Monthly Archives: October 2008

Pundits & Pols: Don’t Buy Gold; Stay in Cash Says, IBD; IMF to the Rescue (or Miscue?)

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“The same is true for gold, another refuge for cowardly capital. Buying gold amid a financial crisis means paying a premium amid a panic. What happens when that panic recedes? Your gold is worth less….” writes Investor’s Business Daily.

Comment:

Maybe so. Maybe not. But who is saying this? Investor’s Business Daily, which is in the business of selling stocks. Naturally, it wants you liquid and ready to jump in and buy. I’d like to go back and check what it was saying in June or July this year…

Meanwhile, President Bush will be addressing the market panic from the Rose Garden this morning. And the G-7 meet today to consider government guarantees of interbank lending.

The IMF has activated an emergency financial mechanism to help, says Dominique Strauss-Kahn, IMF chief, who has the ear of Hank Paulson.

And Robert Zoellick, World Bank chief (also an ex-Goldman Sachs man and formerly US trade rep) says poor countries will be hit hard. Maybe G-Sax should sell them some more junk bonds to help them out.

Treasury Now Partly Owns Fed

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Member banks within each of the 12 districts of the Fed elect 6 of the 9 regional board members and the president for that district.  Since the Treasury now intends to take minority equity stakes in some banks that it claims are struggling, (ostensibly for the purpose of preventing investors from pulling out), it will have partial control over the Fed. That means the Fed is now even less independent.

Propaganda Nation: Market Manipulation & Bank Banditry (Updated)

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Do Statistics Back Claims of Complete Credit Freeze?

“Many commentators claim, however, that virtually no transactions are occurring in this market. These claims are completely false. For the week that ended October 1, which is the most recent week currently reported, total commercial paper outstanding amounted to $1,607 billion. Yes, this amount was down from the $1,702 billion reported for the previous week, but is a 5.6 percent drop a good reason to panic? If we go back to March 2008, when nobody was talking excitedly about the commercial market’s “freezing up,” we find that the total amount outstanding, on average, was $1,822 billion, or only 13 percent more than last week. In March, the market was working fine; now it’s “locked up.” This sort of hyperbole, with which we are being bombarded hourly around the clock, is totally without a basis in the facts…..”

Robert Higgs, suggesting that some people are fomenting panic. He asks why.

Comment:

The answer lies in asking yourself:

Who has benefited so far? How? What do they want to happen?

Paulson Plan Premeditated?

Here’s Bill Engdahl tying up the loose ends of my piece on Paulson on how Paulson’s plan benefits the three new super banks, Goldman, JPMorgan Chase, and Citi and how they would be used to dominate global, especially European, banking.

Interbank Wars – Latest

The latest in Citi’s fight with Wells Fargo is that Citi has terminated negotiations and is planning to pursue breach of contract against Wells, so Wells is going ahead with its deal. Citi has Goldman Sachs connections: Rubin, Clinton’s Treasury Secretary and a former Goldman chief is a director. Meanwhile, with regard to Bear’s demise, here is a piece arguing that JPMorgan was involved in gold price manipulation under cover of their bail out of Bear this spring. JPMorgan chief Jamie Dimon sits on the Board of the NY Federal Reserve and as such was privy to the NY Fed’s actions re Bear Stearns.

Media Trix

Bill O’Reilly, not usually my favorite person, has been pretty good on standing up to the bail-out. This evening, he had a clip from an NBC skit on the sale of subprime mortgages to Wachovia by a couple, the Sandlers. It mocks Barney Frank’s role in eliminating oversight of Fannie and Freddie. Apparently the video was edited to remove the reference to Frank. The Sandlers had a long list of progressive groups they donated to (including Move On.org).

O’Reilly’s tack seems to be that the positions of those groups is undermined by the funding. That part is far-fetched, but it is time someone pointed out that not everyone affected by the decline in housing prices is an innocent. Many people made fortunes during the boom and are making more money from the bust.

Update – Market Moves Or CyberWars?

Another amazing day. I walked out of the house for 2 hours to buy a laptop for traveling, since my old one had mysteriously lost its internet connectivity. When I came back, the market was closing with a sell off, down 7% (679 points).

It began in the morning when
Paulson announced that insurance companies were in for trouble. That set off the selling in the bank and insurance stocks, including regional bank funds.

The whole thing was compounded by the fact that today was the day the ban on short-selling around 1000 financial and finance related stocks was lifted, so short-sellers were pouncing.

[Companies on the SEC’s list slid 18 percent on average during the ban, compared with 24 percent drop for all financial companies in the Standard & Poor’s 500 Index].

Then, General Motors had a bad day: Standard &Poor threatened to downgrade it (as well as Ford) to junk. GM shares got beaten down under $5; Ford was down over 20% too.

You had to wonder at the timing.

1) It’s the Jewish holiday, Yom Kippur, today. Recall that the selling began the evening of Rosh Hashanah. Remember that old saw – sell Rosh Hashanah, buy Yom Kippur? Markets are weaker at the time…

2) The declines came on the one-year anniversary of the closing highs of the Dow and the S&P. The Dow has lost 5,585 points, or 39.4 percent, since closing at 14,164.53 on Oct. 9, 2007. It’s the worst run for the Dow since the nearly two-year bear market that ended in December 1974 when the Dow lost 45 percent.

3) The decline is 7 years from 9/11

Anyway, when I got back the damage had been done.

[I ended up buying my computer at a shop that sold refurbished electronics in a rather shady side of town. A cop car was pulling away just as I walked in. But having just been a spectator to one of the biggest bank heists in history, I suddenly found the grungy looking characters hanging around rather harmless].

James Altucher, a trader, has this to say at The Street:

“The single biggest reason the stock market has fallen in the past five days is hedge fund liquidations. Of the top 20 hedge funds in the world, something like 18 are down 20% or more this year. They are getting redemptions, they are liquidating, they are selling stocks with reckless abandon to raise cash. Our job as good investors is to give them liquidity and take their bargain-basement merchandise off of their hands. Let’s get their selling over with so we can make money.”

Well, that’s evident. There was big selling, especially at the end, the kind from sell signals going off in program trading.

Morton Kondracke on FOX News in the evening was telling us sagely that it’s not a liquidity issue, it’s a confidence issue, and (get this) the answer is to create a global central bank. Right. The solution to a confidence problem is to give the markets to the confidence-men.

A note on cyberwarfare might be apposite hear. I dig it up from an old article I wrote that references Laurent Murawiec’s now notorious power-point presentation in 2002 advocating seizing Saudi oil fields. Murawiec is connected to Donald Rumsfeld’s Revolution in Military Affairs (RMA) which makes InfoWars central to the battle ground.

“In all these cases, IW involves creating phantom cyber-images, which can include phantasms of nonexistent trains, airplanes, stock market orders, and bank transfers; false impressions of the enemy’s troop strength and one’s own, of supplies and movements, of fake attacks and all-too-real defenses; and phantom images of the enemy’s leaders doing evil things on screen because one has video-morphed images of them doing them so.

“Information warfare is not about machines or even electrons. It is about people’s minds, society’s functions, and armies’ strategies. Cyberspace endows us — and our enemies — with new and extraordinary means with which to achieve our respective aims. “We have only begun to cyber-fight….”

More at “Tom Tancredo Takes Out Mecca: The Cyber Wars Playing Near You.”

Propaganda Nations: Brown or Green, But Not Gold…

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“Oct. 9 (Bloomberg) — Confronting the worst financial crisis since the Great Depression, Gordon Brown and Henry Paulson went in different directions.

Brown, who opted to spend 50 billion pounds ($87 billion) to partly nationalize at least eight British banks, took the most direct route to shore up the system. The U.K. prime minister’s approach contrasts with the one taken by U.S. Treasury Secretary Paulson, who crafted a more complicated $700 billion plan to buy financial firms’ bad debts. Yesterday, Paulson signaled he may follow and invest directly in banks.

“The U.S. is just less predisposed toward nationalization than all the European countries,” said Joseph Mason, a professor at Louisiana State University in Baton Rouge who used to work at the Treasury’s Office of the Comptroller of the Currency. He praised the British plan as more straight-forward. “I just think they’re way ahead,” he said.

Brown’s plan returns his Labour Party to its roots, reflecting post-World War II policies of taking ownership of industries ranging from airlines to mining. Margaret Thatcher‘s Conservative government reversed those policies in the 1980s, and they were rejected as Labour doctrine under the leadership of Tony Blair and his successor….”

Comment: 

The Brown idea is nothing more than what George Soros and Paul Krugman advocate. It’s official international socialism. [Paulson’s is unofficial corporate socialism, i.e., thuggery].

No mention that Brown has nuclear energy ties, dumped Britain’s gold at the bottom of a 20 year trough in gold prices, and supported monetary intervention ala Greenspan, thus making him culpable for the boom in credit too.

Mind-Body: Making Fish Into Dragons

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” At the three-tiered Dragon Gate, where the waves are high,

fish become dragons,

Yet fools still go on scooping out the evening pond water.“

Commentary from Zen Mountain Monastery:

There is a Chinese legend about a great dragon gate though which the mighty Yellow River flows, where the waves at the gate are high and the three tiers of the gate are treacherous. On the third day of the third month when the peach blossoms bloom and heaven and earth are ready, if there’s a fish that can get through the dragon gate then horns sprout on its head, it raises its bristling tail, catches hold of a cloud, and flies away becoming a dragon.

But you see, the conditions have to be right. How are the conditions made ready for us to pass through the gate? No one can predict. Yet they don’t become correct by creation, by will, or intent. When the wind of our mind ceases to blow, when the god of fire truly comes looking for fire, then “the sky can’t cover it; the earth can’t support it.”

Yet fools still go on scooping out the evening pond water.

Somebody watches as a fish leaps free of the dragon gate, is zapped by a lightning bolt, and is transformed into a dragon. Then they hurriedly run down to scoop out some of the water to drink, thinking that will make them into a dragon. It must come from deep within. We can’t live another’s life, practice another’s barriers, realize another’s true nature.

Where do you find yourself? What do you need to do before you can live and die completely, unreservedly? Who is asking? How much does it matter? What are you willing to let go of? These are the conditions. They are real and they come to life when we bring them to life. What is Buddha? Please, find out for yourself…”

Who’s to Blame: Free Market or Financialization?

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“Iceland’s reinvention from the poor cousin in Europe to one of the region’s wealthiest countries dates to the deregulation of the banking industry and the creation of the domestic stock market in the mid-1990s. Those free market reforms turned Iceland from a conservative, inward-looking country to one of a new generation of internationally educated young businessmen and women who were determined to give Iceland a modern profile far beyond its fishing base.

Entrepreneurs become its greatest export, as banks and companies marched across Europe and their acquisition wallets were filled by a stock market boom and a well-funded pension system. Among the purchases were the iconic Hamley’s toy store and the West Ham soccer team.

Back home, the average family’s wealth soared 45 percent in half a decade and gross domestic product rose at around 5 percent a year.

But the whole system was built on a shaky foundation of foreign debt.

The country’s top four banks now hold foreign liabilities in excess of $100 billion, debts that dwarf Iceland’s gross domestic product of $14 billion…”

More here.

Comment:

The usual muddled and dishonest blanket indictment of the free markets will begin. But look at the facts. It was massive deregulation of one sector – banking and finance, allowing it to become the target of what amounts to predatory lending. Debt. Speculation. Possible criminality.

“The krona is suffering in part from a withdrawal by a falloff in what are called carry trades — where investors borrow cheaply in a country with low rates, such as Japan, and invest in a country where returns, and often risks, are higher.”

Icelandic bonds? Remember those? Just a while back, every investment newsletter you read was urging you to get fantastic rates of return on those bonds. What you have is interest rate arbitrage, speculators making money off the difference between interest rates. They aren’t to blame, of course. Give people an incentive, and they will act on it. But that’s the result of unrestricted printing of paper money, artificially low interest rates, and artificially abundant credit. Don’t blame the free markets.

And this gem from Jim Willie:

REALITY CHECK, INVESTMENT ALTERNATIVE: If you had purchased $1000 of Delta Airlines stock one year ago, you would have $49 today. If you had purchased $1000 of AIG stock one year ago, you would have $33 today. If you had purchased $1000 of Lehman Brothers stock one year ago, you will have $0 today. However, if you had purchased $1000 worth of beer one year ago, drank all the beer, then turned in the aluminum cans for recycling, you would have received $214 today at redemptions. Based on the above, the best current investment plan is to drink heavily & recycle. It is called the 401-KEG Plan.

IMF: Recession through 2009

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“The IMF — and many private economists — believe the U.S. economy will probably contract in the final three months of this year and the first three months of next year, meeting a classic definition of a recession. The economy’s last recession was in 2001.

The government’s bailout package is aimed at thawing lending by buying bad mortgage-related debt from troubled financial institutions. The idea is that the banks’ books would then be cleaner, putting them in a better position to lend and get the economy moving.

The IMF said this effort should help to stabilize markets but even so “the process of balance-sheet repair will be long and arduous.” Credit availability is likely to remain constrained throughout 2009, the IMF said.

Fed Chairman Ben Bernanke warned in a speech Tuesday that the economy’s outlook for this year has darkened and the pain could last for some time. His remarks were seen as foreshadowing Wednesday’s rate cut.

Looking at other countries, Germany’s growth will slow to 1.8 percent this year, down from 2.5 percent last year. France’s growth will weaken to just 0.8 percent, compared with 2.2 percent in 2007. Britain’s economy will see growth taper to 1 percent, down from 3 percent last year. Canada’s growth will tail off to 0.7 percent this year, from 2.7 percent last year.

In Japan, growth will cool to just 0.7 percent, from 2.1 percent last year.

Global powerhouses China and India will see growth clock in this year at a robust 9.7 percent and 7.9 percent, respectively. Even if those projections prove correct, they would still mark downgrades from their blistering performances last year. Russia’s economy should grow by a brisk 7 percent this year, down from 8.1 percent last year.

Inflation around the world remains high, driven up by surging energy and food prices through much of this year….”

ObamcCain: The Politics of Pose

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“Will anyone ask the Democratic candidate how he feels about stoking up a replication of the Iraq disaster, with a possible war between nuclear Pakistan and nuclear India as lagniappe? The dawn of an Obama administration is now scheduled, on the candidate’s pledges, to see escalation of a doomed and pointless war in Afghanistan and perhaps also termination of Karzai, now square in Uncle Sam’s sights as a failure and probably scheduled for assassination. There’s the heritage of JFK and Vietnam for you. It’s back to 1963.

Asked if Russia was evil, just like the Soviet Union in Ronald Reagan’s eyes, Obama said yes, McCain “maybe”. Trade? Latin America? Africa? Europe? Nothing from either man, though they both agreed that they would flout the UN at will.

Of the two performances, Obama’s was the more appalling since he is meant to be the candidate of change and new ideas. He has no detectable commitment to change and no new ideas. Neither does McCain. Yet the post-debate panelists mostly claimed the Town Hall Meeting an absorbing affair, rich in content. We have one more debate, in which McCain will have another chance to reduce Obama’s commanding lead, something he failed to do last night, even though it now seems Sarah Palin did slow McCain’s slump with her performance last week. McCain and Palin are trying to get traction by slurring Obama for association with Bill Ayers, a leader of the the bomb-throwing antiwar Weathermen in the 60s. Obama was eight when they threw the bombs. It doesn’t seem a productive line of attack for McCain and Palin, particularly when many Americans wouldn’t mind blowing up Wall St themselves….”

Alexander Cockburn in Counterpunch.

Propaganda Nation: Clean Coal

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“Sarah Palin and John McCain have always been for it. Joe Biden was sort of against it before he was for it and Barack Obama embraces it. To what am I referring? The alleged panacea of clean coal.

Doesn’t it make you feel all warm and fuzzy? We can have our most polluting energy source, the one that gouges our land, dirties our air with particulates, poisons our water with mercury, and generates most of our greenhouse gas emissions because it’s the cheapest, currently most abundant fuel source we have. Well hold on there, coal mavericks, you’re mistaken. Coal is a non-renewable resource. Factor in the externalities of pollution and costs to human heath, and the so-called cheap fuel source skyrockets….”

More at The Huffington Post by Simran Sethi on the bipartisan dog and pony show.