AGORACOM Small-cap Investor Relations Blog

Reuters is reporting that U.S. short-term interest rate futures rose strongly on Sunday after the Fed announced their “emergency measures”.

As a result, the chances of the Fed lowering the federal funds rate by 100 basis points at or before Tuesday’s policy meeting is now at 84%.

A 125 basis point cut is now pegged at 25%.

A 100 basis point reduction would push the feds rate to 2.0 percent from 3.0 percent, the lowest since December 2004.

If you have cash and great credit, get ready to buy your dream home 12 months from now.

UPDATE:

10:52 AM EST (Monday) – A 100 basis point cut is now pegged at 94%

Regards,
George

“Quality Diversified Assets, Steady Current Income”. Sure sounds good…too bad diversity was nothing more than $22 Billion in residential mortgage backed securities.

—————

Just announced on CNBC World. Carlyle Capital is liquidating. I’ll update this post as more info comes out.

UPDATE:

Here is the full story. However, if you take a close look at the numbers, it doesn’t make sense:

1] The fund held some $22 billion in U.S. AAA-rated residential mortgage-backed securities issued by Fannie Mae and Freddie Mac.

2] Carlyle Capital said on Thursday it has defaulted on $16.6 billion of debt.

3] Carlyle Capital faced margin calls of $97.5 million caused by the decline in the value of its mortgaged assets. That was on top of the $400 million it was already facing.

4] Carlyle Capital has received default notices from its remaining two lenders, who have now taken possession of substantially or all of its securities.

If you have $22 billion in AAA securities and only $16.6 billion in debt, wouldn’t you make a measly $497.5 million in margin calls?

CONCLUSION

The question is a slightly rhetorical one for those of you that have followed this blog – but it just goes to show you that AAA isn’t worth anywhere AAA. The question is, what is it really worth and which AAA-bloated bank is the next to have lenders come knocking.

Regards,
George

No surprise here but gold is running on the Bear Stearns collapse..the chart above is courtesy of Kitco and should continue to update itself throughout the night. As such, depending on when you are reading it, the price of gold will be higher or lower than $1,030.

This is going to be one hell of a ride for gold and gold juniors. Here is a list of the metals companies represented by AGORACOM. It will take you no more than 10 minutes to read through the summary descriptions of each and find one or more that are best suited for your portfolio.

For those of you that are new to the gold dynamic and it’s connection to both the Bear Stearns collapse (micro) and the sub-prime issue (macro), here is a quick tutorial.

THE MICRO VIEW

An excerpt from this Reuters article:

The dollar sank to a record low against the euro on Monday (Asian markets) as investors said the acquisition of Bear by JPMorgan showed the seriousness of the problems faced by U.S. financial markets.

“Flight-to-quality buying is boosting gold as the market is losing faith in the dollar,” said Tatsuo Kageyama, analyst at Kanetsu Asset Management in Tokyo.

“The market is completely bearish on the dollar. The market is also very pessimistic about the dollar’s outlook.”

THE MACRO VIEW

You are going to need about an hour of reading but make the time and go through all of my recent posts in the Gold $1,000 category. Yes, I created a category for it.

Finally, you should also give the following blog post a quick read.

Regards,
George

Good evening to you all. If you have not heard, Bear Stearns has officially gone under. Technically, they were acquired for $2/share (NOT-A-TYPO), so they didn’t actually announce a bankruptcy….unless you consider the fact that it was trading at $70 on Monday!

What does Ben Bernanke have to say? I’ve got one quote from him back on May 17, 2007 and another one tonight…Ok I actually made up the one from tonight but it is a pretty educated guess into how he is going to respond to this.

May 17, 2007 (from Forbes.com article)

The subprime mess is grave but largely contained, said Federal Reserve Chairman Ben Bernanke Thursday, in a speech before the Federal Reserve Bank of Chicago. While rising delinquencies and foreclosures will continue to weigh heavily on the housing market this year, it will not cripple the U.S. economy, he said. The speech was the Chairman’s most comprehensive on the subprime mortgage issue to date.

“Given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited,” Bernanke said.

March 16, 2008

“I continue to believe the troubles in the subprime sector on the broader housing market will likely be limited to every bank and neighborhood in the country. So, unless you have a savings account or you own a home, you should be just fine.”

We can’t confirm he’s actually made this official statement but if I know the “don’t worry, be happy” Fed Chairman, this will be pretty close

Regards,
George

The US Federal Reserve Board continues to run the Die Hard Playbook right into the hands of inflation and de-valuing of the US Dollar. They’re level of predictability has driven them to the point of becoming boring…but I still have to report on it…so here it is.

Tonight, the U.S. Federal Reserve cut to its lending rate to financial institutions to 3.25 percent from 3.50 percent, effective immediately, and created another lending facility for big investment banks to secure short-term loans. Go here to read the full story.

Now, in an incredible feat of clairvoyance and prophetization (I don’t care if it’s not a word), I am going to predict the following:

• Further $US Weakness
• Higher Gold Prices
• Higher Oil Prices

I’m scary. Cue the music from The Omen.

Regards,
George

Good evening to you all. After close to a year of pounding the table on $1,000 gold, it has arrived. I could write an essay on the what, why, when but sometimes you just have to sit back and enjoy the view. The chart above says it all.

Where does gold go from here? Let’s talk about that tomorrow.

In the meantime, for those of you who want a fast and entertaining education on the gold markets, check out my archive of $1,000 gold posts.

Congrats to Jean-Francois Tardif, John Embry, Eric Sprott, Bill Murphy, GATA, Peter Grandich and Rob McEwen for being proven right after pounding the table on $1,000 gold for much longer than me. Thanks for the education.

Regards,
George

This news is breaking so fast that I am resorting to rapid fire bullet points in reverse chronological order: I will also be using some bullet points from “The Big Picture” blog, that is also rapid fire posting.

===================================================

11:40 Holy Cow! TheStreet.com reports someone traded 55,000 Bear Stearns $30 puts On Tuesday . The stock was trading at $65 per share at the time.

The options expire on March 20, so that left only 10 days for some event to occur that would cause these puts to go into the money and have some value.

While BS management and board members were claiming liquidity rumors were “ridiculous” somebody else knew othewise. Joe investor gets screwed again.

….

11:31 – Can anybody on Wall Street be trusted? Here is the timeline of Bear Stearns lies throughout the week. Unbelievable how they misled everybody to the bitter end…including live statements on CNBC!

……..

11:24 – Standard & Poor’s statement yesterday that “banks may be done with with the bulk of write-downs linked to bad home loans” shows once again that S&P is completely out to lunch. Considering these guys didn’t see it coming in the first place and responsible for so many “AAA” ratings, does anyone else think this is more a case of being conflicted that stupid?

…….

11:08 – U.S. consumer sentiment hits 16-year low

…..

11:03 – Want an example of good anecdotal evidence …getting a gold quote is difficult with all provider sites SLOWWWW…I wonder why?

….

11:00 Gold hit a high of $1,007, now trading at $1,004
……

10:41: If you are wondering what a non-recourse, back-to-back financing is, pull up a chair. Talk about buddies rubbing each other’s backs:

JPM gets to go the the Discount Window and borrow all the greenbacks they want; Then they loan that to Bear. In the event that Bear defaults, the NY Fed cannot go back to recover from JPM — hence, non-recourse.

….

10:34 Jim Rogers short on all investment banks was bang on.

(more…)

Jim Rogers, co-founder of the Quantum Fund along with billionaire investor George Soros, expressed his unequivocal view on the Fed’s $200 Billion bailout plan – abolish the Federal Reserve.

More than headline grabbing, Rogers’ view is based on very sound logic. Though we all know the Fed is not going to be abolished anytime soon, he will probably use today’s interview on CNBC Europe to tell the world “I told you so” if the US economy goes as he expects. So far, he’s been dead on nails by calling for climbing oil, a falling US dollar and climbing agricultural prices. Read this post from November 14th in which I reported his calls on these very items.

HIGHLIGHTS

I strongly recommend you watch the video above but for those of you that are short on time, here are the noteworthy points:

• In the 1970s, the Fed printed money to avert a recession, boosting inflation and then forcing interest rates to more than 20 percent to keep a lid on price rises.
• “No country in the world has ever succeeded by debasing its currency,” he said. “That’s what this man is trying to do. He’s trying to debase the currency as a way to revive America. It has never worked in the long term or the medium term.”
• Investment Banks should be allowed to fail.
• “If you bail out every investment bank that gets in trouble, that’s not capitalism, that’s socialism for the rich”
• He has a short position on all investment banks. Fannie Mae is the weakest. (Eric Sprott said the same thing a couple of days ago…this is the second time Jim Rogers has echoed someone at Sprott within 2 business days. Here is the first time.)
• A recession may be a good way to clean up the economy, while trying to prevent one may cost more and actually worsen the recession.

I can’t poke a hole in any of these points. The Fed is making a valiant effort to save the US economy for – most likely – political reasons, but you can’t fight this credit crisis, which is essentially a string of colossal errors made by individuals, banks and funds. This is too big of a mess to clean up … but it isn’t big enough to get even worse. By printing more money, the Fed is doing just that.

Gold $2,000 is starting to look a little more plausible.

Regards,
George

“Turmoil in global credit markets may lead to the collapse of a North American bank, pushing bullion prices up to $2,000 an ounce as investors seek a haven in gold.”

“There are probably 10 companies that are broke that are still trading — banks and financial institutions.”

These were just a couple of comments made by Eric Sprott in this March 10th Bloomberg story in which he also called for $2,000 gold.

On March 11th, just hours after the US Fed $200 Billion injection announcement, Marketwatch ran the following headline:

FED ACTION MAY HAVE TARGETED BEAR STEARNS

The article goes on to discuss the fact that the Fed action may have been partly directed at helping out Bear Stearns, a brokerage firm that bet heavy on bundling mortgages and re-packaging them into mortgage backed securities. Success served to commit the firm even deeper into the cash cow, which also made it vulnerable when the sub-prime markets turned.

Rumors abounded on Monday that Bear Stearns was in deep trouble as it stock fell more than 10% and credit-default swaps traded at 610 basis points over Treasurys on Monday, up 400 basis points from Friday.

Naturally, Bear Stearns denied it was in any trouble but when credit swaps increase by 400 basis points in one trading day, the jig is most likely up.

Had the Fed not come to the rescue, would Eric have had his day?

Both the Bloomberg and Marketwatch articles are a must read – but my next step is to try and get Eric Sprott on an “Expert’s Corner” interview to discuss this topic even further.

Eric, if you are reading this, please give me a call!

UPDATE:

Jim Rogers, co-founder of the Quantum Fund along with billionaire investor George Soros, echoed Sprotts’ short call on US financial institutions.  He made the call this morning, less than 48 hours after the Sprott call.  I point this out because this is the second time in 4 months that Rogers has echoed a big call made by someone at Sprott within 48 business hours. Here is the first time.

If Jim Rogers, Eric Sprott and JF Tardif haven’t met, they need to get acquainted.  Should I make introductions?

Regards,
George