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Bernanke Is Not Saving The Day, Just Delaying D-Day

Posted by AGORACOM at 12:33 AM on Wednesday, March 12th, 2008

 

As you already know by now, the US Federal Reserve today announced that it would inject $200 Billion into the banking system in exchange for debt that includes mortgage-backed securities. This is an unprecedented move in an effort to stave off a a credit crisis of epic proportions.

This is not to be confused with the Term Auction Facility announced in December to loan funds to banks in exchange for – amongst other things – mortgage debt. Today’s move includes the actual securities (whose value we’ll discuss in a minute) that were created by bundling a bunch of crappy mortgages. If you need a lesson on this, please take a minute to review the following cartoon but educational illustration of how sub-prime really works.

Will It Save The Day Or Delay The Inevitable?

Too early to tell in absolute terms but I am going to vote this is a mere delay of the inevitable. Why? Take a close look at quotes from around the web from people much smarter than you and me. Believe me when I tell you that I looked for quotes from both sides of the equation:

``This is the most significant step the Fed has taken so far,” said David Resler, chief economist at Nomura Securities International Inc. in New York. “This relieves some of the pressure” in the credit markets, he said. (Bloomberg).

“They’re trying to put out fires to the best extent they can,” said David Greenlaw, chief fixed-income economist at Morgan Stanley in New York, who is a former researcher at the Fed Board of Governors. (Bloomberg).

“This will assist some of the big banks,” said Walter Gerasimowicz, head of Meditron Asset Management, which manages $1 billion. “But it won’t bring the light at the end of the tunnel. The housing-market problems will take at least all of this year to settle, and until that happens, the banks aren’t going to be relieved fully.’ (Bloomberg).

“This morning’s announcement by the Fed helps the brokers and their fixed-income hedge fund clients who were struggling with funding,” Brad Hintz, an analyst at Bernstein Research, wrote in a note to investors. (Marketwatch)

“The good news is this will help brokers and banks; the bad news is it will do nothing to help the Housing market, or stop the decline in House prices.” (The Big Picture)

HELP FOR BANKS. NADA FOR HOMEOWNERS

How do you read these quotes? Personally, they all came across as the Fed solution being one that merely band-aids the solution, rather than solving it.

Moreover, it seems pretty clear that the Fed is acting to protect banks, not individual homeowners at risk of losing their homes. To this end, Marketwatch has a great article claiming the move was made to stave off a serious and imminent danger at Bear Stearns. This is a must read article but here are a couple of excerpts:

“Bear’s stock dropped 11% on Monday on concern that its borrowing costs are rising. For a brokerage firm, which relies on steady access to financing, such disruptions can restrain its businesses and leave it at a disadvantage to financially stronger rivals.”

“The Federal Reserve’s actions today may have been strongly influenced by Bear Stearns’ problem,” (Dick Bove, Analyst at Punk Ziegel & Co.).

When I add it all up, the following three conclusions come to my mind:

  1. Nobody thinks this is a solution to the credit crisis.
  2. This Fed solution is aimed at helping troubled banks, not homeowners.
  3. The Fed had no choice as the collapse of a major financial institution was imminent.

On a final note, the fact that Gold did not experience a major setback serves as further evidence that the Fed has done nothing more than delay the inevitable. Given gold’s rise over the last several months, major profit taking should have been taking place in response to this $200 Billion solution. It is trading at $US 974.00 as I write.

Regards,
George

Write-Downs To Hit $400 – $600 Billion. The Axeman Cometh And He’s Not Accepting Visa. Gold Coins Only Please

Posted by AGORACOM at 9:09 PM on Wednesday, March 5th, 2008

Back on November 27th I wrote a story titled “The Worst Is Yet To Come For US Financials“. The story was accompanied by the following mortgage reset chart courtesy of Bank of America:

The “don’t worry, be happy” crowd at CNBC and other financial media refused to report on the true size of this debacle and chose to amplify “self-interested commentators that are itching for the US Federal Reserve and Congress to bail them out” (from Information Arbitrage).

Nonetheless, me and many bloggers who are not conflicted by the mainstream stuck to our guns and continued to do our best to warn investors of what we could see coming over them hills.

Well it’s officially over the hill and coming straight for us, with this Bloomberg story quoting both Goldman Sachs and UBS AG that credit losses will hit $400 – $600 billion respectively.

If you think the answer is simply cutting interest rates, then you are new to the blog and I forgive you. Please read my January 3rd post titled “Checkmate Coming For US Fed“. In fact, read all my posts in my $1,000 Gold Category.

The Axeman cometh, there is no stopping it now. All you can do is pay him off with gold coins in your pocket. Don’t have any? Get some. They’re still cheap at just $US 985/oz.

Regards,
George

 

Gold & Silver Hit Historic Highs On Fed Comments .. It’s Still Die Hard All Over Again!

Posted by AGORACOM at 10:03 PM on Thursday, February 28th, 2008

A PICTURE IS WORTH A THOUSAND WORDS…AND SOON TO BE A THOUSAND DOLLARS

 

 

 

Don’t say I didn’t tell you here, then here then here. Hell, with gold about to break $1,000, how can I not point out that I told you so on January 10th (Ron Paul says gold has been rigged) January 3rd (Checkmate), November 27th (Mortgage Reset Chart) and November 15th (Google Shows Washington Is Worried). On top of that, if you didn’t believe me, we also had Jean-Francois Tardif (the #18 hedge fund manager in the world from Sprott) confirm it not once (November 9th) but twice . For good measure we even had Jim Rogers (Quantum Fund) tell it to you straight from his mouth.

By the way, for newbies that don’t understand my Die Hard reference, just read this.

The only question remaining is will gold break through $1,000 by the time PDAC arrives in Toronto next week? Doubtful but possible if the straw on the camel’s back is breaking … and man would it make for one great AGORACOM party on Sunday night!

UPDATE: Gold hit $976 (April futures) and $973 (cash market) in overnight trading.  Silver for immediate delivery hit $19.83.

Regards,
George

 

AGORACOM Exclusive: World’s #18 Hedge Fund Manager – “Oil Is Going To $200”

Posted by AGORACOM at 11:00 AM on Saturday, February 23rd, 2008

In this AGORACOM exclusive interview, Jean-Francois Tardif of Sprott Asset Management calls for $200 oil – and potentially higher – in the next few years.

Tardif also discusses the following:

  • $1,000 gold is inevitable in 2008
  • US sub-prime pain is only beginning, with $250 – $450 billion in write downs
  • What investors should be buying to take advantage of energy and gold
  • Why buying on the dips won’t work in this cycle
  • Why shorting has to be part of your investment strategy – but only via hedge funds

Lots of good stuff in this interview and well worth the time if you are serious about your portfolio. If you want to know more about JF, his Barron’s recognition or his HFM US award, just click on the images above.

Regards,
George

Gold Hits $944 After Hours…My $1,000 “Checkmate” Call Is Loooookin’ Gooood

Posted by AGORACOM at 5:17 PM on Wednesday, February 20th, 2008

Hey, gang. Just a quick note that gold hit $944 after-hours today. Reuters posted this story just a few minutes ago and my $1,000 call from January 3rd is looking better and better.

UPDATE: Great article from TheStreet.com that summarizes the basis of the gold move, without mentioning gold. Specifically, inflation numbers out of the US this morning were higher than expected. This may handcuff the Fed who now have to be worried about inflation but want to provide greater stimulus to the economy via rate cuts. Either road leads to higher inflation = higher gold prices.

Regards,
George

Fed Playbook Unlocks Gold Treasure…This Is Die Hard All Over Again

Posted by AGORACOM at 10:30 AM on Tuesday, January 22nd, 2008

In the original Die Hard, Theo, the gang’s technical mastermind, begins disabling the sequential vault locks, warning Hans Gruber that the final electro-magnetic based lock will be impossible to bypass. Hans Gruber tells him not to worry and to continue cracking the first 6 security measures.

Fast forward a couple of hours and the Nakatomi building has been surrounded by LAPD but the Feds show up (Agents Johnson and Johnson) and start running the anti-terrorism playbook. Right on cue, the duo order the building’s power be cut, which serves only to deactivate the final lock on the building’s vault, just as Gruber had planned.

As the vault door opens and reveals the treasures secured inside Gruber gleefully states: “You asked for a miracle, I give you the FBI“.

Gold bugs have been calling for $1,000, $2,000 per oz and beyond, leading to fortunes for the entire industry. Wall Street said it couldn’t be done. What are gold bugs saying today?

“You asked for a miracle, I give you the US Federal Reserve”.

p.s. Hans Gruber was a bad guy, gold bugs aren’t. They just both knew where the money was.

Regards,
George

Cramer: The Sequel. Financials Are Worse Than We Thought. “It’s All Fiction”

Posted by AGORACOM at 2:17 AM on Friday, January 18th, 2008

 

 

2 days ago I posted a story titled “Cramer – Citi Is Still Sitting On $40 Billion In Mortgage Paper That Is Worthless“. If that rightfully scared the hell out of you, then this sequel video is going to outright terrify you. Even a hard core realist like me was shocked to watch the despair of Cramer, who has often been accused of being Wall Street’s biggest cheerleader.

Well, you can strip that title from him.

He genuinely believes that he and millions of investors have been – and continue to be – lied to and ripped off by the banks, insurers and credit ratings agencies – all in the name of commissions. He is convinced that things are going to get worse for many banks (except Wells Fargo, Goldman Sachs and a couple of others) but nobody is talking because the system is so fragile that one slip could bring it all down.

This is no conspiracy theorist folks. This is CNBC / Mad Money / Prime Time / “Boo-Yah” Cramer…and he is pissed.

What separates him from us is that he is now fighting on principal thanks to his hefty net worth. Those of you without $50 million lying around better start paying attention and fighting for your life. This is going to get worse – but you should already know that if you’ve been paying attention to this blog over the past few months.

Regards,
George

Cramer – “Citi Is Still Sitting On $40 Billion In Mortgage Paper That Is Worthless”

Posted by AGORACOM at 1:38 PM on Tuesday, January 15th, 2008

 

As you already know by now, Wall Street was rocked by Citigroup announced a 4th quarter loss of $9.83 billion AND a write down of $18 billion. I won’t go into the remainder of the gory details (slashed dividend, slashed workforce) because you can read them anywhere. Instead, I’m here to tell you the story is only going to get worse.

 

Why?

 

First of all, I told you so in previous posts on January 10th (Ron Paul says gold has been rigged) January 3rd (Checkmate), November 27th (Mortgage Reset Chart) and November 15th (Google Shows Washington Is Worried). On top of that, if you didn’t believe us, we also had Jean-Francois Tardif (Sprott) and Jim Rogers (Quantum Fund) tell it to you straight from their mouth. If you haven’t read these posts, do yourself a big favor and read them as soon as you can.

 

Second, if all of that wasn’t enough, the “boo-yah” bull himself – Jim Cramer – is telling you “this is not the end”. Now, he is specifically speaking about Citigroup but does anybody believe the problems at Citi are contained at Citi? Didn’t think so.

 

So what did Jim have to say? You can watch it for yourself in this 3:40 interview on TheStreet.com today…but here are some of the best quotes:

 

“Citi is sitting on $40 Billion in worthless paper”

“Their bet on sub-prime is not over yet”

“This is not the kitchen sink”

“This is not the end”

 

GOLD, GOLD, GOLD

 

The US economy is in trouble = interest rate cuts = weaker US dollar = higher gold prices = good for gold stocks. It is that simple. The sub-prime pain is yet to come and it is going to hurt, just look at the mortgage reset chart above from November 27th. In the short-term, stocks are going to take a hit – but once investors realize the US problem is beyond manageable, the flight to gold will be fast and furious. It is already taking place now – but we’re still waiting for the masses to come running in.

 

Short-term blips aside, gold’s day is yet to come.

 

Regards,
George

 

Presidential Candidate – Ron Paul – Says Gold Market Has Been Rigged For Decades

Posted by AGORACOM at 7:48 PM on Thursday, January 10th, 2008

Gold bugs are jamming the airwaves today after Ron Paul – Republican Presidential Candidate – stated that central banks around the world have been colluding to keep gold down for the last 20 years by “dumping it”. You can watch him make the statement in this 2 1/2 minute interview with TheStreet.com

People like Bill Murphy at Le Metropole Cafe and The Gold Anti-Trust Action Committee (GATA) have been pounding the table on this issue for years but have often been dismissed as extremists, conspiracy theorists and even quacks.

However, their theory has started to find real support in recent years, beginning with John Embry’s publication of “Not Free, Not Fair: The Long Term Manipulation Of The Gold Price”

Now, you’ve got Ron Paul saying the gold market has been rigged for decades. In case you did not know, Paul has served on the House Banking committee and currently serves on the House Committee on Financial Services and the House Committee on Foreign Affairs.

Nobody will ever be able to confirm the collusion but these are all some pretty smart people. The John Embry piece is a must read if you want to know the basis of the collusion argument and be able to judge for yourself. However, if they are right, the natural laws of money and economics are eventually going to takeover and gold is going to erupt from the pent-up pressure.

Ultimately, this may be the only evidence of collusion and manipulation claims.

EVIDENCE OF ALAN GREENSPAN MANIPULATION IN 1998

Personally, I started getting suspicious when Alan Greenspan went on what was essentially a “sell your bullion and buy US paper” tour back in 1998/99 around the time of the Long Term Capital Management crisis that almost single handedly took down the stock market. Central Banks around the world started selling off their gold reserves like a post-holiday fire sale. The Bank of England sold 60% of its reserves. Clearly, something was up.

Around that same time he also stated “Central banks stand ready to lease gold in increasing quantities should the price rise.” Again, something was clearly up. I found another article from TheStreet.com dated May 7, 1999 that neatly summarizes this period.

In the meantime, the spot price of gold is now trading at $894. Wow.

Regards,
George

Gold Hits $866 As Investors See Checkmate Coming For US Fed

Posted by AGORACOM at 11:00 AM on Thursday, January 3rd, 2008

 

For those of you that haven’t taken a serious look at gold and related stocks (and there are many of you out there), gold just hit a new all-time high of $866 this morning. The previous high was $850 in 1980 – but after adjusting for inflation, gold needs to hit $2,079 to hit a true all-time high – and many believe that is exactly where gold is going.

 

I’m not sure about $2,079 but I give gold a 40% chance of breaking through $1,000 in 2008. Why? The US Fed. Specifically, real estate prices in the US are getting crushed and that is only going to get worse thanks to the lack of credit liquidity. Furthermore, take a look at the value of US real estate inventory below:

 

 

No credit and nobody is buying … anybody want to guess what the Fed will have to do in 2008? Yep, cut slash interest rates. Interest rate cut = Cheaper US Dollar = Higher Gold Prices. It is that simple.

 

But there is more.

 

The US is also fighting inflation. Unfortunately, you can’t fight inflation and a credit liquidity crisis at the same time. Fighting one only makes the other problem worse. In this case, cutting interest rates will also lead to higher inflation. Afterall, the purpose of interest rate cuts is to get people to spend. Anybody want to guess what happens to gold when inflation starts climbing?

 

If you are a chess player, you understand the analogy that the Fed is about to sacrifice its Queen to save the King. Unfortunately, cutting interest rates to help save the real estate market is only going to delay the inevitable pain the US economy must suffer for years of excess and greed. They have picked their poison and thy name is inflation. Checkmate.

 

Regards,
George