Dow May Crash if 10,600 Not Breached, July 15 '10
Magazine Mania Monday: Run For Cover?, July 19 '10
Vacant Office Space Hits 17 year High, July 6 '10
Is TARP Hurting Small Banks?, July 14 '10
FDIC backing 8,000 Banks W/ $13 Trillion in Assets
with Negative Deposit Insurance Fund
As the fundamental view of the US economy continues to reveal the deflationary forces
impacting the private sector, the size of government spending and debt continues to
soar to ever larger and more unsustainble levels. In an environment like this, market
pablum which feeds our desire to "postpone tomorrow" is worst that worthless, it is
highly destructive in PREPARING for the future. If the Dow cuts through the 10,000 level
again in the near future, should we expect another quick rally, like those seen since
May? If not, how fast could financial wealth be destroyed? What will it take for the
public at large to wake up to the fact that we are not returning to yesterday?
The Investor's Mind: Whose Got the Power - July '06
The last 3 months have produced 1000 point swings, both up and down in the Dow.
The speed of swings this size in both directions makes this a unique period in market
history. It also makes it a period when investors and advisors are paralyzed about
the future. For this reason, I decided to pull this issue from the archives and offer it for
a free download. I believe it is more pertinent today than it was 4 years ago.
If you are interested in accessing all current reports and newsletters, as well as
our archives, click her to subscribe.
Dow Theorist Richard Russell: Sell Everything, You Won't Recognize America By
The End of the Year, May 18 '10
After the Flash Crash, the Crash Camp Takes Over, May 19 '10
Global Macro's Raoul Pal: Here's Why A Crash Is Coming in Two Days-To-Two
Weeks, May 18 '10
Big Bills Leaving the Senate, May 21 '10
With the Senate passage of the Dodd financial "reform" bill on Thursday, why are
these seasoned hedge fund mangers and market technicians so dire? Could it
have anything to do with real world data and events that alluded markets for 13 months?
If you don't have a great team of thinkers and traders around you, I would encourage
you to consider jumping in now to The Investor's Mind. The severity of the next major
decline leaves no room for pride about "past performance" for any of us.
Goldman Sachs Has First Quarter with No Trading Losses, May 10th
Goldman's Perfect Quarter Indicates Game is Fixed, May 10th
Goldman Can Create Shorts Faster than Europe can Create Money, May 10th
When I read headlines like the ones above, and contrast them with a May 12th
article in TIME titled, Mutual Fund Investors Not Rattled by Selloff, I can only wonder
what level of pain the next downturn will have to inflict on retail and institutional
investors before they stop trusting that the casino owners like Goldman are really in
place to foster the "free markets".
At an even deeper level, if you have never been able to ask some of the world's most
powerful political/financial leaders a question directly, you may wish to learn from
someone who has been doing that for 16 years. Check out Joan Veon's
May 7th article, What In the World Is Going On ?
Dow Plunges Most Since 1987 Before Paring Losses; Euro Tumbles, May 6 '10
Stocks' Skid Deepens, May 6 '10
Dow Down 3% After Deepest Intra-day Plunge, May 6 '10
Gloom Over Europe as Crisis Shadow Intensifies, May 6 '10
While I have written about the science of an unsustainable system, when you watch
a day like today, it still takes your breath away. Click the links below, for some lessons
I have given before, and two charts of today's historic market movements.
Chart of the Dow & Wilshire 5000. Section 4 of Riders on the Storm, Traits of the
Excellent Manager, addresses the lessons one could learn from the 1987 crash
(pgs 28-34). For a complete copy of Riders on the Storm [Jan '06], access to our
archives, and our latest research, click here to subscribe to The Investor's Mind.
Bill Black's Eye Popping Statement on April 20, 2010, before the House
Financial Services Committee
Every individual with a financial stake in the global markets and banking structure
should watch this. Then call your leaders and tell them to throw the Fed's expansionary
powers found in Dodd's financial regulatory bill under the bus.
Thank you Professor Black!
Budget Swings Leave Los Angeles Dizzy, Apr 20 '10
Nation's Soaring Deficits Call for Painful Choices, Apr 13
Why US Government Wants Citicorp Over $5 a Share, American Banking News
Recovery 'Can Be Self Sustaining', Treasury Secretary Says, Apr 18
Now I ask you, when one of the nation's largest cities struggles to cover a $485 million
shortfall, and U.S. interest costs on the national debt could soar to five times current
costs in just ten years, while the banking community writes about the fraudulent
schemes unfolding between the US Treasury and Citicorp stock values, how can
the US Treasury Secretary with an ounce of crediblity state that a "recovery" is
"self sustaining". One reason; because the public at large wants to believe the lie,
and the greatest bubble yet is still in play.
Federal Reserve Gets Political, Sends Congress Veiled Message, April 6 '10
Advice to the Financial Crisis Inquiry Commission: How to Question Alan
Greenspan on April 7th, Frederick Sheehan's Blog, April 5 '10
Fed Empowerment Act, March 25 '10
While the media on the left and the right focuses everyone's attention on the
monumental health care bill, the public, by and large, continues to be completely
oblivious to the Federal Reserve's constant march toward MORE power. As you consider
the links above from our modern world, contrast them with these words written by
President Woodrow Wilson, in his 1913 work, The New Freedom.
"Since I entered politics, I have chiefly had men's views confided to me privately. Some
of the biggest men in the United States, in the field of commerce and manufacture, are
afraid of somebody, are afraid of something. They know that there is a power
somewhere so organized , so subtle, so watchful, so interlocked, so complete, so
pervasive, that they had better not speak above their breath when they speak in
condemnation of it." [pg 18]
Sadly, most Americans have no knowledge of America's monetary history, and don't
care to learn. That will change in the months ahead.
Bulls Take Markets On First Quarter Thrill Ride, LATimes, April 1 '10
FOX News Poll: 79 Percent Say U.S.Economy Could Face Collapse, Mar 23 '10
The current market mania is clearly one for the history books.
China in Midst of 'Greatest Bubble in History', Rickards says, Mar 17 '10
Lehman's collapse was all its own fault, Mar 17 '10
Time Crunch Dems Lunge for Saturday Finish Line Mar 17 '10
Budget Deficit in U.S. Widens to Record $221 billion, Mar 10 '10
When one reads the headlines above, and considers the enormous scope of
CFR member Dr. Niall Ferguson's recent article in the LA Times, America, The Fragile
Empire, how can anyone with an ounce of intellectual honesty say we are in "recovery"?
I know, the markets have spoken again today, and price tells all. Or does it?
Beijing Seen Vacant for 50% as Chanos Predicts Crash, Feb 12 '10
Foreign Demand for US Treasuries Falls by Record Amount, Feb 23 '10
BOE's [Bank of England] King: Economic Recovery Fragile, Feb 23 '10
Number of Banks in Danger of Failure Hist Highest Level since '93 , Feb 23 '10
We can either look at the headlines above and come to the conclusion that these
problems are "normal", and just part of the ups and downs of markets, or that we
are at a turning point in history. If one reads Charlie Munger's "Basically It's Over",
then you come to the conclusion that we are leaving a period of credit mania, which
has lasted for decades, and that the changes coming will alter our lives down to the
societal level.
Wall St. Helped Mask Debt Fueling Europe's Crisis, Feb 13 '10
Wall Street tactics similar to Enron and those that caused the subprime crisis are now
being used in Greece, Italy, the UK and (undoubtedly) the US. Dr. Richard Koo notes that
real estate bubbles are far more destructive than stock bubbles because they involve so
much more debt. We see 50 percent vacancies in Chinese office towers, U.S. Commercial
Mortgage delenquencies on the rise, and UK fears of the same, as a U.S. Congressional
Oversight Panel warns,
"a significant wave of commercial mortgage defaults would
trigger economic damage that could touch the lives of nearly every American." But, the
almighty Dow cannot be bothered, as it is bolstered above 10,000.
AIG and NY Fed Under Fire for Hiding Bailout Facts, Jan 27 '10
Now I ask you, is it really all that difficult to see why consumers are very uncomfortable
with the state of the economy, when they continue to learn that highly unethical
conduct at financial institutions like AIG were not only allowed to continue, providing
better deals to their best banking clients after they were bailed out, but that the New York
Fed, the most powerful of the 12 branch banks that comprise the Federal Reserve,
actually instructed AIG "not to disclose more than a dozen controversial couterparty
transactions to the SEC"? Maybe revelations like these have something to do with the fact
that since the Jan 13th post below, equity markets on a global basis have fallen quickly,
and investors, seeking safety, are willing to purchase 4 week Treasury bills at zero
percent interest.
Investors Turn Bullish on Stocks from US to Japan, Bloomberg, Jan 13 '10
The Fed Finger: More Observations on the ESHO Incident, Jan 13 '10
When the crowd has seen a market that "can only go up", is it that hard to fathom that
eventually they would come to believe that "the worst is behind us", thus pushing the
S&P 500 to reach a bullish sentiment extreme of 54.7, "only the second time the reading
has exceeded 50"? Sadly few understand that big market players are "assisting" their
confidence by gaming the markets. At this stage in history, this is perfectly legal, but
the "integrity" of the system is being destroyed.
Eurozone faces 2010 debt crisis, AFP, Jan 3 '10
Cost of Insuring Icelandic Debt Rises, Reuters, Jan 6 '10
California Debt Default 'increasingly likely' LA Times Dec 16 '09
Global Bear Rally will Deflate as Japan leads world in sovereign debt crisis, Jan 4
PIMCO Executive: 80% Risk of UK Downgrade, Jan 5 '10
What is clear from headlines like these, is that the "debt will always produce stability" lie
continues to lengthen Pinocchio's nose. No matter how many times our illustrious
leaders say low interest rates don't cause bubbles, seeking to brainwash the public into
believing that more debt will lead to sustainable economic recoveries, the headlines from
around the world present reality for anyone willing to look past the current bubble.
Bernanke: Don't Tamper with the Fed, CNN Money, Nov 28 '09
Fed Rage Boils Over on Capital Hill, CNN Money, Nov 28 '09
Just days before his Decmeber 3rd confirmation hearing, Bernanke makes the following
statement in the first CNN article above:
"Now more than ever, America needs a strong, nonpolitical and independent central bank
with the tools to promote financial stability and to steer our economy to recovery without
inflation."
And, while a truly independent bank might exist somewhere, in her book, The Web of
Debt, attorney Ellen Brown, points out our Fed's obvious conflict of interest:
"The 'Federal' Reserve is actually an independent, privately owned, corporation. It
consists of twelve regional Federal Reserve banks owned by many commercial banks,
which hold Federal Reserve stock in an amount proportional to their size. The Federal
Reserve Bank of New York holds a majority of shares in the Federal Reserve System (53
percent). Its largest sharedholders are the largest commerical banks in the district of
New York." (Page 125)
As the Fed persists in its refusal to provide details on the hundreds of billions of bailout
money it has given to the banks that own it, fighting tooth and nail to avoid being
audited, how can we be expected to trust that it is acting for the average person's benefit?
Small Business Loans: $10 Billion Evaporate, CNN Money, Nov 17 '09
Interest on US Debt, CNN Money, Nov 19 '09
Should Treasury Secretary Be Fired?, LA Times, Nov 20 '09
Most individuals today can not understand why equity markets show no concern when
headlines like the ones above and the ones below continue to come out every week.
I encourage you to read the Forbes article, The New Masters of Wall Street to gain a
better understanding of the few who play at a totally different level than the vast majority
in our "public markets". Then remind yourself of Newton's 3rd Law of Motion, "For every
action there is an equal and opposite reaction."
U.S. Unemployment Rate Hits 10.2%, Highest in Ten Years, NYTimes, Nov 6 '09
Stop the "Jobless Recovery Madness, CNNMoney, Nov 5 '09
After reading these headlines, what would you expect the markets to do? If you want a
much deeper perspective of the casino, consider subscribing to The Investors Mind.
Economy Finally Back in Gear, CNNMoney, Oct 29 '09
While a 3.5 percent annualized growth in US DGP sounds good, the spillover from the
cash-for-clunkers and $8,000 tax break for new home buyers puts the sustainability of
the growth in question. As one of the nation's largest lenders to small and mid-sized
businesses, aside from being the fifth largest bankruptcy in US history, CIT's demise
will have an effect. As the backbone of the US economy, if small and mid-sized
businesses falter, we can only hope that the US policy response does not follow the
Japanese precedent for deficit spending and low interest rates.
Summers: US Economic Recovery on Track, Reuters, Oct 21 '09
The Dow has climbed 56% in 7 months, and the Dow Jones World Stock Index is up 74%
over the same time. And once again, one of our government officials assures us that,
thanks to the $787 billion stimulus package, the US economy is on the right track. At the
same time, the St. Louis Fed shows that commercial and industrial loans peaked when
the TARP stimulus was passed one year ago. While the media directs our attention to
the weekly swings in initial jobless claims, we ignore the bigger unemployment picture.
With a deficit three times the size of last year's record national deficit, the US government
must once again raise its national debt ceiling. With the non-partisan Center for
Responsible Lending calling for 8.1 million foreclosures over the next 4 years, are we
really expected to believe we are watching a sustainable economic recovery?
Briefing by Treasury Secretary Tim Geithner on G20 Summit, Sep 24 '09
While Geithner speaks of "optimism about prospects for global recovery" and "a
common, shared commitment" from "finance ministers and central bank governors from
around the world," Beijing sees it differently. Russia wants the yuan, ruble, and gold to be
components of the SDR, and they, with the world's largest oil producing and consuming
nations, are calling for the IMF's Special Drawing Right to replace the dollar as the global
reserve currency.
All this while the US unemployment rate hits a 26-year high and commodities rise 29
percent on increasing inventories. Is it any wonder that overriding one's emotions to
search for the next contrarian move, before it begins, is so difficult?
Dubai Real Estate Collapse, Socio-Economics History Blog, Jan 09
US Being Sucked into Civil War in Yemen, UK Telegraph, Sept 10 '09
US Consumer Credit in Record Plunge, AFP, Sept 09 '09
G20: Inflating The Global Economy to Prosperity, Seeking Alpha, Sept 11 '09
Does the story of Dubai support the repeated lesson from history that flooding easy
credit is not a long term sustainable strategy? If you are then flooding credit for a war in
Afghanistan, what could happen to expenses if the US became involved in a new war
in the Middle East? What if at the same time, the availability of credit continued to
collapse for the consumer? Would all of these support the G20's attempt to create
another bubble of "prosperity"? I know, "the worst is behind us".
Job Losses Moderate, but Unemployment Rate Hits 9.7%, WSJ, Sept 4 '09
Broader Unemployment Rate Hits 16.8% in August, WSJ, Sept 4 '09
Strapped Cities Lay Off Workers, Cancel Projects, CNN Money, Sept 1 '09
Now, let's see. Should the financial markets focus on the 9.7% or the 16.8%
unemployment rate? If 9 out of 10 cities are forced to cut spending, due to sales and
property tax declines, isn't that negative for equity markets? Regardless of which
unemployment rate we choose to acknowledge, aren't both higher than the worst case
unemployment rate, of 8.9%, the bank stress test assumed this past spring?
So, once again we see that the real economy has very little to do with the markets. Sadly,
most individuals still don't understand how the "financial casino" works these days, and
why risks levels are much higher now that we are in a "recovery." Feel free to visit the
Recent Updates section of our homepage to read our latest public article, Please Don't
Wake Me. To gain access to our most comprehensive research, click here to sign up for
a six month subscription to The Investor's Mind.
Number of Troubled Banks Rises to 416, August 27 '09
Federal Reserve Says Disclosing Loans Will Hurt Banks, August 27 '09
"In fact, so far the FDIC has covered all deposits, regardless of the amount, in
the large banks that have failed, such as The Republic Bank of Dallas, Chicago's
Continental Illinois Bank, and the Bank of New England. The reason is simple: the
government fears that if any depositors lose money in a large bank's failure there could
be a run on the deposits of other large banks that would spark a major bank collapse.
After all, any bank is only as safe as you or I think it is."
The Coming Economic Earthquake (1994), Larry Burkett, pg 134
Debt a threat to growth, IMF says, August 10, 2009
China's hidden debt problem, July 27, 2009
Spainish Unemployment Rate Rises to Decade-High 17.9 %, July 24, 2009
Dubai's Property Market Crumbles in Crisis, August 16, 2009
As we continue to hear chearleading governments around the globe, commending
themselves for enacting so much stimulus (creating more debt) so quickly to save the
economies and getting the global "green shoots" growing, some of the harsher
economic realities seem to be going unnoticed. Even in such difficult times, we can still
find relief in helping others, like those in Tiawan's mudslides and floods.
The Bank Killer, August 3, 2009
Fed Audit Will Show What They're Hiding, August 1, 2009, Ron Paul
Before we get fleeced for another round of bad bank bets, we should follow Ron Paul's
counsel and let "our" elected representatives know that the Fed is in dire need of an
audit. The fallacy of the necessity of the "official secret" for our benefit must give way to
verification of those who have proven untrustworthy. Indeed, the Fed has begun to require
stricter standards for banks who desire to lend to commercial borrowers, setting our
economy up for the latest in the Fed-engineered crises. So, where is all the bail-out
money going again?
Bernanke: The Economy Will Bounce Back Stronger, July 27 '09
US, China Pledge to Ensure that Recovery is "Secured", July 28 '09
Hidden From Sight, Debt Creeps Up on China, July 28 '09
Experts Float Debt Bubble Fears, July 22 '09
UK GDP Shrinkings More than Expected, July 24 '09
Strong statements continue to be made by political leaders regarding their confidence
that a massive increase in national debt levels will "secure" economic recovery. And
yet, we as individuals, across a wide range of cultures, have always been taught that
paying down debt and increasing savings were positive financial actions. Was Solomon
wrong when we wrote these words over 2900 years ago?
"The rich rules over the poor, and the borrower becomes the lenders slave."
Proverbs 22:7 [NASB]
Is Larry Summers Taking Kickbacks From the Banks He's Bailing Out, July 16 '09
SSA Bureaucrats have a Party...And Taxpayers pick up a $700,000 Tab, Jul 16
CIT Hires Bankruptcy Specialist As Bond Access Wanes, July 11 '09
Japan wholesale prices tumble, BOJ seen cautious, July 9 '09
While our government leaders line their pockets and throw parties - on the backs of
Americans - the troubles in the economy and market continue to mount. By the way,
which one of these articles supports the explosive rally we saw this week?
The SEC Needs Your Feedback, ZeroHedge, June27 '09
NYSE Halts Transparency, Feels Goldman Program Trading Disclosure is
Unnecessary, June30 '09
If you have any money in US equity markets, read the information Zero Hedge presents in
the links above. The NYSE released Information memorandum (09-31) on June 24 in
which they note the last day they will report daily program trading will be July 10th. Having
written about the negative impact a similar change, occurring in June 2006, would have
on assessing weekly NYSE program trading volume, I encourage each of you to contact
the SEC and the NYSE. Since information is power, withholding that to which we were
previously privy, is a divestiture thereof.
New Foundation, New Stability, White House Blog, June 17 '09
The following excerpt is from President Obama's June 17, 2009 speech:
"..it will require strong vibrant financial markets, operating under transparent, fairly-
administered rules of the road that protect American consumers and our economy from
the devastating breakdown we've witnessed in recent years."
Scripted speeches do not change the facts. When the current rally is over, those who've
invested based on how they feel, will regret their lack of skepticism.
More than 300 Banks on 'Watch Lists', May 27
GM Bankruptcy 'Inevitable' as Bondholders Spurn Offer, May 27
Treasurys Sink, 10 Yr Yield Hits Fresh High Amid Mtge Related Selling, May 27
Barack Obama, "We're Out of Money", May 24
Do the links in this area concur with the most optimistic readings in 8 months in the most
recent, May 27th, Consumer Confidence stats? Is the worst of the "recession" is behind
us, or is the optimism due to the recent bullish run in equity prices?
Moody's May Cut Rating on 34 Spanish Banks Amid Economic Slump, May 20
Japan Economy Shrinks at Record 15.2% Pace, May 20
US Housing Starts Drop on Apartments, Condominiums, May 20
Geithner's Gift to Wall Street, May 18
After reading these articles, would you want to buy the markets of Spain, Japan, or the US
housing sector? What if you learned that when the top 19 banks passed their stress test,
a few weeks ago, Wall Street had been given some help to encourage us to take risks?
If, after you review this information, you, like me, think the March bottom did not mark the
end of our markets' woes, I encourage you to consider joining the readers of our best
research, The Investor's Mind.
Regulators Said to Plan Stress- Test Disclosures May 7, May 1
Government Offers Details of Bank Stress Test, Feb 25
These two pieces are best understood in the context of the last few entries on this page,
and the Special Invpector General's April 21 2009 Report to Congress, on the Research
page. Is there a disconnect between the banking index over the last 2 months and the
importance of the stress test? Why are the results being delayed a few more days?
Commercial Real Estate Time Bomb Goes Off But No One Notices, Mish Shedlock
Let Insolvent Financial Firms Fail: Fed's Hoenig, April 21, 2009
In the first article above, you will notice that the stress test results are suppose to be
released on May 4 '09. And yet, even the Financial Times, like the article below, reveals
that this information has already found its way into the public domain. At the close
of business on Wednesday, April 22nd, the overall markets don't seem concerned.
LEAKED! Bank Stress Test Results, April 19, 2009
"The debt crisis is much greater than the government has reported. The FDIC`s 'Problem
List' of troubled banks includes 252 institutions with assets of $159 billion. 1,816 banks
and thrifts are at risk of failure, with total assets of $4.67 trillion, compared to 1,568
institutions, with $2.32 trillion in total assets in prior quarter. Put bluntly, the entire US
Banking System is in complete and total collapse."
I also encourage you to examine the latest Derivatives Report from the Office of the
Comptroller of the Currency, on our Research page.
Susan Boyle - Singer -Britain's Got Talent 2009
After watching the most rigged market rally in the banking sector history and joining my
fellow Americans in the Tea Party rallies on April 15, my wife shared this encouraging
video with me today.
London Summit, G20, Leaders' Statement, April 2, 2009
FASB approves more mark-to-market flexibility, April 2, 2009
SEC to mull 4 short-selling rules, April 6, 2009
Gordon Brown, a "new world order emerging", April 2, 2009
The IMF's international currency, the Special Drawing Right (SDR), was expanded fivefold
to $250 billion. And while we hearing that bank leaders will be held to tougher standards,
FASB has relaxed the way Wall Street banks value their toxic assets. Those who decided
to short sell, to protect themselves from this ongoing parade of recklessness, now have
additional restrictions placed on them. Will these measures build trust? Though history
shows otherwise, we are being asked to believe that more government is the key to
"financial stability. The risk to investor only grows larger by the week.
G20 Financial Policy Makers Statement, March 14, 2009
Thousands Rally Downtown Against Government Spending, March 15, 2009
As Tea Party demonstrations expand around the US, global government leaders support
what appears to the greatest explosion of government spending, backed by ...you
guessed it....more debt, which of course, we are told, leads to "price stability."
"Interest rates have been cut aggressively in most countries, and G20 central banks will
maintain expansionary policies as long as needed, using the full range of monetary policy
instruments, including unconventional policy instruments, consistent with price stability."
( Point #4 from G20 Statement)]
Soros Sees No Bottom for World Financial "Collapse", Feb21, 2009
CNBC Rick Santelli's Chicago Tea Party, Feb 19, 2009
The American Power Structure,Congressman Ron Paul, 1988
Whether we listen to one of the world's most famous hedge fund managers,a former Fed
Chairman, or the anger brewing on the floor of the Chicago markets, global investors
have been repeatedly forewarned of sharply lower market prices right in front of us. But,
this 1988 interview with Ron Paul shows that the problem has been building for a long,
long time. If we are to understand future trends and the viability of the proposed solutions,
we must take a critical look at the history of money.
U.S. Taxpayers Risk $9.7 Trillion on Bailout Programs, Feb9
With All Due Respect Mr. President, That is Not True, Cato Institute, Feb9
Clearly, we are watching the end of all sanity in our nations leaders. Thank
goodness there are those like the Mises Institute and the CATO Institute, who
understand that getting behind the largest expansion of the state in our
history is horrible political and fiscal policy. If you are a corporate,
political, academic, or religious leader in the US, I would encourage you to
speak out against the continued destruction of our financial structure, and
ultimately, our freedoms. 1835 US Debt - $33,733. Sept 2008 - $8.5 trillion.
One of my subscribers sent me a link to a two minute video titled,
"Are you going to finish strong?" Everyone that thinks the only answer for
our lives today is a massive government built on trillions in monopoly money,
needs to see this film. If you are becoming apathetic, watch this film.
U.S. Stocks Rally on Speculation Jobs Data to Spur Stimulus, Feb6
Job Loss: Worst in 34 Years, Feb6
Officials Say Tentative Stimulus Deal Reached, Feb6
CBO: Obama Stimulus Harmful Over Long Term, Feb6
After watching one more rigged political rally today, in order to give investors the
appearance that the continuation of massive socialization of the US is a good
investment idea, I would strongly encourage you to read any of the material
prepared by the Pete Peterson Foundation on our total debt. Where have we
come, when our only solution is "You are driving too fast on this mountain
highway. The only way to get down safer is to drive faster!"
Brazil to Counter Meltdown with More State Aid, Jan12
Wen Urges Steps to Reverse Slowdown Trend, Jan 20
Swan Waiting on Data Before Deciding on Stimulus for Australia, Jan20
S&P Downgrades Spain's Credit Rating, Jan20
As we have watched the banking sector in the US decline sharply, once again,
we all must remember, that this is a global condition. In order to understand
this period in history, we must recognize that the expansion of the state's role
in the US economy, is the same strategy being implemented around the world.
US Banks Stay Mum on Bailouts, Dec 23
Treasury Must Divulge Details on Bailout, Panel Says, Jan 9
In the last few weeks, equity markets have been very complacent in the US, and
have shrugged off almost every piece of painful economic reality thrown at them.
Does this complacency bode well considering the lack of transparency coming
from the ground level of our financial system?
In June 2006 issue of The Investor's Mind, we addressed why the great trust
that has been given to the banking cartel known as the Federal Reserve, is a
confidence few question during market booms. As we enter 2009, I have decided
to release that issue for the general public. If you have an interest in our best
research, and learning from a host of experts and charts, click here to subscribe.
I have found that only by continuing my own learning as history changes the
very world I live in, can I increase my odds in this highly deceptive time.
Auto Bailout Collapses, Markets Down in Asia, Dec12
Auto Aid Plan revived as White House Mulls Loans, Dec12
This morning, US history was made once again. The executive branch of the
US government stepped in and overruled last night's US Senate's decision. At
11:30 EST last night, the US futures market was down more than 4%. Yet, at
today's open investors saw a quick recovery, finishing the day with a gain. ( Asia,
Europe, US, Prices from www.cnnfn.com)
So, how can the President overrule the Senate? By the powers created through
the Executive Order, "National Security and Homeland Security Presidential
Directive."
While, this halted the decline in US stocks that would have most likely ensued,
should so much power reside in one branch of US government?
While the Federal Reserve continues to refuse disclosure the contents of the $2
trillion worth of garbage it has received as collateral from the financials and the
bond markets reflect severe concern for short-term liquidity, what does this tell us
about the revered Efficient Markets Hypothesis's second assumption?
"Information is readily available, and costless to obtain."
Even more, with so much interference by so few in the government, how will our
markets ever divest themselves of inefficient investments and companies?
Wall Street In Late Day Rally, Dec5
As we finish Friday, Dec 5th, investors are greeted with a 259 point increase on the Dow. This is even more rewarding for those investors who thought that Monday's
680 point decline was triggered when a government agency stated that they finally
knew we had been in a recession since December 2007. Thanks for the "quick"
conclusions guys.
Many mainstream market pundits are espousing, "just hold on", and that this is a
"buying opportunity". Since Tuesday, learning that in the near future Americans
may be hit with a Value Added Tax, already found in Europe, the hedge fund
industry is expected to have lost 45% of its assets between June08 and Nov08,
and today, finding out that November job losses were the worse in 34 years, and US
foreclosures were up 76% from a year ago, that group of individuals commonly
referred to as "investors", actually pushed the Dow up again to close the week,
just 2% lower than it opened Monday. Is this real or another bear trap?
If you believe that something very deceiving is unfolding, I would encourage
you to join our group of subscribers. I have found they have a commonality.
They are all highly skeptical and voracious readers. They understand that
in this highly dangerous period, strategic thinking from a variety of minds is
critical to keep your sanity and capital.
Citigroup Gets U.S. Rescue From Losses, Cash Infusion, Nov 24
As of today, November 26, investors in the US have seen a substantial rally off
of the 6-year low last Friday, accompanied by massive bailouts: first, there was
Citicorp, on Monday, and then consumer, student, small business, and mortgage
loans on Tuesday.
Since our leaders have gone mad, creating trillions of new debt, in their attempts
to bring stability, let's consider how our founding fathers saw paper money. This
film by Dr. Larry Parks should be taught at every college and presented by every
major news station.
Fed Defies Transparency Aim in Refusal to Disclose, Nov 10
With the $2 Trillion the Fed has loaned to various financial institutions since
September 14th, Bloomberg filed suit to force the Fed to disclose the recipients of
the funds and the collateral it has accepted. Though the Fed and Treasury said
they would divulge such information, its refusal to do so should come as no
surprise:
"The Federal Reserve System virtually controls the nation's monetary system, yet it
is accountable to no one. It has no budget, it is subject to no audit, and no
Congressional Committee knows of, or can truly supervise its operations."
This statement comes from a short film produced by the Ludwig von Mises
Institute in the 1990s. Begun in secrecy (18:12), the Fed has fought every call for
its transparency (34:30). If you cannot watch the whole film, be sure to view the
segments around the minute marks (noted in parentheses) above.
9 Banks Including Citi, JP Morgan in Treasury Program, Oct 14
Treasury: First Nine Banks to Get Funds This Week, Oct 27
Dow Retakes 9000 in Furious Rally, Oct 28
After a history making explosive rally, our emotions would want to see this
as a very bullish sign for equity markets. But considering the fact that
$250 billion dollars of new debt was created for the largest banks on Oct 14
and Oct 27, are value investors leading these explosive one day rallies? Are
these structural positives for the health of our financial markets?
Click here and view charts on the Dow and a Banking Index over the last 3 weeks.
Baltic Dry Index Drops Below 1,000 for the First Time in Six Years, Oct 28
Dubai Property Market on Edge Amid Global Slowdown, Oct 28
When one looks at global shipping, and the hot Dubai real estate market along
side the performance of one of its major financial indices, you get a very different
picture than "the worst is behind us." Sorry, but these don't seem like indicators
one would find at a credit contraction bottom. If you have lost a great deal of money
over the last year, I strongly encourage you to consider reading, Traits of an
Excellent Manager. This research,[ Section 4 of our historical research paper
on short selling, Riders on the Storm ( Jan06)], contains interviews with some of
the most recognized short sellers in the world. It could never be more timely for
investors, advisors, and traders, around the globe. If you wish to see our ongoing
comments regarding HOW to navigate this global storm, consider becoming a
subscriber. Considering the size of losses I have heard from individuals
contacting us in October, I believe you will find the cost extremely low.
There will always be a bottom. The question I have been asking since 2004, is
not WHEN will we be there, but how to avoid massive losses along the way as
our human tendency is to seek information we want to hear, versus arguments
based on hard data that we need to see and hear.
Alan Greenspan: I made a mistake, Oct 24 '08
The "Maestro" states today that he made a mistake in how he perceived banks
would protect their shareholders believing that it would have been in their interest
to do so. His mistake was that there was " a flaw in the model that I perceived
is the critical functioning structure that defines how the world works."
Can you imaging holding the what is arguably the highest financial position
in the world and NOT understanding the relationship between fostering
cheap credit through a fiat currency, with the results that your actions
fostered the largest credit bubble in history? Can you imagine having this post
and NOT studying the long string of credit bubbles as far as back as
John Law's Mississippi Scheme in France during the 18th century?
The following is a quote from Mr. Greenspan in Ayn Rand's Capitalism: The
Unknown Ideal [1967]. This book states that it is "a collection of essays on the
moral aspects of capitalism:
"The abandonment of the gold standard made it possible for the welfare statists
to use the banking system as a means to an unlimited expansion of credit. They
have created paper reserves in the form of government bonds which - through
a complex series of steps - the banks accept in place of tangible assets and
treat as if they were an actual deposit, i.e., as the equivalent of what was formerly
a deposit of gold. The holder of a government bond or of a bank deposit created
by paper reserves believes that he has a valid claim on a real asset. But the fact
is that there are now more claims outstanding than real assets."
(Alan Greenspan, Gold and Economic Freedom Essay, first published in
the July '66 issue of The Objectivist.)
"Government regulations do not eliminate potentially dishonest individuals, but
merely make their activities harder to detect or easier to hush up. Furthermore,
the possibility of individual dishonesty applies to government employees fully
as much as any other group of men. There is nothing to guarantee the superior
judgment, knowledge, and integrity of an inspector or bureaucrat - and the deadly
consequences of entrusting hum with arbitrary power are obvious. Capitalism is
based on self-interest and self -esteem; it holds integrity and trustworthiness
as cardinal virtues and makes them pay off in the marketplace." (Alan Greenspan,
The Assualt on Integrity, first published in the Aug '63 issue of The Objectivist)
From my years in this business, and from reading Greenspan's comments
for 2 decades, I can come to no other conclusion than the man is either
delusional or a pathological liar.
I would also encourage anyone seeking to understand Mr. Greenspan's true
record, to read Dr. Larry Parks book, What Does Mr. Greenspan Really Think?,
and Greenspan's Bubbles: The Age of Ignorance at the Federal Reserve by
William Fleckenstein.
Dow Sees Biggest RunUp Ever, Oct13,
Bank Stocks Miss the Rally, Oct 13
As central bankers around the world are ready to guarantee every deposit on
the planet, and hundreds of billions in new paper money (debt) is coming
from Europe to the US, why would the largest bank in the US, NOT join today's
party? Why would the banking index LAG the rally?
Germany Moves to Shore Up Confidence in Economy
Financial Crisis: Asian Countries Join Global Push to Cut Interest Rates
Financial Crisis: £500 Billion Bailout Helps Stabilise Banks
Iceland Suspends Trading After Banking Seizures
Putin May Boost Russia's Power as Iceland Seeks Loan
Gordon Brown Seeks Legal Action Against Iceland
U.S. May Take Ownership Interest in Banks
Oct 5 - Oct9 '08
Over the last year, investors have been inundated with the term "credit crisis".
Sadly, I am finding more and more investors who never understood that
these were the signs of market declines to follow. The headlines above,
reflect that credit and markets are also shifting international alliances.
Blue-Chip Stocks Suffer Worst Single-Day Point Decline, Sept 29
Feds Pump $630 Billion into [Global] System, Sept 30
Dow Rebounds 485 points in Session, Sept 30
No Bailout; House Blocks 700 Billion Deal, Sept 29
Ray of Hope as US Shoots for Bailout II, Oct 1
Now I ask you, is it really all that hard to see who is in control?
Nouriel Roubini's: Paulson's Plan A Disgrace, Sept26, by Mish Shedlock
An Action plan for Americans today and Sunday. Since we have been told
Washington must ram this "rescue plan" through as soon as possible,
then "We the people" should go into action. While I don't think this will stop
the passage of what history will look back on as the worst piece of legislation
forced on the public, we can at least tell our children and grandchildren we
voiced our opposition to this increased concentration of powers, i.e. the new
office of US Treasury Czar, and the next step toward the destruction of our
capitalistic way of life. When Barclays in the UK can buy the North American
operations of Lehman Brothers, the largest underwriter of municipal bonds
before they filed bankruptcy, for $1.5 billion, and save 10,000 jobs, are we
certain that the only way to halt the enormous demand for cash infusions by
banks is to allow the US Treasury to raise the national debt almost
a trillion dollar in one bill? Oh, and where is the clear explanation for why the
hundreds of billions in bailouts over the last year have yet to regain "investor
confidence"?
Hedge Funds Wrestle with Short Sell Ban, Sept 25
In their rush to act, paper the world in fiat, and declare market declines
unlawful and immoral, by restricting those "evil short sellers," our illustrious
leaders must have forgotten that market makers, attempting to offset their risk
by maintaining a neutral stance, and hedge funds who run
long-short strategies based on math models, comprise the majority of short
selling volume. So if a politician or media pundit tells you that short selling must
be banned, tell them you have a better idea, let's ban their ability to destroy
our money. Oh, and did you know there was no ban placed on a CEO of these
same companies being able to dump their own stock during the temporary ban
on those seeking to short their stock?
The Unraveling of the Shadow Banking System moves to Hedge
Funds, Dr. Nouriel Roubini, Sept 23
Bernanke: Approve Bailout or Risk Recession, Sept 23
Mad as Hell - Taxpayers Lash Out, Sept 21
Letter From Edward Yingling, President and CEO of the American
Bankers Association, to Fed Chairman Ben Bernanke, Sept 19
Letter to Congress, Three Fatal Pitfalls, Signed by 66 Economics
Professors, Sept 24
"The origins of all quakes are essentially the same. The action always starts
when the rocks along a tiny segment of a fault begin to slip. How big the quake
turns out to be depends not on the triggering event, but on where it happens; on
whether it trips only a short chain of slipping events in the rocks farther afield, or
taps into one of the long 'fingers of instability' that runs a long way through the
crust."
SEC Halts Short Selling of Financial Stocks to Protect Investors and
Markets, Sept 19
Are we to believe that legal short sellers were the only downward influence on
stock prices? Or has anything happened in the last 12 months that would cause
rational investors to want to sell their financial stocks? If prohibiting short selling
is the way to stabilize financials, then why not do the same in tech, medical,
housing, retail, etc? Or, maybe this is not about short selling. All we need to do
is look at opening prices to see that it is NOT what is happening during regular
trading hours that is causing these companies their greatest declines.
UK Regulators Stops Short Selling of Bank Shares, Sept 18
FSA statement on short positions in financial stocks, Sept 18
With options expiring tomorrow, it looks as though something had to be done
after the SEC's new "naked short selling" rules failed to initiate a strong rally,
especially in financials, as can be seen in these charts: Dow, Brokerage Index,
Banking Index. Or was just a random event on another ordinary day?
SEC Stiffens Short Selling Rules Amid Market Turmoil, Sept 17 '08
SEC Issues New Rules to Protect Investors Against Naked Short
Selling Abuses, Sept 17 '08
In the heat of a market meltdown, we should stop and ask, "Are the markets
dropping as the natural consequence of destroying the dollar for decades and
the collapse of trillions in complex, opaque, illiquid debt instruments or because
of the 'naked short sellers?'"
In Riders on the Storm, our research paper on short selling, we addressed this
very accusation, noting that when shorting rules were revised in 2006, the door
was left open for those who short illegally. If today's action is an honest attempt
to restore the integrity of our markets, we applaud the SEC's efforts. But, with
this change, like the emergency order of July 15th, being initiated within days
of options expiration, we cannot help but ask, "Why now?" It is far more likely that
the markets' turmoil of the last 2 weeks is the result of long investors making
sell decisions on real financial information.
A Bailout for Lehman? Not Likely, Sept 12 '08
Washington Mutual Shares Sink Below $2 on Capital Concerns, Sept 11
After the largest bailout in history on Monday (Fannie and Freddie), institutional
investors and fund managers holding financial stocks were met with the more
bad news from a 158 year old investment house and the largest credit union in
the country. And still the Dow closed the day less than 1.8% below its January
2008 bottom of 11,634. What's wrong with this picture?
Ospraie to Shut Flagship Commodity Hedge Fund, Sept 02 '08
When "one of the largest commodity funds in the world," which generated
annual returns of 15% for eight years,loses 38% by the end of the first eight
months of this year, we should be asking, "How can I prevent something like
this from happening to me?" As I continue to state, this is not business as usual
or a typical bear market, but one that is historically unprecedented.
SEC paves way for switch to international accounting system, Aug 28
FDIC: 117 troubled banks, highest level since 2003, Aug 28 ‘08
UK House prices face a plunge of 10.5%, Aug 29 ‘08
Bank of China flees Fannie-Freddie, Aug 28 ‘08
As we head into a relaxing Labor Day weekend, the SEC seeks to change from a
national to an international accounting system, the FDIC notes the largest
number of troubled US banks since 2003, the UK housing market is in its
sharpest price decline in 18 years, and China’s fourth largest bank is selling
$4.6 billion in Fannie and Freddie bonds. Is globalization progressing smoothly?
Will nations share each others pains with the same fervor as they shared gains?
I.O.U.S.A.: Live with Warren Buffet, Pete Peterson, and David Walker
On Thursday, August 21st, this documentary will be shown in over 400 theatres
around the US. If you're in a position of leadership or if your decisions have a
financial impact on others, I encourage you listen to the perspectives from some
of the highest levels of leadership in the US.
Unemployment at 4-Year High, Aug1
S&P/Case-Schiller: May Home Prices Fell at the Steepest Rate Ever, Jul29
July retail sales data show stimulus fading, Aug7
American Bankers Assoc. Reports Increase in Card Delinquencies, July 2
With headlines like these, we should be asking a ton of questions and making
changes to address this major shift in credit.
Dow Gets 331-point Boost, August 5, 2008, CNN Money
Sadly, many market pundits look for a story that fits the market's daily direction,
since they have no time to do any research. The article must go to press almost
instantly after the markets move. If the markets move up or down the next day,
they look for a new story to explain that day's movements. This has created
an environment where comments have no connection with a series of events or
any longer term trends.
If you look at the history of the NASDAQ, you will find that the most powerful up day
in the history of the NASDAQ was not in 1998 or 1999, but almost 9 months into
the decline, on January 3, 2001.Did the rally stay?
Right now, I would be watching reports from the FDIC on bank closings,
companies accused of destroying tapes by attorney generals, and broad trends
even if they are painful to watch and are not in your neighborhood.
Missouri Officials Probe Wachovia in Saint Louis, The Bond Buyer,
July 18, 2008
"Hundreds of Missouri investors have called my office because of inability to
access their money." I continue in utter amazement at the lack of tough questions
coming from investors regarding the safety and security of their money.
While this headline is quite alarming, these comments are certainly not the first
concerns about the auction rate securities markets. I pulled our February
newsletter in order to find a reference to an article in the
Financial Times of London on Feb. 14, '08, Warning over Auction Rate Securities:
"The auction-rate securities market, a $330bn slice of the municipal bond
sector, could disappear if the credit squeeze remains entrenched, analysts
warn. 'The auction-rate securities market is unwinding and most of the market
will enter a failed state,” said Alex Roever, fixed-income strategist at JPMorgan.
'The lack of confidence is the contributing factor and there is a risk this type of
structure will go away.' "
During a global credit contraction, something none of us have lived through,
you must force yourself to address the painful realities of the financial world
you depend on, before those painful realities become your own.
Click here to subscribe to our ongoing research, where we are always asking,
"What question should we be asking right now, that others are not?"
Federated Investors, Inc Announces Strategic Acquisition Involving the
Prudent Bear funds and the Hire of Key Investment Professionals,
July 15, '08
On December 5, 1996, Alan Greenspan presented his famous "Irrational
Exuberance" Speech. Just three months prior, David Tice opened Prudent Bear.
One man took no action to prepare for the end of a credit fueled mania, the other
did. We would like to congratulate David Tice and his crew for today's milestone,
but even more for his contribution to education of our Congressional leaders, as
well as investors the world over.
If you are searching for a manager to help you navigate these very dangerous
times, I would strongly encourage you to read Traits of an Excellent Manager,
taken from our industry research paper on short selling, Riders on the Storm:
Short Selling in Contrary Winds [Jan06]. In this section you will hear from some
of the most highly recognized names in the world in regards to short selling.
Paulson Sees Fannie, Freddie Share Purchase, 'Only If Necessary', July 15
Paulson Seeks Authority to Shore Up Fannie, Freddie, Bloomberg,
July 13, '08
"Treasury Secretary Henry Paulson swung the weight of the Federal Government
behind Fannie and Freddie.." Now with a weekend of intense talks about what
needed to be done to stop the hemorrhaging at two Government Sponsored
Entities, both stocks went from opening up 32 and 16 percent respectively, to
closing by the end of the day down 5 and 8 percent. Yes folks, that was the stock
fluctuation on two entities that hold or back 5 trillion in mortgages, about half the
outstanding mortgage debt in the United States. Now contrast that number to the
total outstanding public debt in the US. Finally contrast these numbers with the
monthly trend of the banking sector over the last decade versus the Dow.
Maybe we should be asking the Chinese how they are emotionally reacting to
their own market decline versus reading worthless articles dismissing the
historical risk facing us all. If you are asking tough questions, click here to
subscribe to The Investor's Mind: Anticipating Trends through the Lens of History.
John Templeton, billionaire philanthropists dies at 95, Int'l Herald Tribune,
July 8, 2008
Recently I spoke with a individual in the industry who stated, "A year ago, no one
could have seen the credit crisis that has unfolded." Well as one of my heroes
passes, leaving the world without his commentary, I would like to share with
you what one piece of history tells all investors, YES we all could have seen
it if we chose to answer tough questions ahead of the event rather than react to it.
"I do think it's interesting that in all my 92 years of life, I've never seen a time
when it was so hard to find a bargain." Sir John Templeton in Feb '05, and
found in section 7, "Now, About that Bubble", found in our research paper
Riders on the Storm:Short Selling in Contrary Winds. Jan '06.
In the next few years, investors are headed for a market structure that in 95
years of life, Templeton never saw. See "Blueprint for a Modernized Regulatory
Structure", a report released by the US Treasury in March 2008.
MBIA and Ambac Socks Financials, CNN Money, June 20, 2008
Last Thursday, before investors in the global capital markets learned of
MBIA's credit rating being lowered by Moody's, the stock closed at 6.45.
Today, June 23rd, MBIA stock is falling hard. However, if you will review the
following chart, you will understand why we like to ask questions BEFORE
we learn about events in today's papers.
If you are interested in patterns we have uncovered over the last 3 years, click
here to subscribe to The Investor's Mind: Anticipating Trends through the Lens
of History.
Goldman Sachs Does it Again, CNN Money, June 17, 2008
According to this article, Goldman Sachs has the Midas touch. But, those
concerned with future earnings may want to consider little details - like
"leveraged loan issuance falling 74% in the first quarter while loans backing LBOs
plunged 88 percent." Or, consider Doug Noland's June 13th Prudent Bear article,
noting "Asset Backed Securities Issuance is running at 27% of its comparable
level from 2007. Home Equity ABS Issuance is running at $303 million compared
to 2007's $184 billion. Year-to-date CDO issuance of $13.8 billion compares to the
year ago $208 billion."
Citigroup leads drive to hurt Taxpayers, Bloomberg, May 9, 2008
Banks Say Auction Rate Investors Can't Have Money, June 9, 2008
When city and states have to pay $5 to $10 million to Wall Street to get out of
investments they were sold by Wall Street, while banks and brokers prohibit
individual investors from selling "safe-as-cash" investments the investors were
sold by the same, should we be confident? What other questions are investors
not asking because they are afraid to investigate?
Chinese Shares Fall to 15 month low, China Daily, June 13, 2008
When Jim Rogers released his book, A Bull in China, last December, we released
an article titled, Fear & Perception, warning investors of the bearish implications of
the crowd psychology, which fueled the parabolic rise in the Shanghai. While I
respect Rogers, parabolic spikes all too often end with specific outcomes.
MBIA, Ambac Credit Ratings Under Threat at Moody's, June 4, 2008
Bloomberg
After you read the article that is linked above, you may want to test your sanity:
- Should investors be concerned about Moody's possible downgrades of the two largest bond insurers in the U.S. from Aaa, the safest rating, to Aa, the next safest rating? Answer: No. MBIA's and Ambac's stocks have already fallen 91and 97%, respectively. At least in these two instances, Moody's ratings have proven useless .
- If buy and hold investors have lost massively on these two stocks, have mutual fund managers sidestepped the damage? Answer: No. Click Ambac or MBIA to see if your mutual funds are exposed to these stocks.
- What will happen to the US equity markets if these companies go under? Answer: Though downgrading these two companies would cause all of the bonds they insure to be downgraded, causing a massive margin call on all the over-leveraged products built upon these bonds, until reality sets in, the boys at mission control will promise to loan more money to bolster the markets in hopes of maintaining investor confidence.
If you're already asking tough questions, click here to join The Investor's Mind. If
you're wondering who knew about the problems at Ambac and MBIA before they
imploded, read this article about hedge fund manager, William Ackman. Click here
to read a sample of our research, released to our paid subscribers on April 23rd.
After looking at charts of these collapsing stocks, I asked my 9th grade son to give
them a rating. At least he had enough sense to "give them a Z."
The (Mis)behavior of Markets, 2003, Dr. Benoit Mandelbrot, renown 20th
century mathematician who discovered fractal geometry
"From 1986 to 2003, the dollar traced a long,bumpy descent against the
Japanese yen. But nearly half that decline occurred on just ten out of 4,695
trading days. Put another way, 46 percent of the damage to dollar investors
happened on 0.21 percent of the days. Similar statistics apply to other markets.
In the 1980s, fully 40 percent of the positive returns from the Standard & Poor's
500 index came during the ten days - about 0.5 percent of the time."
As you consider Mandelbrot's Joseph and Noah Effects - lots of small changes
followed by a few huge ones - review these two charts.
Tice Proves Every Bear Has Its Day, Invokes 'D' Word, May 21, 2008
Bloomberg
In the fall of 2005, David was kind enough to give me his insights for our research
paper, Riders on the Storm, Short Selling in Contrary Winds. And while many
economists are praising Mr. Bernanke for taking bold steps to remedy the credit
crisis, talking as though "the worst is behind us," the FDIC raised its reserves by
370% in the first quarter of this year in anticipation of bank failures. Through the
newly established Term Auction Facility, the Fed loaned $75 billion on May 6th
and an additional $75 billion this Tuesday, May 20th. So, is the credit crisis really
behind us?
Pouring billions of short-term loans to the very ones who created this mess is
going to end very badly, no matter how many yes men praise the actions of the
Fed. If David's comments conflict with others in the mainstream financial world,
there is a reason. I encourage you to take a moment to learn from David and other
renowned contrarians in the fourth section of our research paper titled, Traits of an
Excellent Manager, which can be found on the Sample page of our website.
I also encourage you to visit Recent Updates, found on our home page, to read
our latest article,The Day Free Market's Died. The second half of this research
article is available to our paid subscribers.
Fed Revs Up Lending in Latest Jolt to Credit Market, May 2, 2008
Bloomberg
Since December of 2007, the Fed has gone to extraordinary measures to keep
the debt markets functioning. The Fed's new Term Auction Facility has increased
its lending from $20 billion, in December, to $150 billion a month. While the Fed
only accepted Treasuries as collateral before December, they have since allowed
mortgage-backed securities and are now accepting bonds backed by credit card
debts and auto loans as collateral. The Fed has even evoked a Depression Era
law to loan money to our troubled brokerage houses since early March. No
wonder the Fed is low on reserves. All this while the Dow is only 8 percent off its
high. What changes have your made with your investments and reserves that
address these rising risk?
Since this period in monetary history will only intensify, and the Dow closed above
the psychological level of 13,000 on May 1, I have placed these three pieces for
everyone viewing our website right now.
- Unlimited Wealth or Unlimited Debt, Best Minds Inc. May 2, 2008
- A New World Order: Explorers, Speculators & Debt Managers, the February 2007 issue of The Investor's Mind
- Factors Adding to Reserves, a Chart prepared on Apr 30 2008 by David Kotok, Cumberland Advisors, revealing the changes in composition of the Federal Reserve's reserves since the summer of 2007.
In the midst of this madness, let me encourage you to pick up a copy of a
more humorous book, The Worst-Case Scenario Survival Handbook.
Staying Alive, April 18, 2008, Doug Wakefield with Ben Hill
With the NASDAQ up nearly 5 percent and the Dow and S&P 500 up nearly 4
percent for the week, many investors are ready for reflation, thinking the markets
have signaled, "All clear," even as billions in losses continue. Yet, it is only a
matter of time before real world fundamentals devastate those investors who
have lulled back into complacency by two soothing words: "bail out."
Emergency Plans, April 11, 2008
Over the past 4 years I've spent thousands of hours researching and writing
about the grains of instability in our global financial markets. When Cambodia
bans rice exports for two months due to a 50 percent rise in price over the
same time, while Dubai builds a mall the size of 50 football fields and cars sell
for more than $1 million in the US while housing prices get hammered, we know
that the global markets are reaching an unsustainable juncture.
This is no time to follow the "expert," and that includes myself. Now is the
time to take any advice and think for yourself. Sadly, many have outsourced their
thinking to the various leaders. As you contemplate joining our ever-growing
group of subscribers, download our September 2006 issue of The Investors's
Mind, Too Costly To Bear. It is even more pertinent now than it was at its release.
Fed's Rescue Halts a Derivatives Chernobyl, March 24, 2008, International
Herald Tribune
When the US Treasury Secretary comes out with the "biggest overhaul since the
Great Depression", granting even more power to the Federal Reserve, correct
me if I am wrong, but doesn't this sound like massive socialism? Do you
remember what happened AFTER Sir Alan started cutting rates on Jan. 3, '01,
the day that the NASDAQ shot up 14%? Are the individuals who provided all the
cheap credit through historically low interest rates, the same "rescuers" today?
Let me also encourage you, if you have not taken a hit from the ongoing
financial storm, keep reminding yourself that losses are only statistics until they
are your own.
If the recent sell off in metals, oil, and commodities has made you
realize how fast things can change in this environment, I would encourage
to check out our research Taking time to look at trends over years, while building
those trends on the basis of math, history, and crowd psychology, continues to
place our readers AHEAD of turning points.
Crisis of Confidence Includes Consumers, March 17, 2008, Gallup
When you read that one of the largest brokerage firms in the US experienced
"an old fashioned 'run on the bank' ", and that the Fed is working to "stabilize" the
situation by expanding the government's role as fast as the debt markets are
losing money in the private sector, is there a reason to be quickly looking at other
investment strategies besides buy and hold?
If you have not changed from your basket of buy and hold investments, you may
want to consider the following:
- Are you asking tough questions to your bank regarding the safety of you cash reserves? If not, why not start now?
- If fashions change, tides come in and out, and weather changes, would it not be prudent to look for trends to come to an end?
- With almost every economists now espousing that we are either in or going into a severe recession or even a depression, how long will it take you to gain back your investments in the months ahead should markets decline sharply as history teaches?
- If your advisor is not familiar with the tool known as short selling, then just have them call Goldman Sachs after reading this article we posted last fall. In fact, do some homework, and google "inverse or bear funds."
As Bill Fleckstein stated recently in Gretchen Morgenson's column in the NYTimes, "We are a Bailout Nation". I don't know about you, but that does
not sound sustainable. To subscribe to a publication that has been
asking questions since Janaury 2006, click here. Our content has moved
to weekly from monthly as of March 1, 2008 due to the speed of
government intervention, and the extreme loss of historical perspective.
Israel on High Alert as end of Mughniyeh mourning period
draws near, International Herald Tribune, March 16, 2008
As we head into Easter weekend, let us not forget that March 22nd marks
the end of the 40 days of mourning, according to Islamic custom, for the world
renowned terrorist, Imad Mughniyeh. Fearing a large scale attack, Israel has
placed its military and embassies on high alert and has cautioned Jewish
institutions the world over to do the same.
JPMorgan Scoops up troubled Bear, CNN Money, March 17, '08
Foreign Investors Veto Investors,International Herald, March 17, '08
According to the OCC, JP Morgan has the largest derivatives exposure of any US
bank. When a company like this purchases Bear Stearns, one of the US's top
five brokerage houses for $2 a share, when Bear traded at $170 a share in
January of '07, should we be surprised if the Dow or the S&P 500 drops
substantially in the next few weeks or months? Destroying the dollar looks to be
running out of favor with the international community. Those that haven't started
asking some very hard questions of their money managers may pay the ultimate
financial costs.
Bear Sterns Nosedives on Rescue Plan, CNN Money, March 14, 2008
New Treasury Securities Lending Facility, Federal Reserve Press Release,
March 11, 2008
"Have no fear! The Government is here!" - intervening in our "free markets,"
creating "solutions" to the havoc their reckless credit policies helped to create.
You may recall that on December 12th of 2007, the Fed announced that in
working with the other central planners of the banking world, they had come
up with a new facility, the Treasury Auction Facility, which could lend their fellow
bankers up to $40 billion over 4 auctions.Now we have another new facility with
$200 billion to lend to the same.
While this has created a sea of financial acronyms, those with the least bit of
common sense can easily identify the pattern. Bill Laggner explains this new
development in light of real world losses. When a $3 billion hedge fund with a
2005 gain of 41 percent, gets hit with $1 billion in redemptions since January
of this year, we'd best sit up and take notice. And it might not hurt to develop an
exit strategy ...now.
FDIC: Bank Reserves not keeping pace with delinquencies, Feb.26 '08
Inman News
"Federally insured banks and savings institutions saw fourth-quarter earnings
plummet 83 percent - their lowest levels since 1991 - and failed to boost loss
reserves as fast as borrowers became delinquent on loans, the FDIC reported
today. Loans 90 days or more overdue were up 32.5 percent in the last three
months of the year - the largest quarterly increase in the 24 years that the FDIC's
been collecting that statistic."
After you read this article, review the first two pages of the pdf titled, Quarterly
Banking Profile, found on our Research page, and review this FDIC-produced,
short film titled, Overview on Deposit Insurance Coverage. Then consider what
99 percent of market participants never have: namely, if an economic slowdown
causes losses to continue to mount, where will the FDIC get the reserves to pay
off banks that go under? Thinking individuals are asking these questions now.
Searching for the next Dubai, February 22, 2008, CNNMoney.com
If you don't understanding the world we live in, this article shows us one reason
why. While California, New Jersey, the New York Port Authority, and now
Florida schools are choosing between cash flow problems or offering higher
interest rates, because big banks are pulling out of a $330 billion portion of our
municipal bond markets, desolate places, like Djibouti, East Africa, are receiving
$800 million dollars to build tourist attractions from Middle East companies like
Dubai World. Now, what's wrong with this picture? More importantly, have you
thought through the thousands of factors that could impact your financial life,
and have you developed strategic plans for this "transitional" period in history?
If not, I encourage you to consider diving into our research.
Syria Vows to Strike Back at Israel, February 15, 2008, DEBKAfile
On February 13,
Mughniyeh, one of the most lethal terrorist of the last twenty
years, was killed in a car bomb. In reaction, Lebanese, Iranian, and Syrian
leaders call for a war on Israel. If the "humanitarian crisis" in Gaza looked like
war preparations, Mughniyeh's death is the excuse to start it. The last three
weeks contain many parallels to the weeks leading up to the Six-Day War in
June 1967. As we seek to stay abreast of this developing crisis, I encourage
you to compare your news sources with those of www.debka.com. As this
situation heats up, those living in a democracy or republic should investigate
Walid Phares latest book, The War of Ideas: Jihad against Democracy.
Trading in CDOs slows to a trickle, February 11, 2008, Financial Times
"Just three CDOs worth a total of $1.3bn were sold last month - one in the US and two in Asia - compared with 37 deals worth $22 bn in January 2007,
according to analysts at Morgan Stanley."
In the June 2006 issue of The Investor's Mind we stated the following
with a chart on the derivatives growth from the Office of the Comptroller
of the Currency: " The credit derivatives market has grown at 75 percent per
annum from $55 billion to $5,472 billion in little over eight years. The OCC's
stated objective is, 'To ensure the safety and soundness of the national
banking system.' The more we find out about the derivatives market, the more
likely we are to question whether they're achieving their goal."
If you are just now coming to grips with the foundational problems in our
capital markets, and have never taken a hard look at the history of the financial
world, let me strongly encourage you to take a crash course by reviewing our
more than 2 dozen lessons written since Jan. 06. A current subscription,
allows you access to the past 2 years of our research. Denial of our current
juncture is only going to become more costly.
Rescuing Monolines is Not a Long Term Solution, February 7, 2008,
Bill Gross
The last 2 weeks have truly produced some incredibly blind denial. I have heard
bears (not bulls), with extensive knowledge of our financial markets, state that
the Dow Jones Industrial's low of 11,634 fulfills their forecasted low for 2008 so
they were tentatively calling this the bottom for the year. But Gross's article
(above), the Fed's report that credit card borrowing slowed from an annualized
pace of 13.7%, in November to 2.7%, in December, and January's retail sales figures - the worst since 1969 - tell me that we are just months past an
historic top, with no sign of an historic bottom in sight.
If you want to know why the declines in equity markets since October will cripple
long-term, buy-and-hold investors, take our "crash course" and see what history,
psychology, and science have been warning us about for years. Those who
ignore these areas of study and instead trust "experts" and fallacious theories,
could pay dearly for their lack of thinking. Click here to join the group of curious
minds who turn to our research.
Societe Generale trader wanted to be a star, officials say,
January 28, 2008, International Herald Tribune
With the January 22nd and 23rd window of relief, pundits have tried to explain
our previous steep sell off. Some suggest the $7 billion a trader at a French
Bank lost, triggered the sell off, while others contend that it was the bailout of
two of the largest bond insurers in the industry, who together insure more than
$2.5 trillion in debt. Or maybe these are simply two more stories reflecting an
ongoing credit contraction that is unresponsive to cheap credit. In fact, this
Sacramento article shows that the more bureaucrats try to intervene by lowering
rates, again, the more they compound the problem they helped to create.
U.S. Stock Futures Point to Major Decline on Re-Open, January 21,
2008, CBS Marketwatch
As investors continue moving from greed and complacency to fear, only a few
market commentators have discussed the possibility of accelerating declines.
Similar to the logic-defying force of the crowd on the way up, are the downside
adjustments that coincide with the crowd's realization that the force of nature
has never been overcome by new financial schemes.
The following quote, by Dr. Benoit Mandelbrot, discoverer of fractal geometry,
is found in our September 2006 newsletter, "Too Costly To Bear:"
"The size of price changes clearly cluster together. Big changes often come
together in rapid succession, like a fusillade of canon fire; then come in
minor changes, like the pop of toy guns."
If you are accepting anyone's opinion of what the market will do in the future,
without critically questioning that opinion (this includes us, too), you are setting
yourself up for failure. 2008 is already proving how unforgiving markets can be.
UBS to launch global warming derivatives index, January 9, 2008,
Financial Times
Those who think global warming is just a political discussion, fail to understand
Wall Street's product manufacturing mentality. The more debt central bankers
produce, the more new products roll off the shelves. We shouldn't be surprised
by their lack of familiarity. Nor should we be surprised by the many investors who
claim they never understood all the risks that came with the highly-rated and
highly-leveraged credit instruments that have been unraveling since mid-2007.
China Property Bond Risk Rises to Record, January 11,2008, Singapore
Property Press
With all the negative US real estate market headlines, it is easy to miss the fact
that this great credit mania has dramatically impacted property values and risks
from China to New Zealand to England to such off-the-beaten-path places as
Kazakhstan.
Fed to Lend $60 Billion to Ease Credit Crunch, January 4, 2008,
CNNMoney.com
With the markets rattled and fear rising, the Fed announces that they
will increase more short term loans starting with the next auction on January
14th. Investors should also note the much larger extension of short term
loans announced today by the European Central Bank.
RBI Permits Shortselling by Foreign Investors, January 1, 2008, Hindustan
Times
Much like the elimination of trading curbs and the short-sell, plus-tick rule in the
second half of 2007, in the US, India is now allowing institutions to sell short on
a limited basis. While the efforts of legal short sellers improve the quality of
information on companies they investigate, our research, in "Riders on the
Storm," considers the timing of these changes? Whether one employs short
selling or not, knowing the history of short selling, during and after prior manias,
will prove useful to us all.
The Shadow Knows, Bill Gross, December 2007 Investment Outlook
When Blackstone, one of the largest private equity dealers in the world, notes
a "reluctance of big banks to lend," and the world's largest bond manager, Bill
Gross, states that "Fed ease has lowered Treasury yields, but for the rest of the
market — the segment that influences the bottom line of U.S. corporations,
homeowners, and consumers — not much has changed," we can be sure that
a crisis is upon us. When we consider the effect this is already having on state
and municipal revenues, we begin to glimpse how widespread the impact from
the credit mania turned bust will be.
Hog Wild for China, Fortune, December 24, 2007
"In 2007, [China's] current account - a broad trade balance - will register a $400
billion surplus, about 12 percent of gross domestic product. That's up from $21
billion, or 1.7 percent of GDP, in 2000.
As a share of GDP, China's surplus is
'triple Japan's level in the 1980s when Japan-bashing was at its peak.'"
Though I respect Jim Rogers' long-standing public criticism of the credit bubble,
our research of global equity markets, manias and operational problems, see
our Fear & Perception article, suggests that China's trend is nearing its end.
"These Are Not Normal Times," LA Times, December 20, 2007
When Treasury Secretary Paulson uses the words "market failure" seven times,
while President Bush urges Wall Street to come clean on the amounts of their
mortgage related losses, while Wall Street's biggest banks decide they don't
need the superfund that was necessary to maintaining liquidity only two months
ago, we can all agree with Paulson's observation: "these are not normal times."
$9.4 Billion Write-Down at Morgan Stanley, International Herald Tribune,
December 20, 2007
When a major financial company announces that it will take a "$9.4 billion
charge on subprime-linked investments for the fourth quarter", and its stock
climbs almost 7% in the first hour of trading, while another major financial
company announces a $2 billion loss, and watches its stock fall 35% in an hour
of trading, is there be any doubt as to why investors are dumbfounded on how
stocks work? The difference, of course, is one of these firms received a "$5
billion cash injection from a Chinese state-run investment fund."
Citi moves $49 billion onto balance sheet, December 13, 2007,
CNN Money
China, Playing It Safe, December 11, 2007, RiskCenter
As they simultaneously try to address overvalued markets and contracting credit,
central bankers’ have taken dramatic actions in the fall of 2007. In an attempt to
maintain our current market and economic circumstances, the U.S. Federal
Reserve has cut the Fed funds rate three times since September 17th, while, for
the tenth time as of December 10th, the People’s Bank of China raised the
amount of funds their banks are required to keep in reserves to 14.5 percent.
If we apply geometry and physics, what can we tell about the future directions of
the Hang Seng, the Shanghai, and the Dow? To find out more, click here to
subscribe to The Investor’s Mind. Then read our August and September 2006
issues and our Major Markets and Major Players spreadsheets, which show
trends on a range of global markets.
FAS 157 Could Cause Huge Write Offs, November 7, 2007, CFO.com
CDOh no!, November 8, 2007, The Economist
In our September 2006 newsletter, we used sand pile studies to discuss the
inter-dependence of individuals within the markets, noting that "the motion in
one grain can induce motion in thousands of others." As default rates on
subprimes continue to accelerate, banks, brokers and insurers are taking huge
losses and bond issuance has fallen 65 percent from last year. When we are
overwhelmed our natural tendency is to deny that our corner of the world will be
impacted. We must not allow this tendency to go unchecked.
NYSE Eliminates Trading Curbs Dating Back to 1987, October 29, 2007,
Bloomberg
On July 6, 2007 the SEC removed the uptick rule for selling stocks short, which
came into existence after the 1937-1938 bear market that took the Dow down
over 47 percent. After Black Monday in 1987, trading curbs were put into place.
What can we learn by observing the timing of these rule changes?
The Alarming Parallels Between 1929 and 2007, October 2, 2007,
Robert Kuttlner, Congressional Testimony
Indian Stocks Pare Declines After Trading Halt; Rupee Recovers,
October 17, 2007, Bloomberg
Credit Card Debt is Ready to Blow, October 10, 2007, Baltimore Sun
David Rosenberg, North American Economist for Merrill Lynch, reports that
over the last 6 months credit card debt in the US has risen at a 17 percent
annualized rate while home equity balances slowed to a near zero growth rate.
If you read this article and my lastest posting on the Research page, you will
understand that insanity and risk are going parabolic.
ECB, Bank of England Hold Rates Steady, October 4, 2007,
Associated Press
China raises rates five times this year, and its markets are up. The US quickly
cuts rates two times, and our markets are up. The Bank of England and the
European Central Bank hold rates steady, and their markets are up. If you don't
see a correlation, it's because there's not one. Markets are controlled more by
perceptions, of how others will react to central bankers' actions, than they are by
central bankers' actions.
Investors to Fed: Thanks for Nothing, September 28, 2007, Allan Sloan,
CNNMoney.com
As Dr. Robert Shiller, Professor of Economics at Yale, stated in his 2005 book,
Irrational Exuberance:
"Another aspect of overconfidence is that people tend to make judgments
in uncertain situations by looking for familiar patterns and assuming that future
patterns will resemble past ones, often without sufficient considerations of the
reasons for the pattern of the probability of the pattern repeating itself."
Subprime Panic Freezes $40 Billion of Canadian Commercial Paper,
September 25, 2007, Bloomberg
As we noted in our public article, "What Lies Beneath," defaulting mortgages
are causing the commercial paper market to seize. Many companies who lent
their money in the commercial paper market are not receiving their principal
back upon maturity. As potential lenders lend less or not at all, this will intensify
the liquidity crisis.
Goldman pulls off profit despite subprime woes, September 20, 2007,
MarketWatch
One thing most investors forget when talking about the short side of the
market is that your big brokerage houses use short hedging strategies as part
of their market operations. Evidently, some players know how to do this better
than others.
Paulson Sees No End To Credit Turmoil, September 11, 2007, Reuters
How can the US Treasury Secretary state, "This is far and away the strongest
global economy I've seen in my business lifetime," on July 11th, and then state
that he sees the current credit crisis impacting confidence longer than any
previous shock of the past two decades? Does this include the Long Term
Capital's 1998 implosion and the stock market meltdown from 2000-2002?
Panicked Customers Rush to Withdraw Savings from Northern Rock,
Sept 14, 2007, International Herald Tribune depositers
A Liquidity Squeeze - Banker's Mistrust, August 16th, The Economist
With the inability to distinguish good borrowers from bad ones, many banks
have become unwilling to lend to each other. It's not just the risky hedgies they
must worry about, but money market funds nowadays. As the Fed and central
banks the world over, continue to inject liquidity and the Big 4 step to the Fed
window to take it, a panic rush to safety still ensues. Nouriel Roubini gives an
excellent explanation as to why the uncertainty continues, with his last three
paragraphs showing the extent of the leverage employed and how some money
markets have assumed severe risks.
Fed Statement on 50 Basis Point Rate Cut, August 17, 2007, CNN Money
"Financial market conditions have deteriorated, and tighter credit conditions
and increased uncertainty have the potential to restrain economic growth going
forward". Compare the urgency of adding more "liquidity" versus this statement
from the Franklin D. Roosevelt in his New Deal Radio Address in May 1933:
"Mere appeals from Washington for confidence and the mere lending of more
money to shaky institutions could not stop this downward course."
Now compare Roosevelt's words with those from the 77th annual report
issued by the Bank of International Settlement on June 24, 2007.
"There seems to be a natural tendency in markets for past successes to lead
to more-risk taking, more leverage, more funding, higher prices, more collateral
and, in turn, more risk-taking."
Is adding liquidity a short term band aid, or a long term solution? If you think
this is just academic theory, I implore you to check out Riders on the Storm:
Short Selling in Contrary Winds. Can you think of a more timely item to learn?
With the intense emotional feelings that occur during large price swings, I would
encourage you to download and read this piece by Dr. Janice Dorn, The Trading
Doctor. Dr. Dorn was interviewed for the December 2006 issue of The Investor's
Mind.
Booming Equity Markets Attract More Money, August 9, 2007, China Daily
Let's connect the dots from a real world perspective. Our human nature is
to buy in AFTER the good numbers are posted, and the better the numbers, the
fewer the questions. Let's look at one of the most explosive markets of the world
in the last two years and see if we can see this pattern. The money supply,
that is, the debt that can be created out of thin air by a central bank, has grown
by 18.5% as of July 2007 on a year-over-year basis. This has forced consumers
to use more of that freshly printed credit to purchase items, due the mystery of
"inflation". But that's not all. Since investors have the innate ability to buy based
on stories of PAST returns, what better story to sell that the Shanghai's rise
over the last 2 years, a major beneficiary of the credit boom. At some point the
reality to this scheme starts to sink home, that an explosion of credit has some
very painful side effects when markets return to earth, and skeptical thinking
becomes more vogue than the feeling from mania wins in the "casino".
Subprime Loan Crisis May Impact Some Chinese Banks, August 8, 2007,
China Daily
BNP Paribas [a French bank] Suspends Funds Because of Subprime
Problems, August 9, 2007, International Herald Tribune
Credit Risk- The US Subprime Collapse Spreads Into Germany,
August 9, 2007, Risk Center
China Threatens "Nuclear Option" of Dollar Sales, August 8, 2007,
UK Telegraph
Young Going Crazy For Credit, July 19, 2007, China Daily
"A survey conducted by Daily Business News showed that by the end of this year
China will have 60 million credit cards, 80 percent issued after 2005." Note the
connection between the growth of China's money supply over the last five years,
as noted in the Asian Development Bank's Outlook 2007, the Shanghai Stock
index's explosion since the summer of 2005,and the People's Bank of China's
decision to raise rates for the third time this year.
Bear Stearns Tells Investors No Value Left, July 18, 2006, Bloomberg
Today, after the fifth largest brokerage firm in the country stated that $20 billion
in 2 of their hedge funds, containing securitized subprime mortgages, collapsed
such that one has no value and the other only 9 cents on a dollar, most investors
and advisors are still unaware of the effect this will have on our markets.
Iran Asks Japan to Pay Yen for Oil, July 13, 2007, Bloomberg
For those who were familiar with the material contained in our March 2006
issue: Oil and Water Do Not Mix, this event came as no suprise. However,
the history of oil and money in Iran [Persia] has a long history prior to the
development of the petrodollar in 1973. An overview of this history was
presented in our January 2007 issue: Persia-Fuel for the Fire.
The Greatest Economic Boom Ever, July 12, 2007, CNN Money
"'This is far and away the strongest business economy that I have seen in my
lifetime,' U.S. Treasury Secretary Hank Paulson declared on a recent visit to
Fortune's office." Compare this statement to that made by former Bank of
England Governor, Eddie George, as noted in the March Investor's Mind.
"In the environment of global economic weakness at the beginning of this
decade ...external demand was declining, and related to that, business
investment was declining. We only had two alternative ways of sustaining
demand and keeping the economy moving forward- one was public spending
and the other consumption.
We knew that we had to stimulate consumer spending. We knew we had
pushed it up to levels which couldn't possibly be sustained into the medium
and long term. But for the time being, if we had not done that, the UK
economy would have gone into recession just as the US did."
Dow spikes 283 points, July 13, 2007, ContraCosta Times
While various media pundits try to explain the reason for the Dow's recent
explosive day and move towards 14,000, what should investors and advisors
make of the fact that Standard & Poor's stated that it would lower the rating of
612 bonds, and Moody's stated that it would downgrade 399 bonds, before the
explosive day. The sad reality is that it was not a mystery.
Looking for Contagion in All the Wrong Places, July 2007, Bill Gross,
PIMCO Investment Outlook
Paulson: Housing 'at or near bottom', July 2, 2007, CNN Money
BIS Warns of Great Depression from Credit Spree, June 25, 2007,
UK Telegraph
"Virtually nobody foresaw the Great Depression of the 1930s, or the crises
which affected Japan and southeast Asia in the early and late 1990s. In fact,
each downturn was preceded by a period of non-inflationary growth exuberant
enough to lead many commentators to suggest that a 'new era' had arrived."
For more details, see the Conclusion to Bank of International Settlement's 77th
Annual Report on our Research page.
SEC: 12 Debt Probes Underway, June 26, 2007, CNN Money
"The Securities and Exchange Commission has opened 12 investigations
into collateralized debt obligations (CDOs) linked to the sinking subprime
mortgages." With the recent developments at Bear Sterns, is this a harbinger
of higher markets? If we're in the early stages of investigating the CDO markets,
the developments that led to the Sarbanes-Oxley Act could be instructive. Bear in
mind, the month Sarbanes-Oxley was signed into law, was also the month that
saw the largest stock fund redemptions in the 2000 to 2002 crash. But hey, why
study history, right?
Merrill Sells Assets Seized from Bear Sterns, June 21, 2007, CNN Money
Bear Stearns' Hunt for Big Cash, June 13, 2007, BusinessWeek
In what looks like another crack in the sub-prime dam, Bear Stearns is
attempting to sell $3.86 Billion worth of mortgage-backed bonds to raise the
cash it needs to bail out its own
High-Grade Structured Credit Strategies
Enhanced Leverage Fund. In a case of he-said-she-said, after a questionable
first quarter, this fund, with leverage of 3 to 1, is down 23 percent for the year and,
with investors looking to withdraw half the fund's assets, suspended investor
redemptions. For those who wonder how this mess will turn out, we need look
no further than Kevin Duffy's most recent article.
G8 Agrees to Reach Global Warming Agreement, June 10, 2007,
Environmental Leader
Though global warming gains more and more headlines, is this trend in the
earth's temperature really that unusual? As big business and global government
lead the charge to stop CO2 emissions before we "destroy" the world, no one
seems to be asking whether this is the most pressing issue facing the U.S. and
the globe. Yet, with all these [in]vested interests, I am sure that this issue is here
to stay.
Greenspan warns China stocks primed to fall, May 24, 2007, CNN Money
"It is clearly unsustainable. There's going to be a dramatic contraction at some
point." China's national stock exchange grew at an annualized pace of 70
percent, then contracted, then grew at an annualized pace of 291 percent, then
contracted, and has most recently grown at a annualized pace of 526 percent. So,
why should Greenspan's comments be considered anything out of the norm?
Today, May 30th, 2007, the Shanghai Composite closed down 6.5 percent. A
number of days ago, this same index suffered a one-day decline of 8.8 percent.
Now I ask you, was this decline a result of my May 23rd, 2007article on parabolic
rises, Greenspan's comment on March 24th, or, more likely, just one more grain
of sand on a large, unstable sand pile built by mammoth amounts of credit?
Not the Markets of the 1990s, May 18, 2007, Doug Wakefield
Dow Jones Islamic Global Indices , Chicago Climate Exchange,
Weather Futures: Chicago Mercantile Exchange,
NewsFutures Prediction Market, TradeSports Exchange
These markets didn't even exist in the 1990s, yet we need to be aware of
them. As the rampant expansion of credit fosters “financial innovation,” a whole
new group of markets has come online with which no individual, institution,
market maker, or government has any long-term experience. This flood of new
financial alternatives certainly doesn't fit with the traditional buy and hold
investment models.
Disclaimer: Since I have no experience with any of these specialty markets, this
is not intended as "investment" advice for these exchanges or their products, or
their appropriateness as part of a "balanced" portfolio.
Stock Buying Fever Grips China, May 10, 2006, China Daily
Since the Dutch Tulip Mania of the 1630s, parabolic rises have always ended
badly.
Jeremy Grantham: All the World's a Bubble, April 27, 2007,TheStreet.com
The World Islands, Ten Real Estate
New Jersey Diverts Billions of Dollars From Pension Fund, April 4, 2007,
China View
The Richest City in the World, March 12, 2007, CNN Money
A-Share Accounts Daily Opening at 90,000, January 26, 2007, China Daily
The China Securities Depository and Clearing Corporation noted individuals are
opening an average of 90,000 new accounts a day, compared to an average of
2,708 new accounts per day in January 2006. The Shanghai Stock Exchange
Composite Index rose from 998, on June 6, 2005, to 2993, on February 15, 2007.
Does this have an effect on the number of new accounts?
Merrill Lynch Sounds Alarm on Global Liquidity, February 6, 2007,
Telegraph
When I took my first course from the College of Financial Planning, in 1985, an
illustration of economic cycles was part of our basic teaching on risk. Yet
throughout the '90s and since 2000, I'd not seen an illustration on economic
cycles. It was as though, in the forum of "conventional" finance, cyclicality had
ceased to exist. Seeing the chart in this article took me back to 1985.
World Economic Forum
Modern Marvels: Engineering Disasters - Teton Dam, History.com
What could financial engineers learn from talking with civil engineers? Does
nature have any lessons for market participants today?
New "Warehouse" for Derivatives, November 17, 2006,
Ellen Silverman, Risk Center
"It is the first time that a centralized 'warehouse' of this type has been
created in the 'over-the-counter' derivatives sector," which will make it
possible to "record, monitor, and help process trades in the credit
derivatives markets." With the new CDO's, in the article below, and a $26
trillion credit derivatives market, I am glad that someone has finally been
able to put together a 'centralized warehouse.' Better late than never. You
may also want to read the July issue of The Investor's Mind.
New CDO Uses Leverage to Counter Narrow Spreads
Inside Moody's: Structured Finance, Winter 2006
Just when you thought leverage couldn't expand any further, the boys in
product development roll out some new toys. Read this and the "Global
Derivatives Explosion" article under our Research tab, and then ask
yourself if this tool is suitable for any investor, sophisticated or otherwise.
Near a Housing Bottom? November 8, 2006, Paul Kasriel
David Lereah, Chief Economist for the National Association Realtors,
states that the recent NAR survey results indicate a stabilizing market.
Lereah states, "the worst is behind us as far as a [real estate] market
correction." Riders on the Storm contains an August 2005 LA Times
Lereah quote, stating "If you paid your mortgage off, it means you
probably did not manage your funds efficiently over the years. It's as if you
had 500,000 dollar bills stuffed in your mattress - very unsophisticated."
GAO Chief Warns Economic Disaster Looms, October 28, 2006,
Matt Crenson
David Walker, Comptroller General of the United States and chief of the
Government Accountability Office (GAO), is touring the nation in a
Fiscal Wake-UpTour to try to draw attention to the unsustainability of our
nation's current fiscal policy.
"The ship of state is on a disastrous course, and will founder on the reefs
of economic disaster if nothing is done to correct it."
Market Risk - World Regulators Focus on Derivatives October 4,
2006, Ellen J. Silverman, RiskCenter
“Officials from Britain’s Financial Service Authority, the Federal Reserve
Bank of New York and SEC want to tighten up derivatives markets, where
explosive growth in recent times has fueled fears of potential financial
disaster.”
Raising the Volume: The Explosive Growth of Exchange-Listed
Options in the U.S. September/October 2006, Jim Binder
“After a year of no growth at all in 2002, year-over-year options volume
rose by 16% in 2003, 30% in 2004, and 27% in 2005. In contrast, the
combined stock trading volume of the New York Stock Exchange and
NASDAQ actually declined by 3% in 2003, then rose by just 6% in 2004,
and 4% in 2005. More recently, stock market trading accelerated in the
first half of this year, with volume up 16% over the same period last year.
That still falls far short of the growth rate in the options business, which
rose 45% in the first half of 2006.”
An Inflection Point in China's Banking Problem, June 6, 2006,
Dr. George Friedman, Stratfor
China's booming economy has lead many to overlook the "small"
problem of its non-performing bank loans. This changed in May, when
some highly visible organizations came out with reports revealing the size
and scope of bad loans in China's banks. Clearly, China's banking
industry has reached "an inflection point."
A 'Fiscal Hurricane' is on the Horizon, November 14, 2005, USA Today
Comptroller General of the United States, David Walker states, "we face a
demographic tsunami" that "will never recede." It seems gloom and doom
is no longer relegated to the lowly. Indeed, pessimism has reached a
lofty perch.
Federal Reserve Statistical Release, Discontinuance of M3,
November 11, 2005
Effective March 23, 2006 the Federal Reserve will stop reporting M3. Since
this measure of the money supply has expanded by $1.2 trillion in the last
24 months, and $430 billion in the last 5 months, it is not difficult to guess
why this has occurred. Never fear. We can still extrapolate the information
from the governments quarterly flow of funds report which contains 93
other reports.
The King of Real Estate's Cashing Out, October 25, 2005,
CNN Money
"Tom Barrack, arguably the world's greatest real estate investor, is
methodically selling off his U.S. real estate holdings as prices drive the
market to nosebleed levels." Just one more warning signal for those
caught by the mania.
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