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You Better Be Afraid

By Roger Wiegand      Printer Friendly Version
Oct 30 2008 12:20PM

“Dear Sirs, In view of current developments in the banking market, if one of my checks is returned marked "insufficient funds" does that refer to me or, to you? Yours faithfully…? - Unknown

We are all grateful for the rebound in several markets including our favorite stuff. However, as they say in sports, “better keep your eye on the ball.? The overriding fundamentals have not changed. In fact, they have probably gotten a lot worse. Those emerging markets recently the darlings of Wall Street have very quickly turned into Horror Show Halloween Ugly.

Russia was doing quite well on a variety of fronts and suddenly the bottom fell out. Inflation, just 3-4 weeks ago was reported to be 50% and their primary national income; that of natural gas and oil was chopped in half over-night.

Catastrophes have broken out all over Eastern and Western Europe. Now, unbelievably, it’s spreading into the super wealthy Middle Eastern oil producers. Their income was halved and then in a double whammy, their shares and owned companies, for the most part were decimated. Meanwhile their spending is up.

Governments as well as individuals have a propensity to believe the good times roll forever once they taste huge success. The reality is they don’t. What goes up comes down. And, often on the down side, the selling skid is a whole bunch faster scaring the wits out of those who had pyramided substantial new debts predicated on their new-found wealth.

Now, that wealth is proving to be fog, smoke, and mirrors just like so many times in history. Worst of all, New York derivatives, are without a doubt, infinitely and immeasurably far beyond previous financial disasters. We suspect when all the financial dead bodies are counted throughout the world within the next ten years, this widespread carnage will surpass the total dollar wreckage since historians have kept records; ever.

Cleaning Up And Starting Over Could Take A Decade

So of it’s that bad how do we get out of it? This massive pile of uncountable debt must be (1) paid-off, (2) repudiated or, (3) inflated away. We suspect all three of these solutions are implemented with very little allocated to the paid portion.

Why can’t it be paid back over time using inflation, selling more bonds, increasing productivity and through grand new savings plans? First of all, the accounting in derivatives is so screwed-up it cannot be untangled. Nobody knows their own liability and nobody can even determine what others owe to them.

To fix it, some counterparties can simply write-off or renounce many of these debts. If two banks owe each other $100mm each for derivatives, they take offsetting gains and losses and probably some aggressive positions regarding taxes, too. Should the auditors question these moves, who could ever do a clean audit and figure it all out? Over 800 auditors working on the F&F’s (Fannie & Freddie) have been busy since 2004 and still can’t figure it out and never will.

Somebody reported that when a nation has debts exceeding 6% of annual GDP there is no coming back. They are sliding down the slippery slope to oblivion. The last report we saw was the US had over 7% and they were headed a lot higher. Fighting two simultaneous wars, running armies in over 100 foreign nations and burying the USA national budget in unfunded Social Security, Medicare and an additional laundry list of Gimme-Gimme’s, has smashed any hope of a balanced budget, ever. This mountain of debt will never be paid back and the idiots doing the spending know it, too. They simply do not care. Money means nothing to them as they are focused on power, getting votes and leaving a magnificent legacy.

We’ve seen reports about the USA having its first trillion-dollar budget. Forget that number as reality is many times higher. The senior director of the national budget office has been screaming about this for months but no one wants to hear it especially politicians voting for and creating this un-payable debt to buy votes.

Smart consumers and business people in particular who clearly understand the laws of economics are running for the exits. Thousands are moving overseas and quietly taking their wealth with them. There are few places in the world for folks to go but if you can afford it, there are some choices.

The incident that really got our attention this week was a discussion by Rush Limbaugh on Fox News saying in effect, the Democrats were preparing a new plan to take (seize) private 401K pensions and combine them with Social Security. The SS Fund is super broke and this would help to strengthen it albeit in a semi-legal- illegal commingled fashion.

Then, to add insult to injury, when a pensioner took out some of this saved cash in old age, they would be forced to pay taxes on it all. In our view this is a very ominous and dangerous development. It is indicative of how broke our government has become and how desperate they are for new revenue to pay bills.

Argentina did something similar just a few days ago and their bond market sank like a rock in a cesspool. Their lady president in her infinite wisdom, implemented a plan designed by her husband, and just decided to literally take-over their private pensions. This has happened before and the results were a major disaster.

Commodities Were Smashed But New, Higher Prices Lay Ahead

Commodity selling this summer and early fall, particularly in dominant crude oil, was expected on normal technicals but never to the degree we’ve just seen. The good news is that after some markets took haircuts of 50% or more, the whole pile is on the rebound, even grain.

Near and dear to our little trading hearts are, of course gold and silver. Silver got hit the worst falling from $21.50 to just over $8 bucks. Gold, on the other hand sold down to roughly $675 after peaking at $1040. Based on our examination, gold is showing the best staying power for the longer pull. However, little sister silver despite the big whack it took, is a tiny market and moves a lot faster. Recoveries in both as well their corresponding shares have based and begun new rallies.

We think for the intermediate term (until March, 2009) silver will outperform gold. Then, as silver commercial applications diminish, gold speeds ahead with more power. Eventually, both will land so much higher than where they are now that if we gave the next forecast we would be called an idiot.

Here Is Why Things Really Go Sour

The credit markets are an international mess. Unless central and domestic banks begin lending in earnest, cash and credit are frozen in time and nothing moves. For now, banks receiving tons of new borrowed cash from central banks are holding it in fear and not lending. Banks do not trust each other.

American housing will continue to fall down for the next three years. We see no bottom until 2011-2012. This is a primary engine of US growth and for now its dead and getting deader.

As commercial real estate falls down the slippery-slope, pension funds and insurance companies are feeling real pain as they own this stuff for income.

The Sheeple are fooled as our wonderful U.S. Dollar had a recent rebound. Nothing has changed and it will sell much lower due to piles of bad debts, inflation, and dilution. Somewhere soon, the dollar slides under .5000 to about .4500-.4600 and then supports. Theoretically, it should go to zero but being the world’s reserve currency with mammoth inflation ahead, support is expected.

Japan, who never got out of their mess after 1989 is working hard to save it’s economy and that of the US. We give them credit for taking on the Herculean task of trying to repair the Unites States.

Corporations seeing how easy it was for bad-boy banks to extract billions from our government in a quest to subvert ‘too big to fail positions’ are jumping in line for their share, too. General Motors on the brink of bankruptcy will probably get Chrysler’s Jeep and Van operations, then flush the rest. They’ll borrow lots of new billions from Uncle Sam under the phony guise of using the cash for R&D on green vehicles. That’s a lot of crap. They are broke and need the cash to live on for a few more months. The big three auto companies wrecked their businesses and now want the taxpayer to save their butts. Further, GM wants Chrysler’s $11 billion in cash, which they would burn through in 11 months at current rates.

The government’s lending window is open to every jerkwater corporate failure from nonsensical operations to formerly blue-chip, now broke major companies.

Consumers were the former backbone of the American economy. Now they have experienced major home value losses, cannot borrow on their homes any more, and their share portfolios are decimated. Credit is gone and jobs are fleeing with lost credit. Social ills of this legendary mess will be terrible; crime, divorce, lost homes, no college, no insurance, etc, etc.

Automobile and credit card defaults are the next tragedy becoming more visible in the first and second quarter of 2009. Unemployment in Michigan is nearing +20% (official number is +8%) and nationally, the real number is above +15%. We think Michigan will hit the magic 1930’s depression 25% unemployed (for real, not newspaper numbers) in 2009. The auto industry and its highly paid jobs are toast.

Largest Loss Of Wealth In History

Our nation and the world at large has suffered these events with varying severity overtime and survived. This current cycle seems to be the worst of all promulgated by extreme excesses. Our primary worry is what happens politically. Do we lose our freedom or, merely go socialist? Will American citizens behave themselves trying to work their way through these problems or turn to violence?

Since these questions cannot be clearly answered with so many variables involved, we think now is the time to protect family and friends with physical gold and silver and perhaps some trading in shares for gain. Debts and unmanageable obligations should be shunned and paid-off or, at least paid down. This is not a time for buying fancy stuff and frivolous items. Hunker down and save. Plan for the worst and hope for the best. The sun shall rise tomorrow. Just be ready if it’s only fair to partly cloudy. Worse yet, gird yourself for huge currency storms.

We think with October market dangers mostly over but having an election to win, the PPT will continue to prop their little hearts out not permitting 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 ( 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 favorite shares, cash, and coins. Physical gold should never be sold or, traded but rather accumulated steadily on a monthly savings plan.

Recent news says you cannot find any coins or, others. We see delays and back-orders but some dealers have goods in hand right now. Go shopping. Should you have difficulty buying physical metals, we suggest placing an order and being patient. Big traders are always ready to buy 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.

In our conversations at conferences, several readers and others have shown interest in attending a futures and commodities trading-training seminar. Please contact our offices with this request as we plan a private conference for our traders to help them in the first quarter of 2009.

Roger Wiegand
Editor Trader Tracks Newsletter
& The Rog Blog at



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, futures and commodities trading with specifics for individual trades. See for more information

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