This past Thursday, the Fed, the “Working Group on Financial Markets”, politicians and street stooges created a 420-point rally after historic Fed intervention; similar to what they did the previous week. That rally was unwound and this one will be too. It will implode again. Now that the Fed has spent $230 billion this month, they probably only have $400 billion left to throw around before they raise more capital or create more inflationary credit. We have had eight months of Fed intervention and the credit crisis is worse than ever.
Lehman Bros’ earnings came this week and they used an accounting gimmick to produce earnings. A $600 million gain on an accounting rule that allows it to book a gain on the declining value of credit – a gain from conceptually being short your own debt.
As this transpired ABX HE-AAA has declined to new lows. This is due to the disconnect between credit markets and the stock market.
JP Morgan Chase, with the Fed’s $30 billion, is acting as the savior of Wall Street. It should interest you to know that their 9/30/07 OCC Repot shows JP Morgan increased their derivative book 14.6% to $91.734 trillion from $80 trillion. Citigroup is number 2 with $34 trillion.
We are disgusted with the likes of Bill Gross of PIMCO. He says the demon is deflation and he is correct – as opposed to inflation. The problem is he says, “We need the government in some form or fashion to begin to buy mortgages.” Yes Bill, let the public pay the bill again. Asset price deflation is a bigger concern for Gross because he’s rich and long financial assets. He wants the Fed to socialize his risks even though those policies debase the dollar and inflate the cost of the necessities of life. This is a blatant disregard for the working poor and middle class American, who by definition have no or few financial assets, but who shoulder a disproportionate burden from Bernanke’s socialism of risk, better known as corporatist fascism.
The answer is for the Bill Gross’ – PIMCO’s and other lenders to grant lower interest rates and lower principal amounts on the mortgages they hold instead of under due profiting on the backs of the American taxpayer. Or better yet, lets have the government force them to do so. If Gross/PIMCO and others want to own mortgages, which they do, let them shoulder the risks, costs and labor to renegotiate terms or go through foreclosure.
Can you see what Wall Street and all those who bought those mortgages are up too? They are advocating that the Fed and the US buy/nationalize whatever depreciating financial asset that the advocate holds. Then excuse the self-serving begging by asserting that it is good for the people!
The Fed/JP Morgan Chase rip off has forced Morgan to set aside $6 billion for litigation. They obviously are prepared to buy clients and shareholders off in the Bear Stearns affair.
After years of corruption and living on the edge of bankruptcy, OFHEO cleared Fannie and Freddie to purchase $2 trillion in mortgages. That means you get to pay for that with higher taxes and inflation. This injects $200 billion immediately into the MBS market. This is a transfer of private debt to American taxpayers. As we predicted this will be a $2 to $3 trillion bailout. They are bailing out all those who lied on their home applications, including speculators. We recoil in disgust.
As IMF Director Dominique Strauss-Kahn said, “Obviously the financial markets’ crisis, which started in the US is now more serious and even more global then it was a few weeks ago, the risks of contagion are very high.”
The hedgies are all in big trouble due mainly to psychopathic levels of leverage they used to pump up profits and to compete for clients, and the only thing that is keeping them alive are the precious metals and the commodity sector in general, which are the only winners in the current debacle. That is why this rally is just getting started, because without it, the large specs are dead meat, and they all know it. But as with any business, they have to take profits and square their books to color their world as positively as possible to keep their clients from bailing, and with the end of the first quarter looming, this is precisely what has been done. After this process, which will soon be complete, has ended, the hedgies will go back on the warpath with the cartel and really "get it on" as the process known as "survival of the fittest" kicks into high gear. The precious metals and commodities sectors are their only salvation, so hedge funds will continue to press their advantage as the stock markets continue with their phony PPT rallies, only to be hammered by large specs as they sell into the false strength and bail out of their dollar-denominated paper assets into metals, commodities and other tangible assets.
The biggest, most violent and volatile rally in the precious metals of the past 28 years, and perhaps of all time, may be only weeks in the offing, so now is the best opportunity to load up for fun and profits. It is now or never for many hedge funds and institutional investors. If they do not win here and now, they are done for, and will be thrown into the huge mass grave along with all the other casualties of this current, catastrophic, financial war. Already we are hearing of shortages in both gold and silver throughout North America as people continue to have light bulbs go off in their heads and realize that there is only one game in town left to play, with total financial annihilation being the only remaining alternative. Thanks to their continual pounding by the cartel, the small resource stocks have been driven down to ludicrously low levels and are going down no further even when the general stock markets are getting hammered. This is where the big money will be made that will save many of the hedgies. Already the bigger resource stocks like Agnico-Eagle are being cashed in as the war chests start burgeoning with cash for the next move which we believe will be in the too-long ignored small resource stock sector. This is the moment many of you, our subscribers, have been waiting for. Just be patient. Your time has almost arrived.
Did you see how the large specs immediately hammered Tuesday's bogus PPT rally on Wednesday to save their protective derivatives so they could cash them in? Because of the holiday, the stock index derivatives were closed out a day earlier than is normally the case, so this is why the big downward action in the stock markets took place on Wednesday and then let up on Thursday. In fact, this is what paved the way for Thursday's stock rally by the PPT. By the end of business Wednesday and early Thursday, the large specs had already cashed out in gold, silver, oil and other commodities, along with a large portion of their protective derivatives which they no longer had to maintain at such high levels following these liquidations for book-squaring and profit-taking. The PPT could pretty much do as they pleased after that, and they of course did. The PPT and the cartel are certainly relentless, so we'll give them that much, but it won't do them any good as they are fighting a losing battle. They will win a few more battles, but they will eventually get totally annihilated and badly lose the war.
The roll over of precious metals futures will be completed by the end of March as the April futures are rolled mainly into June to kick off the next rally. A very bullish opportunity lies here now that the large specs have temporarily cashed out. A requirement of physical delivery under futures contracts in gold and silver would at this point destroy the cartel and cause gold and silver to double or more. We keep hoping that the large specs will take us up on this theory, but they have their hands full of problems which we most certainly understand. Perhaps this surprise demand for delivery will be put off to June to absorb any IMF gold that comes up for sale, if any. We remain hopeful on this point, especially if a killing is made on the small resource stocks. What better to do with your profits than plow them back into physical gold and silver as the dollar is systematically destroyed by the Fed.
Once the bond markets implode due to rising interest rates as risk and inflation grow ever higher, all those trillions of dollars will be plowed into gold, silver and commodities and it will be "GAME OVER" for the cartel as the precious metals blast off on a space trip to the Einstein-DeSitter Radius at the outermost bounds of the visible universe. This event is not far off, and will be the greatest bear market in bonds of all time. Between rising rates due to hyperinflation and risk reassessment resulting from the subprime and credit-crunch debacles along with endless bailouts and nationalizations, dollar pegs broken by oil producers and flights by foreigners from dollar-denominated bonds and treasury securities, this event is baked into the cake.