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Use the above link to subscribe to the paid research reports, which
include coverage of several smallcap companies
positioned to rise during the ongoing panicky attempt to sustain an unsustainable
system burdened by numerous imbalances aggravated by global village forces.
An historically unprecedented mess has been created by compromised central
bankers and inept economic advisors, whose interference has irreversibly
altered and damaged the world financial system, urgently pushed after the
removed anchor of money to gold. Analysis features Gold, Crude Oil, USDollar, Treasury bonds, and inter-market dynamics with
the US
Economy and US
Federal Reserve monetary policy.
Bankers,
Wall Street hucksters, financial network commentators, and floating analysts
seem to have flunked basic arithmetic in grand fashion. Maybe they only
expose the next link in a long chain of deception, their apparent expertise. One
hears estimates of $200 billion on total mortgage bond losses from the Secy of Inflation Ben Bernanke.
One witnesses the series of bond writedowns by Wall
Street banks. One can read of Wall Street economists like Jan Hatzius of Goldman Sachs, who cites $400 billion in
potential bond losses, a favorite figure cited by
other bankers. One is subjected to press anchors and their simplistic echoes
of bond losses. One is endlessly lectured by highbrow analysts of the extent
of bond damage. The trouble is, they all cannot do simple arithmetic and
observe the billboards on mortgage bond indexes, fully available.
Put
aside for a minute the fact that the mortgage debacle in the United States
is described as a subprime loan problem. The entire
gaggle of banker goons and press parrots have their
reasons for insisting on focusing entirely on subprimes.
It makes the problem more marginal, more understandable, more
excusable. Dumb lenders gave home loans to bad borrowers. OK! Follow this
path of incredibly easy math. The total of all US$-based
mortgage bonds is $10.4 trillion. A conservative estimate of the prime
mortgages within this giant mass is $7 trillion. We all know it is more, so
bear with my lowball for argument sake. The prime
mortgage bond index measures an aggregate of prime rated bonds scattered
across the beleaguered fifty states, varying over loan size from large to
medium to small. The ‘AAA’ mortgage bond index has lost a
whopping 30%, a fact that continuously eludes the big bankers and their
legion of obsequious monitoring mavens. Simple math, within the grasp of
a 9-year old kid, results in prime mortgage losses amount to at least $2.1
trillion. The kid might have trouble with all the zeroes though, and even be
confused by what a trillion is. A trillion is a million
millions.
The
size of the subprime mortgages in the United States
is estimated at $1.4 trillion. The ‘BBB’ mortgage bond index has
lost 80% of its value. It too measures an aggregate of such mortgage bonds
across the US,
of various size loans. So subprime mortgage bonds
have lost over $1.1 trillion. If subprime bonds
have lost a trillion$, why cannot supposed experts estimate that the total
asset backed bond losses to be at least a cool trillion$? Add the two
numbers from subprime and prime together to reach a
$3.2 trillion in their bond losses. This total does not account for the
middle tier ‘Alt-A’ mortgages, no small sum either. That is
probably close to another $1 trillion in bond losses. Alt-A mortgages do not
receive much attention. They are essentially more subprime
slime with a more obscure name. Their decline rate for associated bonds is
almost as horrible as the subprimes. Even if they
are omitted in the argument, the point remains just as dire. This summer the
avalanche of innovative prime adjustable mortgages will be the wreckage to
report. The bonds have fallen in value, but the writeoffs
have yet to make the news. All in time.
DAMAGE SUMMARY ON A NAPKIN
Let’s
summarize in plain bold letters so as to avoid any confusion. These comments
require plan language. Clear numbers are needed in clear statements.
PRIME
MORTGAGE BOND LOSSES AT LEAST $2 TRILLION
SUBPRIME
MORTGAGE BOND LOSSES TOTAL OVER $1 TRILLION
THE TOTAL
MORTGAGE BOND LOSSES ARE OVER $3 TRILLION
THE
OFFICIAL ESTIMATES ARE WRONG BY A FACTOR OF 10 !!!
GOLD
WILL SKYROCKET WHEN THESE NUMBERS ARE FINALLY REPORTED
So
why are all the so-called experts spouting about $200 billion in total bond
losses? Why are Wall Street economists talking about $400 billion in
extensive losses? A simple conclusion is that they prefer to lie and deceive,
as they defend their industry. Most savvy observers are hard pressed to
identify the last time Wall Street and their gaggle of advertisement vehicles
actually told the truth. When people ask me why such a huge volume of lies is
routinely told, my answer is always the same. Check the advertisers of CNBC, Wall Street Journal,
Barrons, even Investors Business Daily. They are almost all the same: big banks, brokerage houses, mutual
funds, mortgage lenders, and related firms, mostly of them headquartered in New York City.
By the way, not a single felony conviction has stuck against a New York City
defendant in court. All the convictions are of non-club members roaming other
regions. The consequence of being beholden to such a chorus of advertisers is
lost objectivity, blatant bias, active deception, and comprehensive
obstruction to present the facts in a truthful light. Their message has
become simple. “Do not panic, wait
it out, because we are desperately trying to sell from our cratering portfolios.”
The
USGovt stimulus package at $150 billion is being
floated, replete with minor tax cuts, and a puny amount of money doled to
each households. This is peanuts. Ben Bernanke is a bit late in living up to his name of
‘Helicopter Ben’ actually. The name ‘B-52 Ben’ is in
no way deserved, not yet. Questions are asked if the USGovt
fiscal plan is enough. Of course not! The stimulus is ten times smaller than
required, because the estimated size of the problem is ten times smaller than
reality. Unless and until the authorities in charge of this implosion of
financially engineered tinkertoys get serious, when
a rescue package and resolution platform are designed and put into action
valued in the trillion$, they are urinating on raging bonfires. The USFed has put a very small amount of money into the
banking system since August, under $20 billion net.
BIAS AMONG BANKERS
Without
any doubt, the Wall Street conmen and the clueless rookies running the US
Federal Reserve choose not to properly assess the problem. They are totally
unwilling to tell the public that the risk price modeling
system is being unraveled totally, that the
mortgage debacle has wrecked the banking system totally, that the USEconomy is going to be dragged down in a tragedy. The USFed and even the US Dept of Treasury are delighted to
see a recession, since it makes demand grow for USTreasurys.
Therein lies a blatant bias. These clowns talk a lot
about transparency, when such spotlights have exposed the banking system as
insolvent. These charlatans talk a lot about the virtues of home ownership,
when they have become agents to destroy life savings. A grotesque transfer of
wealth has taken place using mortgage bonds as the theft vehicle, from the
homeowners to the mortgage originators and mortgage bond sales force, FROM
FEES. Big investment institutions are bag holders, like pension funds,
insurance firms, hedge funds. As USTBill yields
decline, borrowing costs for the increasingly bankrupt US
book of business decline. Borrowing costs might become a huge portion of the
ongoing federal budget and its deficit.
The
banking leaders much prefer a recession to a big bout of price inflation. They
have a destructive policy at work, to prevent what they call ‘Secondary
Inflation Effects’ from taking root. In other words, they can tolerate
systemic price inflation in energy costs, material costs, service costs,
insurance costs, but heaven forbid any increase in wages. They steer the
system towards a Middle Class squeeze. Wages have fallen by USGovt nitwit analyses by 4% to 5% since 2003 on an
inflation adjusted basis. So if realistic inflation adjustment is used,
employing the 7% to 10% CPI rise seen in the last few years, the Middle Class
has suffered a 20% to 25% wage crush in real terms!
Those
analysts who have been forecasting severe problems do not receive proper
credit. Instead, they are criticized, disrespected, and called lucky. They are
even called part of the problem, as they contribute to the erosion of
confidence. My position is steadfast, consistent, and stern. The US
financial system embodies institutional dishonesty, fully intertwined
throughout the entire system. With each passing month, another huge story of
fraud is revealed. We need a new cable television network just to track US
financial fraud.
Today
we were treated to yet another deceptive home sales report. The December
existing home sales were down 2.2% in sequential sales. Yet, the home
inventory supply improved to only 9.6 months, down from 10.2 months in
November. Just how did inventory improve when sales continued to decline? EASY,
people are removing homes for sale, taking their listing off multi-listing
services, in response to a lousy market. They hope for a better day, one
which will not come. The homes were not sold, so supply was reduced by
decisions.
RESILIENT GOLD, SHINY TOO
Gold is resilient. Its
price has a fail-safe mechanism against declines. When gold falls in price,
the factors weighing it down are the same as what forces central banks to cut
interest rates. At the Vancouver Gold Show on Monday, on stage my words were
to watch gold bounce back when the USFed made an
interim rate cut in the next couple days. My guess was given a 30% chance of
occurrence. It happened the next day! An argument was claimed that in several
months, the decline in the gold price toward 850 would be part of a uptrend not even recognized for the one-day big selloff. My words at the breakout session were to expect
the gold price to rebound with strength as soon as the USFed
took responsive action, since London
bankers were making telephone calls now. And London
guys share the big power with other guys in Old Europe. The Swiss uber-bankers are angry. They are taking back control. See
Basel 2 bank rules
and their changes.
When the Europeans soon
join in the coerced rate cuts, the gold price will rise in Europe. In a competing currency war, gold
wins across the board since they all devalue their
currencies versus gold!!! The gold price is back over 900 again,
set to retest the 915 high. Notice the mild ‘Bull Hammer’ signal
evident this week, an incomplete week. The intra-week lows have been erased.
The reversal was bullish. The Arabs and Asians would have come to rescue gold
if not for the USFed. Be totally assured that
Goldman Sachs was buying gold contracts on Monday, knowing full well that the
USFed would make an interim cut. Such are the
benefits of the Fascist Business Model. The rally is back, but my suspicion
is the 915 gold price will hold and a retest under
900 must be completed. The key here is the Euro Central Bank. They can force
a recession across the Eurozone, or else join in
the global price inflation engineering. Debts cannot be permitted to grow out
of control. A bank crush cannot be permitted to spill over to the mainstream
economies.
JUSTICE SERVED AND TO BE SERVED
The
financial sector to date has avoided felony charges, but not lawsuits. Regulators
have permitted untold fraud, sitting on their hands. Those committing fraud
have friends in the regulatory agencies, even the federal prosecutor posts. The
lawsuits might possibly bring some semblance of justice to the big picture. Of
course, the compromised USGovt officials, the
hapless USFed chairman, the omnipotent Goldman
Sachs henchmen, the sleazy hidden JPMorgan spooks, they might deliver a message
or phone call to some judges to interfere with the lawsuit process. WE MIGHT
JUST FIND OUT HOW ANGRY INDIVIDUAL STATES ARE AT THE FEDERAL YESMEN AND
CANCEROUS CONMAN NEW YORK
BANKERS. The nation is a collection of states, after all. The federal government
has usurped powers. The Manhattan Made Men have sucked so much blood out of
the living American corpse, that the states might be
in the process of fighting back. Watch the Cleveland
city lawsuit set against a dozen big banks for a clue. The state of Ohio
has been hard hit by home foreclosures. The city mayor accuses the big banks
of predatory practices and worse. He likens them to organized crime. Wow!
Finally an accurate description. He might be in line for a car accident, or a
heart attack, or much missing funds in the city coffer, some smear.
For
the longest time white collar crime has been minimized and tolerated. Rob a
store of $500 with a gun and receive 10 years in prison. Rob a pension fund
of $500 million with a pen and not even be indicted, let alone even be deemed
in need of social isolation. Why are Wall Street bankers not being indicted
for fraud? Of course, it makes sense. Because the banking system would
collapse without their beneficence and key role steering the economy. We all
need their guiding hands. And also, because they run the government
prosecutor agencies, a minor fact. In the last month, when watching the
debacle unfold, a mindboggling thought came. The
criminals on Wall Street are designing the solution. Why is that? Only in America
can perpetrators of fraud design solutions to the grotesque problems they
caused. Not only that, they will probably administer the programs as part of
the solutions, thus profit more. More fraud will appear in the programs as
well, just like with the Hurricane Katrina relief program. Neither has the
fraud been prosecuted in the Hurricane programs nor the Wall Street bond
fraud. Watch the lawsuits, especially the class action suits. Class
actions are different, and involve federal courts, unlike the individual
cases. When an account holder challenges the brokerage house, the case
goes to compulsory arbitration with a former brokerage firm official presiding, and very few wins for more minions. Watch the
class action lawsuits!!!
REALITY SINKING IN
As
the situation becomes more clear on the broad and
deep extent of the wreckage, more and more people will realize that my
summertime forecast of a $2 to $4 trillion bailout makes sense. They will
trot out their insane platform of a New Resolution Trust, built atop an
acidic cesspool of Fannie Mae and Freddie Mac. Some wonder why fresh new
platforms are not built, why fresh new banks are not erected as the old
fraud-ridden Wall Street banks are let go to liquidation in bankruptcies. The
answer is simple: liquidation of old corrupt financial entities would require
a complete accounting of their mountain of credit derivatives, of their gold
derivatives, of their currency derivatives. The 1998 LongTerm
Capital Mgmt was not permitted to endure liquidations, since the powerful men
in suits did not want for gold to rise by $500 more per ounce, exposing the
Bank of Italy in its hidden leases to Wall Street hedge funds. So the
monetization papering over of the problems will continue on a greater scale.
News
items are growing uglier by the day. The second biggest bank in France, Société Générale
announced a $7.1 billion loss from a rogue bond trader involved in fraud. Was
blame put on one man instead of putting their entire bank management under
scrutiny? They join in the Hall of Shame the firms Sumitomo, Barings, and
Kidder Peabody in lax trading oversight. Ford Motors announced a 54 thousand
job cut, at a time when USGovt officials claim the
economy is still expanding. Not to worry! The Qatar
government has decided to put $15 billion of cash into twelve ailing US and
European banks. Why do they do that? Simply because many US & Euro banks
are insolvent, a nice word for bankrupt.
The
bond insurers are the big story these days. Ambac
was downgraded by the debt rating agencies last Friday. MBIA, ACA Capital and
a small gaggle of bond insurers are sitting on a mountain of dead credit
default swaps. One day we might awaken to learn that those who thought they
had a profit from credit default swaps are actually holding nothing, since
the counter-party is dead as a doornail. If only we could arrange
counter-party risk holders to reside on the planet Mars, outside our system. A
credit default swap is an insurance contract against $10 million in debt
securities, such as mortgage bonds or corporate bonds. As distress is felt,
the bond loses value while the swap rises in value. The 50% annual rise in
the credit derivative volume of outstanding contracts owes mainly to the
burgeoning growth in credit default swaps. As mortgage loans flooded the
banking system, and their bonds flooded the credit market system, some
measure of insurance was taken out. Too bad pay days on those insurance
claims will be absent. Watch the municipal bonds insured by Ambac and MBIA. They might be forced into sales by
institutions soon, or else just permit the munis to
run naked without insurance at all. Some cities
and towns might order huge budget cuts.
The USDollar
money supply is growing at alarming rates, sure to go much higher. The gold
price rises with this growing supply, now clocking a 15% annual rate. The
biggest story among central bankers right now is how the Euro Central Bank is
being coerced to cut rates. We are watching the quintessential
‘Competing Currency Wars’ with a series of competitive currency
devaluations to ensue. The Canadians relieved their loonie
rise by cutting rates. The Bank of Canada will cut more. The British relieved
their sterling rise by cutting rates. The Bank of England will cut more. My
January Gold & Energy Hat Trick Letter contains a very important forecast
on the British banks, sterling currency, and economy. The EuroCB
is mired in internal confrontations. The Germans remain hawks against price
inflation, with vivid memories of Weimar
times. The French advocate rate cuts, led by Sarkozy.
In time, the EuroCB will cave in from the currency
war. The US Federal Reserve cut the official interest rate by 75 basis
points, a forecasted call made on stage by me on Monday at the Vancouver Gold
Show. Now pressure is extreeeeme on the EuroCB to cut also, or else suffer from a euro currency vaulting over 150. Bond yield spreads favor the euro too much. The
tougher the Europeans act against price inflation, the more serious damage
their economies will suffer from a high currency rendering harm to exporters.
Unlike the USEconomy, the Eurozone
economy has a hefty trade surplus on the order of $10 billion per month. The USFed remains well behind the curve. With a 2-year TBill yield at 2.2% (it was under 2.0%), and the Fed
Funds at 3.5% now, the USFed is still behind the
curve. Their rate cuts will not affect the USEconomy
for some time, maybe six to nine months. The stock market likes the news, but
corporate profits are sure to decline badly.
THE UPSHOT OF THE
COMPETITIVE CURRENCY DEVALUATIONS IS THAT GOLD WILL RISE IN EACH ECONOMY
WHOSE BANKERS EXECUTE INTEREST RATE CUTS. THAT MEANS ALL OF THEM, WITH THE
EUROPEANS BEING THE LAST.
THE HAT TRICK LETTER PROFITS IN THE CURRENT CRISIS.
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By : Jim Willie CB
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Jim Willie CB is the editor of the
“HAT TRICK LETTER”
Jim Willie CB is a
statistical analyst in marketing research and retail forecasting. He holds a PhD in Statistics.
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