The Contrarian's View s published 11 times per year on a mostly-irregular schedule, and the views expressed are those of the author and editor, Nick Chase. Because nobody can predict the future, results of past suggestions or recommendations are no guarantee of future results. My own material in this publication may be freely quoted provided proper attribution is given to its source; quotes from other people are subject to fair-use copyright restrictions. Subscription rate: Free on the Internet. Using your favorite Web-browsing program, open URL http://onashi.org. Former paid subscribers to the printed version are now receiving LIFETIME subscriptions, and subscriptions to the printed version are no longer being accepted. Unsolicited material sent to us by UPS or by courier other than the postal service is refused and returned to sender! ISSN 1536-4429 Phone: (508) 757-2881
As of mid-November, financial institutions were supposed to conform to new accounting regulations and mark their "Level 3" assets (those debts for which there is no established market) to market value.... as far as it can be ascertained.... rather than to "myth", that is, what the computers think they should be worth. A reliable guide for the casual observer is the ABX index, which currently projects mid-quality Level 3 debt as worth about 40% of face value (40 cents on the dollar).
As suggested by economist Nouriel Roubini, if we take the Level 3 "assets" (loans) of major financial institutions and compare them to their equity, we can get a good idea of the extent to which they are at risk:
Citigroup, equity of $128 billion, Level 3 "assets" $135 billion, ratio is 105%. (Before Abu Dhabi.)
Goldman Sachs, equity of $39 billion, Level 3 "assets" of $72 billion, ratio is 185%.
Morgan Stanley, equity of $35 billion, Level 3 "assets" of $88 billion, ratio is 251%.
Bear Stearns, equity of $13 billion, Level 3 "assets" of $20 billion, ratio is 154%.
Lehman Brothers, equity of $22 billion, Level 3 "assets" of $35 billion, ratio of 159%.
Merrill Lynch, equity of $42 billion, Level 3 "assets" of $16 billion, ratio is 38%.
Now, the degree to which any of these institutions is at risk of going under depend on exactly what loans are in their Level 3 portfolios. But if we want to guesstimate.... let's assume the average is mid-quality debt and take that 40 cents on the dollar figure suggested by the ABX, and apply it across the board.
After marking to market in this guesstimate, we arrive with revised equity figures of: Citigroup, $47 billion; Goldman Sachs, -$4 billion (insolvent!); Morgan Stanley, -$18 billion (very insolvent!), Bear Stearns, $1 billion; Lehman Brothers, $1 billion; Merrill Lynch, $32 billion.
Now the probability that any of these financial firms will actually go out of business due to the marking down of their Level 3 portfolios is low. Citigroup, being a very large bank, is too big to fail.... the Fed would come to its rescue for deposits of any size, just as the British did for Northern Rock. The others would likely be able to arrange (or have arranged for them) additional equity financing to restore their equity above the required minimums.
The risks these (and other, smaller) financial firms face is a psychological one.... a loss of confidence in them as they slide into their weakened states. Sure, the SIPC guarantees the return of your assets if your brokerage goes belly-up, but who wants to wait around for a month or two for the government to transfer your portfolio to a new firm while, in the throes of the credit crunch, everything in it is sinking in value? What you really want to do is sell.... but you can't, it's frozen.
Clearly, this is a situation ripe for panic if things get out of hand. And get out of hand they well might.... the commercial-paper market has (in November) shrunk to a size smaller than in the August 2007 credit freeze-up as the asset-backed part disappears; and credit defaults are now increasing in the credit card industry (banks at risk, again, in a different area) and are spreading into commercial real estate. To this dismal picture we add in Joe and Jane Public, the tapped-out consumers who are leading us into what promises to be a very bad recession (rather than just the shallow recession we've mostly been in since the summer of 2000).
Two areas bear special watching. The first is a recent court case in Eastern Ohio U.S. District Court, in which the judge essentially ruled that ownership of foreclosed properties remains with the originators of the defaulted mortgages, and does not pass on to the subsequent holders of the securitized derivatives. In effect, the owners (or maybe I should say, non-owners) of the derivative products own the rights to an income stream (and to eventual repayment of principal, should that ever happen) but, once a loan defaults, they own... nothing.
So, bad mortgage loans as "Level 3" assets may really be worth just $0, not an average of 40 cents on the dollar in my previous estimate.
Central to the judge's decision was that owners of derivatives have no standing to initiate foreclosure proceedings; only the mortgage originators do. Once this decision propagates through the judicial system it should slow down the rate of foreclosures, but it promises to create a real mess as ARM interest rates increase, the defaults increase, and the derivatives go bust. The lawyers will get rich; others will end up with not much.
The second situation you should watch is the creditworthiness of bond (debt) insurers such as MBIA and AMBAC. Seems that along with government and corporate bonds these folks also insured some of the toxic waste, whose defaults are now impairing their formerly-sterling (AAA) credit ratings. The (higher) rating of insured debt is only as good as that of the insurer; should these outfits have their credit ratings lowered by the rating agencies, that will instantly lower the ratings of hundreds of billions of dollars worth of bonds. This might in turn trigger massive bond sales by some fiduciaries (trustees) who are required to hold only highly-rated debt in their portfolios. The impact on the municipal bond market (where many small cities and towns are able to float bonds only because of the insurance) would be especially severe.
It would certainly seem that the Great Asset Deflation is finally underway. The attendant credit contraction (the increasing unwillingness to lend) means that the effective money supply is rapidly shrinking, substantially more than the Fed's increase by printing of the raw material (monetary base). A shrinking money supply is a recipe for a severe recession, possibly a depression, and possibly a "loss of control" of the situation by the Fed as happened during the Great Depression and almost happened in 2002. It's even possible the entire financial system may freeze up.... nobody will lend money for any reason.
To protect yourself during these turbulent times, I would suggest, where possible, direct ownership of assets (cash in the bank, stocks, bonds, property, insurance annuity contracts, pension payments) rather than through an intermediary (such as a mutual fund) where there is an additional layer of management to get in the way. You may find that, just when you want access to your assets, the intermediary has the right to suspend redemptions to cover its ass.... er, rather, until the turbulence subsides. You especially want to check your money-market fund, not only to be certain that it owns none of the toxic crap, but that it does not have the right to suspend redemptions if management thinks they're about to "break the buck".
After all, in a time of crisis (should we have one) you
might want immediate access to your cash, not at
some indefinite future time when somebody else is
ready to let you have access to it.
....Elaine and I had a long conversation with a genuine Wall St. insider friend last night, a fellow that knows exactly (or more precisely, within mathematical bounds of mark to index models) where things are headed. "It's going to be a whole lot worse than LTCM, for example, much worse" he told us. How much worse? ....if you think in terms of 20% of subprime homes being foreclosed on or more, and a Dow under 6,000, you'd have some idea of future being priced by the inside markets right now. - George Ure
It seems pretty clear to me that, bank runs or not, the financial system is pretty close to melting down here. We're at such a tenuous moment that anybody who isn't scared to death about the possible denouements hasn't thought things through carefully enough. - Scott Frew [general partner, Rockingham Capital Partners]
It is now clear that the delusional hope that the severe credit and liquidity crunch that hit US and global financial markets would ease has been shattered by the events of the last few weeks. This credit crunch is getting much worse and its financial and real fallout will be severe. The amount of losses that financial institutions have already recognized - $20 billion - is just the very tip of the iceberg of much larger losses that will end up in the hundreds of billions of dollars. At stake - in subprime alone - is about a trillion of sub-prime related RMBS and hundreds of billions of mortgage related CDOs. But calling this crisis a sub-prime meltdown is ludicrous as by now the contagion has seriously spread to near prime and prime mortgages. And it is spreading to subprime and near prime credit cards and auto loans where delinquencies are rising and will sharply rise further in the year ahead. And it is spreading to every corner of the securitized financial system that is either frozen or on the way to freeze.... Every corner of the securitization world is now under severe stress, including so called highly rated and "safe" (AAA and AA) securities. The reality is that most financial institutions - banks, commercial banks, pension funds, hedge funds - have barely started to recognize the lower "fair value" of their impaired securities. - Nouriel Roubini
This is worse than the S&L crisis.... this is the worst credit bubble we've ever had in American history. No - never in American history have people been able to buy a house with no money down...never. That's never happened anytime in the world. So, we have the worst credit bubble. It's going to take a long time to work its way out. You don't cure a bubble in five or six months - it takes five or six years. - Jim Rogers
It appears that we are reaching a "pushing on a string" problem. The expression is famous in economics. It describes what happens when a deflationary spiral gets out of control. The financial authorities can offer more money on better terms - but the banks and the borrowers turn up their noses. They're already having trouble paying off the debt they've got; they don't want any more. Besides, they're not too sure that others will be able to pay their debts either, which makes them suspicious of both sides of the credit/debt equation. On the one side, the debtors may not be able to pay. On the other side, the creditors may not be able to collect. Whichever side you're on, you're looking for shelter. When this happens, the financial authorities want to put cash and credit in the system. But they are pushing on a string; the system won't take it. - Bill Bonner
The Ohio ruling.... is an earth-shaking precedent for all banks holding what they had thought were collateral in form of real estate property. How this? Because of the complex structure of asset-backed securities and the widely dispersed ownership of mortgage securities (not actual mortgages but the securities based on same) no one is yet able to identify who precisely holds the physical mortgage document. Oops! A tiny legal detail our Wall Street Rocket Scientist derivatives experts ignored when they were bundling and issuing hundreds of billions of dollars worth of CMOs in the past six or seven years. As of January 2007 some $6.5 trillion of securitized mortgage debt was outstanding in the United States. That's a lot by any measure! In the Ohio case Deutsche Bank is acting as "Trustee" for "securitization pools" or groups of disparate investors who may reside anywhere. But the Trustee never got the legal document known as the mortgage. Judge Boyko ordered DB to prove they were the owners of the mortgages or notes and they could not. DB could only argue that the banks had foreclosed on such cases for years without challenge. The Judge then declared that the banks "seem to adopt the attitude that since they have been doing this for so long, unchallenged, this practice equates with legal compliance. Finally put to the test," the Judge concluded, "their weak legal arguments compel the court to stop them at the gate." - F. William Engdahl
One underappreciated and underreported aspect of the various financial disasters that have unfolded over the past year or so are the indirect costs and far-reaching knock-on effects. That was the case with the meltdown in the mortgage finance sector, which so many ignorant analysts, pundits, and policymakers mischaracterized as an isolated problem in a small corner of a large market -- one that would no doubt remain "contained," or so they said. In fact, the losses in that segment of the lending universe were the catalyst for rivers of red ink in a mind-boggling array of financial instruments, an abrupt drying-up of liquidity in numerous global credit markets, an across-the-board increase in credit spreads, and an ongoing shift in favor of tighter lending standards, among other things. - Michael Panzner
The ABCP [asset-backed commercial paper] market, which totaled nearly $1.2 trillion in mid-August is rapidly disappearing. Already, more than $300 billion has vanished from this marketplace, which means that asset-backed borrowers have been forced to seek $300 billion of financing from somewhere else. The problem is; there isn't really a "somewhere else" that can provide such prodigious amounts of credit - and there sure isn't a "somewhere else" that can provide another $800 billion of credit. Only the Federal Reserve can provide credit out of thin air...and that's exactly what it has been doing. Since early summer, the Fed has been "repo-ing" larger and larger quantities of mortgage-backed securities. In other words, the Fed has been buying MBS on a short-term basis, thereby providing some much-needed liquidity to the U.S financial system. The Fed's activities might seem like a good idea for the financial sector, but they are a very bad idea for the dollar's value. Any activity that conjures up cash from nowhere is an activity that undermines the dollar's value. - Eric Fry
What Wall Street's biggest concern should be is that it is clear at this point that the Fed has no idea what to do. In the span of days they completely changed their bias responding to the credit crunch. The Fed policy right now just seems like desperation. When in doubt provide liquidity and hope it turns out OK like it did for Greenspan's Fed. Now with the unmistakable signal of future inflation and a collapsing dollar the Fed is in the box that most Bears figured they would end up in eventually.... I have to laugh when I hear the Treasury Secretary go on about a "strong" dollar policy when the dollar is hitting multi-decade lows against many key currencies. - Marc Sexton
This time, they're trapped by the dollar. The world has shown it is ready to dump the dollar. They can't increase liquidity they way they used to. - Merryn Somerset Webb [editor, MoneyWeek magazine]
Helicopter Ben is confronting you with a conundrum: Leave your money safe in the bank and let him and the G7 central banks, public servants and treasuries nibble at it with their printing presses at night, or get invested? When he lowers interest rates he transfers the money you should be getting in your savings accounts and fixed income investments to the money center and investment banks to rescue them from their horrendous losses. They borrow it from depositors at increasingly low rates as the Fed rescues the economy (what a crock) through interest rate reductions and lend it to you through their credit card operations at 20% to 30% interest rates. The Federal Reserve has been completely compromised by the Congress, US Treasury and Hank Paulson. Independent central bank? NOT. Obscene? Yes! Immoral? Yes! - Ty Andros
Fed governors and chairmen would rather be caught running and tripping over barbed wire with their pants around their ankles than admit in public the simple truth that the entire problem we are facing exists because their irresponsible policies - and the entire structure of the federal reserve system - have created too much "liquidity" (speak: debt) over the nine decades of that institution's needless existence. - Alex Wallenwein
A rate cut cannot convert a defaulted subprime mortgage into a valuable asset. It cannot convert a AAA-rated CDO full of toxic, overpriced garbage into an actual AAA security...and most of all, a rate cut cannot convert liars into truth-tellers. We don't know where all the liars might be; but we're pretty sure that many of them draw paychecks from the financial institutions that hold lots of mortgage-backed securities. As the mortgage market proceeds from bad to worse to catastrophe, we're pretty sure that many officers of financial institutions are not telling the whole truth and nothing but the truth about the value of their mortgage-backed securities. - Eric Fry
I now see the risk of a severe and worsening liquidity and credit crunch leading to a generalized meltdown of the financial system of a severity and magnitude like we have never observed before. In this extreme scenario whose likelihood is increasing we could see a generalized run on some banks; and runs on a couple of weaker (non-bank) broker dealers that may go bankrupt with severe and systemic ripple effects on a mass of highly leveraged derivative instruments that will lead to a seizure of the derivatives markets (think of LTCM to the power of three); a collapse of the ABCP market and a disorderly collapse of the SIVs and conduits; massive losses on money market funds with a run on both those sponsored by banks and those not sponsored by banks (with the latter at even more severe risk as the recent effective bailout of the formers' losses by theirs sponsoring banks is not available to those not being backed by banks); ever growing defaults and losses ($500 billion plus) in subprime, near prime and prime mortgages with severe known-on effect on the RMBS and CDOs market; massive losses in consumer credit (auto loans, credit cards); severe problems and losses in commercial real estate and related CMBS; the drying up of liquidity and credit in a variety of asset backed securities putting the entire model of securitization at risk; runs on hedge funds and other financial institutions that do not have access to the Fed's lender of last resort support; a sharp increase in corporate defaults and credit spreads; and a massive process of re-intermediation into the banking system of activities that were until now altogether securitized. - Nouriel Roubini
Two factors are at play here. The first is sheer size. If as now appears likely the eventual losses in the home mortgage market do not total only $100 billion, but a figure much closer to $1 trillion, then the subprime debacle becomes something much more than a localized meltdown. $1 trillion of losses is 7% of US Gross Domestic Product. The market cannot absorb losses of that size without some major institutional bankruptcies or a lengthy recession.... The second is lack of transparency, and the blow to confidence that comes from the dawning suspicion that a large portion of the derivatives and securitization mechanisms designed in the last quarter century are faulty. - Martin Hutchinson
"Bond insurers including Ambac Financial Group Inc. and MBIA Inc., which have 'taken few reserves,' own CDOs that have had $29 billion in losses, JPMorgan estimated." (Jody Shenn, Bloomberg News) My Comment: Perhaps without realizing it, JPMorgan just proclaimed Ambac (ABK) and MBIA (MBI) insolvent. As of the November 11 2007 10-Q MBIA had $6.96 billion in working capital. As of the November 09 2007 10-Q Ambac had $5.65 billion in working capital. Assuming JPMorgan is correct (or even in the ballpark), a combined $29 billion in losses makes the guarantees of those companies essentially worthless.... it's simply way too late for reinsurance to save Ambac, MBIA, and Security Capital Assurance. Each has greater CDO exposure than can possibly be covered by reinsurance. If any of them survive, it will not be on account of reinsurance. - Mike Shedlock
When I worked on the last bank and S&L debacle now 20 years ago, I saw first hand the games played in delaying the inevitable. That crisis was swept under the rug during the early 1980s for at least 4 to 5 years. The regulatory bodies knew the S&Ls were hemorrhaging. They had lent money long term at fixed rates, and funded those loans with short term deposits that ended up costing them more than the loans generated - a negative spread. You almost knew to the day/hour when insolvency would hit.... I reviewed examinations where hundreds of "sub-standard, doubtful, or loss" loans were actually classified "special mention," the highest (most negative) classification not requiring any write-off. When I pursued the WHY behind this anomaly, I was told again and again "there was to be no classification of assets that would adversely affect capital." Institutions were only "required" to write-off only what they could afford to do without hitting insolvency, a mandated take over, or liquidation. Delaying problem resolution ends in upping the final costs. I can see the same misguided propaganda approach being used now with these CDO write-offs. "A billion here a billion there - not to worry. These bite size billions we can swallow - no problem!" (That is... until somebody finally chokes and the whole system croaks.) - Fred Cederholm
A former senior commercial loan type in the banking business sends along this "confirmation" of how things are going in the US banking world: "....I just left my banking position (major money center banks as senior commercial loan officer).... There is a procedure in place now to circumvent any type of 'run' on funds. Specific plans for limiting daily cash draws and total withdrawals within a specific time period. Read the small print on bank literature, their ability to do this is there. Secondly, I was in commercial lending and there is no new policy position to limit corporate borrowing. However the credit folks are becoming the stone wall leaving the officers to deal with the customers as to why they don't quality when their financial situation is as good or better than during previous credit actions. My counterparts at other banks are experiencing like problems. Drying up the credit to businesses, unofficially. Not a good sign." - (via) George Ure
Hardly a day goes by without someone's proposing how to make the bad situation in subprime mortgage lending even worse. Legislators at all levels of government are contending for ownership of the most destructive idea. Finalists in this legislative race to the bottom include punitively stiff lending standards, foreclosure holidays and taxpayer-financed bailouts. I would like to propose a far simpler, fairer and effective course of action: let free people sort it out for themselves. Let contractual arrangements remain in force, let good lenders prosper and bad ones suffer (similarly with borrowers) and let the taxpayers' pockets go unpicked. Legislative interference with market processes is likely only to prolong and deepen the downturn. - Steve Berger
You can foreclose on homes and default on most of the CDOs, CMOs and whatever other anachronisms that there are. You can take massive write-offs and have the Government re-capitalize (bail-out) the banks, but after all of that and whatever else you may do, the vacant homes still remain standing, flooding the market. Only time and much, much lower prices will clear the oversupply. And that my friends, is the real problem that NOBODY is talking about. - Aubie Baltin
The housing sector has been the flash point for those looking for economic collapse, and certainly the reports from the housing markets have been poor (to be generous). But unlike stocks, not every piece of property is created equal. A couple of examples: My folks have been in their house for over 15 years, making their monthly payments religiously from the start, never taking out equity (the idea is not to have debt!) and while their house has appreciated, they are living roughly the same lifestyle that they have for that 15 year period of time. To them, this housing "thing" is much ado about nothing, as they will continue to make their payments and little will change in their lives. My neighbor of 10 years has pulled out every ounce of equity, as his house had more than doubled in value - did a remodel on the house, bought a second home down in Florida and has a couple of new cars. Then the floating rates begin to float and he is finding out that he can't get out from under the place in Florida and is struggling to make his monthly payments, now that they have increased by more than 25%. For him, this real estate and sub-prime "thing" is very real and very costly to his net worth. - Paul Nolte
Whereas the big banks and investment houses can hide behind tier three and pray for a market recovery, the investing community cannot. Pension funds, institutions and money market funds have fiduciary investment covenants which direct them to sell securities which are below certain ratings levels. Once an investment falls into the lower rungs on the investment scales they are bound by their own investing rules to divest the assets. Tens of billions of dollars of securities have been downgraded since the beginning of October and this will require that they be sold in a timely manner. Once those securities hit the markets we will know their true value, and it won't be pretty. - Ty Andros
Wall Street strategies that made the cycle of no-money-down, no-questions-asked lending possible have sucked the life out of my city. - Jim Rokakis [County Treasurer, Cuyahoga County (Cleveland, Ohio)]
Both in the U.S. and around the world - even in nations that despise the U.S. and shun the dollar - we are all in for a tumultuous time in history. No one really knows how the decline of the dollar will play out. There is no modern precedent for what is about to occur as the world's reserve currency evaporates in value. Literally billions of people rely upon the U.S. dollar as the economic rock that holds up the foundations of the world economy. Yet that rock is turning into loose sand. How does one save, let alone invest, in a world where the value of the dollar is in irreversible decline? A declining dollar is the same as the destruction of capital. - Byron King
The Goldilocks protagonists will say, "Yes, consumption is a symptom of economic strength." Personally, I think it depends on how consumption came about. If it was achieved by the household sector selling assets and going deeper into debt, then consumption is eroding the production capacity of a country and will lead to impoverishment, as is indicated by the dollar's loss of value. The point is simply this: In the current expansion phase, which began six years ago, the performance of the US economy and US asset markets in dollar terms looks better than is the case in reality. - Marc Faber
When history is written on the waning days of the American Empire, it might very well say that the final decades witnessed a series of increasingly intense temporary booms, driven by steady increases in debt - consumer debt, corporate debt, and government debt. Eventually, the debts simply became unsustainable. The Federal Reserve's trusty old trick of lowering interest rates stopped working. Markets stopped responding. Everything went into reverse. What the Fed failed to grasp is that printed money eventually reverts to its intrinsic value of zero, and that there is a difference between a lack of liquidity and just plain old-fashioned insolvency. - Michael A. Nystrom
The United States cannot afford honesty. This erodes foreign perceptions of confidence. The fish rots from the head down. Look to the USGovt, with its phony federal deficit statements, its war costs off the balance sheet, its endless increases in the official legal national debt limit, and pervasive bankrupt characteristics. This is a Third World nation with a powerful military, used to offer support to the USDollar. As conditions turn more desperate and unsustainable, look for more war, not less. Look for presidential candidates who seek a new fresh path to be marginalized, smeared, even removed. - Jim Willie
Any country that has confidence in its monetary institutions should not peg to the dollar. - Robert Shiller
Yesterday [October 31], as the dollar fell to new record lows and oil and gold prices surged to new highs, Wall Street remained fixated on wholly meaningless government data that managed to report the lowest inflation in the last half century. These bizarre numbers were integral in allowing the Commerce Department to report 3.9% annualized GDP growth in the third quarter, which was heralded by the bulls as evidence that a resilient U.S. economy had shrugged off the problems in the housing and mortgage markets. However, the government's ability to make "economic growth" magically appear is based purely on statistical finesse. To arrive at this rate, the government had to assume that inflation during the quarter ran at an annualized rate of .8% (that's less than 1%). That is the lowest rate of inflation used to calculate U.S. GDP since the Eisenhower administration. With oil priced at almost $100 per barrel, gold futures trading over $800 per ounce, the dollar hitting record lows, and the Fed printing money like it is going out of style, the government has the nerve to claim that current inflation is the lowest it has been in half a century. Unbelievable! - Peter Schiff
Track the current CPI the way it was calculated in 1980, and today's inflation rate is about 7% higher than the current "official" CPI statistics. So, .... that 1980 barrel of $39.50 crude is the equivalent of over $200 per barrel in today's anemic dollars. - Chris Gilpin
We peaked last year. We are pulling about 85 million barrels per day out of the world, and that's about as good as it is ever going to get. It is only going to go down from here on out.... Now we are in the decline phase. From here on out, the question is what will the decline phase be? That's the only real question going forward, isn't it? If it's a shallow decline rate, then overall we might be able to conserve and substitute for energy use, to stay ahead of it. But if it's faster than we can conserve and substitute, then we are going to have some serious problems. - T. Boone Pickens
It really is sad. Here's gold and silver ("specie") mandated as the only money by the Constitution of the United States. Yet our citizens have been kept in the dark about gold for generations. Instead, Americans have been touted on the value of fiat money, rudderless money. This fiat money is created by a private banking cartel (the Fed). This transfer of US money-creation has never been authorized by a Constitutional amendment. I've said this before, but I'll repeat it -- the whole system of fiat (paper) money is the greatest fraud ever perpetrated on the American people. Our defense against this "counterfeit" money is, and always has been, Constitutional money -- gold and silver. Federal Reserve Notes (currently termed "dollars") are a blatant lie. Today, rising gold is dragging that lie out into the open. Ultimately, the truth will out. Rising gold is shouting the truth -- "gold is money, Federal Reserve Notes are a lie and an abomination." - Richard Russell
A few months ago, I met a contractor in a bar. He told me about his business, and I asked him how many people he employed. He said, "Forty-nine. If I have one more, then the federal Family Medical Leave Act and the California Family Rights Act kick in. Then if somebody goes out, I have to hold his job open for months, whether I can afford to keep him or not. That's bull--." So here we are. A man that wants to hire more people refuses to do so, because an additional hire takes a hammer to his profit margins. - Larry Elder
It is now commonplace and politically correct to blame what is referred to as the excesses of capitalism for the economic problems we face, and especially for the Wall Street fraud that dominates the business news.... Capitalism should not be condemned, since we haven't had capitalism. A system of capitalism presumes sound money, not fiat money manipulated by a central bank. Capitalism cherishes voluntary contracts and interest rates that are determined by savings, not credit creation by a central bank. It's not capitalism when the system is plagued with incomprehensible rules regarding mergers, acquisitions, and stock sales, along with wage controls, price controls, protectionism, corporate subsidies, international management of trade, complex and punishing corporate taxes, privileged government contracts to the military-industrial complex, and a foreign policy controlled by corporate interests and overseas investments. Add to this centralized federal mismanagement of farming, education, medicine, insurance, banking and welfare. This is not capitalism! - Ron Paul [R-TX]
Now I ask you all: Is it really any wonder that in a world increasingly dominated and controlled by the tentacles of Central Banking [i.e. the Federal Reserve] - that American jobs have been systematically outsourced, currency, institutions and Constitution debased, all seemingly to the benefit of a Communist country - China? Makes you wonder what would have happened if the good guys had lost the Cold War, eh? - Rob Kirby
With linguistic obfuscation reminiscent of Bill's more famous remarks - "I didn't inhale" and "It depends on
what the definition of is, is" - Senator Clinton is determined not to tell us where she stands on anything.
Instead, she has come to believe, probably correctly, that if we knew what she really wants to do as president,
we would never vote for her. So on Social Security (where she plans to raise taxes), Iran (where she will take
military action if need be), Iraq (where she will keep the troops), the Alternative Minimum Tax (which she will
only repeal if it can be used to hide massive tax increases) and drivers' licenses (which she will give to illegals
as soon as she can), Hillary resists telling the truth. And, under the scrutiny of opponents like Edwards and
Dodd, and the questioning of Tim Russert, it is becoming obvious even to demented Democrats. - Dick
Morris & Eileen McGann
Regardless, the financial pressures that might cause stocks to crash are about as severe as they've ever been. The liquidity crunch has reappeared and is now worse than it was in mid-August, as lending standards tighten and various credit markets contract. The latest to fail was the $2 trillion European covered-bond market, which shut down completely in the last week of November.
So you, of course, want to know why the stock market hasn't responded to this credit tsouris. Damned if I know. My educated guess is that stocks.... particularly the international blue-chips.... are benefitting from a flight to liquidity and relative safety, just as the US Treasury bond market is rising due to a flight of money to a safe haven, even though the dollar continues to shed value. However, for "investors" to believe that stocks are a safe haven, they have to pretend that the credit crunch will not impact consumers and throw the economy (further) into recession. Fat chance.... once this lie is exposed, stocks will crumble.
If the market has crashed by the time you read this, I expect December to be a month of recovery for stocks, with a high (likely lower than the October highs) reached about mid-January. After that, the bear returns, with a bear-market low in 2008 or 2009.
If the market doesn't crash by the time the "crash window" closes.... around December 10.... then December will be mostly neutral for stocks, with another high reached about mid-January. After that, the bear returns, with a bear-market low in 2008 or 2009. (Same destination, but a different route taken.)
This credit crisis is the stuff of which depressions are made.... "pushing on a string", remember? In the 1920s, no scheme was too harebrained for bankers to lend; in the 1930s, not even the soundest proposal could be financed, as the psychology of lending had inverted. Do you see the same trend happening today? I do.
The risk of another major systemic failure remains
high.... about 95% until the "crash window" closes,
around December 10, then about 60% to mid-January
2008. After that, we'll see.
A. "Inheritance" - real (normalized) "dividend and interest distribution" portfolio:
SUMMARY - "Inheritance":
Original cost: $100,000.00 (normalized)
Present value: $115,049.67 (see below)
Increase: $15,049.67 [+15.05%]
COMMENT on "Inheritance": There is no change from the previous issue.
The portfolio cost (normalized) is $108,223.42 with $17,100.50 currently in cash or near-cash.
B. "Professors' Investment Group (PIG)" - investment club portfolio.
SUMMARY - "PIG":
Original cost: $10,699.00
Present value: $24,451.14
Increase: $13,752.14 [+128.54%]
COMMENT on "PIG": There is no change from the previous issue.
C. Roth IRAs - real portfolio:
SUMMARY - Roth IRAs:
Original cost: $30,046.19
Present value: $33,636.18
Increase: $ 3,589.99 [+11.95%]
COMMENT on Roth IRAs: New to the portfolio this month is Tortoise Capital Resources (same folks as Tortoise North American Energy), as I "use up" the T-bills. The energy stocks here (and generally) have taken a real beating in the last month. Portent of an "official" recession? Probably.
D. TIAA/CREF 403(b) and (non-Roth) IRA retirement plans: My TIAA-CREF and Fidelity non-individual-stocks retirement investments, both the part from which I am making monthly withdrawals and the parts that are "resting", are invested as follows: TIAA traditional, 77.11%; T-bills and money-markets, 0.03%; inflation-indexed bonds, 15.40%; TIAA real estate, 2.14%; MLPs, 5.27%; TIAA-CREF High-Yield II, 0.05%.
TIAA-CREF values, 28Nov2007: stock, 262.03; equity-index, 90.57; MM, 24.79; bond, 83.79; inflation-indexed bond, 51.45; real estate, 307.63; TIAA current yield in SRA, about 4.8%. COMMENT on NYSE "Timer's Trend": We are currently on a SELL signal of November 1, 2007.
____________________________ NYSE TIMER'S TREND _______________________________
Mon 16 Jul 07 . |# . |13950.98 | + *
Tue 17 Jul 07 . |# . |13971.55 | .+ *
Wed 18 Jul 07 .# I . |13918.22 | + *
Thu 19 Jul 07 . | .# |14000.41 |+. *
Fri 20 Jul 07 #. I . {|13851.08 + . *
Mon 23 Jul 07 . I# . |13943.42 + . *
Tue 24 Jul 07 # . I . |13716.95 | - *
Wed 25 Jul 07 # . I . |13785.07 | .- *
Thu 26 Jul 07 # . I . |13473.57 | . -*
Fri 27 Jul 07 # . I . |13265.47 @|*-~~~~~~~~~~~~~~~~~~~~~~~~~~
Mon 30 Jul 07 .# I . |13358.51 @| . - *
Tue 31 Jul 07 # . I . |13211.99 @| . - *
Wed 1 Aug 07 #. I . |13362.37 @| . - *
Thu 2 Aug 07 .# I . |13463.33 | . - *
Fri 3 Aug 07 # . I . |13181.91 | . - *
Mon 6 Aug 07 .# I . |13468.78 | . - *
Tue 7 Aug 07 .# I . |13504.30 | . - *
Wed 8 Aug 07 . I #. |13657.86 | .- *
Thu 9 Aug 07 # . I . |13270.68 | . - *
Fri 10 Aug 07 # . I . |13239.54 | .- *
Mon 13 Aug 07 #. I . |13236.53 | . - *
Tue 14 Aug 07 # . I . |13028.92 | . - *
Wed 15 Aug 07 # . I . |12861.47 @|~.*-~~~~~~~~~~~~~~~~~~~~~~~~
Thu 16 Aug 07 # . I . |12845.78 @| . - *
Fri 17 Aug 07 . I# . |13079.08 @| . - *
Mon 20 Aug 07 # I . |13121.35 @| . - *
Tue 21 Aug 07 .# I . |13090.86 | . - *
Wed 22 Aug 07 . | # |13236.13 | - *
Thu 23 Aug 07 . #| . |13235.88 |-. *
Fri 24 Aug 07 . | .# |13378.87 + . *
Mon 27 Aug 07 . #| . |13322.13 + . *
Tue 28 Aug 07 # . I . |13401.85 |-. *
Wed 29 Aug 07 . | #. |13289.29 |-. *
Thu 30 Aug 07 # I . |13238.73 | - *
Fri 31 Aug 07 . | . # |13357.74 |-. *
Tue 4 Sep 07 . | . # |13448.85 +~.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~*
Wed 5 Sep 07 #. | . |13305.47 |+. *
Thu 6 Sep 07 . | #. |13363.35 |+. *
Fri 7 Sep 07 # . I . |13113.38 + . *
Mon 10 Sep 07 #. I . |13127.85 | - *
Tue 11 Sep 07 . | .# |13308.39 | - *
Wed 12 Sep 07 . #I . |13291.65 | - *
Thu 13 Sep 07 . | #. |13424.88 | - *
Fri 14 Sep 07 . # . |13442.52 + . *
Mon 17 Sep 07 # I . |13403.42 + . *
Tue 18 Sep 07 . | . # }|13739.39 |+. *
Wed 19 Sep 07 . | . # |13815.56 | + *
Thu 20 Sep 07 . |# . |13766.70 | + *
Fri 21 Sep 07 . | . # |13820.19 | .+ *
Mon 24 Sep 07 . |# . |13759.06 | . + *
Tue 25 Sep 07 . #| . [|13778.65 | + *
Wed 26 Sep 07 . | .# ]|13878.15 | + *
Thu 27 Sep 07 . | . # |13912.94 | + *
Fri 28 Sep 07 . | #. |13895.63 | + *
Mon 1 Oct 07 . | . # |14087.55 |~.+~~~~~~~~~~~~~~~~~~~~~~~~~~~~~*
Tue 2 Oct 07 . | . # |14047.31 | . + *
Wed 3 Oct 07 . | #. |13968.05 | . + *
Thu 4 Oct 07 . | .# |13974.31 | . + *
Fri 5 Oct 07 . | . # |14066.01 | . + *
Mon 8 Oct 07 . | #. |14043.73 | . + *
Tue 9 Oct 07 . | . # |14164.53 | . + *
Wed 10 Oct 07 . | .# |14078.69 | . + *
Thu 11 Oct 07 . | # |14015.12 | . + *
Fri 12 Oct 07 . | .# |14093.08 | . + *
Mon 15 Oct 07 . # . |13984.80 | .+ *
Tue 16 Oct 07 # I . |13912.94 |+. *
Wed 17 Oct 07 . I# . |13892.54 |+. *
Thu 18 Oct 07 . & . |13888.96 + . *
Fri 19 Oct 07 # . I . {|13522.02 |*-~~~~~~~~~~~~~~~~~~~~~~~~~~
Mon 22 Oct 07 # I . |13566.97 | .- *
Tue 23 Oct 07 . I #. ]|13676.23 | - *
Wed 24 Oct 07 # I . [|13675.25 | - *
Thu 25 Oct 07 . I# . |13671.92 | - *
Fri 26 Oct 07 . | . # }|13806.70 + . *
Mon 29 Oct 07 . | . # |13870.26 | + *
Tue 30 Oct 07 . & . |13792.47 |+. *
Wed 31 Oct 07 . | . # |13930.01 | .+ *
Thu 1 Nov 07 # . I . {|13567.87 | + *
Fri 2 Nov 07 # I . |13595.10 + . *
Mon 5 Nov 07 # . I . |13543.40 | - *
Tue 6 Nov 07 . I #. |13660.94 | - *
Wed 7 Nov 07 # . I . |13300.02 | . - *
Thu 8 Nov 07 #. I . |13266.29 | . - *
Fri 9 Nov 07 # . I . |13042.74 |*-~~~~~~~~~~~~~~~~~~~~~~~~~~
Mon 12 Nov 07 # . I . |12987.55 | . - *
Tue 13 Nov 07 . I# . |13307.09 | . - *
Wed 14 Nov 07 #. I . |13231.01 | . - *
Thu 15 Nov 07 # . I . |13110.05 | . - *
Fri 16 Nov 07 #. I . |13176.79 | . - *
Mon 19 Nov 07 # . I . |12958.44 | . - *
Tue 20 Nov 07 # . I . |13010.14 @| . - *
Wed 21 Nov 07 # . I . |12799.04 @| . -*
Fri 23 Nov 07 . I# . |12980.88 | . - *
Mon 26 Nov 07 # . I . |12743.44 @| . *
Tue 27 Nov 07 .# I . |12958.44 | . - *
Wed 28 Nov 07 . I # |13289.45 | .- *
--------------------------------------------------------------------------------
COMMENT on NASDAQ "Timer's Trend": We're on a SELL signal of October 15, 2007.
____________________________ NASDAQ TIMER'S TREND _____________________________
Mon 16 Jul 07 . I# . {| 2697.33 |+. *
Tue 17 Jul 07 . I # | 2712.29 | + *
Wed 18 Jul 07 #. I . | 2699.49 |+. *
Thu 19 Jul 07 . I .# | 2720.04 |+. *
Fri 20 Jul 07 # . I . | 2687.60 |-. *
Mon 23 Jul 07 . & . | 2690.58 |-. *
Tue 24 Jul 07 # . I . | 2639.86 | .- *
Wed 25 Jul 07 # I . | 2648.17 | .- *
Thu 26 Jul 07 # . I . | 2599.34 | . - *
Fri 27 Jul 07 # . I . | 2562.24 | . - *
Mon 30 Jul 07 .# I . | 2582.57 @| . - *
Tue 31 Jul 07 # . I . | 2545.57 | . - *
Wed 1 Aug 07 #. I . | 2553.87 @| . - *
Thu 2 Aug 07 . #I . | 2575.98 | . - *
Fri 3 Aug 07 # . I . | 2511.25 | . - *
Mon 6 Aug 07 # I . | 2547.33 | . - *
Tue 7 Aug 07 .# I . | 2561.60 | . - *
Wed 8 Aug 07 . I # | 2612.98 | .- *
Thu 9 Aug 07 # . I . | 2556.49 | .- *
Fri 10 Aug 07 # . I . | 2544.89 | .- *
Mon 13 Aug 07 # I . | 2542.24 | .- *
Tue 14 Aug 07 # . I . | 2499.12 | . - *
Wed 15 Aug 07 # . I . | 2458.83 @| . - *
Thu 16 Aug 07 # . I . | 2451.07 @| . - *
Fri 17 Aug 07 . I #. | 2505.03 | . - *
Mon 20 Aug 07 .# I . | 2508.59 | . - *
Tue 21 Aug 07 .# I . | 2521.30 | . - *
Wed 22 Aug 07 . I # | 2552.80 |-. *
Thu 23 Aug 07 .# I . | 2541.70 |-. *
Fri 24 Aug 07 . I # | 2576.69 + . *
Mon 27 Aug 07 . #I . | 2561.25 + . *
Tue 28 Aug 07 # . I . | 2500.64 |-. *
Wed 29 Aug 07 . I# . | 2563.16 | - *
Thu 30 Aug 07 . I# . | 2565.30 |-. *
Fri 31 Aug 07 . | . # | 2596.36 |-. *
Tue 4 Sep 07 . | . # | 2630.24 |+. *
Wed 5 Sep 07 .# I . | 2605.95 | + *
Thu 6 Sep 07 . | #. | 2614.32 | + *
Fri 7 Sep 07 # . I . | 2565.70 + . *
Mon 10 Sep 07 # I . | 2559.11 |-. *
Tue 11 Sep 07 . I #. | 2597.47 | - *
Wed 12 Sep 07 . #I . | 2592.07 | - *
Thu 13 Sep 07 . I# . | 2601.05 | - *
Fri 14 Sep 07 . #I . | 2602.18 |-. *
Mon 17 Sep 07 #. I . | 2581.66 |-. *
Tue 18 Sep 07 . | . # | 2651.66 + . *
Wed 19 Sep 07 . | . # | 2666.48 |+. *
Thu 20 Sep 07 . |# . | 2654.29 |+. *
Fri 21 Sep 07 . | . # | 2671.22 | + *
Mon 24 Sep 07 . I# . | 2667.95 | .+ *
Tue 25 Sep 07 . I# . | 2683.45 | + *
Wed 26 Sep 07 . | # | 2699.03 | + *
Thu 27 Sep 07 . | # | 2709.59 | + *
Fri 28 Sep 07 . I# . | 2701.50 |+. *
Mon 1 Oct 07 . | . # | 2740.99 | + *
Tue 2 Oct 07 . | . # }| 2747.11 | .+ *
Wed 3 Oct 07 . |# . [| 2729.43 | .+ *
Thu 4 Oct 07 . | #. | 2733.57 | + *
Fri 5 Oct 07 . | . # ]| 2780.32 | . + *
Mon 8 Oct 07 . | .# | 2787.37 | .+ *
Tue 9 Oct 07 . | . # | 2803.91 | .+ *
Wed 10 Oct 07 . | .# | 2811.61 | . + *
Thu 11 Oct 07 . # . [| 2772.20 | . + *
Fri 12 Oct 07 . | .# ]| 2805.68 | .+ *
Mon 15 Oct 07 .# I . {| 2780.05 | + *
Tue 16 Oct 07 # I . | 2763.91 + . *
Wed 17 Oct 07 . I #. | 2792.67 + . *
Thu 18 Oct 07 . & . | 2799.31 + . *
Fri 19 Oct 07 # . I . | 2725.16 | - *
Mon 22 Oct 07 . #I . | 2753.93 | - *
Tue 23 Oct 07 . I #. | 2799.26 |-. *
Wed 24 Oct 07 # . I . | 2774.76 | .- *
Thu 25 Oct 07 #. I . | 2750.86 | .- *
Fri 26 Oct 07 . I #. | 2804.19 | - *
Mon 29 Oct 07 . I #. | 2817.44 |-. *
Tue 30 Oct 07 . #I . | 2816.71 | - *
Wed 31 Oct 07 . I # | 2859.12 + . *
Thu 1 Nov 07 # . I . | 2794.83 + . *
Fri 2 Nov 07 .# I . | 2810.38 |-. *
Mon 5 Nov 07 # . I . | 2795.18 | .- *
Tue 6 Nov 07 .# I . | 2825.18 | .- *
Wed 7 Nov 07 # . I . | 2748.76 | . - *
Thu 8 Nov 07 # . I . | 2696.00 | . - *
Fri 9 Nov 07 # . I . | 2627.94 @| . - *
Mon 12 Nov 07 # . I . | 2584.13 @| . - *
Tue 13 Nov 07 . I# . | 2673.65 @| . - *
Wed 14 Nov 07 #. I . | 2644.32 | . - *
Thu 15 Nov 07 # . I . | 2618.51 | . - *
Fri 16 Nov 07 # I . | 2637.24 | . - *
Mon 19 Nov 07 # . I . | 2593.38 | . - *
Tue 20 Nov 07 # . I . | 2596.81 @| . - *
Wed 21 Nov 07 # . I . | 2562.15 @| . - *
Fri 23 Nov 07 . #I . | 2596.60 | . - *
Mon 26 Nov 07 # . I . | 2540.99 @| . - *
Tue 27 Nov 07 . #I . | 2580.80 | . - *
Wed 28 Nov 07 .# I . | 2662.91 | . - *
--------------------------------------------------------------------------------
"Timer's Trend" is based on 4% and 10% exponential moving averages of the New York Stock Exchange or NASDAQ advance/decline
lines (that is, the ratio of advancing to declining stocks). There are many symbols shown above, but the ones that count are the braces:NEXT ISSUE - is scheduled to appear in December 2007 or early January 2008.