Re who got involved in derivatives market. Mark to market; no mark to myth said Warren Buffet when ask about the values of the world derivatives values. Do listen to a man who got his hand burned, whatever Lehman Brothers it's facing was so mind boggling. Trust Buffett will not be available for any advice on how to unwind the massive derivatives markets.
Who got burned and which dealers annihilated will be paraded in the next few months, the most worried part it's the size of the markets exposure of the major bank or investment bank in America
Read yourself above articles form Financial Sense.
Buy Gold!
Disclaimer/Comments Policy.
Lehman Brothers Files For Bankruptcy
So Uncle Sam decided not to save Lehman Brothers, at risk here not only the company as a investment bank but also the credit defaults swaps derivatives market that Lehman it's holding in it's balance sheet.
The derivatives market it's so huge it dwarfs any other financial instruments, last count it's about USD500 Trillion markets worldwide. It's created to add more liquidity to the market end up destroying the very reasons it was created that is to add liquidity for banks to offer more credit and subsequently more debts. Lehman Brothers rank around 6 in market exposures.
``We've fallen so far off the edge of the earth right now that we can't even begin to describe what we are seeing,'' said Jim Bianco, president of Bianco Research LLC in Chicago. ``Nobody begins to know what will happen because we've never come to anything remotely close to this before.''
Will it create a systemic meltdown of the financial institutions at Wall Street? Stay tuned there will be a lots of side and main shows to see from now onwards, fasten your seat belts!
Meanwhile price of gold rose almost 2% today, investor look for safe haven to park their funds.
Buy Gold!
Disclaimer/Comments Policy.
The derivatives market it's so huge it dwarfs any other financial instruments, last count it's about USD500 Trillion markets worldwide. It's created to add more liquidity to the market end up destroying the very reasons it was created that is to add liquidity for banks to offer more credit and subsequently more debts. Lehman Brothers rank around 6 in market exposures.
``We've fallen so far off the edge of the earth right now that we can't even begin to describe what we are seeing,'' said Jim Bianco, president of Bianco Research LLC in Chicago. ``Nobody begins to know what will happen because we've never come to anything remotely close to this before.''
Will it create a systemic meltdown of the financial institutions at Wall Street? Stay tuned there will be a lots of side and main shows to see from now onwards, fasten your seat belts!
Meanwhile price of gold rose almost 2% today, investor look for safe haven to park their funds.
Buy Gold!
Disclaimer/Comments Policy.
Sunday, September 14, 2008
Paper Metal and Real Metal Diverge
So, what happened during August? The financial stocks rallied, and the US dollar also rocketed higher. The CNBC types have now concluded that the "bubble" in precious metals and in commodities is over. The financials are supposedly a "screaming buy."
In the end, has anything changed? No! If anything, the fundamentals for the banking sector and for the US economy as a whole are still not good. It is almost as if we are seeing a great "disconnect" between the mainstream investment world and what is actually going on in the world. War in Georgia? Declining oil reserves? Declining gold production? The CPI now at 5.6% (even using our government's bogus figures) and almost 13% (using honest methods)? Sell oil! Sell gold! Sell silver! Buy financials and Apple! Buy the dollar! Well, I don't buy it! I'll discuss this later. Except from The Richter Report.
Well guys if you still believe in Wall Street and it's spin media, kindly read this article above.
Don't trust paper metal trust instead Real Metal like ..........................GOLD!
Disclaimer/Comments Policy.
In the end, has anything changed? No! If anything, the fundamentals for the banking sector and for the US economy as a whole are still not good. It is almost as if we are seeing a great "disconnect" between the mainstream investment world and what is actually going on in the world. War in Georgia? Declining oil reserves? Declining gold production? The CPI now at 5.6% (even using our government's bogus figures) and almost 13% (using honest methods)? Sell oil! Sell gold! Sell silver! Buy financials and Apple! Buy the dollar! Well, I don't buy it! I'll discuss this later. Except from The Richter Report.
Well guys if you still believe in Wall Street and it's spin media, kindly read this article above.
Don't trust paper metal trust instead Real Metal like ..........................GOLD!
Disclaimer/Comments Policy.
Saturday, September 13, 2008
The Greenback And The Commodities Prices.
Great article about the effect of the weak greenback on commodities prices, read it here.
It's not the speculators who drive the commodities prices it's the weak USD, Feds will not like to hear neither their media spinning doctor will report about it. From the tech bubble to the current housing bubble Feds hot "helicopter money" had cause the entire world on the verge of sinking into a great recession if we are lucky, if not depression will visits us.
Years of pumping hot USD money into the markets to keep the "bubble afloat" or from busting had cause commodities price increment, causing a double digits inflation figure, visiting almost to every corner of the globe.
The biggest culprit for the commodities price increased pass few years or months it's the weak USD make through indiscriminate wholesale printing by the Feds to save it's cohorts at Wall Street. The only way to end this serious problems it's decoupling or ending of the USD as the world reserve currency and replacing it with another currency/currencies which must be back by a gold standard.
USD avoid it at all cost instead Buy Gold!
Disclaimer/Comments Policy.
It's not the speculators who drive the commodities prices it's the weak USD, Feds will not like to hear neither their media spinning doctor will report about it. From the tech bubble to the current housing bubble Feds hot "helicopter money" had cause the entire world on the verge of sinking into a great recession if we are lucky, if not depression will visits us.
Years of pumping hot USD money into the markets to keep the "bubble afloat" or from busting had cause commodities price increment, causing a double digits inflation figure, visiting almost to every corner of the globe.
The biggest culprit for the commodities price increased pass few years or months it's the weak USD make through indiscriminate wholesale printing by the Feds to save it's cohorts at Wall Street. The only way to end this serious problems it's decoupling or ending of the USD as the world reserve currency and replacing it with another currency/currencies which must be back by a gold standard.
USD avoid it at all cost instead Buy Gold!
Disclaimer/Comments Policy.
Friday, September 12, 2008
2 Million "Jingle Mails" And The Demise Of USD
Christmas ALL year long in America, read on...........
“We are looking at the worst set of macroeconomic conditions since the Great Depression. I don’t know where the bottom is… The most dangerous part in my judgment is what is going on in the housing world, where we’re now running foreclosures at the rate of two million a year, where nine million homes, according to the government, just slightly under nine million homes, have either no equity in them or negative equity. That will go up to 15 million if housing prices continue to go down this year as they’ve done last year.”
Mort Zuckerman, co-founder of Boston Properties, quoted by Bloomberg, March 12, 2008
Definitely a lots of "jingle mails" was sent to the bankers lately. By the way "jingle mail" it's the terms used in U.S for home owners who can't service their loan, eventually sending the house keys in an envelope to the banker for "safekeeping" means owner's surrendering their house to the bank concern.
How it will affects the financial situation in America it's left to be seen, Lehman got no buyer, Washington Mutual(WAMU) downgraded to junk level by Moody today. Freddie and Fannie just nationalised costing America taxpayer billions of dollar, who is next on the line you might asked?
Well I've a better idea discard USD ................buy gold safe haven!
Disclaimers/Comments Policy.
“We are looking at the worst set of macroeconomic conditions since the Great Depression. I don’t know where the bottom is… The most dangerous part in my judgment is what is going on in the housing world, where we’re now running foreclosures at the rate of two million a year, where nine million homes, according to the government, just slightly under nine million homes, have either no equity in them or negative equity. That will go up to 15 million if housing prices continue to go down this year as they’ve done last year.”
Mort Zuckerman, co-founder of Boston Properties, quoted by Bloomberg, March 12, 2008
Definitely a lots of "jingle mails" was sent to the bankers lately. By the way "jingle mail" it's the terms used in U.S for home owners who can't service their loan, eventually sending the house keys in an envelope to the banker for "safekeeping" means owner's surrendering their house to the bank concern.
How it will affects the financial situation in America it's left to be seen, Lehman got no buyer, Washington Mutual(WAMU) downgraded to junk level by Moody today. Freddie and Fannie just nationalised costing America taxpayer billions of dollar, who is next on the line you might asked?
" The tale of how the two GSE’s(Freddie/Fannie ) got to this point is a long and sorry one. It is a story of quite staggering ineptitude on the part of company management, the financial regulators, the Federal Reserve, the US Treasury, and the US Congress. I believe it is a seminal moment in the ongoing demise of the US Dollar as the world’s reserve currency. "Rob Lee on GSE Bailout.
The demise of the dollars as world reserve currency? For those who thinking of buying dollars better think twice as the former Kuwait Oil Ministers once said the US dollars it's an unguaranteed currency.
Well I've a better idea discard USD ................buy gold safe haven!
Disclaimers/Comments Policy.
Thursday, September 11, 2008
Global Currency Debasement!
Currency debasement or competitive currency devaluation it's happening worldwide. Today New Zealand had just cut their interest rate causing it's currency fell.
Looking nearer at home, Bank Negara had been maintaining the interest rate for pass two to three months causing the ringgit losing around 5% of it's total value. Question it's why majority of the Central Banker of the world it's devaluing it's home currency? Answer :-
1. By devaluing it's currency export products will look cheaper overseas therefore it will help the local economy to recover.
2. Global downturn had raised the prospects of recession back at home, having a cheaper currency might just help to avoid it.
3. Slowing or stagnant growth had cause great pains and uncertainty into local market by lowering down interest rates, cost of borrowing for doing business will be lower thus encourage local economy to growth.
Draw backs of having lower interest rates and subsequently debasing the local currency it's higher import cost, and it will further fuel inflation. Which currently running double digit worldwide.
By having a negative interest rates environment will cause foreign funds pulling out their funds from the local economy cause cost or profit of owning the local currency will not be attractive. Foreign Direct Investment (FDI ) it's very important to stimulate growth having it fleeing away will have a great impact on the economy.
At current scenario majority of the world Central Bankers it's debasing their own currencies rather then raising interest rates to tame inflation that will raise the local currency values.
Main problem at the moments its large number of Central Banker it's cutting interest rates for the pass few months to shore up the local economy, bringing in a scenario whereby everybody it's trying to outdo one another on having cheaper currencies by slashing interest rates!
The world Central Bankers it's having nightmare currently cause to raise interest rates to combat inflation economy will slip into recession, reducing interest rates inflation will go north pole. In short there are caught between the devil and the deep blue sea!
What they call the "perfect financial storm", raising the spectre of stagflation worldwide. High inflation plus stagnant growth.
And we have global currency debasement plus stagflation all at the same time, all fiat money values will deteriorates further indeed ..............buy gold!
Disclaimers/Comments Policy.
Looking nearer at home, Bank Negara had been maintaining the interest rate for pass two to three months causing the ringgit losing around 5% of it's total value. Question it's why majority of the Central Banker of the world it's devaluing it's home currency? Answer :-
1. By devaluing it's currency export products will look cheaper overseas therefore it will help the local economy to recover.
2. Global downturn had raised the prospects of recession back at home, having a cheaper currency might just help to avoid it.
3. Slowing or stagnant growth had cause great pains and uncertainty into local market by lowering down interest rates, cost of borrowing for doing business will be lower thus encourage local economy to growth.
Draw backs of having lower interest rates and subsequently debasing the local currency it's higher import cost, and it will further fuel inflation. Which currently running double digit worldwide.
By having a negative interest rates environment will cause foreign funds pulling out their funds from the local economy cause cost or profit of owning the local currency will not be attractive. Foreign Direct Investment (FDI ) it's very important to stimulate growth having it fleeing away will have a great impact on the economy.
At current scenario majority of the world Central Bankers it's debasing their own currencies rather then raising interest rates to tame inflation that will raise the local currency values.
Main problem at the moments its large number of Central Banker it's cutting interest rates for the pass few months to shore up the local economy, bringing in a scenario whereby everybody it's trying to outdo one another on having cheaper currencies by slashing interest rates!
The world Central Bankers it's having nightmare currently cause to raise interest rates to combat inflation economy will slip into recession, reducing interest rates inflation will go north pole. In short there are caught between the devil and the deep blue sea!
What they call the "perfect financial storm", raising the spectre of stagflation worldwide. High inflation plus stagnant growth.
And we have global currency debasement plus stagflation all at the same time, all fiat money values will deteriorates further indeed ..............buy gold!
Disclaimers/Comments Policy.
Monday, September 8, 2008
It's OPEC Going To Pump More Oil To Stablised Oil Prices?
Oil at USD105, everybody it's crying for the OPEC to supply more oil to the market to reduced oil price. However it's pumping more oil will solved the current situation of high oil price?
Pumping more oil former Kuwait Oil Minister might have the answer, "What'', sneered Abdurrahman Salim Atiqi, Kuwait's one-time oil minister, "is the point of producing more oil and selling it for an unguaranteed paper currency?'' He means the USD values depreciation since oil is traded in USD.
That's right what is the point of pumping or selling more oil for an inflated USD currency, the problem here was not producing more oil, it's the falling USD for the pass few years that concern the oil market as a whole since oil was traded in USD. USD it's an unguaranteed paper currency, years of "helicopter money" had destroyed the USD position as a dominant global trade currency. Plus the ever growing current account deficits of close to US700 billion p.a. Critics might point to the recent upside of the USD in global market currency trading, that's because all the major world economy is sliding into recession. Globalisation have spread the US economy weakness or recession into every corner of the world. Being an export orientated nations having your own currency devalued will definitely helps in your overall export market there in turn will slow or revive the local economy through selling your products cheaper overseas by currency comparison.
Falling USD will also push prices of ALL commodities to go higher just in order for it to offset the loses in exchange rate, commodities push inflation happened largely due to falling USD values whereby higher price will continue to happens in order to cover exchanged loses. How much of this commodities price increased come from the effect of falling USD will be remain to be seen, at current scenario, unless Fed's raise interest rates to arrest the decline of the USD, price of oil will be hard to go down in the near future. OPEC will not let oil prices falls into uncharted territories because the cost of oil extraction have been going up for the pass few years due to inflation cause by higher prices of commodities.
Mainly problem was not in the oil price but it's in the "unguaranteed USD paper currency". OPEC will definitely not trade the finite oil for an infinite USD currency ( no thanks to Fed's money printing machine ). With oil production almost at it's peak worldwide, OPEC might have to reduce pumping rather then increased pumping to increase oil prices in order to protects it's future interest.
Another scenario in solving the above problem it's the decoupling of USD as the global oil currency, a worldwide economy nightmare if or when it's happened. Cause the main questions is will the American going to let it happened( decoupling ) without a fight? It aint going to be easy, 90% of the world commodities plus oil is traded in USD!
Therefore bye bye cheap oil.........................buy gold!
Disclaimer/Comments Policy.
Pumping more oil former Kuwait Oil Minister might have the answer, "What'', sneered Abdurrahman Salim Atiqi, Kuwait's one-time oil minister, "is the point of producing more oil and selling it for an unguaranteed paper currency?'' He means the USD values depreciation since oil is traded in USD.
That's right what is the point of pumping or selling more oil for an inflated USD currency, the problem here was not producing more oil, it's the falling USD for the pass few years that concern the oil market as a whole since oil was traded in USD. USD it's an unguaranteed paper currency, years of "helicopter money" had destroyed the USD position as a dominant global trade currency. Plus the ever growing current account deficits of close to US700 billion p.a. Critics might point to the recent upside of the USD in global market currency trading, that's because all the major world economy is sliding into recession. Globalisation have spread the US economy weakness or recession into every corner of the world. Being an export orientated nations having your own currency devalued will definitely helps in your overall export market there in turn will slow or revive the local economy through selling your products cheaper overseas by currency comparison.
Falling USD will also push prices of ALL commodities to go higher just in order for it to offset the loses in exchange rate, commodities push inflation happened largely due to falling USD values whereby higher price will continue to happens in order to cover exchanged loses. How much of this commodities price increased come from the effect of falling USD will be remain to be seen, at current scenario, unless Fed's raise interest rates to arrest the decline of the USD, price of oil will be hard to go down in the near future. OPEC will not let oil prices falls into uncharted territories because the cost of oil extraction have been going up for the pass few years due to inflation cause by higher prices of commodities.
Mainly problem was not in the oil price but it's in the "unguaranteed USD paper currency". OPEC will definitely not trade the finite oil for an infinite USD currency ( no thanks to Fed's money printing machine ). With oil production almost at it's peak worldwide, OPEC might have to reduce pumping rather then increased pumping to increase oil prices in order to protects it's future interest.
Another scenario in solving the above problem it's the decoupling of USD as the global oil currency, a worldwide economy nightmare if or when it's happened. Cause the main questions is will the American going to let it happened( decoupling ) without a fight? It aint going to be easy, 90% of the world commodities plus oil is traded in USD!
Therefore bye bye cheap oil.........................buy gold!
Disclaimer/Comments Policy.
Saturday, September 6, 2008
Dead Man Still Speak
Bullion Committee 1810 - Headed By Francis Horner, if he still alive today he might be either hated or love by some of the Central Banker especially for those who lifted gold as a regulator and value of paper money. Indeed dead men do speak, it's vibration echo from and through the grave.
Bullion Committee was set up by British Parliament in the year 1810, rampant inflation had visited Britain those day. This Committee was set-up to look into the reasons and also find solutions to solve the inflation problems that threatened Britain during that times.
Below are some of the summary or excepts of the finding:-
1. Gold is not only the standard for the domestic currency, "bullion is the true regulator both of the value of a local currency and of rate of exchange."
2. The great evil growing out of the neglect of the above was the price inflation that was cutting so deeply into the purchasing power of money.
3. The solution therefore is to restore convertibility of the currency into gold at earliest possible moment ie money supply or rate of exchange must be back by gold.
4. The price of gold rose because of the "excessive quantity of circulating medium," in short too much money in circulation in the economy.( Fed will not like to read this or their version of "helicopter money" will be fly out of the window ).
Results of the finding by 1821, gold standard was established and enshrined in official legislation became the model for the rest of the world to follow for nearly 100 years.
By the way Nixon lifted the gold as regulator in the early 70's since then inflation in the US had been northwards bound, today problems that are besieging the US financial markets can be trace way back to Nixon era.
Gordon Brown sold almost all the gold in Britain treasury at US250/oz few years back, he should have visited Francis Horner grave to "hear" him speak before deciding to sell it because at current value of US800/oz ,the loses .......Ouch!
Gordon Brown should provides Fed Chief Bernanke the location of Francis grave giving him an opportunity to "listen" from his grave, it might then help him to think twice before using "helicopter money" to solve the financial woes at Wall Street. Fannie and Freddie nationalization will cost US tax payer US200 billion( estimated figure, actual figure can go up to US5.7Trillion ) ), where to get the money? US Treasury by issuing more treasury bonds (I.O.U)or Feds which got this technology call printing machine it cost less then US5 cent to print one US100 bill. With already nearly 17% annualised growth of money supply pass few years and adding this rescue figure, hard times it's definitely ahead of us.
Will it cause inflation after this nationalizing exercise? Kindly pay a visits to Francis Horner grave to find out, "dead man do speak" don't they!
Buy Gold!
Disclaimer/Comments Policy.
Bullion Committee was set up by British Parliament in the year 1810, rampant inflation had visited Britain those day. This Committee was set-up to look into the reasons and also find solutions to solve the inflation problems that threatened Britain during that times.
Below are some of the summary or excepts of the finding:-
1. Gold is not only the standard for the domestic currency, "bullion is the true regulator both of the value of a local currency and of rate of exchange."
2. The great evil growing out of the neglect of the above was the price inflation that was cutting so deeply into the purchasing power of money.
3. The solution therefore is to restore convertibility of the currency into gold at earliest possible moment ie money supply or rate of exchange must be back by gold.
4. The price of gold rose because of the "excessive quantity of circulating medium," in short too much money in circulation in the economy.( Fed will not like to read this or their version of "helicopter money" will be fly out of the window ).
Results of the finding by 1821, gold standard was established and enshrined in official legislation became the model for the rest of the world to follow for nearly 100 years.
By the way Nixon lifted the gold as regulator in the early 70's since then inflation in the US had been northwards bound, today problems that are besieging the US financial markets can be trace way back to Nixon era.
Gordon Brown sold almost all the gold in Britain treasury at US250/oz few years back, he should have visited Francis Horner grave to "hear" him speak before deciding to sell it because at current value of US800/oz ,the loses .......Ouch!
Gordon Brown should provides Fed Chief Bernanke the location of Francis grave giving him an opportunity to "listen" from his grave, it might then help him to think twice before using "helicopter money" to solve the financial woes at Wall Street. Fannie and Freddie nationalization will cost US tax payer US200 billion( estimated figure, actual figure can go up to US5.7Trillion ) ), where to get the money? US Treasury by issuing more treasury bonds (I.O.U)or Feds which got this technology call printing machine it cost less then US5 cent to print one US100 bill. With already nearly 17% annualised growth of money supply pass few years and adding this rescue figure, hard times it's definitely ahead of us.
Will it cause inflation after this nationalizing exercise? Kindly pay a visits to Francis Horner grave to find out, "dead man do speak" don't they!
Buy Gold!
Disclaimer/Comments Policy.
15 Reasons To Buy Gold
Adapted form Solid Gold Reasons To Own Gold by Gary North.
1. Global Currency Debasement:
The US dollar is fundamentally & technically very weak and should fall dramatically. However, other countries are very reluctant to see their currencies appreciate and are resisting the fall of the US dollar. Thus, we are in the early stages of a massive global currency debasement which will see tangibles, and most particularly gold, rise significantly in price.
2. Investment Demand for Gold is Accelerating:
When the crowd recognizes what is unfolding, they will seek an alternative to paper currencies and financial assets and this will create an enormous investment demand for gold. To facilitate this demand, a number of new vehicles like Central Gold Trust and gold Exchange Traded Funds (Elf’s) are being created.
3. Alarming Financial Deterioration in the US:
In the space of two years, the federal government budget surplus has been transformed into a yawning deficit, which will persist as far as the eye can see. At the same time, the current account deficit has reached levels which have portended currency collapse in virtually every other instance in history.
4. Negative Real Interest Rates in Reserve Currency (US dollar):
To combat the deteriorating financial conditions in the US, interest rates have been dropped to rock bottom levels, real interest rates are now negative and, according to statements from the Fed spokesmen, are expected to remain so for some time. There has been a very strong historical relationship between negative real interest rates and stronger gold prices.
5. Dramatic Increases in Money Supply in the US and Other Nations:
US authorities are terrified about the prospects for deflation given the unprecedented debt burden at all levels of society in the US. Fed Governor Ben Bernanke is on record as saying the Fed has a printing press and will use it to combat deflation if necessary. Other nations are following in the US’s footsteps and global money supply is accelerating. This is very gold friendly.
6. Existence of a Huge and Growing Gap between Mine Supply and Traditional Demand:
Gold mine supply is roughly 2500 tonnes per annum and traditional demand (jewelry, industrial users, etc.) has exceeded this by a considerable margin for a number of years. Some of this gap has been filled by recycled scrap but central bank gold has been the primary source of above-ground supply.
7. Mine Supply is Anticipated to Decline in the next Three to Four Years:
Even if traditional demand continues to erode due to ongoing worldwide economic weakness, the supply-demand imbalance is expected to persist due to a decline in mine supply. Mine supply will contract in the next several years, irrespective of gold prices, due to a dearth of exploration in the post Bre-X era, a shift away from high grading which was necessary for survival in the sub-economic gold price environment of the past five years and the natural exhaustion of existing mines.
8. Large Short Positions:
To fill the gap between mine supply and demand, central bank gold has been mobilized primarily through the leasing mechanism, which facilitated producer hedging and financial speculation. Strong evidence suggests that between 10,000 and 16,000 tonnes (30–50% of all central bank gold) is currently in the market. This is owed to the central banks by the bullion banks, which are the counter party in the transactions.
9. Low Interest Rates Discourage Hedging:
Rates are low and falling. With low rates, there isn’t sufficient contango to create higher prices in the out years. Thus there is little incentive to hedge, and gold producers are not only not hedging, they are reducing their existing hedge positions, thus removing gold from the market.
10. Rising Gold Prices and Low Interest Rates Discourage Financial Speculation on the Short Side:
When gold prices were continuously falling and financial speculators could access central bank gold at a minimal leasing rate (0.5–1% per annum), sell it and reinvest the proceeds in a high yielding bond or Treasury bill, the trade was viewed as a lay up. Everyone did it and now there are numerous stale short positions. However, these trades now make no sense with a rising gold price and declining interest rates.
11. The Central Banks are Nearing an Inflection Point when they will be Reluctant to Provide more Gold to the Market:
The central banks have supplied too much already via the leasing mechanism. In addition, Far Eastern central banks who are accumulating enormous quantities of US dollars are rumored to be buyers of gold to diversify away from the US dollar.
12. Gold is Increasing in Popularity:
Gold is seen in a much more positive light in countries beginning to come to the forefront on the world scene. Prominent developing countries such as China, India and Russia have been accumulating gold. In fact, China with its 1.3 billion people recently established a National Gold Exchange and relaxed control over the asset. Demand in China is expected to rise sharply and could reach 500 tonnes in the next few years.
13. Gold as Money is Gaining Credence:
Islamic nations are investigating a currency backed by gold (the Gold Dinar), the new President of Argentina proposed, during his campaign, a gold backed peso as an antidote for the financial catastrophe which his country has experienced and Russia is talking about a fully convertible currency with gold backing.
14. Rising Geopolitical Tensions:
The deteriorating conditions in the Middle East, the US occupation of Iraq, the nuclear ambitions of North Korea and the growing conflict between the US and China due to China’s refusal to allow its currency to appreciate against the US dollar headline the geopolitical issues, which could explode at anytime. A fearful public has a tendency to gravitate towards gold.
15. Limited Size of the Total Gold Market Provides Tremendous Leverage:
All the physical gold in existence is worth somewhat more than $1 trillion US dollars while the value of all the publicly traded gold companies in the world is less than $100 billion US dollars. When the fundamentals ultimately encourage a strong flow of capital towards gold and gold equities, the trillions upon trillions worth of paper money could propel both to unfathomably high levels.
Disclaimers/Comments Policy.
1. Global Currency Debasement:
The US dollar is fundamentally & technically very weak and should fall dramatically. However, other countries are very reluctant to see their currencies appreciate and are resisting the fall of the US dollar. Thus, we are in the early stages of a massive global currency debasement which will see tangibles, and most particularly gold, rise significantly in price.
2. Investment Demand for Gold is Accelerating:
When the crowd recognizes what is unfolding, they will seek an alternative to paper currencies and financial assets and this will create an enormous investment demand for gold. To facilitate this demand, a number of new vehicles like Central Gold Trust and gold Exchange Traded Funds (Elf’s) are being created.
3. Alarming Financial Deterioration in the US:
In the space of two years, the federal government budget surplus has been transformed into a yawning deficit, which will persist as far as the eye can see. At the same time, the current account deficit has reached levels which have portended currency collapse in virtually every other instance in history.
4. Negative Real Interest Rates in Reserve Currency (US dollar):
To combat the deteriorating financial conditions in the US, interest rates have been dropped to rock bottom levels, real interest rates are now negative and, according to statements from the Fed spokesmen, are expected to remain so for some time. There has been a very strong historical relationship between negative real interest rates and stronger gold prices.
5. Dramatic Increases in Money Supply in the US and Other Nations:
US authorities are terrified about the prospects for deflation given the unprecedented debt burden at all levels of society in the US. Fed Governor Ben Bernanke is on record as saying the Fed has a printing press and will use it to combat deflation if necessary. Other nations are following in the US’s footsteps and global money supply is accelerating. This is very gold friendly.
6. Existence of a Huge and Growing Gap between Mine Supply and Traditional Demand:
Gold mine supply is roughly 2500 tonnes per annum and traditional demand (jewelry, industrial users, etc.) has exceeded this by a considerable margin for a number of years. Some of this gap has been filled by recycled scrap but central bank gold has been the primary source of above-ground supply.
7. Mine Supply is Anticipated to Decline in the next Three to Four Years:
Even if traditional demand continues to erode due to ongoing worldwide economic weakness, the supply-demand imbalance is expected to persist due to a decline in mine supply. Mine supply will contract in the next several years, irrespective of gold prices, due to a dearth of exploration in the post Bre-X era, a shift away from high grading which was necessary for survival in the sub-economic gold price environment of the past five years and the natural exhaustion of existing mines.
8. Large Short Positions:
To fill the gap between mine supply and demand, central bank gold has been mobilized primarily through the leasing mechanism, which facilitated producer hedging and financial speculation. Strong evidence suggests that between 10,000 and 16,000 tonnes (30–50% of all central bank gold) is currently in the market. This is owed to the central banks by the bullion banks, which are the counter party in the transactions.
9. Low Interest Rates Discourage Hedging:
Rates are low and falling. With low rates, there isn’t sufficient contango to create higher prices in the out years. Thus there is little incentive to hedge, and gold producers are not only not hedging, they are reducing their existing hedge positions, thus removing gold from the market.
10. Rising Gold Prices and Low Interest Rates Discourage Financial Speculation on the Short Side:
When gold prices were continuously falling and financial speculators could access central bank gold at a minimal leasing rate (0.5–1% per annum), sell it and reinvest the proceeds in a high yielding bond or Treasury bill, the trade was viewed as a lay up. Everyone did it and now there are numerous stale short positions. However, these trades now make no sense with a rising gold price and declining interest rates.
11. The Central Banks are Nearing an Inflection Point when they will be Reluctant to Provide more Gold to the Market:
The central banks have supplied too much already via the leasing mechanism. In addition, Far Eastern central banks who are accumulating enormous quantities of US dollars are rumored to be buyers of gold to diversify away from the US dollar.
12. Gold is Increasing in Popularity:
Gold is seen in a much more positive light in countries beginning to come to the forefront on the world scene. Prominent developing countries such as China, India and Russia have been accumulating gold. In fact, China with its 1.3 billion people recently established a National Gold Exchange and relaxed control over the asset. Demand in China is expected to rise sharply and could reach 500 tonnes in the next few years.
13. Gold as Money is Gaining Credence:
Islamic nations are investigating a currency backed by gold (the Gold Dinar), the new President of Argentina proposed, during his campaign, a gold backed peso as an antidote for the financial catastrophe which his country has experienced and Russia is talking about a fully convertible currency with gold backing.
14. Rising Geopolitical Tensions:
The deteriorating conditions in the Middle East, the US occupation of Iraq, the nuclear ambitions of North Korea and the growing conflict between the US and China due to China’s refusal to allow its currency to appreciate against the US dollar headline the geopolitical issues, which could explode at anytime. A fearful public has a tendency to gravitate towards gold.
15. Limited Size of the Total Gold Market Provides Tremendous Leverage:
All the physical gold in existence is worth somewhat more than $1 trillion US dollars while the value of all the publicly traded gold companies in the world is less than $100 billion US dollars. When the fundamentals ultimately encourage a strong flow of capital towards gold and gold equities, the trillions upon trillions worth of paper money could propel both to unfathomably high levels.
Disclaimers/Comments Policy.
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