“Fanaticism consists of redoubling your effort when you have forgotten your aim.”
George Santayana (1863-1952)
Chickens have come home to roost along with dozens of huge, black credit vultures perching nearby ready to strike. Paulson and Bernanke have come to that final moment in time, that denouement, that unraveling of their dirty little plot from which there is no escape. In exasperation and desperation they scream for $700,000,000,000 in immediate cash with no strings attached to toss a wet blanket over their mammoth Chicago-Credit-Liquidity-Fire. Jim Grant of Grant’s Observer asked us, “Where is the indignation?” It was tardy but now seems quite visible on the horizon as the smashed rabble, the common man, has begun to march on the streets of Washington. Are you sweating Hank and Ben? We would suggest you better be as we think your jawboning hat is devoid of new trick rabbits.
One Of The Smartest On The Planet Opines
“The US taxpayers just got bum-rushed. The Boyz trillion dollar 'smash and grab' theft is a done deed. My guess is that it will be more like 3 to 5 $trillion if they can get away with the scam. The total amount doesn't make any difference since the dollar goes away anyhow.”
“I watched some of the testimony at the hearings. One has to listen carefully to those talking points Paulson and Benny keep repeating over and over. The use of 'urgent', and similar words, was the most important. They are demanding a blank check from Congress right now. They repeated many times that waiting until Congress reconvenes (about January 15th) to get the full amount they want would be too late. All that means is that they think the total banking meltdown will occur prior to January 15th. They want to make sure the Boyz get first count. So, the timeline appears to be set.”
“This stolen money will not only be used to bail out the Boyz by buying-up their bad mortgage debt, it is also to be used for 'other' bad debts. Everyone thinks that means stuff like bad auto loans and credit card debt. You can bet that what they really mean by 'other' is the most toxic, worthless derivative paper. They intend to spread the free money beyond their buddies in the investment banking and brokerage firms into the criminal scam hedge funds too. Everybody gets a piece of the action if they have their way. After all it's just free money as long as it lasts.”
When everything comes unglued after the $trillion(s) bailout, Paulson, Benny, and rest of the Boyz can at least say they tried their best. Barf. (Name Withheld).
Credit Has Collapsed
Housing derivatives were the real culprit in this enormous mess. The shear magnitude of this credit market-industry represents a huge chunk of USA outstanding credit and investments both personal and commercial. Greenspan provided the formula of low interest easy money credit and New York took full advantage using the Yen carry trade, hedge fund money, with all of it being an ultra cheap marketing plan with almost no upper limits.
The BOB’s (Buddies of Bush) ripped-off most of the immediate world with their derivative scam. The crux of this nefarious plan enables participants to remain obscure and hidden. Yes, two parties have names on the trades but with a daisy chain of sub-trades, breaking a large cake into smaller ones defies the auditors to determine who owns what. This is the beauty of their nasty plan from their greedy standpoint. Nobody knows or can figure out who owes what to whom. For that matter, those trying to collect on a winning trade can’t figure it out either. This is why the F&F’s (Fannie & Freddie) 800 auditors worked over four years and can’t find the answers and cannot sign-off without incurring incredible liabilities which they are loathe to do.
Hank and Ben are using testimony scare tactics to frighten Congress and other authorities into signing and hiding immediately. From the Congress’ point of view, if they vote wrong they are toast in the November 4 elections. Both political parties have a great deal at stake on this vote.
The Dems are anxious to approve some kind of plan understanding severity of a very short time line with the meltdown fuse lit and burning. Yet, the more they look at the mess the more they are reluctant to give Hank the vault keys without strings attached. We strongly suspect ‘ol Hank has some serious garbage he wants to go away by quickly spending this rip-off cash pile. One key clause in his proposal would be a straight across exemption for him from any civil or criminal liability. Oh-Oh! Something stinks!
Next, the President in his bold and wild ways strongly resists any approved new government authority to arbitrarily cut executive pay at companies engaged in this bailout. Further, the Prez does not want to allow taxpayers to share in any profits if those messed-up companies can ever recover.
In short, Mr. Bush says, give ‘em all the cash they need with no rules attached. Let those leaders in the crashed companies continue to take millions from the bailout kitty while providers of the money, those taxpayers, get all the risk and no reward. For the failed banks and bankers its heads I win and tails I win. For the taxpayers they have the remarkable ability to get screwed three ways from Sunday.
We would strongly suggest these bad actors had better start paying attention and consider the folks who have much more at stake than they do. The credit stomped, rabble in the streets were reported to be marching in Washington. We also learned a broad swath of criminal investigations have begun where most of the smoke and fire originated. People will take a lot of abuse but finally, a line in the sand is found, and when breeched, look out Lucy! This is why Paulson is panicked to get fast cash.
The Dem’s want power to cut involved executive pay and restrict their severance packages if they take bailout money. Paulson reportedly said, “This would be punitive” and would deter these companies from participating in the bailout. We say fine; let them take the alternative and go crash and burn. Quite frankly, in our view, this is a major positive, as it rids the entire system of trash and garbage enabling survivors who truly understand how to run a bank, or a business to get on with life. This is the nature of capitalism.
John McCain, the Repub’s candidate for Prez says the execs in the middle of this should earn a maximum of $400,000 a year as this is what the highest paid government employee earns-The United States President. The Republicans as a group is also loathe to give these shady dudes unbridled millions when taxpayers foot the bill. Dem Rep Brad Sherman of California said, “I don’t think there is anybody in this room (Financial Services Committee) that would vote for,” (Paulson’s proposal as is) –Washington Post, 9-23-08
Prospects For The Outcome
We think credit fires are overwhelming the entire global system and some of this stuff is bound to break sooner rather than later. Do we project a major wipeout as in crash city? No, but we do expect the Dow and S&P 500 to be cut in half from their previous, recent highs. Does this happen overnight? No, instead we look for more newsy media jawboning (talk is the cheapest commodity on the planet) with the PPT buying and selling critical markets at critical timing points as months of selling unfold.
A steps and stairs selling event protracted over many months is infinitely preferable to one giant smash in only a week. That kind of mess could start a revolution and descend into Marshal Law. Rather, look for painful, slower drops in the stock indexes, lots more crying, whining and hand-wringing taking the U.S. Dollar index to .4600 from today’s .7681 over months, or years.
Next, look for a “managed-intervened” Dow to sell and fall with intermittent pauses and bear market rallies, sprinkled with dead-cat bounces as follows: 10,750, 10,400, 10,000, 9,750, 9,400, 9,250, 8,750, 8,500, 7,750, 7,600, and 7,250 where the rest period could be several weeks. After that pause, more selling arrives going to 6,500, 6,250, 5,600, 5,400, 5,000, 4,500, and 3,000 where we get another weeks’ long resting period. This selling could stop anywhere between 7,250 and 3,000 in our view as hyper-inflation kicks in and drives the posted number higher but in reality, the true value, fully inflation-adjusted is toast.
One of the top analysts reports commodities prices will continue to rally, albeit in a more subdued fashion until crude oil goes ballistic with gold. We have seen softness (some extreme) in various commodities as recessionary forces tighten their grip but the larger picture tells us technically, this commodity bull-run is just past the half-way point. Our recent nasty selling cycle was only half-time. If history repeats which it usually does, we should enjoy another seven years of this phenomenon.
The newest emerging commodity nations like China, India and others are in a current credit relapse. However, they should move on up to newer and continued buying sprees in most commodities to fulfill large demands building improved living standards in food, energy, metals and others. The ingredients of supply, demand, inventories, cost of production, and currency fluctuations collectively signal rallies and more buying. Those claiming the commodities bull is dead are wrong in our view. These overseas new growth components should continue.
Gold and Silver
Gold and silver are terribly undervalued when numbers are applied to the John Williams Inflation Calculator. This formula says August, 2008; gold should be $2,393 using BLS numbers but John’s SGS formula prints out at $6,746. Silver for August, 2008 is $140 (BLS) and $396 for (SGS).
Number crunchers can argue all day over the merits of these interpretations but we know John and he is highly respected for his work in this field. Our forecasts were changed recently for the shorter and intermediate term due to the severe beating of gold and silver this past summer. For now we see a $985-1040 gold high for the December, 2008 futures price with some potential for $1150. For April, 2009, gold futures, our forecast was reduced from $1350 to $1296.
For silver, we see December, 2008, futures at a high of $26.50 down from $30.74. The higher number is expected on the March, 2009, silver futures contract.
Precious metals shares, like the physical metal prices and futures trading prices were hammered; perhaps even more. However, after a 90 day healing cycle this fall, we think shares can recover in stronger rallies during the first quarter of 2009. Keep in mind however, the HUI and XAU have shown rally moves already over the past few days. We might see a very pleasant and perhaps earlier surprise on the upside. Conditions encouraging these rallies are a selling dollar, and potential for a propped shares market designed to re-elect the current administration on November 4, 2008.
Watch for new rallies in most all commodities markets. It’s time to selectively buy. Our early fall precious metals haircut is over. 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 fall push-‘em--up event? With the election silliness underway the PPT will prop shares.
Key events this week are the congressional hearings with Hank and Ben. Also this Friday evening the two presidential candidates will debate face-to-face. Anything can happen during these presentations so stay alert. However, whatever the shorter term fluctuations, precious metals can only rally for the longer term as the Federal Reserve prints dollars and other paper to keep banks afloat.
We think with September market dangers they will prop their little hearts out and not permit the Dow and S&P 500 to get out of control; but it will sell somewhat. 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.
Should you be having difficulty buying physical metals on new orders, we suggest placing an order and being patient. 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.
In our conversations at conferences, several readers and others have shown interest in attending a futures and commodities trading seminar. Please contact our offices with this request as we are planning a private conference for our traders to help them.
Editor Trader Tracks Newsletter
& The Rog Blog at webeatthestreet.com
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 webeatthestreet.com for more information
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