TaoEconomics

Jim Sinclair’s Commentary

There is one inviting conclusion out there. There is no way to know for sure which banks are broke, so it is better to consider they all are.

Jim Sinclair’s Commentary

You mean the Japanese question the strength of the US dollar just because trillions of new dollars are created regularly in non-transparent use?

Japan economists call for ‘Obama bonds’
By Kosuke Takahashi

TOKYO - Japanese economists, increasingly concerned that the United States might seek to pay its enormous and growing debt obligations in a weakened US dollar, are looking to the possibility of US Treasuries being issued in yen.

The US government needs to borrow at least US$1 trillion in the coming year, excluding the US Treasury’s $700 billion plan to bail out the financial and other industries, said Kazuo Mizuno, chief economist in Tokyo at Mitsubishi UFJ Securities Co, a unit of Japan’s largest publicly traded lender by assets. That amount is likely to grow as the US government continues to rescue failed parts of the economy and has to raise more debt - that is, issue government bonds, or Treasuries - to fund such rescues.

Since 2004, when the amount of the government bond issuance reached an annual average of $400 billion, 94% of new buyers of US government bonds have been foreigners, Mizuno told Asia Times Online.

One measure of the increased concern at the ability of the United States to finance its enormous deficits in the future is the rising cost of credit default swaps bought as protection of Treasury debt. These traded near a record high on Tuesday, with benchmark 10-year contracts on Treasuries increased to 42 basis points, or 0.42 percentage points, from around 20 in early September. The contracts have also risen from below two basis points at the start of the credit crisis in July 2007.

More…

Jim Sinclair’s Commentary

Gold at $1200 then $1650. The US dollar at .72, .62 and then .52.

It cannot be averted.

OTC derivative dealers have killed more people than most wars, and it is only starting.

The glaring disappointment is the Bank for International Settlement’s finagling with the derivative numbers by computer based netting and model risk analysis. In other words even they are now BS merchants.

America’s Mark-to-Model Banking System (revisited)
Posted on November 20th, 2008

Reflection time - earlier in the year I put together a chart for my own personal use showing all financial institutions Level 1, 2 and 3 assets vs their shareholder equity, tier capital etc. After not too long I realized it was a fairly good guide to troubled financial institutions.

I posted it on the blog on Oct for all of you guys and got emails about it for a month. I think its time to review the chart because it clearly shows why all this is happening and why TARP could not be used to buy distressed assets.

Everyone was focused on Level 3 and glossed right over Level 2, which could be equally as toxic and marked to some sort of internal proprietary modeling system that give these assets much more value than reality. For many of these firms at the top of the list a mere 5% haircut in their Level 2 book renders them insolvent. This is where a lot of that nasty commercial resides.

Citi said today that its balance sheet is not that much different that Chase - by the looks of Chase’s Level 2 assets to equity, they better hope not.

Remember, its not a liquidity problem, its a solvency problem, which this chart clearly shows. The institutions listed here were my top 25 short picks earlier in the year based upon this chart. Some still look good. Please note that I have not updated this chart completely because I have not had the time but since I have not heard of very many banks selling massive amount of bulk assets, I would assume that these numbers have not shrank, more likely grown. -Best Mr Mortgage

America’s Mark-to-Model Banking System

Oct 2nd 2008

Is $700bb really enough?  Buying distressed assets from banks balance sheets is a waste of money. How insolvent are the nation’s leading banks?

Level 1, 2, and 3 assets are ways of classifying a company’s assets based on the degree of certainty around the assets’ underlying value. For example, Level 1 assets can be valued with certainty because they are liquid and have clear market prices. At the other end of the spectrum, Level 3 assets are illiquid and estimating their value requires inputs that are unobservable and reflect management assumptions. Think of it like Prime, Alt-A and subprime mortgage loans for example.

Somehow we have skipped right over Level 2 and are judging bank risk by looking at Level 3. Maybe in a robust credit market full of securitizations and leverage like 2006 this would have been just fine, but not now.  Perhaps this is unfolding in a linear way just like the mortgage crisis beginning with subprime (level 3), now onto Alt-A (level 2), then to Prime (Level 1).  Walls Street did a similar thing last year when it went right to focusing on CDO’s and forgot about all of the toxic whole loans and MBS on the balance sheet.

In the past several months, banks have been very focused on ’selling assets and bringing down leverage’ with the primary focus being on their mostly toxic Level 3 ’assets’.  That would be fine and dandy if their Level 2 ‘assets, which in this market may be equally as hard to value as Level 3, were not up to 20 times greater in Bank of America’s case for example.

The chart below show total Level 1, 2 and 3 ‘assets’. I have been keeping this for many quarters but shown is only Q2. However, if you look at level 2 assets/equity percentages it has been a road map to troubled banks with the exception of a few…but are those really exceptions.

**PLEASE NOTE - Chart below may not reflect accurate shareholder equity - needless to say it is much lower now. (Click to enlarge)2

More…

Hello Jim,

Very good analysis in your article"30 Reasons For The 2nd Great Depression."

I might add this is the fourth long-term down cycle since 1860, and it’s not over yet.

CIGA Eric

Click chart to enlarge in PDF format

Click chart to enlarge today’s 12 hour action in gold in PDF format as of 12:30 pm CDT with commentary from Trader Dan Norcini.

The Senate approved a House bill to extend unemployment benefits by at least seven weeks on Thursday, sending the measure to President Bush on the sa

2 Vote(s)

by Addison Wiggin & Ian Mathias

• S&P 500 sinks to 11-year low… Chris Mayer explains massive forced selling on Wall Street
• Probably a good time to get our fiscal house in order… Rob Parenteau with some personal finance advice
• Have any stocks escaped the 2008 market madness? Sure… the 13 S&P stocks not in the red 
• Traders flee equities, accept anything in return… bond yields sink to record lows 
• Congress “faces reality”… Big Three bailout on hold until December

  It’s one thing for techs to go bust. But S&P 500 companies that are supposed to be the "real economy" and throwing off dividends? Ouch.

“Yeah,” Chris Mayer responded by IM this morning after looking at this chart. “This is the most impressive collapse since the 1930s because of the its breadth. I mean, the S&P 500 getting cut in half from its high in about a year? The S&P 500?! Ouch, indeed…”

  “There is massive forced selling on Wall Street,” Mr. Mayer goes on to explain, “as hedge funds and other big investor pools meet redemptions. In other words, say a hedge fund investor wants his money back. The hedge fund manager, if he doesn’t have the cash on hand to meet the redemption, must go out and sell stock to raise the money. It doesn’t matter if he thinks he’s holding a bunch of 50-cent dollars, he must get rid of something.

“In many cases, the presence of debt gives this forced selling greater urgency. If the hedge fund used debt to fund purchases of stock and suddenly has to meet margin calls — that’s more selling.

“The numbers coming in so far are just mind-blowing. Some of the big hedge funds have suddenly shrunk a whole lot. Consider these examples from 1440 Wall St.:

• Atticus Capital, another much-celebrated hedge fund, went from $8.1 billion to $510 million
• SAC Capital , run by the Steven Cohen, went from $14.4 billion to $7.7 billion
• Vinik Asset Management, lead by Jeffrey Vinik, who once ran Fidelity Magellan, went from $11.8 billion to $1.8 billion!

“Remember, this is as of Sept. 30.These numbers could be halved again. And also remember, these 13-F filings just show assets at that time. The reduction is a combination of selling and a decline in market value.
 
“Getting through this year could be rough on the existing portfolio, at least as far as outward appearances go. We’ve got tax-loss selling in the mix, too. I don’t like to guess about the market, but what the heck: My guess is we don’t see much relief until some of the money comes back in the new year.

“I don’t think investors are going to be happy holding cash or T-bills for long, especially when some of the valuations and yields in the market look so compelling. The markets swing between greed and fear. The pendulum is still on the fear side, but it won’t be there forever.”

We’ll be broadcasting the second installment of the Emergency Retirement Recovery Series Webinar on Monday, featuring Chris Mayer and hosted by John Wilkinson. It’s free… you can sign up here.

  “With respect to your personal finances,” says Rob Parenteau the newly minted editor of The Richebacher Letter, “an environment like that above requires as a first step bringing household expenditures in line with income. Rolling over debt is likely to prove more difficult for households in the days ahead. Once household spending is no longer reliant on credit, reducing expenditures to pay down high-interest-rate consumer debt may prove to be one of the best investments available.

“Repairing credit scores might also prove a timely investment right now, as banks are likely to further tier customers, even after the credit convulsion has passed, and homeowners will want to be in good shape if and when mortgage rates come down enough to allow another refinancing wave to develop.”

For those more concerned about systemic failure in the U.S. financial system, we suggest you consider the services of outfits like EverBank and the Sovereign Society, to explore options for diversifying your portfolio exposures to different nations. More to come…
 

 After yesterday’s decline, the S&P 500 has been reduced to 752, the lowest level since 1997.

  Yesterday, we looked at all the S&P’s biggest losers of the credit crisis. So… lest you think we’re all gloom and doom here at The 5, today, we share with you the survivors (so far) in 2008. All 13 of ’em:

Hmnnnn… discount retail, drugs, breakfast cereal, tobacco… and Dr Pepper.

  The Dow closed yesterday at 7,552. It opened up 100 points today. But if it closes below 7,181, Monday could be a real doozy.

  As the market tested new credit crisis lows, yesterday’s yields on U.S. Treasury securities hit record lows, too. The yields on 2-, 5-, 10- and 30-year bonds all hit their lowest levels in the history.

Investors are still willing to accept next-to-nothing yields in exchange for shelter from the mass murder on Wall Street. But when this trend reverses, we expect it to do so quick and hard. When? Hmmmn… that’s complicated. And depends how far beyond support levels the Dow and S&P are going to fall before sentiment turns. Could be a while yet.

  We must have jinxed Berkshire Hathaway by endorsing it earlier this week. BRK A shares dropped 12% Wednesday, their worst trading day in at least 23 years. The company reported a 77% decline in third-quarter profits year over year, and has been trading down for the last nine days in a row.

You can pick up an A share today for “just” $77,500… nearly $20k cheaper than our buy price of $95,000. Heh.

  One of Berkshire’s latest buys, Goldman Sachs, hasn’t been going very well so far. That 10% coupon for this year is long gone, and Goldman shares have fallen below $50… $3 lower then their IPO price in 1999.

  Citigroup has lost half its market cap since Tuesday. Shares of C dropped below $5 yesterday.

What may be an inconsequential price for the everyday investor is a big deal for funds of the world. Most institutional investors and pension funds are barred from owning stocks below $5 a pop. Money managers who have been clinging to Citi will likely have to pull the trigger before the end of this quarter.

  And since market intervention has worked so well this year… Fannie Mae and Freddie Mac announced yesterday that they will postpone foreclosures during the holiday season. From Nov 26-Jan 9, the government-rescued enterprise (GRE) will be on foreclosure hiatus.
 
“We felt it was in the best interest of both borrowers and Fannie Mae to take this extra step to ensure that homeowners with the desire and ability to prevent foreclosure have an opportunity to stay in their homes,” said Fannie’s new CEO Herb Allison. During the freeze, Fannie and Freddie will work with another government agency, the audaciously named “HOPE Now,” to reduce payments and interest rates for at-risk borrowers.

  The dollar didn’t benefit too much from yesterday’s sell-off. The dollar index is showing some resistance to the 88 level, having only exceeded it once during this dollar boom. As we write, it’s around 87.6.
 

  Gold, on the other hand, is off to the races this morning. The spot price is up $25, to $775 an ounce. The dollar’s failure to respond to yesterday’s decline is helping reinstill confidence in gold. Plus, the S&P 500’s and Dow’s rapid approach to technical lows is ramping up “safe haven” buying.

  And as we suspected yesterday, you’ll have remarkably cheap gas to fuel your holiday trips in the coming week. The national average gas price dipped below $2 a gallon today for the first time since March 2005.

Gas is down 50%, or $2.13 from its all-time high set in July. On average, a gallon today will set you back $1.98.

  “We have to face reality,” admitted Senate Majority Leader Harry Reid. Not the reality that an automaker bailout is a bad idea… but the reality that no one outside of Washington supports it.

Congress will recess until the week of Dec. 8, so members can go home, , collect bribes, patronize their constituents, sleep with young aides and so on. When they return, the “Big Three” will present their case — make one last stand — and maybe, just maybe, this thing will be over.

Heh. Must be Friday.

  “The incongruity,” writes a reader, $5 words in hand, “between the reported total compensation of the U.S. autoworker — roughly $70 per hour — and the impossibility that they are thus making about $150,000 a year to screw on lug nuts is reconciled by the fact that ‘total compensation’ combines salary plus those gilt-edged health benefits, FICA, Social Security, etc. Their take-home pay is closer to about $40 per hour — still good money, mind you.”

  “I come from a different industry completely,” writes another, “than that of the automobile. But I was a dues-paying union member for 30 years until I retired at 52-years-old!

“It is regrettable that this country doesn’t think that labor unions are necessary anymore. That is why we now have the classification of ‘the working poor’: those who work 40-60 hours a week and can’t afford to buy food without food stamps; those that never get to take a vacation with their families because they cannot afford to take time off work without pay (they have no paid vacations), let alone go anywhere; those that will depend on Social Security for their retirement income. (It used to be known as the middle class.)

“Thank you very much, but I would rather pay dues to my crooked union and walk away with livable wages, medical benefits for me and my family and a pension that my trusty government cannot just decide to tap into. Also, there was a tremendous number of college graduates that worked for the same company, but they made more money out of their field! You act as if these companies just handed wages out to undeserving workers. Trust me, I DESERVE AND HAVE WORKED hard for the benefits that I have received in the past and those that I get now.”

Have a good weekend,

Addison Wiggin
The 5 Min. Forecast

P.S. We thought we found some more controversy surrounding I.O.U.S.A. yesterday… then we realized who was making the comments. Mike Norman is one of those nitwits you see on CNBC from time to time shouting inanity, never letting anyone else finish a cogent thought.

On the bright side, Norman’s most endearing quality is that he’s a perfect specimen of the modern airhead. A man who’s only chance of survival comes by way of leeching off producers in the greenrooms of today’s fictitious mass media. Without his ilk, life on the media circuit would be much less entertaining.

On the other hand, he’s one of the morons who helped get us into this mess in the first place. Here he is among a montage of people laughing in Peter Schiff’s face for calling a 15% correction in house prices back in 2006.

You can read Norman’s insightful review of I.O.U.S.A. here.

P.P.S. If you haven’t secured your copy of I.O.U.S.A. yet, now’s as good a time as ever. We’ve bundled it together with a companion book and some investment wisdom from Chris Mayer… a package available only to readers such as yourself. Get your bundle, here.

Click here for today’s Custodial Accounts charts with commentary from Trader Dan Norcini

Laguna Beach, California
 
·      Investigating the government-sponsored destruction of capitalism,
·      From apocryphal $600 toilet seats to all-too-real squandering of public funds,
·      What’s up with Warren? Berkshire shares trend in an unfamiliar direction and plenty      more…

Eric Fry, reporting from Laguna Beach, California…

The S&P 500 Index tumbled 6.7% yesterday. Warren Buffett’s Berkshire Hathaway plummeted 7.7%. For this miserable year-to-date, the S&P and Berkshire have both lost about half their value. In this market, no one gets a “hall pass.” Not even the Oracle of Omaha.

At the end of yesterday’s blood-letting, the S&P 500 found itself at its lowest level since 1997. Berkshire hit its lowest level since 2003. What makes this comparison so interesting is that there was no comparison whatsoever between the two until very recently. At the end of September, Berkshire was down only 7% on the year, despite a 20% drop in the S&P.

But this stock market icon has been making up for lost time. Why? Because Warren Buffett engaged in some very un-Buffett-like activities. Several months ago, he sold an enormous quantity of naked put options against a smattering of equity indices, including emerging market indices. In other words, when global stock markets fall, Berkshire loses money. When they fall a lot, Berkshire loses lots of money, at least on a mark-to-market basis.

The options Berkshire sold don’t actually expire for more than 14 years. But that’s an irrelevant detail. These securities have a value that reflects the trend of global markets, and that value increases when global markets fall. Since Berkshire is short these securities, up in price means up in losses.

Berkshire has already booked a loss of $6.7 billion on this trade, and the markets have been tumbling anew since then. So the losses are clearly much larger now…which is probably most of the reason why Berkshire shares have come under such severe pressure of late. Meanwhile, bond investors have also become a bit skittish about Berkshire. The cost of insuring $10 million of Berkshire bonds against a default for the next five years has soared to about half a million dollars. That’s about the price an investor would typically pay to insure a near-junk credit!

Selling naked puts doesn’t seem very Buffett-like. For one thing, it has nothing to do with company analysis and everything to with market-timing. For another thing, the tactic employs leverage that increases as the bad bet gets “badder.”

The Buffett faithful are aghast. Why would their hero do such a thing? Your editors have no idea, but they have a couple of guesses. For starters, even geniuses believe their own press sometimes. Buffett is a billionaire. If that is an accident, it is an accident that occurred against astronomical odds. But just because he has been right most of the time does not mean that he is right all of the time. Nor does it mean that he is immune to occasional lapses of judgment.

This high-risk trade of his might still work out. But if it does, it would have worked out despite the fact that it contradicted some of Buffett’s investment tenets. For one thing, Buffett has referred to derivative contracts like the ones he is currently short as “financial weapons of mass destruction.” And so they are proving to be. In a related observation, Buffett recently remarked, “leverage [is] the only way a smart guy can go broke.”

Warren Buffett still has some pennies in his pocket, but fewer than he had just one month ago. Thanks to Berkshire’s sliding share price, Buffett’s net worth has decreased by a whopping $22 billion since the end of September.

Don’t weep for Warren just yet, however, he’s still got about $32 billion left. But his apparent misstep reminds us of a famous saying by John Maynard Keynes: “The markets can remain irrational longer than you can remain solvent.”

Buffett sowed the seeds of his fortune in the lows of the 1974 bear market. But if he had been old enough to attempt similar “opportunistic purchases” in the early days of the 1930 bear market, he would have lost everything and we would never have known his name.

Buffet is right to believe that stocks are cheap. But he is wrong to underestimate the possibility that they might get cheaper still. He is wrong to dismiss the possibility that significant portions of American capitalism may be broken and cannot be easily repaired.

Perhaps that’s why the stock market is falling…because American capitalism is broken.  Because portions of it are rotten to the core.  And instead of tearing out the rot and laying in a fresh lumber, we have decided to patch the cracks with spackle, slap on some fresh paint and hope that it holds up for a while longer.

There is simply no substitute for failure. Bankruptcies, like wildfires, clear the way for new growth. Without them – both bankruptcies and wildfires – the old, diseased growth crowds out the new growth and impedes revitalization.

The bailouts that are flooding out of the Treasury are merely nourishing the old growth…and that’s not going to produce prosperity for anyone.

Maybe THAT is why the stock market is falling.

—- The Sovereign Society Wealth Report —-

The “327 Word Paragraph” That Proves It’s Absolutely Possible to Collect $70,000 Per Year (part time)!

Should you choose to read this entire letter…here’s what you can expect:

First, total disbelief in “Beta-Tester Syndrome”…

Second, rhetorical, and sometimes (hostile) questioning and ridicule of strategy…

Third, a sense of skepticism that a $70,000 a year hobby could be so easy…

Fourth, excitement and enthusiasm toward this little-known “sub-niche” the more you learn about it…

And finally, a “327 word paragraph” that PROVES everything you read is absolutely and undeniably true (and can happen) whether you believe it or not. Read on here to experience this journey for yourself!

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Bailout Fatigue Syndrome, Part II
Eric J. Fry

American capitalism is broken, at least a little broken.

Remember the Pentagon’s $600 toilet seat? Remember that appalling example of “government waste?”

Ignoring for the moment that the Pentagon did not, in fact, pay $600 for a $12 toilet seat, this apocryphal story from the early 1980s became a popular icon of governmental ineptitude and largesse. If our elected representatives would squander $600 on a toilet seat, the voting public reasoned at the time, how else would these good-for-nothing numbskulls squander taxpayer money?

Here’s how:
•            $219,000 to fund a “curriculum package” to teach college students how to watch television.
•            $1.2 million to study the breeding habits of the woodchuck.
•            $150,000 to study the Hatfield-McCoy feud.
•            $1,500,000 to buy a statue of the Roman god, Vulcan, in Birmingham, Alabama.
•            $50,000 to fund a tattoo removal program in San Luis Obispo County, California.
•            $26,000 to study how thoroughly Americans rinse their dishes.
•            $90,000 to support the Cowgirl Hall of Fame in Fort Worth, Texas.
•            $150,000 to promote “Therapeutic Horseback Riding” in Apple Valley, California.

How appalled we Americans were to lean that our Federal government had squandered so much money in so many absurd ways! We were utterly indignant.

But that was then and this, unfortunately, is now.

With the passage of time, these quaint examples of governmental waste recall a simpler era - an era when the US government sometimes balanced its budget, when Americans sometimes spent less money than they earned, when dysfunctional finance companies sometimes went bankrupt and when criminally negligent CEOs sometimes received pink slips rather than multi-million-dollar paydays.

In the modern era, the Pentagon might actually spend $600 for toilet seat, but no one would care.  Indeed, most of us taxpayers would happily support buying $600 toilet seats for every commode in Washington, DC, if, in exchange, the Treasury Department would discontinue handing billions of dollars to companies that should be swirling down the drain of a commode.

The U.S. government no longer spends $600 on toilet seats; it showers billions of dollars on finance companies, which then spend hundreds of thousands of dollars on spa treatments for top executives.

But wait, that’s not all!

The same finance company executives who conducted the “Hiroshima-zation” of the American financial system by reducing it to a smoldering pile of toxic rubble are now lining up to receive billions of dollars of taypayer-funded bonuses.

This is epic audacity, even for Wall Street.

The Wall Street elite has spent so many years feeding at the trough of its clients and shareholders that it can’t seem to break itself of the habit. Of course, why would it want to break this delightful habit?

The folks on Wall Street who believe themselves entitled to a bonus fail to appreciate at least one important fact: they have already received a bonus – they still have their jobs. Thanks to taxpayer dollars, they still have their jobs. That’s an extraordinary bonus. How about a little gratitude…and maybe even a morsel of humility?…

And we won’t even begin to ask these folks to consider acts of charity…or to make reparations…but we shouldn’t rule it out.

“The executives in companies that get bailout money should have their base salaries reduced by 10 percent for 2009,” one disgruntled investor tells Bloomberg News, “and they should pay back a substantial portion of their 2007 bonuses to the government for the financial devastation they oversaw, fostered and, in some cases, directly caused. Their sense of entitlement is appalling.”

Paying back a portion of their bonuses?…Hmmm…Now that’s an interesting idea.  What would that look like exactly?

For illustration purposes, let’s draw a random name out of a hat. Ah, here’s one: Chuck Prince. Let’s see, Chuck Prince, was CEO of Citigroup from 2003 until late last year. During that time, he presided over the construction of the house of cards that was Citi’s pre-bust balance sheet. As the first cards began ripping away from the fringes of Citi’s precarious financial structure, Prince took “full responsibility” for the initial capital losses, then took a $38 million severance check to the bank and cashed it.

Citi’s losses continue to escalate into the tens of billions of dollars. Chuck’s millions continue to earn interest. Something doesn’t feel right here. To be sure, Mr. Prince has not legal obligation to return the funds to Citi shareholders and/or employees…just a gigantic moral one. In other words, there’s no particular reason why Prince should hand the money back…except that didn’t deserve the money in the first place.

If so inclined, Prince could return the funds to the employees who are now losing their jobs. A quick, back-of-the-envelope calculation reveals that Prince could return his $38 million by handing a check for $730 to each of the 52,000 soon-to-be-fired Citi employees. Merry Christmas from Ol’ Saint Chuck!

Or he could just keep the money, like every other criminally negligent former CEO has done. To err is human, to keep money you obviously do not deserve is utterly inhuman. But who knows, maybe I’d keep the $38 million also. $38 million doesn’t goes as far as it used to, but it still buys a lot of golf balls.

One of my closest friends earns about $42,000 per year as a research scientist – working to find cures for diabetes. Her societal contribution is not absolutely essential, but it is valuable. In fact, I would submit that her contribution is of greater value than the collective societal contribution of the 50 highest paid individuals in every Wall Street firm…COMBINED.

In other words, if Wall Street’s top guns all joined the bread lines tomorrow – or at least the caviar-topped blini lines – the world would be no worse off. Of course, the same exact thing could be said of many professions, including my own.

But the difference between most of us gainfully employed individuals and most Wall Street top guns is that we did not create the debacle that destroyed the financial wellbeing of millions of individuals, and neither are we whining that our economy-destroying antics deserve multi-million-dollar bonuses.

“Please explain how miserable performance of biblical proportions warrants any bonuses, particularly using money from me the customer and taxpayer,” said Glenn Brown, 67, who recently retired after 21 years as a researcher in the department of surgery at Beth Israel Deaconess in Boston and as an adjunct assistant professor at Harvard Medical School. “I don’t understand how they can even conceive of doing that.”

Your editors at the Rude Awakening don’t understand either.  But we don’t make the rules, we just ignore them.

American capitalism is broken, at least a little broken. So take your time wading back into the slop. In other words, preserve your capital first, risk your capital second.

—- Breakthrough Technology Report —-

Shocking, Never-Before-Seen Report: Expert Researcher Stakes Reputation to Reveal Staggering Profit Potential…

Your Great-Grandfather Saw the Railroad Come to Town, But Did He Profit From It?

Your Grandfather Watched the First Model T’s Roll Down the Street. Did He Get Rich?

Your Father’s Generation Witnessed the Rise of Computers. How Much Did He Make On Them?

The Next Massive Wealth Creation Starts NOW. Here’s How YOU Could Give Millions to Your Family’s Next Three Generations.

The world learned of what could be a historic breakthrough on Nov. 19 — and you can still get in before the news spreads… Continued Here

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[Rude Endnote: Lastly, don’t forget to grab your free I.O.U.S.A. DVD/Personal Bailout Report before the complimentary pre-release stock runs out. If the publicly-funded bailout of moribund, criminally negligent companies and their CEOs has you livid, this package is a must. Check it out here.

Until next time…

Cheers,

Joel Bowman

The Rude Awakening
aussiejoel@the-rude-awakening.com

 

Dear CIGAs,

On or before January 14th, 2011 Gold will trade at or above $1650. This is simply reporting on the symptoms created by my Formula originally posted in 2006 (Click here to review).

30 reasons for Great Depression 2 by 2011
New-New Deal, bailouts, trillions in debt, antitax mindset spell disaster
By Paul B. Farrell, MarketWatch
Last update: 11:53 a.m. EST Nov. 19, 2008

(Excerpted from larger article)

30 ‘leading edge’ indicators of the coming Great Depression 2

Every day there is more breaking news, proof Wall Street’s greed is already back to "business as usual" and in denial, grabbing more and more from the new "Bailouts-R-Us" bonanza of free taxpayer cash and credits, like two-year-olds in a toy store at Christmas — anything to boost earnings, profits and stock prices, and keep those bonuses and salaries flowing, anything to blow a new bubble.

Scan these 30 "leading indicators." Each problem has one or more possible solutions, but lacks unified political support. Time’s running out. We’re already at the edge. Add up the trillions in debt: Any collective solution will only compound our problems, because the cumulative debt will overwhelm us, make matters worse:

1. America’s credit rating may soon be downgraded below AAA

2. Fed refusal to disclose $2 trillion loans, now the new "shadow banking system"

3. Congress has no oversight of $700 billion, and Paulson’s Wall Street Trojan Horse

4. King Henry Paulson flip-flops on plan to buy toxic bank assets, confusing markets

5. Goldman, Morgan lost tens of billions, but planning over $13 billion in bonuses this yea

6. AIG bails big banks out of $150 billion in credit swaps, protects shareholders before taxpayers

7. American Express joins Goldman, Morgan as bank holding firms, looking for Fed money

8. Treasury sneaks corporate tax credits into bailout giveaway, shifts costs to states

9. State revenues down, taxes and debt up; hiring, spending, borrowing add even more debt

10. State, municipal, corporate pensions lost hundreds of billions on derivative swaps

11. Hedge funds: 610 in 1990, almost 10,000 now. Returns down 15%, liquidations up

12. Consumer debt way up, now at $2.5 trillion; next area for credit meltdowns

13. Fed also plans to provide billions to $3.6 trillion money-market fund industry

14. Freddie Mac and Fannie Mae are bleeding cash, want to tap taxpayer dollars

15. Washington manipulating data: War not $600 billion but estimates actually $3 trillion

16. Hidden costs of $700 billion bailout are likely $5 trillion; plus $1 trillion Street write-offs

17. Commodities down, resource exporters and currencies dropping, triggering a global meltdown

18. Big three automakers near bankruptcy; unions, workers, retirees will suffer

19. Corporate bond market, both junk and top-rated, slumps more than 25%

20. Retailers bankrupt: Circuit City, Sharper Image, Mervyns; mall sales in free fall

21. Unemployment heading toward 8% plus; more 1930’s photos of soup lines

22. Government policy is dictated by 42,000 myopic, highly paid, greedy lobbyists

23. China’s sees GDP growth drop, crates $586 billion stimulus; deflation is now global, hitting even Dubai

24. Despite global recession, U.S. trade deficit continues, now at $650 billion

25. The 800-pound gorillas: Social Security, Medicare with $60 trillion in unfunded liabilities

26. Now 46 million uninsured as medical, drug costs explode

27. New-New Deal: U.S. planning billions for infrastructure, adding to unsustainable debt

28. Outgoing leaders handicapping new administration with huge liabilities

29. The "antitaxes" message is a new bubble, a new version of the American dream offering a free lunch, no sacrifices, exposing us to more false promises

No. 30:
At a recent Reuters Global Finance Summit former Goldman Sachs chairman John Whitehead was interviewed. He was also Ronald Reagan’s Deputy Secretary of State and a former chairman of the N.Y. Fed. He says America’s problems will take years and will burn trillions.

He sees "nothing but large increases in the deficit … I think it would be worse than the depression. … Before I go to sleep at night, I wonder if tomorrow is the day Moody’s and S&P will announce a downgrade of U.S. government bonds." It’ll get worse because "the public is not prepared to increase taxes. Both parties were for reducing taxes, reducing income to government, and both parties favored a number of new programs, all very costly and all done by the government."

Reuters concludes: "Whitehead said he is speaking out on this topic because he is concerned no lawmakers are against these new spending programs and none will stand up and call for higher taxes. ‘I just want to get people thinking about this, and to realize this is a road to disaster,’ said Whitehead. ‘I’ve always been a positive person and optimistic, but I don’t see a solution here.’"

We see the Great Depression 2. Why? Wall Street’s self-interested greed. They are their own worst enemy … and America’s too.

More…

 

Note to junior exploration, development and producers:

Unless the person or company is well known to you, already a large "registered" stockholder or a proven long, do not take private placements. The shorts are looking to cover.

Things may well be turning. Deal with well known friends only, not strangers and most certainly none of the bad guys.

When the HUI turns, the cover is on.

Regards,
Jim

Dear CIGAs,

Did you enjoy today and yesterday in the paper gold market? You know the bullion banks are not even good traders in gold. They are only bullies. They could not compete with Trader Dan without their bully advantage.

To create an even playing field the transmutation of the COMEX to cash gold only means margins at 100%. This did occur late in the 1970s but was an entirely different situation.

When does a bully stop bullying? When the victim finally beats the crap out of the bully, that’s when. Nothing stops unless the victim takes action to stop it.

There is only one action that will bring this daily raping of the Gold and Silver market to an end.

If you are tired of being had by paper gold and silver bullies the following is the only course of action as a positive step to end the games being played at your expense.

Ending the bully’s free ride levels the playing field between you and the gold banks.

Do the necessary to stop the daily raping.

Take delivery of your COMEX gold and silver which can be shipped to any bank anywhere in the world.

Do not leave any intermediary between you and any kind of gold or silver you own.

Definitely:

• DO NOT HOLD GOLD IN CERTIFICATE FORM.
• DO NOT HOLD GOLD COMMINGLED WITH THE GOLD OF OTHERS.
• DO NOT TRUST YOUR HARD EARNED GOLD TO ANYONE OFFERING YOU A SHADY DEAL.
• LEAVE NO COINS WITH ANY COIN DEALER.
• GOLD OR SILVER BOUGHT AND TAKEN DELIVERY OF ON THE COMEX CARRIES ZERO PREMIUM.
• THE MARK UP YOU ARE PAYING COIN DEALERS FOR GOLD IS MADNESS WHEN THERE IS NO SUCH NEED IF YOU CAN AFFORD A 100 OZ BAR.
• NEVER BUY GOLD ROUNDS WHICH ARE NOT COINS OF THE REALM.
• PRETTY ARTWORK ON A ROUND DOES NOT MAKE IT A COIN OF THE REALM EVEN IF PERMITTED IN WRITING BY A GOVERNMENT AGENCY. ALL THAT DOES IS REGISTER THE PRETTY ROUND.

Here is a question for you to think about. I do not require the answer.

What is the difference between the Franklin Mint, the National Mint, the US Treasury Mint and Down Under?

If you think this weekend's G-20 meetings in Washington are only about designing short-term fixes to the financial system and regulatory reforms for

2 Vote(s)

Jim Sinclair commented this would be very inflationary, and would be one of the worst things we could do. "‘The U.S. will be forced to issue foreig

2 Vote(s)

Click chart to enlarge today’s 12 hour action in gold in PDF format as of 12:30 pm CDT with commentary from Trader Dan Norcini.

Dear Friends,

This is the exact point in the market at which the Bush Administration initiated the same actions as Roosevelt, but at a magnitude ten and all at once.

What do you think the Obama Administration will do?

We know the Fed has moved to Quantitative Easing.

Quantitative Easing
guardian.co.uk, Tuesday October 14 2008 12.10 BST

Quantitative easing is what non-economists call ‘turning on the printing press’.

In extreme circumstances, governments flood the financial system with money, easing pressure on banks by giving them extra capital.

Ben Bernanke, the chairman of the Fed, won the nickname ‘helicopter Ben’ when he floated just such an idea earlier this decade. US economist Milton Friedman had originally said it would be theoretically possible for governments to drop large amounts of cash out of helicopters for the public to pick up and spend."

More…

 

Lie-bor lies. If that were not so you would see the trickle down into general corporate paper which is nonexistent.

The dollar rally is from technical currency flows that will end and therein end the dollar rally.

Obama wishes to reduce military spending and increase fiscal stimulus. The latter will prove much easier than the former. Getting out of conflict is much harder than getting into one. Other problems of a military nature sit on the horizon. It is reasonable to assume FISCAL STIMULATION is the Obama plan regardless of other desired routes.

Gold’s decline is not part of the plan.

A strong US dollar is not part of the plan.

Significantly reducing military spending is more rhetoric than part of the plan in a practical sense.

When the boxes take shape we will add Obama to the schematic.

by Addison Wiggin & Ian Mathias

• Markets plunge… Dow, S&P 500 technicals on the verge of either historic bottom or precipitous fall
• Greg Guenthner on the decay of household stocks… over 100 S&P names less than $10
• Moving markets today… a royal endorsement and a foreboding unemployment stat
• Byron King with one of many themes emerging from the New Orleans Investment Conference
• “Buy gold,” says David Galland… but only under a certain level
   

  Watch the market today. The Dow has been finding support around 8,000 for over a decade.

The Dow’s next historic low was set in 2003 at 7,397, and then back in 2002 at 7,181. The next level of support after that… ummm… it doesn’t really exist. Maybe 3,800?

  This morning, 101 members of the S&P 500 sell for less than $10 a share. Some of last century’s household names headline the list — Xerox, Alcoa, Starbucks, Motorola, Yahoo, E*Trade, Allied Waste, Citigroup… and, of course, Ford and GM.

In the 28-year history of the index, there have never been this many “penny stocks” among the 500. In fact, 186 stocks on the S&P 500 don’t even meet the index’s market cap qualification… to be on the index, companies are supposed to have a market cap over $4 billion.

For perspective, at the nadir of the dot-com bust, 59 members of the index dipped below $10. After Black Monday 1987, 35 had dripped that low… or lower.

  “This is pretty crazy,” notes our small-cap turned blue chip analyst Greg Guenther. “In some cases, this is a chance to hop into a time machine and buy these names before they were big. There are some real industry leaders in this bunch… some entrenched manufacturing/supply names with big market shares and proven competitive advantages.

“But there are plenty that deserve to be less than $10 a pop. Now is probably not the time to go out and buy every beaten-down household name you come across. Starbucks is a great example. SBUX is a ‘mass affluence’ play, one that sells perceived luxury to the common man in the form of $5 lattes. That kind of company will get crushed when consumers are scrambling to trim their budgets. In fact, I would be cautious toward anything resembling midrange to high-end domestic retail… there’s just no telling how the consumer will fare in the next few quarters.”

Greg’s preparing a special blue chips turned penny stocks issue for his Penny Stock Fortunes subscribers. As one of our least expensive publications, these picks are worth the price of admission. Get the details, here.

The U.S. market got a small vote of confidence today from the Middle East. Prince Alwaleed bin Talal of Saudi Arabia announced this morning he will boost his stake in Citigroup by at least $350 million. The investment would give the Saudi royalty over 5% control of the company.

  But the boost from Alwaleed didn’t last long. It was all but canceled by the worst jobless claims data in 16 years. Weekly jobless claims shot up 27,000 from last week, to 542,000 – the highest since Bill Clinton was interviewing his first round of White House interns.

The four-week average is up to over 506,000 — its highest level since 1983. We don’t get a new unemployment report from the Bureau of Labor Statistics until Dec. 5, but at this rate, 6.5% is looking like “the good ol’ days.”

  “We are beginning to pay the societal costs,” opines Dan Denning, “of a sustained economic policy that favored finance and consumption over production and savings. That policy saw the formation of a Wall Street-Treasury Dept. Axis.

“That Axis advocated running a capital account surplus. It was partly to offset the rising current account deficit. But in some ways, the surplus in the capital account came about because of policies that encouraged debt and consumption, the very things that led to the current account deficit. The result was a boom in American financial services — while American manufacturing was shipped offshore.

“The costs are higher unemployment, fewer skilled workers, greater consumer debt, more government borrowing from foreign creditors and the disappearance of a healthy industrial base. None of those costs are going to be absorbed by TARP or any other bailout planned by Congress.”

  Meanwhile, if you’ve been a Treasury bond investor this year, seeking low returns and even lower risk, you’ll likely be one of the biggest winners of 2008. The Lehman U.S. Treasury Index is up 7.4% year to date. Compared to the S&P, down over 40% — it’s looking pretty good.

  The “credit crisis” is far from being over. The lending rate between banks, aka the Libor, looked like it was returning to normalcy a few weeks back. But not so much anymore. The three-month rate has crept slowly down to 2.17% — a full point above the Fed’s target — while the overnight has flat lined around 0.44%.

But the best gauge might be the Libor-OIS spread, the difference between three-month Libor and overnight interest rate swaps:

Despite billions in bailout capital from central banks all over the planet, banks are still cautious. The markets have yet to thaw.

  Amazingly, traders are still fleeing to the “safety” of the U.S. dollar. The dollar index has quickly regained all its losses from yesterday, and then some. At 87.4, it’s about a half a point from its 52-week high.

The euro has fallen to $1.25 a pop. The pound is closer to the $1.40 technical support we mentioned yesterday, now at $1.47. The yen has strengthened to 94, as global risk aversion has taken some wind out of the carry trade’s sails.

  “I’ve spent a lot of time talking about and listening to opinions on the dollar this week,” Byron King writes, fresh off the plane from the New Orleans Investment Conference. “EverBank’s Frank Trotter was there, discussing investments in foreign currencies. And Frank Holmes — gentleman and scholar — was there from U.S. Global Investors, with his unique perspectives on emerging markets and international money flows.

“Between the two Franks, I could discern the sense that the strong U.S. dollar is due for a major correction in the not-too-distant future. This will cause many foreign currencies to appreciate. It will also probably cause the prices of both oil and gold to rise. How soon? We’ll probably be well into it during the first quarter of 2009. So it may be time to diversify a portion of your funds out of dollars.”

  The dollar’s strength is intensifying a commodity sell-off. Crude oil is the most notable victim, now barely clinging to $50 a barrel.

Thus, you can count on $2 gasoline by the weekend. The AAA national average was $2.02 early this morning, when oil was closer to $53 a barrel.

  Gold is faring remarkably well today, despite the broad commodity smack down. Still, it’s far from booming… up about $5 from this time yesterday, at $740 an ounce.

  “I have read a number of analysts,” says our colleague David Galland, of Casey Research, “who have expressed the view that gold could dip to the mid-to-low-$600 level.

“Could happen, but I think not. Already, buyers of physical gold are finding anything near $700 to be cheap, and so are helping to build a floor under the monetary metal.

“While we already know $750 is no magic number below which gold cannot fall or below which it cannot loiter, I take no small comfort in the fact that there is a clear increase in demand at that price. In time, as the dollar continues to participate in the fiat currency race to the bottom, that number will ratchet higher and higher still. Maybe not overnight, but in the next six months to a year, certainly…or as certain as anyone can be about anything these days.

“We can’t say with certainty what path gold will take between now and the time this crisis is over. But until I can see some tangible evidence that it has lost its value as money, I’m a happy holder and, at under $750, a buyer.”

  So you may have heard by now, the execs for the Big Three automakers each took private jets to their testimony before Congress yesterday. Average cost for the flight from Detroit to Washington? $20,000… Northwest had flights available that day for $288 coach, $837 first-class.

"It’s almost like seeing a guy show up at the soup kitchen in a high hat and tuxedo," Rep. Gary Ackerman, a Democrat from New York, said of the dynamic trio. "Couldn’t you have downgraded to first class or something, or jet-pooled or something to get here?"

Maybe they should have driven.

  “So Barney Frank wants to talk about income disparity?” asks a reader, responding to Frank’s allegation that the auto bailout is a form of “union busting.” 

“OK, let’s try this one. In 2006, the average hourly wage of a person with a high school diploma was $13.46 per hour. For those fortunate enough to receive insurance and other forms of compensation, the average was $17.50 per hour in total compensation. These averages encompass all age groups.

“However, if you are a Detroit auto worker with a high school diploma, your total compensation comes to: $67.78 (Ford), $70.43 (GM) or $72.59 (Chrysler) per hour.

“Now, that is income disparity.” 

The 5: Hmmn… that would be some $150,000 a year per worker. Are we sure those numbers are right?

  “All of this brouhaha” writes our last, “about bailing out the auto industry and how destructive it will be to the country — sounds a lot like the moans and groans of the steel industry (and steel unions) a few decades ago when the Japanese and Koreans were killing the U.S. companies with low prices for bulk steel. The biggies, like U.S. Steel and Bethlehem, went under.

“And you know what? Small, progressive and aggressive steel companies arose in the U.S. — not for the cheapo junk steel, but for the better grades, for alloys and for hi-tech steels. And in a few decades, the industry bounced back better than ever. The U.S. was THE place to buy the good stuff. The Far East was where you bought the cheap bulk stuff. Did it ‘hurt’? Yeah, for a while, but you know, we got over it and came through it all the better. We just forgot what we learned.

“How many innovative car companies do you think will start popping up in the U.S. when the dinosaur Big 3, and their fat-assed dinosaur management, are finally gone? I don’t think that innovation is completely dead in the U.S.; it’s just been shut down in favor of huge management bonuses paid for killing industries through blind stodginess. Let’s see, how many U.S. car companies were still trying to crank out SUV guzzlers when gas prices were scaling Everest? Let the dead die so that the living can grow.
 
“Sorry, unions and union members, but the day is over that a dumb back can command a sizeable (read uncompetitive) wage and benefit package just for showing up to do a job that, in many cases, a monkey could be trained to do. Better get some education. The new companies will be high-tech — there will be plenty of jobs for those with a reasonable education and training. Dumb backs will get to clean toilets at a commensurate wage.

“Hear that Fed and Treasury and Congress? Don’t waste money trying to resurrect dinosaur corpses. Put the money into opening up investment in new technologies, good products and well-run companies. Put the money toward training a labor force that can be part of competitive industries. And start the ‘do it or fail’ philosophy in the schools. First-grade would be good.”

What a mess…

Addison Wiggin
The 5 Min. Forecast

P.S. Don’t forget to check out the next installment of our Emergency Retirement Recovery Series. It’s free, all you have to do is sign up, here.

The market and economy will not stop falling apart until:

1. Paulson is fired and his policies cease.
2. We have transparency in balance sheets - for every firm on the exchange.  No exceptions.  All Level 3 asset mark models and assets identified - period.
3. Bernanke withdraws all his alphabet soup programs or is removed from office and his successor does, and the "crowding out" in the credit markets ceases.

Its that simple, and all three must happen before we will see any sort of sustainable bottom put in.

This doesn't mean we can't have "rip your face off" rallies - we both can and will. 

But the market and economy will not bottom until the three things above are done, and the only way that is going to happen is when you make it happen.

That's right.  Your 401k is a 201k (and will soon be a 41k) because you (collectively) sat on your butts last October when I started running petitions and because we have managed to garner only 50-odd people at protests.

There should be hundreds of thousands.

There should be general strikes - people who simply refuse to go to work, en-masse, across the nation.

There should have not been one Congressman or woman who voted for the bailout returned to office.

Bottom line: You have and are consenting to this economic depression - and make no mistake, that is exactly what the credit markets are saying we are entering right now.

Remember that more than a year ago Subprime Mortgage Bonds forecast a total meltdown in that industry, and that nearly all of the companies in that space would go bankrupt.  We were told that this sort of "Armageddon" scenario would not and could not occur, and that the credit market was playing "histrionics".  A number of so-called "smart money" investors (Wilbur Ross anyone?) stepped in and bought these supposedly-undervalued instruments - and promptly got slaughtered when the actual performance was worse than the credit markets were forecasting.

The credit market was right and those who said it couldn't happen were wrong.

Now the credit market is saying that we are going to have more defaults than happened during The Great Depression.  That is, it is forecasting a Greater Depression that worse than the 1930s.  The TNX (10 year yield) is threatening to break three percent, down another 6% (!) this morning to 3.16%.  The bottom going back as far as my charts extend is 3.07%.  Almost there.

The 13 Week T-Bill (IRX) stands at 0.1%, which is for all intents and purposes zero.  The Effective Fed Funds trading rate has been between 0.2 and 0.3% since the last putative rate cut to 1% - that is, effectively zero. 

Corporate AAA commercial mortgage spreads are at extreme wides, standing at over 700 bips; added to reference this means that super senior AAA commercial mortgages now yield more than 10%.  Given the level of credit enhancement in these deals this forecasts default rates of more than thirty percent in this space.  Similar extreme spreads are found among both the "high grade" and "high yield" corporate bond markets.

The credit market is telling you that we are headed for an S&P 500 trading at three hundred and a DOW at under three thousand.  That we are headed for unemployment north of 20% on the U6 (broad) measure, and GDP contraction of twenty percent cumulatively from top to bottom.

That's one person in five in the US without a job, deflation of 20% cumulatively or more in prices, over 2 million businesses going bankrupt in the next three years, and literal starvation and privation - all across America.  No part of this nation will be spared.

The market callers are all saying all this is impossible.

Even though every thing the credit market has forecast thus far since this problem began has been not only proved correct but conservative; that is, if you bought believing that it would not be as bad as the credit market is forecasting, you have had your head handed to you.

So who are you going to listen to?

Ben Bernanke ("we won't have a recession") and Hank Paulson ("the economy is fundamentally strong"), along with all the market "callers" on CNBC, who have been wrong every single time for more than 18 months?

Or the credit market which has been right 100% of the time thus far since this crisis began?

Welcome to The Greater Depression, and make sure you remember that the blame for this event belongs to Congress, Henry Paulson, Ben Bernanke, and of course..... you, since you have failed to insist and force your government (and yes, its your government, just as its my government) to stop these clowns.

We will get out of this when - and only when - you stop believing that you can "have a pony", "a chicken in every pot", "economic stimulus", and "free credit for everyone."

Only when we the people (collectively) are either all bankrupted or we come to our senses and demand that the fraudsters be locked up and the bad debt purged by default will the system clear and both the economy and market find a sustainable bottom.

Those are the only two choices folks, and right now, you're choosing bankruptcy and Depression for all.

Laguna Beach, California

·      Throwing the TARP over the corpses of America’s worst performers,
·      A closer look at Wall Street’s “cash-hemorrhaging” finance companies
·      A graphical display of the grotesque bear market anatomy and more…

Eric Fry, reporting from Laguna Beach, California…

Treasury Secretary Henry Paulson appeared before the House Financial Services Committee Tuesday to provide an update on the Treasury’s spiffy, new $700 billion Troubled Asset Relief Program (T.A.R.P).

Secretary Paulson repeatedly reminded the Committee members that the TARP’s initial mandate was to re-liquify the banking sector so that banks might resume “normal” lending activities. But some members of the Committee repeatedly suggested that the TARP might do even more…like re-liquify the auto sector…or re-liquify the growing community of mortgage-defaulters.

Your editors here at the Rude Awakening have been entertaining a related thought, “Why not re-liquify the stock market?” Is there any troubled asset that needs relief more urgently than the stock market?

This deeply troubled asset tumbled another 427 points yesterday, bringing it to fresh 5-year lows. It’s clear the stock market could use some federal assistance.

During the last several months, many investors have declared “the bottom” of the bear market. So far, many investors have been wrong. The bottom may be drawing near, but it hasn’t arrived just yet. The chart below depicts the hypothetical outcome of buying an S&P 500 Index fund on each of the last eight Friday’s.
Notice a pattern? Every single purchase would have produced a loss. Not ONE would have produced a gain.

This chart tells us absolutely nothing about the future, but it shows us very clearly just how painful – and treacherous – the recent past has been. The chart also shows us very clearly that the Treasury’s bailout efforts to date have failed to produce any measurable benefit for the stock market. The economy isn’t looking too spry either.

The TARP, which is the most celebrated of all the Treasury’s newly minted bailout acronyms, made a splashy debut by “investing” $25 billion apiece in nine of America’s largest finance companies. These unprecedented handouts, Fed Chairman Ben Bernanke explained Tuesday, “[were] critical for restoring confidence and promoting the return of credit markets to more normal functioning.”

Maybe so, but signs of “normal functioning” in the credit markets remain more hope than substance. Meanwhile, signs of the normal dis-functioning on Capital Hill remain all too real. Back on September 29, the House of Representatives defeated the initial version of the TARP because it would have cost too much.
Just a few weeks later, however, a kind of bailout mania has gripped the nation, and almost no one bothers to ask how much the bailouts will cost, or where the money will come from.

We’ve simply stopped counting. But on some level, somewhere deep down, every American knows that the bailouts aren’t free. Every American knows that we’ve borrowed a heck of a lot more money than we could ever actually repay. But are we worried? Not really. Lenders worry more than borrowers.

And so we continue to borrow money and continue to avoid uncomfortable questions about repayment schedules and continue to toss around billions of dollars of bailout funds as if we just won them at a roulette table. Nevertheless, the nation’s financial sector continues to implode, little by little, day by day.

Perhaps the banking sector, and the nation at large, would have been even worse off without all the federal bailout programs. But as the Treasury adds zeros and digits to its various “lending facilities,” the financial sector adds zeros and digits to its quarterly losses.

In other words, this bailout stuff isn’t going so well…which suggests at least two courses of action: 1) Investors should still steer clear of the finance sector and 2) Investors should not yet abandon all hope for gold; inflation might surprise on the upside.

— Special Gold & Options Trader Report —

You Know What Follows Deflation…So Are You Prepared For Gold’s Next Bull Rally?

The way the market is looking (let’s be conservative and just call it “catastrophic”) soon every investor will be rushing to the anti-dollar metal for safety.

Luckily, there’s still time to position yourself in the very best stocks…and I’m not talking about the already overbought, mega-producers. In fact, the place to be during the gold rally is in the tiny metal mining and exploration companies, frequently located in Vancouver, British Columbia.

Learn more about how a selection of these “Vancouver leapers” could make you $1,000, $5,000 – even $40,000 – in a single day . See Here For Details

—————————————–

Bailout Fatigue Syndrome
By Eric J. Fry

When the Treasury finally abandons its bailout programs and/or the executives at the cash-hemorrhaging finance companies finally exhibit more humility than chutzpah, the economy and the stock market will have reached the bottom.

But it doesn’t feel like we’re there just yet…

So far, the Treasury Department, Federal Reserve and FDIC have cobbled together about $2 trillion worth of bailout programs, along with an unknown-trillion-dollars worth of implied and actual guarantees. What do we have to show for all of this financial firepower? Nothing more than a smoldering pile market capitalization and implausible declarations of victory.

Bailouts aren’t all bad, they’re just mostly bad. They’re bad because they tend to subsidize failure, rather than to underwrite future success. Failure consumes capital investment, success multiplies it. Like UN food programs, bailouts tend to land in the hands of crafty despots, rather than needy orphans. In other words, bailouts tend to produce exactly the sort of capital misallocation that prolongs economic stasis and impedes recovery.

When the TARP tosses billions of dollars at a hodgepodge of finance companies, for example, does it actually save anything of long-term economic value or does it merely preserve museum pieces?

The Treasury has funneled $150 billion into the AIG cesspool, but the beleaguered insurance company continues to stink up the place. The company just posted a fresh $25 billion loss in the third quarter, and is probably amassing another multi-billion-dollar losses for next quarter. And yet, somehow, in the tortured logic of the powers that be, it’s okay to waste $150 billion on AIG, but not to waste $25 billion on GM, Chrysler and Ford.

The logic, if you can follow this, is that AIG’s failure would be a “systemic risk,” GM’s failure would merely be a catastrophic. To be clear, GM doesn’t deserve a bailout any more than AIG does…or any less. AIG miscalculated in such a spectacular fashion that it will receive six times the money that GM will NOT receive. Does that make sense?

In some ways, yes. No one wants a systemic risk walking around on the streets. But at the same time, what do we gain over the long term by resuscitating a model of incompetence like AIG, when we could be investing billions in lots of competent enterprises.

If the brain trust at AIG did not realize that policy-holders sometimes file a claim, too bad for AIG. It should go bankrupt. A blind monkey could write an insurance policy without considering the risk of a claim. A blind monkey could also figure out that if you write lots of policies on the identical risk – or family of related risks – you can kiss your actuarial assumptions goodbye. But blind monkeys almost never rise to the top ranks of a major insurance company.

We’ve got nothing against blind monkeys, but we don’t believe they should receive multi-billion bailouts from the Federal Government. Because, you see, when blind monkeys fail, sighted mammals can take their place, and usually operate a business more successfully. That’s called, “Economic Darwinism”…and we could probably use a little more of that about now.

If we’re going to waste $700 billion…or $2 trillion…let’s waste it on the folks who are building successful businesses…not on the folks who have demonstrated a penchant for colossal failure. Alternatively, let’s waste it on the folks who are trying to save their homes. In other words, let’s waste it on the effort to restructure existing mortgages. As a last resort, we could waste $2 trillion subsidizing journalists who write daily financial columns containing the words, “Rude Awakening.” But this would truly be a last resort.

If the government really wanted to INVEST the TARP funds, rather than squander them, it would buy a $25 billion interest in America’s nine BEST companies (whatever those might be). But that’s not the TARP’s mission. The TARP’s mission is to throw good money after bad, with the hope that the bad money becomes good again.

Good luck.

The TARP, itself, is a troubled asset. In fact, this particular tarp is beginning to look an awful lot like a shroud – an ornately embroidered gossamer that the Treasury Department is wrapping around the lifeless remains of the financial sector. The Treasury Department continues to insist that this shroud…er, tarp…will restore the financial sector to new life and vitality. We don’t believe it.

The financial sector is more King Tut than Lazarus. It will not come back to life, at least not in anything resembling its current form; it is dead already. The pyramids and the gold and the perfumes did not make King Tut any less dead. His 5-star Egyptian mummification/spa treatment did not bring him back to life. Likewise, dressing the ashen frame of brain-dead finance companies in $700 billion worth of bailout baubles will serve only one purpose – to send $700 billion into the afterlife as well.

Don’t send your money there too. Beware the financial sector…still.

—- Five Ways To Play Gold’s New Bull Market —-

From Hulbert’s No 1-Ranked Advisory Letter Over 5 Years, Our Most Shocking Forecast Yet…

GOLD $2,000

“I’m so sure gold will soar higher I’ll even make you a guarantee… plus, I’ll give you five entirely new ways to play the trend…”

“Including one hidden way to snap up gold… for less than one penny per ounce…”

How can that be possible? Give me the next four minutes and I’ll show you how…Read On Here

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[Rude Endnote: Only time will tell whether the bear market pattern outlined in the above chart will continue to spill red across traders’ screens. That said, early indicators don’t bode well for a refreshingly green day in the markets today.

Asian stocks took yesterday’s U.S. selloff as their cue to shed a few more billion in shareholder wealth. The stronger Yen hampered Japan’s export sector, which slumped 7.7% in October compared to the same period last year. By the day’s close the Nikkei had slouched 6.9%.

Hong Kong’s Hang Seng and the Aussie All Ordinaries index fell 4.2% and 4.3% respectively while South Korea’s Kospi ended down 6.7%, posting its eight consecutive loss.

European investors are still digesting the barrage of bad news emanating from all corners of the globe. As we write to you this morning, London’s FTSE is about 2.25% in the red while Gremany’s DAX and France’s CAC are down 2.8% and 3.2% respectively.

A barrel of oil goes for about $52.30 while gold, with a rare splash of green on our screen, is up just over eight bucks at $744 an ounce.

On another note, thanks to all the readers who wrote in with suggestions for your wandering editor on his upcoming tour through India and South East Asia. We’ll be meeting up with local investment experts from Mumbai all the way through to Cambodia and will be sure to bring you the boots-on-ground news.

In case you need to contact us along the way, whether to offer travel or investment tips or any other Rude suggestion, we can be reached at the address below.

Until next time…

Cheers,

Joel Bowman

The Rude Awakening
aussiejoel@the-rude-awakening.com

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