Category Archives: Finance

Gold Spike Related to Chinese Derivative Contracts Busting?

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Here’s a zinger that might explain gold’s sudden spike since yesterday:

“Some of the State Owned Enterprises that stated their potential intentions to default were Air China. China Eastern and Cosco. Mainly in part because they took major derivatives losses over the past year but also, concerns are arising that the derivatives that they were sold by these foreign institutions are garbage, underwater and may never see the light of day. So why continue to pay for them? So the concern in the financial world is that holders of these losing products may just walk away, not unlike a home owner with a $600,000 mortgage on a home valued at $475,000 deciding to just hand in their keys. However, read on…this has nothing to do with morgtgage backed products.  This time, the concern may be over Oil.

They (Reuters) cited 6 foreign banks. Where the story gets really intriguing is that among the major derivatives providers according to Reuters but also widely known in the industry, are Goldman Sachs, UBS and JP Morgan.

Here is the looming problem. These products are worth billions. One report that a good friend of mine did showed that if  Goldman Sachs for example were to take this one up the rear, they could stand to lose 15 billion dollars. (This number is by no means confirmed)……. I would imagine that China, being the biggest purchaser of US debt, could surely collapse the US institutions that were at one point deemed too big to fail if they decide to go ahead with this plan.

This is why I don’t take tonight’s news that China purchased 50 billion dollars of IMF bonds lightly. In fact, I take it very seriously. This is why I take the buzz on the floor over the past two days very seriously as well as I do the incredible spike in Gold today. Most importantly, I do not take lightly the recent 25% correction we have seen in the Chinese Stock Market. Can all these events be interconnected some how? Is the Chinese stock collapse giving us a hint?”

More here.

Commercial Real Estate Worsening..

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Commercial Mortgage-Backed Securities (financial instruments backed by debt derived from commercial real estate mortgages) are in growing trouble, says the Wall Street Journal:

“The CMBS sector is suffering two kinds of pain, which, according to credit rater Realpoint LLC, sent its delinquency rate to 3.14% in July, more than six times the level a year earlier. One is simply the result of bad underwriting. In the era of looser credit, Wall Street’s CMBS machine lent owners money on the assumption that occupancy and rents of their office buildings, hotels, stores or other commercial property would keep rising. In fact, the opposite has happened. The result is that a growing number of properties aren’t generating enough cash to make principal and interest payments.

The other kind of hurt is coming from the inability of property owners to refinance loans bundled into CMBS when these loans mature. By the end of 2012, some $153 billion in loans that make up CMBS are coming due, and close to $100 billion of that will face difficulty getting refinanced, according to Deutsche Bank. Even though the cash flows of these properties are enough to pay interest and principal on the debt, their values have fallen so far that borrowers won’t be able to extend existing mortgages or replace them with new debt. That means losses not only to the property owners but also to those who bought CMBS — including hedge funds, pension funds, mutual funds and other financial institutions — thus exacerbating the economic downturn...”

My Comment

So there you have the reality under the green shoots hype. The economy might be showing good signs – why wouldn’t it, the amount of money that’s been thrown into it – but in the long-run, the refusal to let the underlying problem correct itself only drags out the crisis and makes it worse. And that’s just CMBS, one part of the entire commercial real estate market. The whole market is $6.7 trillion.

The failing loans make up about 1/60th of the entire market, but since they’re widely dispersed in individual and institutional portfolios, their impact will be far greater and more cumulative than their numbers would suggest. That was what happened with residential ARMs.

We explain the whole crisis in “Mobs, Messiahs, and Markets” (check out the new paper-back edition that came out from John Wiley, August 24, 2009) – look at the financial sections – “Flattening the Globe” (that explains the un-Friedmanesque facts behind globalization) and the section called “Bubble Kings.”

It’s a quick and easy but thoroughly researched run-down of what happened in the financial markets. You’ll be able to figure it out, even if you never took a course in economics.

In fact, it might be harder for you if you did take college economics, where the underlying premise is that static models can do better than real world analysis in predicting what’s going to happen.

How many of these academic experts, including Ben Bernanke, anticipated what might happen and explained clearly and accurately why it would happen? None, it looks like.

There’s a lot of revisionism going on now..People are rewriting what they said two years ago or five, or even farther back. But the truth is, the emperor (expert opinion) has been caught out wearing a g-string. And nothing much else.

The experts are buck (excuse the term) naked….

Government Profiting from Bailed-out Banks

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In the news, AP reports:

“Critics of the bailout were concerned that the Treasury Department would never see a return on its investment. But the government has already claimed profits from eight of the biggest banks.

The Times cited government profits of $1.4 billion from Goldman Sachs, $1.3 billion from Morgan Stanley and $414 million from American Express. It also listed five other banks — Northern Trust, Bank of New York Mellon, State Street, U.S. Bancorp and BB&T — that each returned profits between $100 million and $334 million.”

The government has also collected about $35 million in profits from 14 smaller banks, the Times reported.

More Dollar Decline Imminent?

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I’m not any place where I can blog easily but I had to post this paragraph from Jim Willie’s newsletter on a possible dollar debacle in the coming week/weeks…

I’m hearing that US embassies are being instructed to buy the local currency (?) –

Is this really in the works, is it scare-mongering, gossip, disinformation…?

Who knows, but it’s worth posting.

Be alert.

I note that gold, after looking like it would correct, now seems to have gone back up and the dollar is teetering again…as it’s done many a time.

I’m ready to move if I have to.

Down here in the pampas, swine flu is rampant. People go in and out of Buenos Aires with masks. The portenos don’t have the best reputation on the continent, and this is making it worse. Everyone is holding their breath anyway – with or without masks.

The winds are beginning to blow in from the delta, as they always do at this time of year. It feels like brisk spring weather in the US. Prices in the city are high but everyone is waiting for something to happen. Don’t buy now, says an expat blogger who watches real estate. Everything’s about to come down. People are pushing up the prices to squeeze out the last penny before things crash.

Don’t have anything to do with them, says a Brazilian businessman. “Them” means Argentines – who are said to be arrogant…touchy….corrupt…drama queens…

One the other hand, everyone likes the Brazilians. They’re the Italians of South America.

In Argentina, they have farms and food…and they cry, goes a Brazilian saying. In Brazil, they don’t have food. And they dance.

It’s true.

I had lunch at a restaurant on the banks of the Rio dela Plata with an American  – a just-retired attorney from Virginia – who is down here looking for property. He was talking about vaccinations. Some of his theories were definitely paranoid – but it’s the kind of paranoia that’s plausible these days. He wanted to drop his American citizenship, but was afraid it would raise a red flag. He talked about the exit tax and how it prevented the wealthy from leaving. It was the first time in my life I was grateful for not being a financial success.

I suggested that the purloined letter strategy might be the best. Hide right out in the open, in the most obvious place. We discussed what that would be. It was a toss up between getting a job at Goldman Sachs, working for the Pentagon, or emigrating to some member of the Axis of Evil.

He had fish. I had a salad – an odd choice in this meat-saturated culture. But I’m on a budget. Wandering the globe on your own steam would be ruinous without one. For me, a night at a restaurant means a couple of days of rice and beans to make up for it. I haven’t couch-surfed yet, but it may yet be in the cards, if this trip gets prolonged.

Jim Willie:

“The globe is losing patience with leadership and management of the USGovt ship at sea. They simply refuse to offer a credible solution to the primary keynote crack in the hull, falling housing prices and cratered mortgages, each of which work their destructive magic to wreck the banks. The home loan modifications are a farce, a travesty not designed to modify but rather to frame a series of loan forbearances. The motive for not fixing the mortgage mess is mysterious to the masses, but not here. Jackass claims have been consistent, that effective loan modifications would alter the underlying mortgage bonds drastically. The Powerz wanted enough time delay to rejigger as many mortgage bonds as possible into new securities, thus rendering impossible any legal challenges to the original mortgage package process that was loaded with fraud to the hilt. Any drastic alteration of mortgage bonds would reveal vast fraud of two types. Many mortgage bonds did not have clearly certificate property titles with careful registrations. And then the coyote ugly part, that many mortgage bonds were simply counterfeits sold into a frenzy filled credit market designed to process the most vile vermin on paper. The USDollar is vulnerable here and now, as a new wave of bank losses is imminent from numerous types of mortgages along with some basic types. Let’s see if the grapevine is correct, that the USDollar will begin to see a trashing initiative starting this weekend, out of Asia. They must be impatient beyond description. This autumn is expected to see some rather tumultuous events unfold, as the US financial structures are breaking across most of its ramparts even as loyalty to it is fading like a mist. There will be no return to the US of yesteryear, only a tragic march.”



Tips to Survive Hyperinflation..

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Greg at Holy  Cause has actually lived through the infamous Zimbabwean Zaire’s hyperinflationary crisis in the 1990s, so his words carry their weight in…er..gold (dollar-holders, I know that stings).

“Most Americans have not lived in hyper-inflationary environments.  I have, and assure you that your primary protection is to not hold cash. Treat it like a hot potato, let it rot in somebody else’s hands. This is repeated as Rule #1 below, but it bears saying several times.  Never forget it, when you get cash, flee to something else as quickly as possible…..

zaire9f

Just don’t hold an inflating currency – pass it on to the next guy like a hot potato, let it rot in his hands rather than yours.

Rule #2 – Have some type of business, even a “black market” one. Businesses which survived the inflationary hurricane in Zaire included those which were involved in the supply chain of basic consumer goods….money changing was also a profitable business…..

Rule #3 – Own a house and enough land to farm to feed your family. Houses (a primary residence), well bought and paid in full, served as a good hard asset, and provided a roof over one’s head as well. Having a little land to garden or for raising small animals helped keep a family from starving….

Read the rest of this great post at Holy Cause.

Madoff Feeder Funds Sued for Complicity in Fraud

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After having said I won’t touch the Madoff story until my site gets a bit more protection, I
couldn’t resist this latest confirmation of something I said way back in December – that the feeder funds probably knew perfectly well what was going on and that “philanthropy” in many instances was just a cover for criminal activity or for misuse of funds.  Note the similarity to the scandals at Fannie and Acorn, where the mandate to help poorer people get housing loans also provided moral cover for crime.

One critic correctly points out that Madoff targeted charities, precisely because their pay out every year was only 5% of their capital. This was ideal for a Ponzi scheme, since it allowed Madoff to give out very little of what he took in each year.

“the American Jewish Congress which “defends Jewish interests at home and abroad through public policy advocacy using diplomacy, legislation and the courts.” It reported about 24 million dollars in assets, but only spends about 3 million dollars per year. At that rate, it could have continued its work through 2017 without further fundraising or investment income. Instead they invested their money with Bernie Madoff, losing 87% of the endowment!” [Who Made Off With Our Tzedakkah? Time to blame the victims,” Daniel E. Loeb]

I told you back then that people who’d made out like bandits would be suing as though they were victims. How did I know that? Well – I taught high school.  There’s nothing about human nature, good and bad, you don’t see there..

I know how well-heeled non-profits operate. Half the time, money meant to benefit children never gets to them. It ends up in the pockets of administrators, lawyers, and various salesmen and middlemen.

The whole educational/research establishment is rife with fraud of all kinds. Some of it is unintentional fraud – where the money gets to the intended recipient, although the activity of the recipient (the research or whatever else) is pretty much a dead-end or a waste. But in other cases, the fraud is intentional, as below.

Here’s the latest from Fox News:

“Also among those sued Tuesday is one of the leading educational philanthropies in the United States, which claims it was wiped out by Madoff’s far-reaching fraud.

The complaint filed Tuesday alleges the Picower Foundation and several related entities made nearly $7 billion by investing with Madoff. At least $5.1 billion of that came out of the pockets of victims of a giant Ponzi scheme, and should be returned, it [the complaint by court-appointed trustee Irving Picard] said.”

And more:

“The Palm Beach, Fla.-based foundation had given millions to the Massachusetts Institute of Technology, Human Rights First and the New York Public Library. It also funded diabetes research at Harvard Medical School.

The trustee’s Picower complaint says Madoff managed accounts that earned astronomical returns over 13 years. One purported to earn 950 percent in 1999.”

My Comment

Very different from the spin we first heard, right? Remember they were telling us back in January that the funds returned very average earnings and no one could be expected to have seen through the scheme? Turns out that that wasn’t quite the way it was.  Nearly thousand percent returns? How hard is that to question?

This also confirms what I said in “Nationalization in a Time of Monopoly,” as well as in a later piece “Nightmare on Wall Street”:  A lot of the fraud was committed at the height of the bubble economy and involved a number of players. [Note: Obviously, Picard’s allegations are just that at the moment. We will have to wait and see how the suit plays out to get a better idea and hear more of the evidence on either side].

Far-fetched conspiracy theory?

Not at all. There are only a limited set of powerful actors at the highest levels of Wall Street. Bernie Madoff wasn’t a sidekick. He played at the top.  The people at the top knew him (I mean, SEC honchos, leading bankers and money managers, government bigwigs). He didn’t do all this without a wink and a nod.

Which means there’s more going on here than meets even Picard’s eye. But  until I get my site better protected, I’m not planning on digging any more…

Meanwhile, on the Madoff connection to the mob, there’s an interesting post at Deep Capture blog, which has this:

“After Milken was indicted, Black rallied to Milken’s defense. It was Black [Leon Black], more than anyone, who prevented Drexel from firing Milken. And Black has remained obstinately loyal to the criminal Milken ever since. After Milken went to prison, Black founded the Apollo Group, an investment partnership that received most of its initial funding from a French aristocrat named Rene Thierry Magon de La Villehuchet.

Among Black’s first moves as an independent “prominent investor” was to launch a takeover bid for Executive Life, a bankrupt insurance and financial services conglomerate…….Later, though, it emerged that Black’s takeover of Executive Life had been illegal because he had secretly been fronting for certain French investors, including Monsieur Rene Thierry de La Villehuchet. Some of the French investors had illegally parked stock with Black to hide their involvement (“parking stock” being one of the favorite techniques of the Milken-Boesky-Thorp crew, and a recurrent theme in the 98-count indictment that sent Milken to jail).”

The French aristocrat, Rene Thierry de la Villehuchet, was the manager of one of the Madoff feeder funds. He killed himself earlier this year,  reportedly from a sense of honor toward his clients whose money was lost in the scam. But if the account at DeepCapture is to be believed, he seems to have been involved in rather shady deals even before getting together with Madoff.

Short the American Public

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Suze Orman on the FDIC versus a shoe-box:

Here’s what Karl Denninger at Market Ticker had to say about her performance:

“If you believe that having 0.27% of the insured base of deposits as a reserve, having lost more than two thirds of the original reserve due to malfeasance and misfeasance, when not one person has been indicted, prosecuted or imprisoned for their misconduct over the previous two years constitutes “well-capitalized, prudently operated and able to meet insurance obligations”…

… you are free to believe that.

I will however strongly suggest that you investigate the facts for yourself before believing Suze Orman playing “mouthpiece” for a clearly-desperate regulatory apparatus that has allowed the wholesale looting of the American Taxpayer to occur – a regulatory apparatus and government, from the top down that will, it appears, continue to rob you blind until and unless you, the people, demand that it stop.

Disclosure: Short the American people, who appear to be as dumb as a box of rocks for putting up with this crap.”

My Comment

The Suze Orman video isn’t alone. The past few weeks have seen an uptick in Polyanna-ish messages about the economy, some of them making distinct swipes at libertarian doom-sayers.

Here’s some positive spin early in May from The Times Online (UK):

“The Organisation for Economic Co-operation and Development said yesterday there were indications that the country was experiencing a “pause in the economic slowdown”.

The multibillionaire investor George Soros echoed the positive forecast, saying that a meltdown of the world’s financial system had been averted. Jean-Claude Trichet, the President of the European Central Bank, said that some countries had already moved beyond the worst of their recessions.”

That simply echoed what US policy makers were saying early in April:

“Top US officials on Saturday offered reassurances that the worst of the economic downturn is likely over, helped by unprecedented efforts to keep credit flowing, though the recovery will be slow. Two Federal Reserve policy-makers, Vice Chairman Donald Kohn and New York Fed chief William Dudley, both pointed to signs that measures taken by the US central bank are indeed working to help revive the economy”

Note that Kohn was the one who stone-walled Congress when pressed for the names of AIG’s counterparties. What are the chances he’s a disinterested observer? Nil, I’d say…

Are Speculators to Blame for Soaring Oil Prices?

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Mike Martin has a piece on speculation at Huffington Post today arguing that the movement of oil prices is just the result of supply and demand and that speculators are taking the rap unfairly.

Read the Article at HuffingtonPost

This was my comment:

Good piece.. We all speculate, to different degrees, and over different time frames. Some of us do it consciously, others do it more unconsciously.

I think it’s fair to say that speculation in certain things – food and land, for starters – has social consequences we shouldn’t brush aside. But as long as money is not being priced correctly (the interest rate is held artificially low), people have an incentive to get a better return.

The underlying problem is created by the government….

https://lilarajiva.com



Currency Conundrum: Where Do You Hide?

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The big currency story of last week was the dollar meltdown, taking the dear old greenback (or the wicked insignia of imperialism, take your pick) down from over 83 to under 80 on the USDX (dollar index – an index measuring the dollar’s strength against a basket of currencies). Everything strengthened against the dollar – pound, yen, loonie, aussie, kiwi, rupee, gold, silver..

And only a few weeks ago we were within striking distance of 90. When will I ever learn not to try and pick tops? My perfectionism gets in the way of money-making. I seem to want to  be a soothsayer rather than rich.

But weeping aside, we saw this same sort of slide last year, only in spades. The dollar sank almost to 70 in March 2008, a move unequaled since the USDX began. After that, it resurrected itself, near miraculously, and continued treading water for the rest of the year. I’d hoped dollar-holders would see 90 plus. But 89 was as high as we got and then went back into the upper 70s, a 12.17% drop (11/21/08). Right now, we’re roughly at -8.9% (approx 10 points down from 89.6%), with the momentum to the downside still strong.

Last week’s swan-dive has the sweaty, knuckle-whitening smell of 2008 all over it. Chuck Butler of Everbank cautions against chasing the move, but who wouldn’t be tempted to have a go? The momentum is there, the fundamentals are there, the news supports both – so says the ever insightful Kathy Lien at GFT Forex.

The next crisis will be in currencies, points out Jim Rogers, rather redundantly.

But even he confesses to being baffled over where to hide.

The big driver behind all this is a statement by Bill Gross, Pimco’s manager, that the US could see a downgrade in its credit rating.

This struck me as rather odd. Especially, seeing as how dear old Pimpco was the charity child of the Fannie and Freddie group-hug from the government.

I wonder…I cogitate…I roll my eyes….

After all, the credit rating agencies (S&P, Moody’s Fitch’s) were talking about the UK heading for a ratings downgrade, not the US. They didn’t say anything about the US. And the UK’s debt -to-GDP is worse than ours (it’s near 100% GDP). Correction June2, 2009): I should clarify that I’m referring to public debt as a ratio to Gross Domestic Product, and checking the figures, I think I got this wrong. Will repost the figures.

Who the heck is listening to these ratings racketeers anyway? Weren’t they the same folks who put gold stars on some of the stinkiest pieces of manure being sold on the market?

Hmmm. What have we here? Could it be a little PR stunt? A little one-downmanship among friends to make a bit of pocket-change all around? A little game of push-the-buck- over-the 200-day- MA-cliff?

On the other hand, forgetting my cynicism for the moment, there are lots of real reasons for this weakness, besides trial balloon-floating from Mr. Gross, the main ones being the bounce in the stock market and the relatively smaller size of the quantitative easing in the Eurozone.

Add to that a thin trading day, which exaggerates any move, and the anticipation of the long weekend…