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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
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