-- Posted Thursday, 18 December 2008 | | Source: GoldSeek.com
The following are some snippets from the most recent issue of the International Forecaster. For the full 28 page issue, please see subscription information below.
US MARKETS
As we know there are two sets of rules in banking and on Wall Street - one for the anointed and one for everyone else. The anointed never go to jail for their crimes.
On Friday, it was reported that former Nasdaq stock market chairman Bernard Madoff was arrested for running a fraudulent investment business that lost $50 billion before he confessed to senior employees it was a “giant Ponzi” scheme.
Federal investigators working through the weekend to unravel Bernard Madoff’s alleged $50 billion Ponzi scheme found evidence he ran an unregistered money-management business alongside his firm’s brokerage and investment-advisory subsidiaries, two people with knowledge of the inquiry said.
Clients of the undisclosed unit may have included hedge funds, according to the people, who declined to be identified or to name the funds because the probe isn’t public. Investigators from the U.S. Securities and Exchange Commission are looking for signs that others participated in the alleged fraud and are examining why Madoff’s wife’s name appeared on documents linked to transactions under scrutiny, the people said. His wife, Ruth Madoff, has not been accused of any wrongdoing.
We now are faced with another budding scandal, which is engulfing Robert Rubin former Treasury Secretary under Bill Clinton and his former disciple Chuck Prince for their roles in another Ponzi scheme that is now choking world banking.
They and their accomplices over the past five years are named in a federal lawsuit for an alleged complex cover-up of toxic securities, which was administered worldwide. They caused part of what you see in CDO, Collateralized Debt Obligations, which have been responsible for trillions of dollars in losses. These disastrous securities that were sold by Citibank were off the books in shell entities. The actions of Rubin and his partners in crime were responsible for the collapse of Citigroup, which wiped out $122 billion in shareholder value.
What is equally onerous to shareholders is that Rubin and his gang of accomplices were able to hold Citigroup’s shares up in value while they cashed out $150 million worth - stock sales that were suspicious and calculated to maximize the personal benefits from undisclosed inside information. A trait Wall Street Illuminists are famous for.
Rubin made $30.6 million on the deal. What more would you expect from the masters of the universe?
Considering this suit we see a winter of deep discontent. It is the apparent result of twisted ideology or manifest sociopath behavior. Financial innovation was just another ruse to empty the pockets of the investor. This was an age of mitigating risk by spreading it throughout the system. It was thought that this would blunt the negative force of such scams. It did not work. This is what we forecast six years ago and which only became realty 1-1/2 years so. When the results of such antics began to take the financial system down.
Americans and others have no idea what is going on nor do they understand the gravity of the situation. This is an event that only happens once every 500 to 1,000 years. This is going to be one of the granddaddies of all collapses. The elitists had to play boosting the value of real estate to dizzying heights and then burying it in structured finance. In a world of stable real estate prices, SIV’s and CDO’s were relatively risk free, but this was not a stable environment. Professionals should have realized that normal rules didn’t apply. Foreign banks, hedge funds, insurance companies and other institutions bought 70% of what became toxic waste, as they poured dollars back into the US economy supplying at times $3 billion a day in investment to keep America from going bankrupt. The buyers knew that lending practices had changed dramatically and that risk had increased exponentially. Eighty percent of mortgages were being securitized.
Greed drove all the players from the borrowers to the buyers of what became toxic garbage. A daisy chain of corruption and greed. The buyers were not happy with a better yield, they had to borrow money and leverage the CDOs and SIVs 30 to 100 to one. As you know we have just witnessed the de-leveraging of this process and the devastating effect it has had on all markets and the world economy.
The Illuminists got the ball rolling by getting revenge on Bear Stearns by financially assassinating them and looting the valuable assets of the company. The recipient was JP Morgan Chase, a major owner of the Federal Reserve, which you loaned $29 billion to pull off this theft. This started the de-leveraging and the run on the derivatives. Lehman Brothers was next and their demise caused even more havoc. Just prior to that was the collapse of Fannie Mae and Freddie Mac, both derivative borne disasters. Taxpayers are on the hook for $9.4 trillion and climbing. The Fed refuses to say who received their largess and what the terms are. Citigroup will cost $1 trillion and AIG $500 billion. The Treasury is backstopping $600 trillion in derivatives and the Fed and the Treasury are doing the same for the entire structured finance segment. The latter and municipal bonds are essentially frozen. There are few buyers.
There is nothing normal about this recession/depression. We are looking at the destruction of the system, which we forecast over eight years ago. Any entity with money doesn’t want to lend or to buy. That is ABS, CDOs, SIVs, CP, munis, auction rate securities and CDS. It is a semi-frozen to frozen system. In order to get banks to lend at all the Fed poured funds into domestic and foreign banks, and has forced down interest rates on Treasuries as well as the Libor.
Paulson’s attempt to revive loan securitization is an exercise in futility. The banks do not even want to borrow short and lend long anymore. No more 30-year fixed rate mortgages for now. They have too many bad debts and do not need any more foreclosures. Let the FHA handle the business until the smoke clears. The banks, Wall Street, government, and the Fed are putting out so many fires that they have little time to restore confidence. There is still no transparency. When you ask a simple question of government the answer is it is a state secret and cannot be divulged. The Fed arrogantly simply refuses to answer.
As we stated previously banks are lending but only to the best borrowers and loans are up 20%, but only in that category – and that includes mortgages.
The system falls deeper and deeper into trouble every day. The banks are holding on with Fed and Treasury help, as are most sectors of the economy. What is really vulnerable is Wall Street, insurance, pension and retirement plans, hedge funds and those in the stock market. The market is only 50% down. It has 50% more to go.
The stimulation brought forth by the Treasury and the Fed has to lead to a decline in the dollar and a rise in gold and silver. We are already into a dollar correction. The fight by the Treasury and the Fed to keep interest rates low will get more difficult and cost more money. They have again lost control of the dollar. This means gold and silver should break out again soon. Treasuries, the bond market and the stock market will all be under tremendous downward pressure. The perceived safety of Treasuries will soon be history.
The dollar faces a $1.3 trillion fiscal deficit in September of 2009 and a trade deficit of $57 to $60 billion and a $500 billion balance of payments deficit. The M3 started rising again and will start to show up in inflation again in January. It is now only a matter of time before interest rates rise again from their ridiculous current levels.
As the dollar comes under pressure the Treasury market is experiencing fails-to-deliver of $2 trillion and that is hardly chicken feed. This certainly has to be a crisis of confidence for Treasury investors and another good reason to stay away from them. Who would want to chase record low yields and fails that range from $1.3 to $2 trillion? It is like who’s on first. As a result broker/dealers have stopped delivering bonds. Holders of US Treasuries are now scared to lend them into the repo market in case their bonds are not returned, and potential buyers sit on the sidelines fearful of handing over their money to a counterparty that at best might not deliver a bond on time, and at worse, might go under.
Treasuries are some safe haven. It could be in time investors will refuse to buy Treasuries. That would make it increasingly difficult and expensive to raise money and rollover maturing debts. Due to fails-to-deliver the natural balance of supply and demand has been altered and the true price of Treasuries has been obscured. In addition, fails have spread across other bond markets. While this transpires the Fed sits on its hands and does nothing. They just told the players to sort it out for themselves. Could it be the Fed wants a collapse? The global economy has significantly contracted since the collapse of Lehman, which spurred this problem. The Fed’s attitude hardly instills confidence when 8.6% of all Treasuries failed in the first five months of the year.
Now that figure is 20%. As we said these fails have affected other markets and this problem is not new. In 2004, fails for government agency MBS was 40%. It really is a case of greed by the players not wanting government to interfere. Once the system breaks down, and it will break down, the pros and the institutions will get delivery but not the public. The profit lies with the institutions.
Another problem is that more bonds are trading than exist. That is due to naked shorting mostly by dealers. An investigation is underway, but as usual, nothing will happen.
As we warned some time ago not only residential real estate has serious problems, but so does commercial. The market is frozen because buyers cannot get financing. Months ago we brought to your attention in NYC the Stuyvesant Town-Peter Cooper Village and the Riverton Apartments in Harlem. There are developments all over the country that are in serious trouble due to lower revenue or cancellations. Bonds for such commercial projects are yielding on average 15.2% versus 8.5% in mid-November. Credit default swaps on such bonds on AAA securities rose 133.5 bps to 847.5, or $847,500 in annual premiums to insure $10 million of the debt. That is $619,000 more than at the end of October.
The 2006 funded ALT-A mortgages delinquencies averaged 20.3% and 12.5% for 2007 up from 16.9% and 12.2% just six months ago, and as unemployment rises these mortgage problems will worsen.
The credit crisis has begun to be reflected in a demand collapse. The downturn is the worst in 27 years. This unfortunately is what we predicted and it has come to pass. The Baltic dry index has fallen from 11,000 to 800 and China will shut down 100,000 plants this year. As we have reported previously rioting has been rife in major cities. In large exporting cities unemployment is over 10%. It is no wonder the Communist government is going to spend $650 billion on domestic infrastructure.
These problems will hit every economy and society. Versus gold every currency will fall. The chickens are coming home to roost. No matter what governments following Keynesianism say, every government will have to revert to a gold standard and God help those that do not have gold reserves. They will have to buy reserves back and that, of course, will send gold soaring. Yes, inflation drives up gold and silver and deflation does as well as it becomes a flight to quality. When nations currencies are not worth the paper they are written on gold becomes the standard. We do not know for sure where gold is going. Official inflation since 1980 would put it close to $3,000 and unofficial inflation over $6,000. If we return to a gold standard we could be looking at $9,000 to $10,000 an ounce, who knows. All we know is that is where all this is headed. We have seen one report that was looking for more than $50,000 an ounce.
…
THE INTERNATIONAL FORECASTER
WEDNESDAY, December 17, 2008 - 121708(5)_IF
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-- Posted Thursday, 18 December 2008 | Digg This Article
| Source: GoldSeek.com
