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As vacation
season approaches in the Untied States
and Canada,
the task of reading should give way to looking at pictures to tell a story,
or gazing at scenery from a lodge or campground, or lazy afternoons at the
beach. Among the many stories out there in the financial ethos, the one that
strikes as most important is the bank sector. The selective enforcement of
restrictions on shorting bank stocks sticks out like a child suffering
acromegaly (Frankenstein disease) in deformity. Its blatant criminality has
given the US
financial sector its latest (and not last) black eye. This one is a loud banner
of corruption waved for the entire world to see, put in the open. In fact,
one can easily make the argument that price controls have finally come into
the open. More on this in the August Hat Trick Letter. For the financial
sector, price controls elevate prices of various securities. The Plunge
Protection Team routinely rescues the S&P500 stock index, while JPMorgan
routinely lifts the price of USTreasury Bonds of many types. The price
controls, now in the open, will gradually find toeholds of political support
in the tangible economy, like with gasoline and heating oil, if not natural
gas. The issue of survival is critical, for home heating, as shutoffs are not
acceptable. The upcoming widespread price control movement is a cinch, a
lock, a guarantee to be seen. It ensures grand grotesque shortages to be
suffered in the USEconomy, resulting in eventual rationing. The forced ration
programs will invite violent response, growing disorder, and eventual chaos.
An endless recession is what my forecast calls for, as the nation gradually
slides into conditions leading to martial law. The irony in my view is that
the US
public will beg for martial law in a return for order.
The
syndicate in power, widely entrenched in criminal enterprise (both financial
and black market trafficking), which has assumed control of the USGovt
administration and security organizations and military, might not wish to
pass the power baton. Business is too good. They might relish and even
salivate at the prospect of martial law. Gold and silver prices will love it,
since the banks cannot thrive or even remotely recover in such a limited
business opportunity environment. In fact, Wall Street banks have only one
business left, managing their demise, as stock and bond issuance has all but vanished.
Hatemail continues to my inbox, without much acknowledgement that my forecast
in 2006 of a destroyed insolvent US
banking system being correct. The bank conditions will lead to growing chaos,
a pathogenesis few seem capable to discern.
Few people
can also foresee that the many bank bailouts planned for the US
national corporate structure make certain a continued decline in the
USDollar. With a continued weakening of the USDollar comes greater cost
pressures throughout the strained USEconomic landscape. The bankers with
their bailouts are buying time before the next US
November presidential elections. Whoever wins will have a single agenda: to
manage crisis, not to enact new policy. Crisis removes the luxury of an
agenda via mandate. A national energy independence program is a great idea.
Let’s see if the syndicate in power, which is beholden to military and
energy firms, is willing to pursue other energy solutions. The US
is dead last among industrial nations for pursuit of unconventional energy apparatus
development, with neither nuclear nor natural sources deployed to any
meaningful degree. So, the US Federal Reserve encouraged industry to depart
our shores and to build an entire economy upon a housing bubble, complete
with the reckless insanity of a risk price model in the process of
dissolving. So, the Wall Street banks served to destroy the bank system
viability, a result of their reckless lending and fraudulent bond package
sales on a global basis. So, the big oil firms served to destroy the energy
system viability, by preventing almost all efforts to diversify. Thus is the
basis of my conclusion that the US
is slowly being recognized as a failed state, in a march to Third
World status. A puppet government head and compromised Congress
enabled the devastation. Even people here in Costa
Rica almost daily ask me how the Untied
States managed to ruin its country. My experience is that taxicab drivers,
shop keepers, and head waiters at restaurants (all eager to discuss matters)
in Costa Rica are better informed about the USEconomy, the US banks, and US
leaders than the American public!!!
Let’s
do a quick survey of various markets and price indexes, in order to gain
insight on the conditions. This autumn should be chockfull of volatile events
and reactions. One must be prepared. Desperate measures are being put in
place. Shocking events lie on the horizon. People can smell something is
awry, but they seem hopeless in identifying the problem sources. A very
appropriate quote will lead the August Hat Trick Letter in the Macro Economy
Report, a quote by French philosopher Voltaire, not the fellow who enjoys
golf in Atlanta with his privacy, whose caddy is an angel.
BANKER
QUARTERLY OPEN WINDOW
Notice the pattern. For each
quarter, reality strikes as the end approaches right through to the actual
reporting during the first month of each three-month period. Look at the
succession of three-month periods. A bear triangle was crystal clear in the
second quarter, identified in my public articles, as the Q2 came to a close,
leading to a breakdown in the third month of that quarter. A breakdown
occurred also at the end of 3Q2007 last summer. Look for a pennant pause
pattern to be revealed this quarter, as more curiosity has entered the room
that questions whether the worst in bank loss writedowns has occurred. The
pattern to me is clear: each quarter is worse than the previous in terms of
stated bank losses. Finally, my summer 2007 forecast of over $1 trillion
in bank losses has come to be embraced. The IMF, Bill Gross, and Nouriel
Roubini each have cited that lofty figure. The problem is that it is still
low. Try $2 trillion. Why, for Lord’s sake, Fannie Mae and Freddie Mac
alone will rack up $1.5 trillion in losses by themselves. Look for a truly
fierce defense of the bank stock sector, which is facing annihilation and
total ruin. As the mortgage giant cesspool continues to gain trucked (honey
wagon) relief, gold & silver will thrive. In the business of septic bank
service, they call them the Honey Wagons. As banks continue to spiral down,
gold & silver will thrive.
CITIGROUP
FLOOD SOON
Word has it that both Citigroup
and JPMorgan will soon flood the credit markets with horribly impaired asset
backed bonds. They are giving up to find fools in the hedge fund community
and sovereign wealth fund centers. The Merrill Lynch sale at a mere 22 cents
per dollar par value on CDO bonds (leveraged mortgage bond in-securities) is
a widely seen signal that huge additional bank loss writedowns are coming.
Citigroup is due to write down another $8 billion in losses just to remain
consistent with Merrill, the first to get realistic. While Wall Street
rejoiced that Merrill Lynch had come clean, or cleaner, it overlooked how the
rest of Wall Street remains entrenched with balance sheet lies and colossal
deceptions. The Citi chart is not in any way shape or form a picture of
recovery. Not even able to climb above the 50-day moving average, it seems
doomed to enter single digits. It publicly wears the contradiction of
maintaining a dividend while seeking cash to replenish its core balance sheet
as it sells capital. Those who deny the doomed fate of Citi are not based in
reality. As banks continue to spiral down, gold & silver will thrive.
FANNY
MAE LIFELONG VERY THIN
For almost all last summer and
autumn and winter and spring, Fannie Mae & Freddie Mac avoided the public
spotlight. That was a remarkable feat, since banks were going bust on balance
sheets, entering insolvency. My guess is that recent stress tests revealed
the principal nexus of weakness, enough to ruin the entire US
bank system permanently, was Fannie Mae. Perhaps foreigners like China
have threatened to dump Fannie Mae bonds of all type. With good reason,
Treasury Secy Paulson avoided any cited estimate of eventual USGovt bailout
amount for Fat Fannie. The true number is between $1.0 and $1.5 trillion.
That estimate only anticipates an 18% to 27% writedown in their entire
combined $5.3 trillion book of business. That figure seems low, given the
other financial firm disasters in progress. So the eventual tab for
Fraudulent Fat Fannie might be closer to $2.0 trillion. The recently passed
bill to help homeowners and mortgage lenders out of their bind is again
woefully inadequate, the same bill that authorizes a more formal bailout for
Fannie Mae itself. My forecast all this spring was for a succession of
bailout programs, culminating in a grand New Resolution Trust Corp, led by
Fannie Mae, despite its gross insolvency, despite its massive corruption,
despite its worsening financial foundation atop an acid pit. The New RTC will
come to pass, perhaps not before the last month of 2009 next year. As this
vast centrifuge of readily available mortgage finance funds is again revved
up, and patched up for its grand acidic leaks, gold & silver will thrive.
LONG-TERM
USTREASURY YIELDS CEILING
By far the most corrupted,
interfered, out of whack, distorted, and crucial market is the USTreasury
complex. It is absolutely critical for maintenance of power by the Ruling
Elite. They collect bonds and earn yields from them, also from spread
positions. They order the massive printing of USTBonds illicitly by JPMorgan,
and use their devices to maintain a price cap on the cost of money. The vast credit
derivatives rely on the ongoing suppression of the USTBonds in order not to
explode, implode, melt down, and otherwise eradicate every single financial
entity know to Western humankind. In my recent article about “Long-Term
Bond Paradox” many factors were cited as to why the long-term
USTBond yield was likely not to explode upward. The main reason has to do
with the fact that higher prices are almost uniformly on the cost side of the
ledger, as labor wages are kept down from globalization forces. This simple
reasoning eludes over-educated and incompetent US-based economists. JPMorgan
stands as the gatekeeper to prevent any inconvenient rise in long-term bond
yields, ready with a printing press, standby orders from the USFed, available
offshore illicit agencies to hide their garbage can, and impunity from proper
disclosure. The biggest eyesore on the US
financial landscape is clearly JPMorgan, the chief architect and purveyor of
the Fascist Business Model that embraces a tight corrupt bond between state and
large corporations. The Model includes energy firms and defense contractors
also, to be sure.
Notice that the 10-year
USTreasury Note yield (TNX) really does not want to be above 4.0% in an
uncomfortable position. The rise in the TNX all spring long coincided with a
decline correction in the gold price, due in my opinion from drains by the
USFed on the private sector banking system. One must subsidize Wall Street
bailouts with private sector funds, a grotesque welfare system to benefit
billionaires. As monetary presses begin to work not just for Wall Street
benefit, but also for general public homeowner benefit, gold & silver
will thrive.
An
interesting note to put on the announced Gross Domestic Product. The 4Q2007
stated GDP was revised to MINUS 0.2% today. The GDP for 1Q2008 was 0.9%, a
feeble number. The GDP for 2Q2008 was just released, a fiction-ridden
estimate of 1.9%, again weak. The investment community continually is
bombarded by fictional GDP data. To begin with, it is laced with hedonic
nonsense, which double counts technological advances like anti-lock brake
systems for cars, faster processors for personal computers, and better
screens for televisions. All nonsense, all fiction. Nobody feels a lower
perceived price due to a nifty added feature when a higher price is paid.
Then past GDP data is usually revised downward, so that corrections toward
reality are in the rear-view mirror, and attention can be better paid to the
most recent fiction written for the latest scripted quarter. The financial
markets are thus never tied to reality, but to the fictions. The truth is
that the USEconomy has been mired in a recession for all but two or three
quarters since year 2001. The “rice & beans” handout in the
USGovt stimulus package is largely depleted, having run its course. The truth
is that the USEconomy has been in recession by 2.0% to 2.5% in slowdown for
the last two or three quarters. The rising energy prices, rising food prices,
rising foreclosure events, falling home prices, and strictures among bank
lending all make it a slam dunk that the recession will worsen.
GOLD
& SILVER AT CRITICAL SUPPORT AGAIN
Try as they may, the power
center with the increasingly desperate gold cartel as their agent to suppress
the gold price, are losing their grip. The banking system insolvency was bad
enough, but now the rescue of Fannie Mae has undermined the already weakened
state of the USDollar. Finally, the US homeowners will begin to benefit from
the largesse of the USGovt via home loan assistance and other measures soon
to be implemented. Up to now, the primary beneficiaries to the USFed bond
swaps have been Western banks, in a grand elite welfare program to stave off
financial ruin to billionaires. They have the ear of USGovt officials, or
else control with puppet strings. Next comes the rescues for the public, who
are under siege during the worst Middle Class erosion and depletion in modern
history.
Gold will find continued
support around 910, even from the 50-day moving average (in blue). On July
30, a remarkable sequence occurred. The silver price did an impressive
reversal, going below 17 but closing over the 17.50 mark. See the impressive
move on Wednesday. Gold followed silver, a day later. My forecast is
for silver to break above the critical 21 resistance level before gold breaks
above the critical 1020 level. THE HEAVY CORROSION TO THE USDOLLAR IS
ABOUT TO ENTER A VERY DAMAGING PHASE. The autumn season is near, when the
gold and silver bull markets realize some seasonal breakouts. By year end,
gold should be near 1200 and silver near 25. One big reason why so many
shenanigans are being played with banks and the USDollar, is that the gold
favorable season is near in arrival. As the USDollar is undermined during a
multi-faceted corrosive process and the season arrives, gold & silver
will thrive.
EURO
AT CRITICAL SUPPORT AGAIN
The euro
currency is in the middle of a big battle. The economic slowdown interferes
with additional Euro Central Bank rate hike justification. The price
inflation they are concerned about seems misplaced, since most of it resides
on the cost side of the ledger. They might pursue cost reductions from the
euro currency, a discount from a favorable exchange rate. Their oil price
falls from a rising euro and steady crude oil price in US$ terms. Look for
the euro to split into a Core Euro and Latin Euro, as discussed in the July
Hat Trick Letter, a bold proposition to be sure. The euro correction has just
about finished, on the wane. As the euro regains its footing, and continues
higher versus the beleaguered USDollar, gold & silver will thrive.
COMMODITY
INDICATORS SHOW STRAIN ON BULL
The great
commodity bull market is under strain. For over two years in the Hat Trick
Letter, my analysis has centered on what are called the Three Amigos. The
crude oil price, the copper price, and the Baltic Dry Index to measure
shipping cost serve as excellent indicators. Back in 2004, my forecast
was for the commodity bull market to hit a wall after the Beijing Summer
Olympics concluded. That might turn out to be correct. The Baltic Dry Index
has come down significantly. The crude oil price has begun a correction. The
copper price is under strain. My Three Amigos will continue to be monitored.
Asia cannot lead the global economy alone, with the Middle East oil producing
nations. The crude oil price will continue to be supported by a very weak
USDollar. The eventual disintegration of the Arab-led defacto petro-dollar
standard will force the USDollar lower, when the Saudis lose faith in their
US masters, or when the Saudis lose patience with the USGovt-led protection
racket. Accepting US$-based transactions for crude oil payments simply cannot
continue, since it is too stupid and reckless from an Arab perspective. As
consumers capitulate and the USGovt stimulus packages become a series of
desperate measures, thus undermining whatever integrity the USDollar has
left, commodities will continue up in price, and gold & silver will
thrive.
CONSUMERS
LAST GASP FROM USGOVT “RICE & BEANS”
US consumers
cannot be expected under any rational experiment to support the entire
USEconomy. They burned their homes in order to sustain economic growth, but
that Greenspasmodic chapter is closed. The dispatch of the US manufacturing
centers to Asia crippled the Untied States and its economic future, like the
removal of a commercial spinal column. Back in year 2003, Sir Alan Greenspasm
endorsed this insane experiment as valid, claiming the USEconomy could be
supported from rising household balance sheets atop the housing boom.
Inflation does not legitimize balance sheet rise. What incredibly heretical
philosophy worthy of permanent banishment from all banking positions for
life! The US consumer is exhausted, kept afloat for a couple months from a
USGovt flimsy stimulus handout package. The trend is clear. The consumer
cannot draw any more money from home piggy banks. The consumer is in trouble
with job security, as 200 thousand jobs are shed each month, despite what
fiction the USGovt producers among its creative accountants. As consumers
capitulate and the USGovt stimulus packages become a series of desperate
measures, thus undermining whatever integrity the USDollar has left, gold
& silver will thrive.
THE
NEW MISERY INDEX
Misery is
not in short supply in recent months. The future prospects of the Untied
States look rather bleak. Lies continue on the jobless rate, which is near
10% if you prefer to count those without jobs. Lies continue on the price
inflation side also, which is near 13% if you prefer to count things that
people purchase to carry on the functions of life. As people continue to take
body blows on their financial stores, they will increasingly turn away from banks
and toward other more reliable investments. The bank runs represent the
flipside manifestation of the panic association with such misery. As this occurs, gold & silver
will thrive.
GENERAL
MOTORS CONCURRENT INDICATOR
A primary
pillar of any economy is its transportation system and manufacturing
structure to sustain that system. It produces a large number of jobs, from
the main vehicle construction first and foremost, but also from the numerous
other supporting industries working in the vertical integration. For a few
years, the vertical integration of the housing industry supported the grossly
imbalanced and permanently distorted USEconomy. Economists practicing their
alchemy inside US boundaries failed to realize that houses are not productive
assets where commerce is conducted, once completed. How utterly mindless!
General Motors is heading toward a total collapse. The higher gasoline prices
serve as the most recent death blow. Their absurd pension payment plan to
retirees is another two-ton millstone around the company’s neck. GM has
already seen the beginning of the nationalization in a USGovt guarantee
contract. More bailout measures will be seen. The race is on to see which
will fail first as a financial entity, Fannie Mae or General Motors. The
USEconomy has become a total joke, a farce, a charade of mismanagement,
corruption, labor union pressures, an abandonment to foreigners, and mindless
outsourcing by the elite to undermine the workers. As the nationalization
movement broadens, and its effect on the troubled USDollar becomes more recognized,
gold & silver will thrive.
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Jim Willie CB
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Jim Willie
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Jim
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