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The horror of this
financial crisis continues to grow.
The debate continues
over bailing out the auto industry. What do you think? If a
bailout occurs it will only be the first in a never ending line of industries
seeking help. The world is now quickly changing and moving with a determined
force we have not witnessed in our generation or the generation before.
Any of you out there
have teenagers? Wow! For years when my own were young I wondered what
was the big deal? What human being could change so dramatically in just a
very short period of time? But childhood is followed by puberty and puberty
is followed by hell (the teenage years.) It is frustrating because we
see the same mistakes we made at their age. And we want to warn them
and to prepare them but for the most part they want to experience the true
rewards of failure themselves. They just don’t want to listen to anyone
once that magical age of 13 is reached. Their minds become as hard to crack
as turtle shells. And inside is only mush and toxic waste. Failed
derivatives. Oh, do I have a teenager? Watching the financial world
disintegrate before my eyes is often easier than trying to understand a
simple teen.
I just heard a
financial commentator on CNBC state that the “buy & hold “
strategy does not always work because many stocks now are less than they were
10 years ago. I actually heard the man say that there may be times when it is
appropriate to sell. I understand the President elect is negotiating to keep
and to continue using his Blackberry. An ABC blogger voiced the following
opinion.
“If he follows
through on some of the things he is talking about, I am liking this guy more
every day.” “I for one am willing to give the guy a chance to
succeed or fail on the merits of his plan and his staff.” Blogger, ABC
Well, unfortunately,
with the US debt now rising by vast multiples there just may not be anything
left soon to continue to manage. We’re all going to the poor
house.
“The Fed is
basically printing money.”
I hear that quote
repeated continuously on the news cable stations. 7 new trillion newly
pressed American US dollars. At least the reality of the monetary rescue plan
is being grasped. All printed new money with nothing backing it. The mortgage
rate dropped a full half a point last week. So what does this matter to
someone who has lost his job? Or totally become overwhelmed with a debt load
that has become totally unmanageable? A little money is being spent out there
in market land. I bought a 32 inch Samsung for a great give away price. This brand has the little big button on the bottom and in the middle of the
TV. The button makes this model a definite buy.
Paul Volcker -
"What this crisis reveals is a broken financial system like no other in
my lifetime…” "Normal monetary policy is not able to get
money flowing.” “The Empire State index of manufacturing dropped
to minus 24.6 in October, the lowest ever recorded. Paul Ashworth, US
economist at Capital Economics, said business spending was now going into
"meltdown", compounding the collapse in consumer spending that is
already under way.” “Mr Volcker…warned that it is already
too late to avoid a severe downturn even if the credit markets stabilize over
coming months.” "I don't think anybody thinks we're going to get
through this recession in a hurry…” "There has been
leveraging in the economy beyond imagination…”
telegraph.co.uk/finance/economics/3474683/Volcker-issues-dire-warning-on-slump.html,
11-17-2008
I get tired of the
big 3 automotive industries blaming the American auto worker for their
financial problems. If this argument is allowed to run its course the
inevitability of wage price caps will become middle class reality. Kind
of reminds me of how economic problems were attempted to be settled as the Roman Empire sank into near bankruptcy in the 3rd century. Their proposal was to
force all work to become hereditary. What your daddy did you will do also. So
much for ambition. And the only way out was to become a monk and join a
Monastery. And remember in 1971 when then President Nixon imposed his
much applauded (then) wage and price controls? An abject failure.
Let’s first talk about these over paid bonuses the executives are
getting for poor and failing performance.
“In a move
widely applauded by the public and a fair number of (but by no means all)
economists, President Nixon imposed wage and price controls.” “The
initial attempt to dampen inflation by calming inflationary expectations was
a monumental failure.” econreview.com/events/wageprice1971b.htm
Events we have
become accustomed to for 30 years are now collapsing and unfolding right
before our eyes and our wallets. Self improvement or self denial? Often, we
have to lose everything to see what we have got and what is important. Obviously,
the typical consumer world wide in civilized nations is waking to the reality
that depression and economic chaos is not merely a long forgotten ghost from
the past.
“Fifty-four
more US banks added to 'problem list' “The Federal Deposit Insurance
Corp. said Tuesday the list of banks it considers to be in trouble shot up
nearly 50 percent to 171 during the third quarter - yet another sign of
escalating problems among the institutions controlling Americans'
deposits.” “As the FDIC report shows, the number of hobbled
institutions is rising at a quickening pace, a trend that has already begun
to reshape the banking industry.” “This quarter, the pace appears
to be picking up - nine banks have already failed since Sept. 30, including
Downey Savings and Loan Association, based in Newport Beach,
California.” biz.thestar.com.my/news/story.asp
How I remember well
the many, many times I heard and read just a few years ago that our financial
system had safe guards today and we were immune from economic chaos. When I
heard that I always had visions of the Titanic. We’ve entered an era
that no one really believed would ever arrive in our life times.
“Citigroup
says gold could rise above $2,000 next year as world unravels. Gold is
poised for a dramatic surge and could blast through $2,000 an ounce by the
end of next year as central banks flood the world's monetary system with
liquidity, according to an internal client note from the US bank
Citigroup.” “Citigroup said the blast-off was likely to
occur within two years, and possibly as soon as 2009.” “Gold
has tripled in value over the last seven years, vastly outperforming Wall
Street…”
telegraph.co.uk/finance/comment/ambroseevans_pritchard/3526645
Because this day has
arrived and is staring us directly in the face it is difficult to write about
it. The growing pain and loss is being felt all over the world by rich and
poor alike. Castles made of sand being washed away by an incoming tide. What
companies are now doing well? Dollar General’s stock is near a 52 week
high. Wal-Mart continues to see an increase in profits. Hedge fund assets are
still falling and falling. 100 billion lost in October alone.
"The use of a
growing array of derivatives and the related application of
more-sophisticated approaches to measuring and managing risk are key factors
underpinning the greater resilience of our largest financial
institutions" Greenspan, May 2005
Well, I’m glad
to see an “underpinning the greater resilience of our largest financial
institutions." But while Greenspan was praising the use of derivatives
and hedge funds just a few years ago one senator was warning the world almost
a decade back.
“This bill
will, in my judgment, raise the likelihood of future massive taxpayer
bailouts.” “…if you want to gamble, go to Las Vegas. If you want to trade in derivatives, God bless you.” North Dakota Senator
Byron Dorgan, 1999
And what about the
new attention being focused on America’s finest delicacy…SPAM? The
demand for cheap and inexpensive spam is growing by leaps and bounds. Employers
are working around the clock in 24 hour shifts to keep the kitchen cabinets
filled with America’s defined escargot.
“…Hormel
is cranking out as much Spam as its workers can produce.” “But
these days, consumers are rediscovering relatively cheap foods, Spam among
them.” “We’ll probably see Spam lines instead of soup
lines.” nytimes.com/2008/11/15/business/15spam.html
And what about the
giant Citigroup? Citigroup, the nation's second largest financial institution
is on the brink of failure. The 45 billion poured into it by our
government is a mere pittance of its 40 trillion in derivatives and credit
default swaps. This bank is huge with over 2 trillion in deposits
alone. When this bank goes bankrupt it will be a nightmare in the
markets. If the government truly wishes to save this monstrosity it will take
a great deal more than the trifling 45 billion poured into it thus far. Did
you know that women were primarily responsible for the growth of middle class
prosperity in our generation?
“…the
real earnings of families in the middle have risen only
slightly…” “The meager income growth that these
families have experienced has come not from hourly wages, but rather from
growth in the labor force participation of married women.” Robert
H. Frank, “Falling Behind”
The middle class
really hasn’t seen real monetary growth these past 20 or so years. More
a pseudo type of artificial prosperity. The extra “wealth” has
come from equity loans, overtime, second jobs, and/or a wife holding down an
excellent paying job. Do you really believe we have seen an increase in true
wealth these past decades? Well, consider the following below.
“…the
net worth of the median household remained virtually unchanged between 1989
and 1999, a period during which the total net worth of American households
nearly doubled.” Robert H. Frank, “Falling Behind”
So, if incomes remained
the same for these years where did the money come for these more expensive
houses we see in every new subdivision? Easy question to answer.
Debt. A great deal more debt than the previous generation ever acquired.
Wow! We talk about the rich getting richer and the poor getting poorer
and this is a fact. During around 1980 and 2000 the bottom 40% of households
saw a reduction in net worth of over 25%. And what about the top 1% of our
privileged society? They saw an increase of over 40% of their net worth. The
rich get richer. The poor get poorer still. Around 1980 there were 13
billionaires. Today there are over 374 billionaires.
Richard Daughty
– “So if the dollar is going down in value, but gold and silver
hold their value like they have for the last few thousand freaking years,
doesn't it ever sink into your tiny, little pea-brains that they will be
going up in price?” kitco.com/ind/Daughty/nov242008.html
In short I’d
say that today anyone with a previous net worth of 100,000 dollars or less is
extremely unhappy. This money was tied up in home values and
portfolios. And the economic crisis is bringing those values down, down,
down. No one believed in cash and what they placed their wealth in has gone
“caput.” But for those who have maintained piles of cash
and zero debt they are in heaven. Buying very depreciating assets with
abandon. Wells Fargo sure followed this policy. Warren Buffet also.
“RUSSIAN
ANALYST PREDICTS DECLINE AND BREAKUP OF USA” “A leading Russian
political analyst has said the economic turmoil in the United States has
confirmed his long-held view that the country is heading for collapse, and
will divide into separate parts.” "THE DOLLAR IS NOT SECURED BY
ANYTHING.” "It is already collapsing. Due to the financial
crisis, three of the largest and oldest five banks on Wall Street have
already ceased to exist, and two are barely surviving. Their losses are the
biggest in history. Now what we will see is a change in the regulatory system
on a global financial scale: America will no longer be the world's financial
regulator." drudgereport.com/flashrur.htm, 11-25-2008
Hang in there with
the gold stocks. Gold is still going to be around even when all this present
economic mess settles down in ten or so years.
Click
here to order Gold Letter
David Vaughn
Editor,
Gold Letter, Inc.
www.goldletterdv.com
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