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Good Morning Readers
As I was about to post this a 7.1
"aftershock" has hit the northeastern coast of Japan. A tsunami
wave of three feet is expected.
The good news is that the Congress reached a
deal on a budget. The sad reality, however, is that for all of the circuses
that the media played out to sell us toaster ovens, newspapers and air time
to keep us distracted the debt jumped $54.1 Billion in the 8 days
preceding the Obama-Boehner Deal to cut $38.5 Billion for rest of year. The
media, Congress and President Obama are taking victory laps and telling us
that this compromise is a sign of the resiliency of the American system. It would
be all be worthy of a Fellini farce if it was not so sad. As I write this we
are 14 trillion dollars in debt and every minute the clock ticks off we grow
8 Billion dollars deeper into debt. Let’s look at the pathetic reality.
We have to borrow forty three cents out of every dollar that we use to pay
our expenses. Simply put we are reaching insolvency. Moreover, 50% of our
population pays no taxes. The revenues to pay our national debts are coming
out of the hides of the middle class, the wage earners and the small businesses.
Please do not be distracted by the ambient noise of the media. Breaking News!
There may be no football this year. Do I really care if there is no football?
We are being sidetracked by irrelevant issues. We are spending ourselves into
a financial quagmire! Do you find it somewhat pathetic that the media never
mentions these basic truths for our survival?
Last week, my wife bought me the DVD
“Inside Job”. There has been little or no mention of this
documentary in the media. In this documentary Nouriel Robini was asked why
there has been no investigation into how the world has come to this point. He
answered “because then we would know who the culprits are.”
President Obama ran on a promise of change. Where is the change? We have the
same foxes watching the chicken coop that got us into this mess. Robert
Gnaizda wasGeneral Counsel and Policy Director for the Greenlining
Institute based in Berkeley, California. He is a
graduate of Columbia
College of Columbia University and Yale
Law School, he has been known as an advocate of social justice for over 40 years.
He called President Obama’s administration “a Wall Street
government.” Some of the more prominent players in today’s
administration are:
· Timothy
Geithner is the Treasury Secretary before that he was President of New York
Federal Reserve.
· William
C. Dudley is the President of New York Federal Reserve before that he was the
Chief Economist of Goldman Sachs.
· Gary
Gensler is the Head of the Commodity Futures Trading Commission before that
he was a Goldman Sachs Executive.
· Mary
Schapiro was the Head of the Securities and Exchange Commission and was the
CEO of FINRA she is now the Investment Banking Industry’s Self-Regulation
Organization.
· Larry
Summers was President Obama’s Chief Economic Advisor until he stepped
down to return to Harvard, before that was Treasury Secretary, President of
Harvard University and Chief Economist at the World Bank to name a few of his
jobs.
· Henry
Paulson was Treasury Secretary in the Bush Administration before that he was
Head of Goldman Sachs. When he left Goldman Sachs to become the Treasury
Secretary he had (by law) to sell his shares in Goldman Sachs and walked away
with $450 million dollars tax free.
· Ben
Bernanke was a tenured professor atPrinceton University and was
chair of the Department of Economics there from 1996 to September 2002 and
was mentored by Alan Greenspan. He then took over the role of head of the
Federal Reserve, a position he still holds.
These men were the moving force behind the
deregulation of the laws that controlled Wall Street. What follows is a short
synopsis of how this shell game worked.
Historically, banks that loaned money to home
buyers kept those loans, and bore the risk of default. Thus, banks had an
incentive to make sure borrowers repaid them. This is one reason why banks
required a down payment. It also is why they charged subprime borrowers
higher rates. Over time, however, with the advent of deregulation banks began
bundling mortgage loans together into pools known as residential mortgage backed
securities (RMBS). Large institutional investors, such as pension funds,
bought these RMBS. Because the RMBS included a diverse pool of mortgage
loans, they were deemed to be safe investments. The credit rating agencies
gave these RMBS their highest ratings of “AAA.” Now, investors
– not the lending banks – bore the risk of default. Next, banks
began bundling these RMBS together in a second kind of pool known as
collateralized debt obligations (CDO). The banks and rating agencies used
complex computer models to determine what portion of a CDO could be labeled
AAA. The rating agencies then gave AAA ratings to large portions of CDOs,
even though the mortgage loans backing the CDOs were subprime.
Subprime-backed CDOs were popular, because they had high credit ratings and
paid high returns. Finally, as the number of CDOs grew, it became harder to
find enough new subprime loans to back new CDOs. The credit default swap
(CDS) was a tool to enable banks and investors to bet on subprime RMBS and
CDOs, without actually owning anything. Instead, CDSs were side bets on
whether home borrowers would default. CDSs are one of a type of financial
instrument known as derivatives, because their value is “derived”
from the value of the underlying asset (in this case, home mortgage loans).
Financial institutions used CDSs to place trillions of dollars of bets. Last
night I watched this movie for the fourth time and it is just beginning to
sink in. The Ponzi scheme that was perpetrated on the public by the financial
institutions makes Madoff look like Mickey Mouse. If you have not seen this
movie, “Inside Job”, I suggest you buy it because watching it
once will not be enough to completely understand the depths of the deception
that was perpetrated on the world in the name of greed. President Obama,
where is the change? As I have already said we have the same foxes watching the chicken coop that got us into this
mess.
As my readers know, I am not an economist. I
have no degrees from Yale or Harvard. I am simply a middle class man that
worked hard his whole life to do the best I could to raise my family. As my
regular readers know, I like to say “you don’t have to be a
weatherman to know which way the wind is blowing.” In 2004, I saw this
economic tsunami coming and I sold my business and my real estate holdings
and because my children were grown, out of college and on their own my wife
and I bought a small home and downsized our lifestyle. I took up the passion
to learn about the workings of the stock market. I read everything I could
get my hands on. Excuse me while I digress but I have found a great web site http://Abesbooks.com. The reason I recommend Abesbooks.com is because you can purchase
some of the most important financial writings by some of the greatest minds
of all time for pennies on the dollar. The reason I want to own these books
is because I often refer back to them. I have now built my own financial
library (still a work in progress) and I now have a degree in the stock
market from the “University of Hard Knocks.”
The reason I spend hours a day writing this
letter or “blog” is to try and help people stay ahead of the
debasement of the U.S. and world currencies. My readers know I like to quote
Jim Cramer by saying there is always a bull market somewhere.” What Mr.
Cramer leaves out is there is always a bear market somewhere. When I started
looking for what I like to call “What’s Next?” I thought
about the fact that Dr. Bernanke had put the printing presses into high gear
and so far has injected 14 trillion dollars into the economy. That means that
what used to cost $1.00 now costs $3.00. My brother told me a story that he
was driving by the supermarket and he thought I haven’t had a good
apple in months. He pulled into the super market and picked out a beautiful
Red Delicious apple. He brought it up to the register and the girl weighed it
and told him that would be $2.46. Imagine $2.46 for one apple. If you have
read history you know that Precious Metals i.e., Gold and “Poor
Man’s Gold” (Silver) have always been currency. I knew this was a
bullish sector. A study of the GLD ETF chart will bear out that Gold is just
starting it’s breakout into new highs. Two other gold stocks I
like are US Gold (UXG) and International Tower Hills Mines (THM).
I read about the fact that China exports 97%
of the worlds Rare Earth Elements (REE’s). I soon read that China had
decided to cut its exports by 35% and two weeks later changed that to 50%. To
add insult to injury they decided to add a hefty tax for their exports of
REE’s. I knew this was the sector to be in. There are several stocks
that are ripe for profit. They are Ucore (UURAF), Avalon (AVL), Lynas Corp
(LYSCF), Western Lithium (WLCDF) and General Moly (GMO). If you go back in
the archives you will see that I have explored all of these holdings. Today
is the beginning of earning season so the next few weeks will be very
interesting. Be sure to Stay Tuned for further Updates.
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