|
Many people are very confused these days. They
should be. Slowly the nation is coming to grips with a harsh reality that a
garden variety recession has not dug its roots inside the body economic of
the United States.
This is much worse. This is an economic and financial system horribly plagued
by insolvency, with vicious cycles causing severe momentum in the damage,
where the entire system is facing potential ruin in a disintegration sequence
during a virtually unstoppable liquidation process. The broken credit
clutch cannot disengage. This is not a deflation episode as portrayed,
but rather a broad powerful liquidation phase. As a veteran contact put it, “Cyclical
change is easy to understand. What people don't get is that fact that we have
systemic change and a paradigm shift of epic proportion. All these idiotic
analysts try to find the future in the rear view mirror. Good luck.”
The key upcoming decision
must address the underlying problem of declining property values, and when to
institute a national mortgage modification plan. Soon comes the New
Resolution Trust Corporation. The Fannie Mae takeover was NOT it! The root of
most economic breakdown and banking wreckage is declining real estate prices,
whether residential or commercial. Recall that the entire USEconomy and much
of the US
financial system was not only wedded to the housing bubble, but boasted of
its sophistication, clean industry, and offloaded risk. The USGovt will be
forced to bite the bullet and put a firm floor on home prices via a New RTC,
where the USGovt pays banks on loan balance reductions. Unless and until
the New RTC is installed with this broad directive and mission, everything
continues to slide into the abyss.
A note on the
intangibles. The body language visible from financial network anchors tells
quite the story, of more humility, some measure of shock, deep concern over
the lack of solutions, and growing dismay over the lattice work of
corruption. A fine line came from a bright light on CBNC last week, as Rich
Santelli from the Chicago pits said “Traders are looking for
volatility, so they can make back their entire year.” The networks
seem totally incapable of noticing the responsibility of Goldman Sachs and
JPMorgan in the destruction, a gigantic blind spot. It is truly remarkable
that so much corruption has destroyed the systems underlying the United
States, yet observers cannot come to grips
with the fact that the corruption is engrained within the most revered firms
still in charge. A question is begged: When will US
arrogance dwindle? Tough question! Perhaps when foreign support has
diminished to the point that the US
leaders and population realize that the only path out of the quagmire of
insolvency is rampant full-blown inflation and tragic direct dependence on a
printing press, in a position of global isolation.
ULTIMATE INVESTMENT
AMIDST CONFUSION
In the current environment of systemic breakdown,
institutionalized corruption, failed policies, broad ruin, and desperate
efforts with unprecedented programs to avoid systemic collapse, the chosen
investments must be simpler and outside the system, as in PHYSICAL GOLD &
SILVER. Beware of paper gold & silver, which bear little connection to
the real thing! Even beware of mining stocks, except for the large caps,
which will dominate in lopsided fashion. When the Final Solutions do come,
some charred ruin structures will be easily visible from the same corrupt
system and institutions. The best outcome will be of powerful price inflation
to address insolvency, which will yield yet new ugly problems. Traction has
yet to be achieved, by active decision. The Powerz face a risk, that when
they want the traction, they must overcome powerful downside momentum in the
systemic breakdown. That requires supercharged inflation bound in perverted
remedies, which push the gold & silver prices upward, fast upward. The
Powerz have waited so long to deliver the alchemists magic potions, that
remedy will require much more inflation than the system can handle. The
year 2009 by yearend should be marred by very big inflation outbursts in
price structures, enough to silence the wrong-footed deflation theory guys.
Furthermore, global sentiment is turning against the United
States, whose stories of corruption seem to
lengthen by the month. Foreign governments, policy makers, and private
powerful groups are soon to set into motion their own independent plans,
driven by their own self-preservation. Watch Russia
and China,
hardly allies. Such plans are hidden from view, but discussed in rough terms
in the Hat Trick Letter.
The effect on the USDollar from domestic home-grown
mammoth inflation and foreign maneuvers to isolate the US
will be huge and ugly. Not only has the USDollar DX index topped, but the
gold price has bottomed. The MACD has a bullish crossover. It foretells of
an important cross of the 20-week moving average above the slower moving
50-week MA, a signal never missed by big technical traders. The gold
price finally has stabilized a little above both key MAs, laying the firm
foundation for large moves up toward 1000 again. The silver price is also in
recovery mode, a reversal that has yet to lift it above the key MAs though.
DUKES OF HAZARD
Soon, USTreasury auctions will be outright failures.
Soon, the majority of rescues, bailouts, nationalizations, and stimulus
packages will be financed via the printing press, with all the inglorious
rancid effects of systemic inflation in the backwash. To heck with Moral
Hazard. Put that label on the locomotive gone over the precipice, and
let’s put wings on it, so that it can fly and save the USEconomy. Treasury
Secy Paulson and USFed Chairman Bernanke have become the Dukes of
Hazard. The better analogy is that the USEconomic financial apparatus
is like an engine revving at well over 10 thousand RPMs, but the clutch
cannot permit any transfer into the gearbox to enable the axel to turn the
wheels. Why? Because Wall Street hogs funds at the trough, and because credit
creation mechanisms are broken. My opinion all along has been that only when
the mortgages are modified with the USGovt paying the entire tab on loan reductions
can the system begin to gain traction. Insolvency abounds, and it continues
to plague the system in both primary chambers without meaningful deep
writedowns paid by the USGovt, the true cost paid by a printing press. More
and more stories come to reveal how the housing bubble providing collateral
to finance this and that part of the USEconomy, now gone. The story of this
year 2008 almost completed is insolvency. The story of next year 2009 will be
continued powerful disintegration and desperation to stop it.
The missing piece in the great majority of debate
and policy for revival of the USEconomy and its banking system is the creation
of legitimate jobs and income. Infrastructure jobs would be a great
start, provided that pork projects do not dominate the agenda. Already, the
nation lacks the huge workforce of arc welders, but does have plenty of loan
officers, lawyers, investment bankers and MBAs. Perhaps home construction
workers can be quickly retrained as welders. Nowhere has debate and discussion
mentioned a primary root cause over the last two decades for the USEconomic
disintegration. It is jobs shipped intentionally overseas, like to China
& India.
The movement started in the 1980 decade, with the Pacific
Rim taken and being given the technology factory jobs. Unless and
until a substantial portion of lost US manufacturing returns to the United
States, all remedies seem hollow, temporary, and mere patchwork, bound in
debt-based solutions to a debt cancer. My actual expectation is that the first
evidence of returned manufacturing will be linked to the expanded US prison
system, not so much for violent and white collar crime, but for the legion of
rioters and bankruptcy victims. The pay scale will be pure Third World,
intended for subsistence and survival.
UNFAVORABLE DEFLATION COMPARISON
Before the Hat Trick Letter was launched, a jackass
article appeared in April 2003 entitled “Japan, Argentina, Weimar or
Muddle?” (CLICK HERE). Back then, much discussion arose on whether the
USEconomy would muddle through eventually. Analysts like John Mauldin of
Millennium Wave Advisors bored me to death, like his endless confident
‘Muddle Through’ theme. He missed the prime components of the
phony pillars and their removal, which unleashed the current disaster and
crisis. Others recently have made comparisons to the Japanese quagmire. The
United States compares much much worse. So tiresome, so wrong, so
compromised, are the forecasts of snapback recovery, of second half recovery,
of delayed reaction to rapidly cut interest rates, of liquidity medicine
kicking in. THE SITUATION IS DIFFERENT AND DIRE, BUT NOT RECOGNIZED. In the
older but relevant piece, it said “Differences between USA and Japan
are very unfavorable, relating to currency valuation, bankruptcy ease, saving
propensity, foreigner debt ownership, financial engineering, monetization
techniques, basic integrity, and intervention willingness” The
major items remain in harsh contrast:
a) unlike Japan, US Economy cannot tolerate a
declining US Dollar
b) unlike Japan, US Economy permits bankruptcies as
a regular course of business
c) unlike Japan, US Economy depends upon consumption
& spending
d) unlike Japan, much US debt is owned by
foreigners, with a trade gap widening
e) unlike Japan, US Structured Finance has created a
megalith monster
f) unlike Japan, US Federal Reserve is a
monetization machine on steroids
g) unlike Japan, US institutions harbor widespread
corruption
h) unlike Japan, US maintains a pervasive
interventionist attitude
To begin with, the US so-called ‘Deflation
Experience’ is not deflation at all. Sure, many investments are losing
value fast. Sure, much credit is being burned, with heavy write-downs. But
new money is coming into the system from the corrupt bond swaps, historically
unprecedented rescues, bailouts, and nationalizations. The $8500 billion in
new commitments highlight the inflation side. Also, never confuse the ample
supply of crippled assets brought from off balance sheets to actively
accounted big bank balance sheets, distorting money supply figures, but just
exposing the shell game. The deflation that many analysts describe is
actually a systemic liquidation that will be difficult to reverse, a
necessary step by producing the critically important inflation. It
will come, but with difficulty. The US is not Japan in the 1990s, but
something much much worse. The USFed and Dept Treasury, with lackey help from
the USCongress, are not pushing on a string. They are rather trying to hold
up a man whose skeletal structure is dissolving, while its circulatory system
is also dissolving. THIS IS DISINTEGRATION. To argue otherwise seems pure
folly and wishful thinking.
DEFINITION OF INSOLVENCY
Many wonder when insolvency becomes bankruptcy for a
given company or household. This is a complex question. Start with an easy
answer. Insolvency, first of all, means debt obligations are greater than
assets held, so that the net worth is negative. When an insolvent entity
lacks the flow of funds, its lack of liquidity forces a declared failure or a
failure forced by creditors, which is bankruptcy. The sad fact of life for
many US companies and households is that their creditors want to be paid
back, demand it, and will do what they can to win 30 cents or 60 cents or
maybe 80 per dollar owed in repayment. The events of mid-September with
failures of Lehman Brothers, of American Intl Group (AIG), and of Fannie Mae
had to do with creditors pulling the plug and saying NO MORE. The queer part
of the US financial pathogenesis (path of a disease, here being inflation
& credit dependence) is that many times the Wall Street firms have been
the ones pulling the plug, removing credit lines. In this current era absent altogether
of regulatory oversight, combined with the Dept of Treasury run by Wall
Street, the various besieged Wall Street firms can and are targeting hedge
fund clients whose positions stand in opposition of those at Wall Street
firms. One well informed former auditor calls it ‘Financial
Genocide’ to describe the current actions of those in charge. Back to
insolvency. The Wall Street firms are trying desperately to maintain
liquidity in order to stave off bankruptcy. They are zombies in search of
blood and meat tissue. That is a primary motive for them to confiscate the
TARP funds to date, which might backfire on them in the future. No
Congressional member will vote yes for any more funds administered by Paulson
and his Goldman Sachs henchmen.
The Untied States has a unique position when it
comes to liquidity. Its banking officials can print money to deal with
insolvency and thus prevent bankruptcy. The bankruptcies so far in my view
have been more targeted and planned. Bear Stearns was not a team player in
the LongTerm Capital Mgmt bailout, and thus was killed with glee. The
Lehman Brothers failure was probably more a stress test for the system, with
a gigantic basement back window opened for JPMorgan to receive a $138 billion
check during the confusion after a pre-dawn meeting on a Saturday with a
bankruptcy court judge in Manhattan. The Lehman failure was probably
necessary in order to reload JPMorgan, thus permitting it to better handle
the vast Credit Default Swap losses, and to reload in the gold suppression
game with the oodles of underwater gold contracts. Nevertheless, the US
system can benefit from the advantage of turning on the inflation spigot in
order to address the liquidity requirements amidst profound broad insolvency.
The masters, operating from seats of unspeakable corruption to be sure, have
the ability to transfer the problems in progress now into new problems
plagued by inflation. That is actually the next challenge, and that is
precisely why gold & silver will absolutely thrive as soon as the
maestros and wizards decide to attempt to put the Vehicle into First Gear. A
great patch of rubber will be laid, complete with screeching sounds and the
pungent odor with trail of smoke. The screech will be from savings accounts
losing value. The odor will be of amplified inflation entering the room.
Added motive to take drastic action comes from the shutdown of major
corporations (like car industry), record breaking job loss, reduction in
production capacity (from lower end product prices amidst fixed costs), and
the idled ports.
UNDERWATER BANKS
Dead banks choose not to lend
money, period. They are
reluctant to lose more, scared to death, burned badly. They are unsure of how
insolvent they are, since assets are not even remotely properly valued. Their
asset backed bonds and credit portfolios have uncertain value, but certainly
far less than is on their books. Bank executives will continue to choose not
to lend in this environment, since they know clearly of their insolvent
condition. Bank executives will continue to choose not to lend in this
environment, since they know clearly of the weak condition for borrowers,
harmed by job loss. After all, banks prefer to be repaid on loans, rather
than to serve as either stooges in a national cause or sacrificial lambs at a
Wall Street barbeque.
The big banks to date have cornered over 80% to 90%
of the official rescues and bailouts. They have also been invited to engage
in a Treasury Yield Curve carry trade, wherein they borrow money cheaply at
the rate of short-term maturities, then invest for yields at the long-term
maturities. Wall Street has managed to hog the rescue bailout trough,
while disseminating false messages about how the US Federal Reserve has
enabled broad liquidity programs to assist the people. They are doing
precisely the opposite. Over $800 billion has been DRAINED from the
private banking system via Cash Mgmt Bills by the USFed in order to feed the
Wall Street banks responsible for most of the fraudulent bond packages, for
coercion of debt ratings agencies, and for commandeered crony regulatory
inaction. Foreign observers are appalled that the US is still run by the same
Wall Street conmen, while the US public cannot seem to figure out what to do.
The lawsuits against both the USFed and Citigroup will give strong signals on
progress against the syndicates in charge, written on billboards.
The conclusion reached by the Hat Trick Letter is
that the Powerz, the elite in charge, they have no intention of sharing
public funds with the common citizenry until they are prepared to launch a
national hidden program that has its centerpiece a vast bank consolidation of
power. We might be near that day. They have such enormous reserves in store,
unused to date, that can be used to purchase undervalued assets, from
properties to corporations to commodities. That seems the plan, totally
consistent with the serfdom theories that some go further to describe a slave
state. The big banks will lead the process. Soon they might turn the switch.
That switch will trigger loan grants, a flow of borrowed money, as a green
light is issued on credit creation. That switch will be the second decision,
however. The first will be the key decision to address the underlying
problem of declining property values, with a national mortgage modification
plan, the New Resolution Trust Corporation. The credit switch cannot
succeed without the grandiose loan modification program in place. The USGovt
will be forced to bite the bullet and put a firm floor on home prices via a
New RTC, where the USGovt pays banks on loan balance reductions. Unless and
until the New RTC is installed with this broad directive and mission,
everything continues to slide into the abyss. Insolvency continues without
meaningful deep writedowns paid by the USGovt, with the true cost being paid
by a printing press. That is how price inflation arrives, in full force, in
deadly force.
UNDERWATER HOMES
Dead households choose not to
spend money, period. They are unsure
of how insolvent they are, since assets continue to be valued lower with each
passing month. The tragic paths of delinquency, default, foreclosure, and
repossession have a profound effect upon spending patterns. In fact, job loss
is the primary factor behind foreclosure. Household heads will continue to
choose not to spend in this environment, since they know clearly of their
insolvent condition. The banks that lend to households are themselves under
great duress. Some households might attempt to take advantage of the
situation, and run up debts, never planning to repay. Thus the banks are
tightening their lines to credit cards. Consumers have it tough. The entire
consumer culture in the US was the biggest joke in modern economic history.
Finally recognition has come for the plight of home
mortgages and loan modifications. The delinquency rate is growing worse each
month, not better. Price data on home values is growing worse each month, not
rising in a rebound. The weight of inventory and banker desire to unload
properties is forcing prices down. The foreclosure rate is growing worse each
month, not better. The foreclosure rate in 1Q2008 for home loans under
modification was an astounding 53%, a surprise to the financial new lines,
but not to Hat Trick Letter readers. It was called a ‘Revolving
Door’ last spring and summer in reports. As nothing seems fixed, as no
remedies seem in place, and as corruption confiscates most rescue funds that
are not devoted to subsidize failed firms, the calls become louder for
real action.
That switch will soon be turned on, to address the
underlying problem of declining property values, with a national mortgage
modification plan, the New Resolution Trust Corporation. When the USGovt
bites the bullet and reimburses banks on loan balance reductions, it will
effectively put a firm floor on home prices. Unless and until the New RTC is
installed with this broad directive and mission, everything continues to
slide into the abyss. The installation of true loan modification of a vast
scale, with costs over $2 trillion minimum, and maybe as much as $3 to $4
trillion, will encourage people who are able to purchase homes again en
masse. One can debate and discuss and review all the matters on the table.
The key point is that the US ‘Situation’ can only turn around
when housing prices stabilize. However, foreigners will react by selling the
USDollar in a very powerful manner.
TRACTION & VICIOUS CYCLES
A truly monstrous
Vicious Cycle has tightened its grip on the USEconomy, related to housing and
mortgage finance. The several
vicious cycles have been a regular theme discussed in the Hat Trick Letter
for three years. Numerous have been identified and described. The most
important feedback loop right now is the absence of capability to finalize
home loans and to complete refinanced loans for property. In turn, banks are
reluctant to loan while property used as collateral is still stuck in price
decline. Bankers also dislike how borrowers have never been so unqualified in
a couple generations. House prices suffer from bloated inventory, waves of
home foreclosures, and sellers stuck with negative equity forced to
foreclose. The jobs picture is rapidly deteriorating, as numerous major
corporations deal with staged workforce liquidations. Lending institutions
have for at least three months given up on a housing market revival, and
thrown in the towel. They sell properties at severe discount. THE ENTIRE
HOUSING MARKET IS STUCK IN A VICIOUS FEEDBACK LOOP. Price will continue down,
and mortgage bonds will continue to lose value, until an historically
significant milestone decision is reluctantly made. It is inevitable,
inexorable, and tragic.
THE ENTIRE MORTGAGE INDUSTRY, COMPLETE WITH MILLIONS
OF HOME MORTGAGES, AND PERHAPS COMMERCIAL MORTGAGES, WILL BE NATIONALIZED
WITHIN THE NEXT 12 TO 18 MONTHS. The extreme maneuver will finally put a
floor on housing prices and mortgage bonds, but herald the next 30% decline
in the USDollar. Logistic challenges will be huge, as will the corruption be
huge. The bigger question is whether the new national program is workable,
feasible, practical enough to halt the powerful declines with enormous
momentum from the liquidation process as debt is cleansed. The Ruling
Elite wish to seize as many assets, both property and businesses, at low
prices. They will attempt to turn the Reflation Machinery on ‘Fast
Go’ at some indefinite future date. They are permitting the system to
degrade from capital starvation, from bank system drains of capital, and from
broad pernicious malacious dictums to banks not to lend to the public. The
republic is at risk, since freedom is a luxury totally inconceivable and
unavailable to an insolvent nation that badly lacks legitimate income.
SINCERE WISH
I wish all happy holidays, whether Christmas is
celebrated or not. This is a difficult time, and likely to become worse.
Enjoy the important things in life, like family, friends, and activities
where pleasure and satisfaction is derived. Sports and movies and exercise
have been my diversions all through life. May you position yourself in
preparation for continued nasty storms. May you not trust the messages
promulgated by the system, intended to deceive, to pacify, and to control.
Gold & silver are the strongest investments known to stand the test of
time, crisis, and interference. After horrible fires or storms, usually
all that remains is the foundation. The current situation is no
different. One grand problem facing the USEconomy and the US financial system
right now is that its debt foundation is not really a foundation at all,
unless you consider bubble wrap as strong as hardwood like mahogany or
teakwood. Down here they use rosewood, which is a spectacular Costa Rican
hardwood often seen in artwork and nice furniture. The paper-based US wealth
was and still is illusory, certain to largely vanish, as the US central bank
continues to be overwhelmed and misdirected. Only grandiose mammoth national
costly programs to instill unspeakable inflation will succeed in halting the
current slide and destruction. Gold & silver will thrive when it occurs,
and it will occur as sure as the morning after a storm.
THE HAT TRICK
LETTER PROFITS IN THE CURRENT CRISIS.
From subscribers and
readers:
At least 30 recently on
correct forecasts regarding the bailout parade, numerous nationalization
deals such as for Fannie Mae and the grand Mortgage Rescue.
“You seem to have
it nailed. I used to think you were paranoid. Now I think you are psychic!”
(ShawnU in Ontario)
“Your analysis is
of outstanding quality, the best I have read. In particular, as a person on
the spot, I can confirm the accuracy of your bleak assessment of our
prospects in the UK.”
(JanB in England)
“Your unmatched
ability to find and unmask a string of significant nuggets, and to wrap them
into a meaningful mosaic of the treachery-cum-stupidity which comprise our
current financial system, make yours the most informative and valuable of
investment letters. You have refined the ‘bits-and-pieces’
approach into an awesome intellectual tool.”
(RobertN in Texas)
“Your reports scare
the hell out of me every month, probably more so over time, since so many of
your predictions have turned out to be very accurate. I am afraid you might
be right that by the end of 2008, we are in a pretty severe situation, with
civil unrest and severe financial stress on Main Street.”
(GeorgeC in Minnesota)
Jim Willie CB
Home : Golden Jackass website
Subscribe: Hat Trick Letter
Jim Willie CB is the editor of the “HAT TRICK LETTER”
Use the above link to subscribe to the paid research
reports, which include coverage of several smallcap companies positioned to
rise during the ongoing panicky attempt to sustain an unsustainable system
burdened by numerous imbalances aggravated by global village forces. An
historically unprecedented mess has been created by compromised central
bankers and inept economic advisors, whose interference has irreversibly
altered and damaged the world financial system, urgently pushed after the
removed anchor of money to gold. Analysis features Gold, Crude Oil, USDollar,
Treasury bonds, and inter-market dynamics with the US
Economy and US
Federal Reserve monetary policy.
Jim Willie CB is a statistical analyst in marketing
research and retail forecasting. He holds a PhD in Statistics.
His career has stretched over 24 years. He aspires to thrive in the financial
editor world, unencumbered by the limitations of economic credentials. Visit
his free website to find articles from topflight authors at www.GoldenJackass.com . For personal questions about subscriptions, contact him at JimWillieCB@aol.com
|
|