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US MARKETS

The market manipulations of the “Working Group on Financial Markets” and the privately held Fed may see the yen carry trade as a lessening factor in 2008. Tightening credit markets and rising assets volatility from the US subprime mortgage crisis may end the trade.

The credit crisis is going to be with us for some time to come and that should keep a lid on assumption of risk next year. That will reduce the trading in currency markets substantially and a $1.5 trillion play could be reduced to practically zero. That will have a stultifying effect on the stock, currency and bond markets.

As the carry trade in the yen and the Swiss franc subside both currencies will be forced higher. We could easily see the yen and Swiss franc below 1 to a dollar.

We will soon see a legal challenge from investors who oppose modification of loans in their portfolio. This program from hell also penalizes prudent borrowers and creates moral hazard.

We wonder where the Federal Home Loan banks are going to get more funds to lend? They increased their loans to private sector banks and other mortgage lenders at a record annualized rate of $746 billion during the third quarter as other sources of funding dried up.

How do you run a rating to screen borrowers for the rate freeze based on their credit score? It is a grave error because it punishes those who have kept a high score.

The modification of existing contracts, without the full and willing agreement of all parties to those contracts, risks significant erosion to 200 years of contract law.

How about those young couples who had sense enough to not buy at inflated prices who knew prices would fall and saved up their 20% down payment to buy a house at lower prices? The agreement has sparked bitterness and anger among those who either sat out the housing boom or were stuck with a traditional mortgage and a smaller house. Some even moved to cheaper cities. The agreement is a penalty for those who didn’t gamble. Republicans and Democrats alike had best get ready for a backlash. As we’ve said, in the primaries defeat every incumbent in both parties. Show these cretins you mean business and, of course, elect Ron Paul.

The agreement should henceforth be known as the Housing Gambler Bailout. This bailout is for the subprime-ALT-A crowd, which Fitch says 85% lied on their applications and that 65% was hardcore fraud. That brings up the question as to why there has not been civil or criminal fraud charges brought against these crooks instead of rewarding them? The criminal aspects then again fit right in with modus operandi of both Congress and the neocon administration. The bailout is aimed to rescue these crooks. That is not surprising due to their commonality of interests. All the players know this is a transparent effort to forestall a wave of foreclosures that some worry could help push the country into a depression. This time extension will only make matters worse. It will extend the housing correction from 4 years to 9 years. You can sugarcoat this deal and call it anything you want, but it simply is an undeserved bailout. Are we supposed to arrange to guarantee everyone’s losses? No one was there to guarantee losses for market participants when the dotcom bust took 40% to 70% of investors’ assets. A bailout is not the right thing to do.

No matter what lenders and the government do, house prices will decline over the next few years. As we predicted long ago, prices in the former 30 hot areas will decline 30 to 60 percent. Why should the Mortgage Bankers Association be surprised at the jump in delinquencies? They have the same data we have, we report the data as is, as we get it. We have been right and they have been wrong. What surprises them is the delinquencies are spread across all types of mortgages. We knew that would happen to some degree because we have been in a recession for two years come February and many quality jobs are being eliminated in the US, like at IBM, and via offshoring and outsourcing jobs continue to leave the country.

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GOLD, SILVER, PLATINUM, PALLADIUM AND URANIUM

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Mainly because of gold, the Dow is now range-bound between 12,300 and 14,000, and may soon explode and go down in flames.  The now completely irrelevant Fed cut by only .25% when it appears that the markets were to some degree expecting .5%, as one might be lead to believe in light of the 294 point Dow debacle immediately after the Fed announcement.  This post-meeting Dow debacle, however, was caused mainly by a yen-hit on gold with the rest most likely being some market disappointment.  The market disappointment was the excuse for the drop, which was manufactured by a cartel-orchestrated carry trade unwinding to hit gold and silver. Right after the Fed announcement, the yen, which had been trading all day around its Tuesday closing level of 111.77 yen per dollar and 164.324 yen per euro, rocketed to much stronger levels which were similar to those that were still in effect at around 8:30 pm EDT when the yen was trading at about 110.877 and 162.591.  Note also that the Fed meeting is of course always set for a time after the precious metals markets have closed but before stock markets have closed in order to allow the cartel to make aftermarket manipulations during thin trading in precious metals and to give them a shot at some stock market manipulations aimed at subduing gold before the stock markets close.  This also gives them time to see how overseas markets react so the PPT has time to plan any countermeasures for their Tokyo, London and New York cohorts to execute with the objective always being to counter any resulting rally in gold and silver.  Remember, gold suppression is JOB ONE for the cartel and its integral parts like the Fed and the PPT, and anything else that gets in the way, including a stock market rally, is quickly snuffed out without so much as an afterthought.  The Fed should be made to withhold its announcements until after all US markets have closed. On Tuesday, true to form, the PPT took a huge aftermarket cheap shot on gold, pounding it from a close of 811.60 all the way down to 796, with the mainstream media saying gold fell in the aftermarket because of disappointment that only a .25% cut was made instead of the .5% that some traders were hoping for.  This is just the usual type of disinformation the cartel likes to spew forth, because the real reason for the decline in the aftermarket was cartel-orchestrated gold sales.  These aftermarket sales were made because gold had climbed to 813 just before its Tuesday close, threatening to blow by 815, a move which could have sent gold careening past 850 very quickly.  The Fed was having a coronary and for the nth time reached for the yen nitro pill while simultaneously hitting gold in the aftermarket.  Resource stocks were hammered as stock markets crashed due to the yen-hit, and you can bet that the resource stocks were hit harder than most by the cartel because of gold's stubborn bullish behavior. After all these manipulations, gold quickly regained its composure and shot back up to retake 806 during trading in Asian markets late Tuesday and early Wednesday.  

The Fed knew that they could not make a .5% cut without sending gold past 850 and then into outer space.  In allowing only a .25% cut, the Fed is trying to find a middle ground by attempting to support stock markets without sending gold into the ozone.  In trying to accomplish both of these purposes, they are instead going to fail at both.  The cartel now has to decide to go one way or the other, to either send gold and the stock markets up together, or to attempt to send them both down together with the distinct and extremely high probability that gold will go up even though the stock markets are plummeting based on gold's preeminent safe-haven status which will be more strongly asserted than it already is once the stock markets dip into panic territory, a realm of fear which is now only a hair's breadth away.  Once the cartel chooses a direction, they will have to go whole-hog in that direction.  Otherwise, both causes will fail.  They now have a Sophie's choice, financially speaking.  A .25% cut is completely inadequate to handle the ongoing credit-crunch, the subprime debacle and the real estate catastrophe, even with some small follow-up rate cuts.  As usual, they are behind the curve.  Their efforts can only be characterized as much too little, and way too late.  The Fed might as well have done nothing, for all the impact this puny cut is going to make.  The stock markets are going down unless the carry trade is rewound, and we mean big-time, with further substantial rate cuts, all of which will send gold past the Einstein-DeSitter radius at the outermost bounds of the visible universe.

Think about the impact that high oil prices will have on corporate earnings and stock values next quarter and throughout next year.  And what will happen when imploded derivatives must be marked to market by all the financials in 2008?  And what will happen when all the rates are reset on a huge portion of subprime ARM's over the next six months, adding fuel to the real estate conflagration?  And what will happen when hyper-stagflation takes over as rate cuts fuel speculation and demand, driving up prices, while the falling dollar simultaneously causes import prices to rise, while the supply of money and credit goes off the charts to relieve the credit-crunch as it continues to worsen, while treasuries and agencies are monetized and while the dollar becomes the world's leading carry trade currency instead of the world's reserve currency?  And what will happen when consumers are tapped out and defaults on mortgages, credit cards and car loans continue to accelerate, while the ethanol debacle and rising fuel prices knock the stuffing out of everyone?  This Christmas is the last hurrah for the US consumer.  And when US consumers go down, they are going to take everyone else with them, no matter what the elitists' propaganda might say.  Gold no longer needs the dollar to go down in order to get support.  Gold is going up despite short-lived manipulated rallies and dead-cat bounces in the dollar because of its safe-haven status.  People are not just worried about the decline in the dollar, they are worried about losing everything they own, from stocks and bonds, to bank accounts, to their homes, their cars, their credit cards and their overall standard of living.  Gold, and only gold, can stop the bleeding, with silver helping out until deflation hits in the depression that is most certainly going to follow.  The trend is now set for the dollar and bogus dollar rallies will no longer be able to buck this trend as gold completely ignores this puffery.  As proof in spades that gold is now ignoring the dollar and that all dollar rallies are now completely bogus, manipulated events, the day of the Fed meeting the cartel made a massive manipulation in the USDX market to give the dollar some token support in order to suppress gold, taking the total number of contracts of open interest on the USDX, that has languished between 36,000 and 39,000 contracts for 22 consecutive trading days, up a massive 6,400 contracts to a total of 45,066, a level not seen since July 27 of this year.  Despite this, gold moved up from a Monday close of 807.30 to Tuesday's close of 811.60, and then, despite the aftermarket cheap shot, quickly moved back from 796 to well over 800, peaking at about 806 before pulling back a little in Asian trading.  

No currency on earth is safe, and every single currency is a very vulnerable, fiat nightmare and catastrophe waiting to happen, and we mean soon.  Gold is going only one way - UP, with a few minor dips and pauses for consolidation.  Rates in the US and Britain are going to go much lower, and quickly, or the whole system is coming down around everyone's ears, including the ears of the cartel's elitists who have grossly and completely miscalculated the timing of their moves to take the US, Canada and Europe down so they can move closer to world government.  Their greed has thrown many wrenches into the works, and now they themselves are in danger and many of them do not yet comprehend just how catastrophic things are about to become, not just for the peons, but for the would-be lords as well.  The European Union also will likely succumb to downward rate pressures as the credit-crunch accelerates, and this will cause a split between countries that want rates raised or at least held steady, like Germany, to control inflation, and those that want rates to move lower to save their imploding economies like Spain, Ireland and Britain, which will suffer real estate debacles similar to our own.  The pros all know where gold and silver are headed, and they are now just trying to be coy about their purchases of precious metals so they can buy as much as possible before the price skyrockets.  Goldman Sach's suggestion to short gold in 2008 is a classic example of pros using the media to set up a bogus "wall of worry" to keep the public out until the swindlers are ready, having taken as large a position in precious metals as they can get their hands on so they can make a fortune when the public piles in.

We would like to mention one last point regarding the so-called rate-freeze, mortgage welfare, bailout of subprime mortgage ARM borrowers.  Note how carefully our government has tried not to get involved in demanding or legislating the rate-freezes, refinances and mortgage workouts, leaving it to the private sector to sort things out.  This is because the Fifth Amendment to the US Constitution provides that private property can not be taken for public use without providing due compensation. A contract right to receive interest at a specified rate on money loaned is a private property right.  If the government takes it away for "public use," they have to give "due compensation."  In the current case, the government could be accused of taking away this private contract right in order to prevent the loss of income taxes that would be caused by real estate related losses and to prevent federal bailouts for lost sales and real estate taxes that states would suffer on account of mounting foreclosures.  If the government derives a direct benefit from the taking away of this private contract right, it would seem to us that they would have to render due compensation to the aggrieved parties as the taking would certainly have the effect of a taking for public use even though the lost interest would not be paid to the government directly, staying instead in the pockets of the borrowers receiving the relief.  This could open up a whole new realm of Constitutional Law litigation.  And never mind the tranche warfare that might result if one tranche gets hit harder than another tranche in the same bond or real estate derivative.  One lawsuit will put an end to the whole thing, so the whole bailout plan has no teeth and is completely bogus.  The real estate market will completely freeze up if this plan is allowed to continue, as no one will ever invest in real estate loans again until the whole system is purged and confidence is restored.  So in fact, the bailout plan is not only a non-starter, it will only exacerbate the whole situation, and could be the final act of stupidity that brings the whole system down as credit default swaps and interest rate swaps implode due to lost revenues and the increased cost of covering losses due to lost interest, with leverage multiplying the effect of any losses.

The yen has suddenly dropped off the radar screen, moving from Tuesday's 110.877 yen per dollar and 162.591 yen per euro as of 8:30 pm EDT, to Wednesday's 112.414 and 164.961 as of 9:35 am EDT.  The result is a Dow that has opened up 250 points at Wednesday's open, presumably because of the new money auction plan by agreement of the Fed, the ECB, the Bank of England, the Bank of Canada and the Swiss National Bank, when it is really all about the carry trade.  The money auction plan is just another bogus effort to relieve the credit crunch which will only continue to get worse as losses continue to mount from floundering real estate markets in the US and very soon in Ireland, the UK and Spain, causing the values of various derivatives and real estate markets down ever further.  Interest rates in the real world will continue to rise as risk becomes virtually intolerable, with the imploding US consumer demand leading the way down along with the hapless dollar.  Until confidence is restored and banks start lending to one another again, which can only be fully and truly accomplished by first purging the system, this is just another non-starter like Tuesday's .25% rate cut by the Fed.  Hyperinflation will continue to skyrocket even if the new plan causes some progress to be made in the freeing up of some of the frozen credit markets as speculation caused by newfound liquidity drives the price of everything up and available funds continue to be improperly allocated to losing sectors.  This ever-burgeoning hyperinflation, or if you prefer, this hyper-stagflation, will continue to sap consumer strength and cause corporate profits to explode and go down in flames at an ever-increasing pace.  Much of the new liquidity provided to carry traders on Wednesday from the weaker yen has found its way once again to gold, which has already spiked to 817 in the opening of the COMEX, paving the way to 850 and beyond, just as we predicted would happen if the yen was weakened.  The current stock rally is being orchestrated to create a short squeeze to hit protective derivatives of large specs that expire next week, such as stock index puts, so that stock markets can be crashed to hit gold while large specs are stripped of their protective derivatives and are forced to liquidate their precious metals positions to cover margin calls on stock losses.  Large specs who have followed our advice should have no problem with all this, since they do not own short-term derivatives if they have followed our advice, and they should be buying and then selling stocks into the PPT provided strength at this point and stashing some of the proceeds away into more protective derivatives as the stock markets move up, doing so at an ever-accelerating pace until the inevitable crash comes, which we can guarantee unless the cartel loses the gold battle and gold goes intergalactic.  Large specs who have followed our advice have made a fortune on their protective derivatives, or at the very least have had few if any losses compared to the rest of the uninformed, and we believe this has accounted for much of gold's stubbornness as large specs have been able to retain their precious metals positions despite massive rally-crash manipulations by the cartel using the yen as the weapon of choice. The cartel will try to keep gold below 850 if they can, but this is quickly becoming a very big if!

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-- Posted Thursday, 13 December 2007 | Digg This Article