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"Two leaps per chasm is fatal." – Chinese Proverb
"Mr. Greenspan will go down in history as the worst economist and Federal Reserve Chairman ever to walk planet earth." - Traderrog
We certainly don’t recommend chasm leaping for anyone. How many black holes have Benny, Hank and their New York gang leaped over? Let’s Count: (1) Housing crisis (2) GDP crisis (3) National Debt crisis (4) Derivative crisis (5) Inflation crisis (6) Iraq crisis (7)Energy crisis (8)New food crisis (9) Deflation crisis (10) Bond crisis, and worst of all a (11) Consumers’ crisis with no more buying power. How many of these negative events have been solved? We say some partially but most have not been solved whatsoever. Next these guys will try the Grand Canyon. They ain’t gonna make it.
"Freddie Mac, the second-largest U.S. mortgage-finance company, may cut purchases of home loans from banks and bonds backed by housing debt to shore up its capital amid record delinquencies."
“The government-sponsored company is also considering selling securities and reducing its dividend while it prepares to issue $5.5 billion of stock, McLean, Virginia-based Freddie Mac said in a July 18 filing with the U.S. Securities and Exchange Commission.” ‘This just means much less credit availability for mortgage borrowers,’ said Paul Colonna, who manages more than $100 billion as chief investment officer for fixed income at GE Asset Management in Stamford, Connecticut. ‘They were teed-up to be saviors of the mortgage crisis, but now they've got their own capital issues." - Dawn Kopecki and Jody Shenn, Bloomberg.com
Freddie Mac and Fannie Mae have underwritten over 50% of all the outstanding mortgages in the United States. Talk about too big to fail! These two nasty twin demons have the power to destroy not only the United States economy but the entire world. Now our money-manipulators are running like chickens to band aid this mess by cutting back on new real estate loans, borrowing more money from our government and any other quasi-lender they can con. Further, they expect to sell new shares. Would you buy shares in these pigs? Our government will. Lawyers and some government spending watchdogs have called some of their efforts illegal. It doesn’t matter as these dudes are in a fight for their fiscal lives. They are taking US consumers, taxpayers and the global economic system down with them.
To Para-phrase this mess, Ben & Hank say: "My Karma ran over your Dogma." - Unknown.
Trader Tracks says the F&F’s will be nationalized. And, if things really get rough, some global banks will move in the same direction. As deflation overpowers inflation, we see some selling in certain commodities. However, energy, precious metals and food continue to rally indefinitely.
Black Holes, Chasms, Canyons and Trip wires
Mammoth economic tragedies are not built in a day. Alan Greenspan was busy for years concocting our current gigantic mess. With fabulous computing tools at his disposal along with unlimited funds and the ability to talk for hours saying nothing; Greenie had few constraints on his actions. We watched those congressional hearings where our brainless politicos heaped unwarranted, worshipful praise on the old guy as he fooled ‘em all with double talk and fancy Federal Reserve rate adjustments. Now disaster has struck with overwhelming power. Benny the bag-holder (that’s his new nickname) got left holding this bag of trash as Sir Alan skipped into book-promotion-land and can now work diligently to craft his legacy attempting to shift all blame on others. Mr. Greenspan will go down in history as the worst economist and Federal Reserve Chairman ever to walk planet earth. Now let’s review these 11 fun-filled problems thrust upon our economic world by these distinctly unimpressive dolts.
Housing Crisis: Benny, Hank and New York would have us believe the Fannie-Freddie propping event would solve the housing crisis. Nothing could be further from the truth. New mortgage failures and foreclosures are accelerating faster than ever. There are two problems: (1) Consumers are broke, lack buying power and more importantly staying power. Inflation is wounding consumers especially with uncapped utility bills including sewer, water, natural gas, electricity, telephone, cable TV, internet and real estate taxes. Many are discovering this total cost group exceeds the house payment and its increases cannot be stopped. (2) Consumers are having serious employment issues, cannot obtain new credit and the formerly Santa Clause-like ATM housing machine is broken. Housing’s failure has year’s to go and cannot find a bottom until 2011-2012 when used home pricing holdout’s have finally capitulated and prices are in the cellar. The majority of US markets will find prices cut in half from former highs on an inflation adjusted basis by 2011-2012. A few markets like New York City, on a similar adjusted basis fall only 12% to 24% lower. That is the lucky group. Those sunny-south and western markets, drastically over-built, could see inflation-adjusted price drops of 62-75%; the worst few cases even 80-90%! Example: What is a McMansion in suburban Las Vegas worth if 80% of the partially constructed neighborhood is vacant? We would see no surprise in $450,000 formerly listed new houses selling for $100,000-$150,000. Some of these subdivisions will turn into ghost towns with total abandonment. Then the squatters and criminals move-in.
GDP Crisis: The US is technically broke and our GDP imbalance while holding in a steady, negative, multi-billion posture has worsened considerably. With fudged statistics bandied about so often who can believe the current numbers anyway? Foreign nations are getting really sick and tired of holding billions of US Dollars in payments while watching this currency fall like rock. On this day of July 23 as commodities are selling to lower, normal, cyclical support, the dollar should be in nice rally. It can’t even find 73.00 on the index this morning. Watch what happens to the current GDP imbalance when our collective paper pile including bonds, notes and dollars all tank simultaneously. A cold economic winter lies just ahead.
National Debt Crisis: Currently the US national debt is so preposterous anyone who can count knows there is no hope to repay these debts. This week it was reported the formerly rated AAA US top credit has sunk to AA, similar to Italy. Bond traders without any encouragement from the Federal Reserve or US Treasury will force rates higher in yield and lower in price. We’ve already broken down and through the magic 30-year bond price at 115.00 with this morning’s September futures quoted at 113.32. Anything below 115.00 is sell signal. We are waiting to green-light this short trade expected to last for several months-years. In our view this trade is based and firm by September-October when several volatile markets hit the fan with wild prices.
Derivative Crisis: This story has been front page news for so long some are not paying attention anymore. We strongly suggest anyone trading anything had better pay attention. In our view, roughly 10-15% of these problems are contained and they are spreading quickly over the globe. Not only has this mess whacked the US but in other formerly quiet and sedate corners of the world others are coming apart at the financial seams as well. Examples: Iceland was hit hard and New Zealand had six hedge funds crash from this problem. A big load of this garbage hit global banks so badly in the UK and Switzerland several of those formerly clean operations got all dirty with this trash. UBS took a real pounding with major losses and scandals. In the UK, Northern Rock was destroyed and required massive injections of taxpayer cash to avoid nation-wide, contagious, multiple bank runs. Some derivatives will be paid, some denied and others extended forward in time for many years promulgating a hangover the likes of which we’ve not seen since the 1930’s.
Inflation Crisis: The United States Federal Reserve in conjunction with our U.S. Treasury and New York manipulators constructed this current mess and have only one way out-print zillions of dollars diluting currency values and inducing massive, under-reported inflation. We think US inflation is now above 11% and moving higher. National stats give us a bad joke number of something under 3%. Who are they kidding? Ask anyone buying groceries, gasoline and paying utility bills. Guess what? It’s going to get a lot worse. Several other countries are printing cash faster than America.
Iraq Crisis: Bush’s war on alleged terror in the Middle East calmed down the problems temporarily but the action has again shifted to neighboring Afghanistan-Pakistan, which is even scarier as there are doubts the Pakistan government can hang-on and they own nuclear-tipped missiles ready to fly. This war, obviously instigated to control the last large crude oil reserve pools, has back-fired into an international hornets nest. Some are saying the Iraq oil reserves are not nearly as large as reported. We do not know but smart geologists with years of experience in the region say four of the last six major known world-wide reserves lie under the border of Iran and Iraq. Why did the US build a new diplomatic palace in Iraq rivaling the Taj Mahal costing $500,000,000? Why did they build a jumbo jet monster airport runway near the mutual borders in that region? A child knows the answers. The US presence in Iraq is permanent.
Energy Crisis: Several secondary but major oil fields supplying crude to the world are in Nigeria, Venezuela, and Mexico. Nigeria has nearly stopped shipping 1mm barrels a day of the highest quality light oil preferred for gasoline production. Criminal gangs are fighting their government for more of the take. Previously, they were rustling 10% of Shell’s daily output. Now they want to steal more. Venezuela has the oil but during Hugo’s take-over he expelled the major oil companies and their skilled workers. His amateur soldiers are operating-ruining the oil fields and facilities The abused equipment and oil fields provide drastically falling production. Further his communist policies are wrecking the country’s economy and the herd is starting to riot. Next, Mexico’s giant Cantrell Field’s production has fallen a shocking -33% in the last 12 months. This field is the major income producer for the Mexican Government. This one field has been providing 10% of total annual, USA demand feedstock for southern USA refineries. Where will the replacement oil come from as these larger secondary producers cannot deliver?
Food Crisis: US politicians in their mind-boggling wisdom first mandated 4.5 billion gallons for 2007 corn ethanol. Despite the market’s flashing red lights and price warnings, this 2008 mandate was doubled to 9 billion gallons. That requires 33% of the USA corn crop! This event hit at exactly the wrong time as we are in decade long cycle of nasty, uncooperative growing weather. Further, wheat reserves in the bins (old crop) remain at a 40 year low. What happens if the crops this year are sub par? We forecast that they will be and some grains will be rationed in 2009. This has not happened since the early 1950’s when Eisenhower was in office. China and India along with other newer grain demand countries seek improved diets demanding more grain. Prices are going one way; a lot higher.
Deflation Crisis: What goes up must come down. Greenie tried to defy the laws of economic gravity and now the USA and the world will pay the price. Prices, like giant rubber bands, work tirelessly to achieve neutral. When stretched too far in either direction, the snapback is vicious. Sir Alan tugged this economic event beyond comprehension to buy side. The deflationary sell side will follow our forthcoming hyperinflation. For now, food, water, energy and a few other markets, which cannot be controlled, or price capped are flying with inflation. On the other hand, pricey hard goods like cars and homes, along with their expensive furnishings lose pricing power and shall continue to do so until final price capitulation is found. We see slipping demand in certain commodities like aluminum, zinc, iron ore and others. They are not caving in but are going softer. The commodities rally should continue for years but if the world and the USA in particular slip into depression (we have been in a recession for months) only the very necessary commodities like food, energy and precious metals (metals for security and a protective currency) can retain bull markets.
Bond Crisis: Bonds are just paper. They are just a promise to pay and when they cannot be covered with interest payments and finally repaid in full, this market is toast. The larger forthcoming bond failures we see just ahead are in investment banks, hedge funds and auto companies. The bankruptcy courts will be very busy. As bonds go up in yield this fall and down in price they’ll be doing a very gradual pivot reverse after 20+ years in the opposite direction. China and Japan hold the largest pile of American currency, bonds and notes. An ominous warning arrived this week when an analyst mentioned the credit of the U.S. Government has fallen from AAA to AA, similar to Italy’s. That is truly scary and portends our future.
Consumers’ Crises: American consumers are tapped out and broke. The reason was housing failures (still on-going and getting a lot worse) as ill-conceived derivative paper placed homebuyers and their lenders in an untenable position. One top investment bank has raised the expected number of mortgage housing foreclosures to 6mm. Our current forecast is 10mm. One analyst suggests that 40% of all mortgage loans in the US, or 21,000,000 homes could take advantage of bankruptcies and walk-away rules permitting up to eight months of free living before they are kicked out. We know this business and heartily agree. Obviously 21,000,000 will not all do this but now we’re trying to determine, on a reasonable forecast, how many more than 10mm will take advantage of these rules? These are the reasons we have been so aggressive with our continuous increases on foreclosure forecasts. Since the broken consumers are spent out, have looming employment issues and are unable to get more credit, these folks (70% of the spending majority of our mammoth economy) will become busted and absent buyers. Crash city is just ahead.
In summary, how many of the chasms and canyons can Benny, Hank and our spendthrift congress jump over? We say not very many and most probably shall fail in most of these leaps of faith. Expect these idiots to continually do the wrong thing, and make more tragic mistakes exaggerating this disaster. Our trading and investing recommendations and ideas suggest pursuit of precious metals, and inverse mainstream trades. This chart was offered on an earlier essay, but nothing has changed.
Daily Gold Rallies After Mild Selling Of Commodities Baskets By Funds.
Gold and silver traders, shares’ investors and those with enough foresight to prepare, will endure this mayhem without too much disruption and can in fact be handsomely rewarded.
Late Summer Buying Cycle Arrives Near August 15, 2008
Watch for new rallies in most commodities markets in late August after an interim shorter term rally and profit-taking event. We should see channelized mini-rallies in gold and silver this summer. The bloom is off the rose and our off-schedule, nasty “Sell-in-May-And-Go-Away” arrived on June 26, 2008. However, our later summer forecast is a mild haircut in most stock shares including precious metals. The only action to prevent selling is our stunningly time-worthy Plunge Protection Team who had multiple recent failures propping shares. Will they win during the summer push-‘em-up event? We think with all the other market dangers they will prop their little hearts out and not permit the Dow and S&P 500 to get out of control. In our newsletter, Trader Tracks, we provide weekly guidance and extra e-mail alerts to report our best new trades and offer suggestions for trade management. Visit our website at (webeatthestreet.com) for more information on our spectacular futures and commodities trading record.
Whatever you do, make a concerted effort to stay with the trend and hang onto your core holdings of preferred shares, cash, and coins. Physical gold should never be sold or, traded but rather accumulated steadily on a monthly savings plan and squirreled away. Big traders are always ready to buy on the dips and normally never sell their gold and silver. You would be amazed how quickly your physical gold and silver will accumulate using this strategy. - Traderrog
Roger Wiegand
Editor Trader Tracks Newsletter
& The Rog Blog at webeatthestreet.com
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Roger Wiegand is Editor of Trader Tracks Newsletter for gold, silver and energy traders. Roger provides recommendations for short and longer term traditional stock shares and futures- commodities trading with specifics for individual trades. See www.webeatthestreet.com for more information.
Contact Claudio Bassi, at Trader Tracks New York City publishing offices for a modestly priced trial subscription 718-457-1426 Monday through Friday, 9:30am to 5pm or, e-mail Claudio at cbassi@miningstocks.com
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