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Financial Sense Newshour

The BIG Picture Transcription

December 20, 2008

Part 1

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Part 1

The Great Unraveling

JOHN: This is the last live show of the year, in the next couple of weeks we are going to be doing re-runs of important interviews over the last five years, and comparing them to how things have unraveled, so to speak, in the intervening time and how right or wrong these people were. That’ll be next week and the week after.

But here we are, Jim, the last live show of the year, and it’s time we basically ask how well did we do. First of all, what were we right about, what were we wrong about, what took us or everyone by surprise, and I guess the big story of the year was the great unraveling – meaning the credit crisis – but of course, you were talking about that in January of this year, so it didn’t catch us by surprise. I think it was a little more violent than we expected, it unraveled faster and further.

JIM: Yeah, I think that when we articulated the Oreo theory in the beginning of the year –a hard start, a creamy filling sometime in the middle and then a hard finish – two things happened with that, John. 1) The creamy filling was razor thin, it didn’t last long and that was based on the fact that we were going to have a stimulus program, the Fed was going to cut interest rates and we would get a short term pop, which we did, but then during that short term pop, another story that unfolded this year which was the rise of oil and the fall of oil. And of course, everybody remembers when, gosh, we were paying close to $5 gasoline as we headed into the summer months.

And I think the other thing that took me by surprise too is when I wrote about the credit crisis (and I wrote about this back in 2005) I saw this sort of gradually unfolding as it did for example in 2007, which began with the intermediate financial lenders and then it erupted in August of last year and it was sort of this gradual process. What took me by surprise I think is the events of September, that six week period beginning with the bankruptcy of Lehman and the various events that unfolded. It happened at a much more accelerated pace than I anticipated and I think many anticipated – certainly we had never seen anything unfold with that speed in the period that it did. I mean whether it was the compression of the stock market or it was the compression of credit or the series of defaults and bankruptcies of large institutions; whether it was Lehman, whether it was Fannie and Freddie being taken over by the government or was it was AIG or it was Merrill Lynch or it was Wachovia or Washington Mutual – I mean it was just a series of dominoes that accelerated at an incredible pace. [2:57]

JOHN: In addition to the rapidity with which everything unraveled, like I said, it was more violent, I think we originally anticipated somewhere at 2 trillon dollars would be the sum total; but where do we stand now and are we done with this whole thing so far?

JIM: No, I think we're almost at half-time and this is a lag effect, but on the Friday that we're talking, total writedowns worldwide to date are one-trillion-three-billion, and most of that – a good bulk of it – has occurred in the United States with about 678 billion. And here’s the amazing thing, John – there’s been about almost 920 billion dollars in capital raises and some of the biggest losses have been in Wachovia which has now gone, Citigroup which is now being backstopped by the Fed to the tune of over 300 billion, Merrill Lynch which is now part of Bank of America, Washington Mutual which has been absorbed. You know, we're only through – in fact, I was reading a report and they’re estimating that the losses for Fannie and Freddie, which have lost roughly about 150 billion, based on potential losses, they’re talking about 1 ¼ trillon dollars of losses over the next probably three years for Fannie and Freddie. The ballooning nature of the problems may take many, and I think government, by surprise, limiting in the future the government’s willingness to get involved in more and more bailouts. Rough estimates of default rates for next year are estimated to be in the neighborhood of somewhere around 320 billion to 350 billion, and that’s just for 2009.

And remember, in 2010, we have another stage to the credit crisis and that’s option ARMs which were primarily used to finance homes during the boom in 2005 and 2007. And option ARMs are five year adjustable rate mortgages, they’re limited in terms of the amount of which you can raise the interest rate, and also, you have the ability to actually increase your principal by almost 25 percent. Well, the bulk of those option ARMs are going to come due from 2010 to the year 2012. And so the one thing that I think took everybody by surprise, including the government, was the degree and rapidity of which once Lehman went under, from probably mid-September to almost to the end of October early November is just the sequence of events from the TARP program into in terms of backstopping the money market funds; and a lot of the credit crisis, a lot of the stress was taking place in the commercial paper markets which are used to finance inventory, payrolls for companies – that is critical to the functioning of the economy and also money market funds. So it was amazing to see – and you recall this, John, one of the things that I think the financial markets had such great difficulty is we had to pass this TARP program of 700-and-something billion dollars – and it was actually much bigger than that when you throw in the pork – and we had to pass it otherwise everything was going to fall apart. Once it was passed the funds in terms of what they were going to be used for seemed to change almost every single week. Paulson was before the TVs, “Well, we said we were going to do this, but we changed our mind this week.” And then the following week, there would be another press conference, “Well, we changed our minds again.” And I think a lot of this uncertainty created an accelerated – not only the downfall in the market because of all the uncertainty but also the downturn in the economy.

It was amazing – I was getting my haircut just about a week ago and the owner of the salon cuts my hair and she was asking me, “Any advice for a small business owner?” And they have two salons. One is in a very exclusive area in San Diego and it’s doing very well, and the one I went to was in the inland valleys and she said, “You know, we've noticed something in our business in the last month that the walk-in traffic has just basically fallen off a cliff, we're not getting the walk-ins, women that are coming in to get their hair cut are waiting longer so their hair is getting longer. Instead of coming in and maybe getting it cut or colored and getting their nails done, they’re not doing all those things. They’re trying to conserve, so maybe ‘I’m just going to get my hair cut, I’m not going to get my nails done or I’m not going to get a facial.’”

So she said, “What has happened in the last 30 days?” Because it was like things were starting to slow marginally, but in this crisis period that we were talking about when the dominoes from the Lehman bankruptcy really rippled through the financial system it was almost like it affected people’s psychology. It also corresponds with the acceleration and the amount of job layoffs in the unemployment rate. [8:09]

JOHN: So if we look at the future then, as you say, we talk about the option ARMs which are going to reset next year, is it next year, or 2010?

JIM: It’s 2010 you get the option ARMs because these are five-year mortgages.

JOHN: Okay. So if we look at that and they’re going to begin adding more weight to the system, what it will seem to be is an ongoing series of issues – in other words, every time somebody pronounces that we’ve got it under control, something else will come along to shove it backwards again and there will be another flurry of activity and anxiety together.

JIM: And the one thing that has happened, we have constructed – my son, Chris – we call it the FSO Financial Stress Index – and it peaked towards the end of October, beginning in November and John, it has now gone back up. And so that means that the credit system is starting to clear up; it hasn’t completely done but at least all the various measures that the Fed is trying to do to free up – they call it a clog in the plumbing system – our Stress Index, it hasn’t gone positive but it has gone from almost 7 standard deviations and it’s back up to within two standard deviations of the norm, and so there is an improvement. And along with that we have a graph I’m looking at right now with the alignment of the stock market.

So there are a lot of things that are starting to work its way through the system and of course this week with the Fed cutting the federal funds rate by three-quarters of a point, it’s hard to believe that interest rates here on the federal funds level are actually lower than they are in Japan. And right now if you’re going to buy a 3-month Treasury bill, you’re going to actually have to pay the government one basis point. So you still have a lot of crowding around the safety trade as people flock into Treasuries as like “I’m frightened” “this thing keeps getting worse.” And so you had this overcrowding effect that you’re seeing in the Treasury markets. But I think one of the big things that we saw this year, was just how quickly, how big, how large. I mean we were talking earlier in the year that somewhere it was going to be in the neighborhood of 2 trillion; we’re roughly at one trillion of losses worldwide right now.

But I think what took a lot of people by surprise, including myself, is how they let Lehman go. You know, I’m not an expert in derivatives. If you want to talk about the derivatives market, you can nail it down to about 10 key players, you can count them on both hands. And so how the government would expect that somebody as big as Lehman – and especially a primary government bond dealer – would go under and it would not impact other elements of the market, it was really surprising that they would allow that. And I think that was one of the questions that the markets have is, okay, you bailed out Bear Stearns but you let Lehman go under and you bailed out AIG, took over Fannie and Freddie, married off Merrill Lynch, Washington Mutual and Wachovia. And so then I think they learned their lesson because when Citigroup came under trouble, then the Fed said, basically, “Look, we’re going to backstop 300 billion dollars of their assets.” And so, obviously, if Citigroup would have gone under, then the whole system would have quickly imploded very rapidly especially with the fragile state of the markets at that time. [11:45]

JOHN: Back in the 1920s, after the 1920s, as a result of the crash and what happened there, the Glass-Steagall Act was passed in 1933, named after Senator Carter Glass, who was a Democrat of Virginia, and Joseph Robinson of Arkansas. It actually became the Glass-Steagall bill as a result of that. It established the Federal Deposit Insurance Corporation, but it did something very important in that it separated the money center banks from the investment banks. It actually split this up and tried to prevent the concentration of wealth. Well, in the late 1990s, we repealed the Glass-Steagall Act and now we actually see the three top banks – or what, everything seems to be pouring into that as consolidation after consolidation takes place. If you don’t believe that, just look at your credit cards by the way. If you start with one credit card, if you have a couple of credit cards, watch how they’ve been transferred up into these different banks as various accounts are bought out.

JIM: The amazing thing out of this is we've almost gone back to pre-depressionary times in terms of concentration of power. Citigroup is bigger, JP Morgan is bigger, Bank of America is bigger, and now – I’m trying to think of the name of the act that was passed in 1999 that got rid of Glass-Steagall. The result of this crisis is now economic power has become increasingly more concentrated. Not only more concentrated in the New York money center banks, you now have brokerage firms owning the investment banks and the remaining investment banks – Goldman and Morgan – turned themselves into banks in order to survive or they would have been gone. And the other thing that has come out of this is the concentration of power at the Federal Reserve. I mean the Federal Reserve is doing things that are unprecedented. There was the Bloomberg suit that was brought against the Fed asking the Fed through the Freedom of Information Act to release just where did this two trillon dollars go to and the Fed refuses to give that information out. And they’re talking about with the failure of the SEC – another topic that we’ll be talking about later on in this program – that complete regulatory authority over hedge funds, over the banks and everything will be concentrated in the Fed. So as a result of this credit crisis, we're going almost the opposite direction we did in the 30s where we separated the brokerage firms from the banks because of the fiasco of the 20s and the leveraging that took place. Well, we have a greater degree of leverage today than we did in the 1920s or early 30s. Now John, we’re going in the opposite direction where we're concentrating power, where in the last depression we tried to diffuse power and spread it out. That was the big thing – there was too much concentration in power of big Wall Street firms, now we're resurrecting and putting back that same architecture where you now have incredible economic concentration in a handful of players on Wall Street now. [14:52]

JOHN: Right, and that’s what we're going to talk about as well, in the fourth part of the Big Picture, Crimes of the Century, because there seems to be a lot of – how shall I describe this – incest. It’s economic incest. There seems to be this revolving door between people, money, faces between Wall Street and regulatory agencies, so that’s a factor in here as well as all of this money and power consolidates itself.

JIM: Not only does it consolidate itself in more economic power, it’s very reminiscent of what you saw, you know, if you look back historically. I just watched a series on the rise and fall of the Roman Empire and you’re seeing the same consolidation, and it’s amazing because there was a series of articles and you’re seeing it also at the White House. Have you noticed there was an article in the Wall Street Journal on December 15th called Czars Ascend at the White House, where they’re talking about an energy czar, they’re talking about an urban affairs czar, an economic czar, a consumer czar. And of course ‘czar’ as people now is a derivative of the word ‘caesar.’ And so the rise of the czar can be traced to rising concentration of power in the White House and that was a comment made by Leon Panetta who is a former chief of staff of the Clinton administration. So as a result of all these crises, both political power is being concentrated in the White House and economic power is being concentrated in a few handful of money center banks and the Federal Reserve. A rather interesting turn of events, and so I think that’s one of the main stories this year was not only how big this credit crisis turned out to be, how rapid its crisis became, especially with the bankruptcy of Lehman, but then also the subsequent story is the concentration of power that came out of this whole crisis. So power is now being concentrated politically and economically. [16:55]

JOHN: It was almost 10 years ago I told the Congresswoman Helen Chenoweth-Hage – we were sitting in the studio and I said, “You realize of course, Helen, that you and your colleagues are becoming irrelevant.” And she said, “Well, I’ve started to realize that, but I don’t know how many of my colleagues have.” But of course that’s what happened in Ancient Rome, which you brought that up, is that the Senatus Romae – the Senate of Rome – became irrelevant at some point to the whole procedure, and as a result of that, the Caesars began to rule more and more autocratically and that’s what changed the whole face of the Roman Empire again.

So if we look at where we are, here we are, this is the first subject of the Big Picture as we round out the end of the year, where are we? Half-time? People out for the half-time show now, and then we're going to see the next part of the credit crisis when? Do we get any kind of smooth sailing, another Oreo, a little creamy filling in there in 2009?

JIM: Maybe almost half an Oreo, where you start out and it’s rough and then the second half because I think what’s coming next with the Obama Administration is what I call shock and awe because the Fed has now fired most of its monetary bullets in the sense that we've got the federal funds rate at zero to one-quarter of a point. Now the Fed has said that they haven’t run out of tools, they can start monetizing and buying debt. But I think that now, John, that every single week that goes by and I think the economic numbers get worse, they’re talking about the economy contracting at an annual rate of 4 or 5 percent, that the stimulus package will be getting bigger. Originally you heard terms of 500 billion, last Friday it was 600 billion, the beginning of the week and there’s a reference now that it was a trillion and I heard a figure this week that it could be 1 ½ trillion; maybe they do one trillion up front and then a follow-up stimulus package of a half trillion. [18:49]

JOHN: So the first big story of the end of the year is actually the credit crisis, which then leads to the subject of a recession. People try to paint this as, well, first of all, no recession, and then they’re trying to figure out what kind of a recession it is because if you look real carefully it doesn't resemble previous recessions. That’ll get us to the second topic as the Financial Sense Newshour continues right here at [19:17]

Not Your Ordinary Recession

JOHN: Well, it took them long enough to admit it that we are in a recession, since December of last year. Of course we were talking about it for quite some time here. The problem is if we call it a recession, it really doesn't look like previous recessions. Remember, recessions came, you did something to it, maybe a little stimulus and then all of a sudden, pop, we were out of the recession. And the average person out there, aside from a number of people who might lose jobs, didn’t really care. They go, “Well, that’s sort of nice, whatever a recession is,” and go on with life; but this is familiar in that it looks a little like a 1929 but then again, there’s sort of some unfamiliar stuff there to it.

JIM: We've been highlighting some differences between a recession and a depression and we've talked about this over the last couple of weeks, but typically in a recession, just to summarize again, the economy heats up, inflation picks up, the Fed raises interest rates, the economy goes into a recession, the Fed lowers interest rates which pulls the economy out of a recession. As the interest rates come down, it allows ease of financing; the things that you buy with credit – homes, autos – are easier to finance and then also you get a rise in financial assets because of the discounting mechanism of lower interest rates. That has typically been the recession cycle, or the business cycle for the last half century.

On the other hand, depressions are a deleveraging process. And that is what I think we're going to go through and because of the amount of leverage that is within our economic system, both at the corporate level, at the government level and at the consumer level – especially the consumer – this isn't something you unwind. Obviously if you get a margin call, you’re forced to deleverage very quickly and that explains a lot of the sell-off that we've seen in financial assets around the globe. What I think is this deleveraging process we're still in the early stages. As we've pointed out in the last section of the Big Picture, we've done roughly about one trillion in write offs and we probably have another trillion to go and maybe even more as we come to let’s say government debt, let’s say Fannie and Freddie where we highlighted over the next three years defaults – I think the figure next year is they’re estimating 320 billion to 350 billion in defaults, and also you’re talking about Fannie and Freddie 1 ¼ trillion over the next three years. And so if you take a look at the economy and its four components which is consumer spending, government spending, business fixed investment and export, if consumer spending is contracting, then what happens is according to Keynesian economic thinking then what happens is government spending has to rise in its place. And that’s why I think the worse that the economy gets, the bigger the economic stimulus, even if you want to get ground zero. In other words, it’s anticipated that next year, consumers will contract spending in the neighborhood of somewhere around 700 billion, so if you just want to get to zero in economic spending or economic growth, then government spending would pick up by 700 billion. And if you want to get beyond that, you would have to get higher than that or business would have to kick in and start spending on making investments on new plant and equipment, commercial structures, et cetera. But there’s a glut in residential real estate. Now it’s starting to hit the commercial markets and I think one of the big topics that you’re going to see is this contraction of, you know, we’ve called it the death of consumption. And I think that is going to be a big theme where Americans are going to downsize tremendously. And last week we talked about retail establishments that are either going under, closing down or closing stores; and I think that’s going to affect the commercial real estate market. So the contraction in the economy which followed this credit crisis is not an ordinary contraction, and we're certainly seeing efforts, you know, the federal funds rate going from 5 ¼ to less than ¼ of a percent, so you’re talking about the Feds cutting interest rates to almost zero and we’re in a zero bound interest rate market right now with negative rates for Treasury bills like 3-month T-bills which are a negative one basis point, so you’re paying the government actually to loan them money. Did you ever think you would see that? [24:28]

JOHN: No, but it just matches the times though that we're in.

JIM: And then the other thing is we began as a manufacturing economy in the beginning of the 20th Century. We gradually after World War II moved towards a service-based economy, especially in the 70s and 80s and then towards the end of the 80s and 90s and this decade we moved towards a financial economy. So you’re seeing the financial economy contract – that’s where most of the bad news took place first over the last 18 months, and I think that’s what’s surprised everybody is now it has spilled over into the service economy, it has spilled over into the manufacturing economy. So you’re still talking about economic growth contracting going into the first quarter and there are many economists now who think that it will probably take to the year 2010 before we start to come out of this because even if Obama goes with an infrastructure spending program, kind of like the resurrection of the New Deal work programs, it takes a while for that to be implemented and impact the economy. And if you look at this, John, even when these kind of programs were tried in Japan on four various occasions, with different prime ministers in Japan, they eventually failed. And I think you will see this fail as well. So, I think this deleveraging process is something that will take us well into the next decade and economic life in this country is going to change dramatically.

We had talked in the first hour with Michael Panzner in his new book, When Giants Fall, and I think Michael is dead on with what he is talking about, we're looking at a dramatically different kind of American society that we're moving into in the next decade, and so I think that a lot of people are saying, “Well, this is a recession,” and they’re saying, “Okay, if the fed lowers interest rates, well, that didn’t give us a recovery. If monetary policy isn’t really working then we've got to take unconventional measures.” And if you read the Fed papers written by Bernanke and other Fed governors going back to 1999, they’re pretty much implementing those programs according to script and especially some of the Bernanke papers that he wrote early on in this decade. But when you talk about economic deleveraging, it has barely begun and that is going to be a longer term thesis that feeds into the death of consumption. Now that could be good in one sense if we learned to save and invest and go back to producing things, and this will have a happy ending. But if all we do is try to maintain our lifestyle and consume and we do that with government sponsored consumption, then I think that what’s going to happen is this will end poorly. But the other thing that I think is coming about, this is, in a way, economic war much as you had during the 30s where you had competitive currency valuations. I think you’re going to see that and eventually as currencies – the next crisis will be the unraveling of the dollar and the emergence of a global currency and a global central bank. [27:47]

JOHN: Even though right now, Ben Bernanke says, “We're not thinking about that.” But…yeah, right. You know that it’s got to be on the horizon because it’s already being discussed elsewhere.

JIM: In fact, it was the front cover of the Financial Times, “are we ready for a global government?” And they laid out a thesis that a global economy and an integrated economy, a global financial crisis, a global climate crisis – which I think is balderdash – but have you noticed we are switching from global warming to global cooling now. But anyway, they laid out the groundwork for global government and also a global currency. But I think that what we're going to see as a result of this economic contraction, is you’re going to see the Obama administration hit the ground running with the equivalent on fiscal spending with shock and awe with a stimulus package, the numbers are just mind boggling. You know, it used to be a billion here and a billion there, and you’re talking about real money. Well, because of inflation start substituting a trillion here and a trillion there. And that’s the kind of money we are talking about next year. So I would not be surprised by the time he puts together a proposal in Washington in his first 30 days of what he hopes to do, that the stimulus program will be somewhere in the neighborhood of a trillon dollars. And you know, John, just like the TARP program where it was 700 billion, but to get other Congressmen to go along there was 150 billion – I forget what the figure was – of pork that was added to the bill to get the votes of other Congressmen. And I imagine that the negotiations in Washington are going to be somewhat similar in the sense that in order to get various constituencies to go along with the program, you’re going to have to include, okay, to get this guy’s vote or his block of votes, we're going to have to do this. So there’ll be a lot of pork in this too. [29:42]

JOHN: So in other words, politicians are going to continue behaving like politicians despite the urgency of the hour. But it would seem like we're doing all of this stimulus spending. This, again, just takes from taxpayers and keeps piling this whole indebtedness forward more and more and more. So the pile is becoming bigger, which means at a point in the not-infinite-future when everything unravels, it’s going to be rather dramatic.

JIM: Yeah, and I think one of the great unravelings that’s going to be a result of this is competitive devaluations by various currencies and this is one of the reasons why we're so bullish on gold and silver despite the fact that in the paper markets on this Friday we've got gold down and silver down. Well, good luck trying to get it. And if you can get it, you've got three and four month delays in actually getting delivery of your gold and silver. And forget the spot price of whatever is quoted on the COMEX because that’s not what you’re going to pay for it. You’re going to pay huge premiums. I don’t care if you’re going through existing coin dealers or you’re going on EBay, but that’s what governments are doing. It’s not just us that’s coming up with inflationary monetary policy; the Europeans are doing it, Australia’s doing it, Japan is doing it, China is doing it, other major western powers and developing countries are doing it, and at the same time, everybody is trying to do things that would make their currency much more competitive and cheaper in order to revitalize their economies. So depreciation of the dollar is a big theme I think going forward because I think a lot of this was the unwinding of the dollar and the yen carry trade. When the Fed is doing a 600 billion dollar swap with foreign central banks, it just goes to show you as the world’s reserve currency, a lot of this borrowing and margin calls and debt was dollar denominated. So when you get margin calls there was a scrambling for dollars which helps to explain a lot of the currency swaps that you’re seeing between the Federal Reserve and these central banks around the world.

But John, this has not been an ordinary recession. The press doesn't want to call, but there are some similarities people are making to a depression which is a deleveraging process and I think this deleveraging process I think is well into the next decade. And even if we will have bouts where we come out – if you take a look at Japan which went through these stimulus programs and the stimulus programs ultimately failed because they were not natural, they were not market-driven, I think the same will happen here. We will go through these bouts of recovery, then bust; then recovery, then bust, recovery bust. The end result is the depreciation of the dollar and then the hyperinflation that follows it.

A lot of people say, “Well, they didn’t have hyperinflation in Japan.” And there were two things as a result of that. If the money was contained within the country of Japan, you would have seen inflation, but that money left the country which is what we call the carry trade. Another factor is Japan is a creditor nation, not a debtor nation such as the United States. And debtor nations always devalue their currency and debase it because it is one of the ways you get rid of debt and you do it efficiently. There are only two ways you get rid of it: Either you inflate it away or you default it away. [33:12]

JOHN: Maybe we could come up with a new game show – scrambling for dollars. That might become a hit, we might make some during this time because the entertainment industry always does well in a time of financial trouble. People are willing to pay a little bit to forget their troubles.

You’re listening to the Financial Sense Newshour at

The Rise & Fall of Oil

JOHN: Now, I remember back towards the beginning of the year, you made a prediction that oil would hit 125 a barrel. Bing! It did. And then 145, and we actually hit that. But of course, now here we are at the end of the year and oil is somewhere around 34 dollars a barrel as we round out the end of the year and that has probably been the third major story that has people scratching their heads. The rise of oil in the beginning of the year and the fall of it towards the end of the year.

JIM: Yeah, it’s really puzzling – and I’ve been on the phone talking with a lot of people in the oil industry over the last month and what really surprised me, I got the price right but I got the timing wrong. I mean when I laid out that forecast at the beginning of the year, the 125 figure I was anticipating, that would be towards the end of the year as we went into the winter season months, and especially with some of the supply problems that we were seeing in China as a result of the earthquake and the teapot refineries where China had to go and become a major importer of diesel fuel, (and certainly we saw diesel fuel rise here at a level that I had never seen.) This summer if you wanted to buy diesel fuel on the bay in San Diego, you were paying $6.15. I mean that’s how high it got – it’s plummeted since then. And there’s been this sort of oil shock that we have seen since 2002, but it has been sort of a long-staged unfolding oil shock where we've gone from 20 to a high of almost 147 reached on July 14th of this year, and then now of course we're seeing the low of the oil price. And as quickly as it rose, as quickly did it fall. I mean if you would have said looking once again back in August where we had at the end of August two back-to-back hurricanes, we had two significant reports coming out by the IEA both in August and then one in November and then also remember the beginning of August we had the Russian invasion, and it’s been rather fascinating to me because you know what I would have never – I thought when we hit this price and I apparently got this wrong, nobody would have guessed that we would have been looking at $34 here as we close towards the end of the year. And the amazing thing is, you know, you’re seeing stories coming out, okay, we’re awash in oil. Well, these are kind of the same stories that you saw come out in 98 and 99 with the cover of the Economist and a lot of people are speculating that – in fact, Matt Simmons gave a recent speech to the Houston Energy Institute where he took the credit default swaps on Marc Rich’s Glencore trading company and he inversed them with the fall in oil, and the people that I’ve been talking to at oil companies in Houston and around, it has a lot of people in the industry kind of puzzled.

Maybe the price should have never got as high as 147, especially as it accelerated once we went through 125 with speculation, but you've got a lot of people that are taking a look at the price of oil where it is today and this doesn't make sense in terms of where oil prices are. Especially when you talk to people in the business because one of the things that we try to do is we take a look at inventory levels and remember, this is sort of an opaque industry and a lot of the numbers that you get are estimates – and as we have pointed out, those inventory numbers that we report every Wednesday and Thursday, that isn’t the utility guy with a dipstick that’s putting his dipstick into some kind of oil tanker and saying, okay, this is what our inventories are. These are all hypothetical models seasonally adjusted and also, even the production numbers that we see in the reserve numbers that come out of the largest producer of oil in the world, which is OPEC, and those are unaudited numbers. So there isn’t a lot of transparency in the oil industry so you have to do a little digging and one of the things I was doing is talking to people in the industry. In other words, are the oil companies saying, “Gosh, we've got all this oil and we can’t sell it because there is no demand for it, so therefore we are just dumping it on the market”? And from just a little bit of the detective work that I’ve been doing, somebody is deleveraging (in other words, selling oil contracts) and just unloading and trying to unwind a position. In fact it’s interesting that the current contract closed on Friday at around 34 bucks, but the near term – the next contract which is February, it’s at $41.97. In fact in after-hours, it’s at 42.85. And what was amazing is looking at the contango (and that’s the difference between the spot price and the futures price), if you go out to June of 09, the price is $50 a barrel; if you go out to December 09, the price is $55 a barrel; and then if you go into the year 2010, it’s at close to $59 a barrel and $62 a barrel. So John, if the price is real, if the markets are really efficient telling us that the price of the latest contract that expired on Friday at around 34 bucks, if that is real, you wouldn't ever see the kind of contangos that you’re seeing in the futures market today where you’re talking about just going out to June of next year, you’re talking about almost a 16 dollar spread between the current spot contract that’s expiring and then the futures contract. So if you’re writing futures contracts with the prices where they are right now, this just tells me that nobody trusts these numbers; that these numbers really aren’t real – you aren’t seeing real economics being reflected; that this is more either a deleveraging process, a shorting process and a momentum process right now. And probably what happened is somebody is deleveraging – we don’t know who that is, all we have are suppositions – I do know we've talked about this earlier about a month ago where I was noticing there were huge out of the money puts at around 25 and 30 dollar oil and that was back when oil prices were close to 60 dollars a barrel and of course here we are at close to 34. And so as the price of oil came down, you probably had shorting [which] becomes a momentum trade, and I think you’re seeing a lot of that come in. But I don’t think anybody is expecting that these prices are going to remain, nor are they going to be real, as reflected in the wide spreads in contango if you take a look at, let’s say, six months out or 12 months out from where we are today. [40:55]

JOHN: You’d better explain contango to people. It’s sounds like some kind of a dance or something.

JIM: Contango is a term used in the futures market to describe sort of an upward sloping-curve, kind of like a yield curve, but for future prices of a commodity. When the curve is rising, you have a contango. Then when you have the spot price higher than the futures price as we've been seeing in the metals market lately, it’s called backwardation. So basically think of contango as a yield curve on the future price and a lot of that is reflected – contango is normal for let’s say non-perishable commodities. It’s really the cost of carry. And the cost of carry includes you know, things like warehouse fees and interest foregone on money that’s tied up. And so you've got to factor in interest factors, so you should normally see when markets are functioning, you should see contango, meaning rising prices for future prices of commodities. But there is no way with interest rates where they are right now, a one-year T-bill right now is less than 40 basis points, or less than half a point, and so contango if people really believed these should be much lower than where they are today. But they’re not. It’s some of the widest spreads that I’ve seen probably in a long time following the oil markets. [42:23]

JOHN: So if we predict now where we think things are headed, and the timeframe again?

JIM: I would expect that we're going to see rising prices next year. In terms of what kind of degree – it depends if we get into some kind of crisis and what the psychology is going to be. In other words, if people think, “here comes a stimulus program that’s going to be energy oriented,” especially if you go to infrastructure, that you will see these markets begin to correct and that’s what I think the contango prices are telling us. And John, it’s not like we haven’t been here before; we've seen the oil shocks, we've seen the oil collapse of 1982; once again in 1986, the meltdown in the S&L crisis and of course the up and downs of both Gulf wars. And this is very reminiscent to me of what happened during the Asian flu crisis when we had the New Economy which would consume less energy. Well, we found out that was false – a New Economy with more electronic devices consumes more energy; and then also the demand for energy would recede, instead it grew by nearly 16 million barrels a day. And so, John, we've been here before and the real question going forward, especially if you believe in peak oil, is if demand stays down then there are no supply concerns unless depletion falls at a much faster rate. And once again, as we've been talking on this program, the supply destruction has been much greater than the demand destruction and that’s one of the things that I got over and over again from talking with oil executives is “No, we’re not seeing the kind of demand destruction that would justify the supply destruction.” And as a result of what’s happening with prices as a result of deleveraging, it’s triggering a number of effects that are going to be – we are going to pay a terrible price for this in the long run because as we did in our web video with Richard Loomis, you've got governments around the world that are stimulating their economies and at the same time supply is being cut. So just as we talk about the paper price of metals versus the physical price of metals, you've got paper barrels which are prices on the COMEX and you've got actual barrels which are the real physical stuff. And like I said, the prices are so cheap and contangos are so high right now that you have major oil companies that are buying oil, taking delivery in the spot market and storing it on tankers because contangos are so high right now that they figure that the cost of carry – in other words, the interest, the cost of the tanker – they can make money on the spread between current spot prices and what futures prices are for delivery one year from now. And to me that just spells a major opportunity from an investment point of view. [45:16]

JOHN: But if you notice this, whereas there are good investment opportunities – we talked about this before we got on the air here – and that is the fact that the entire spectrum of where we are headed with energy doesn't seem to be in the direction of a solution of the problems we are going to face. In other words, we are doing just the opposite.

JIM: No, in fact, what we should do, once again from the roundtable discussion last week, is essentially what we have here is a liquid fuel problem. The boats that bring goods to this country, they’re powered by diesel fuel. The goods arrive here, they’re put on trains and trucks to get them to stores where you and I consumers buy; those trucks and trains are powered by diesel fuel. You and I go to the grocery store or whatever store, in a car that’s powered by gasoline and if you’re traveling long distance by plane, it’s jet fuel. And you can talk about wind turbines, and you can talk about solar all you want, but that’s great if you want to create electricity. Now, if we had electrified the transportation fleet then that would make a lot of sense, but we are a long ways, at least a decade away from that and so these are some of the problems. When oil was going up it was the speculators. You notice nobody is talking about the speculators now that the price is at 34. And it amazes me where the only similar time that I can compare this to is during the Asian crisis in 98 where oil prices got down to 8 and 10 dollars a barrel and then in the following 10 years they rose 15-fold. Demand, instead of falling as the experts told us, rose by over 16 million barrels a day; global oil supply, as Matt Simmons talked about in last week’s roundtable failed to keep up with that increased demand. We didn’t increase production by 16 million barrels a day and inventory stock liquidation is what enabled us to get through these bottlenecks. And so you have once again all kinds of reasons why we're at $34; well, the economy fell apart, oil demand growth ended, speculators stopped speculating. This really reflects more a realistic price for oil. I guess a bigger question is, did demand fall by two-thirds in a period of four months, or over 25 to 30 percent in a single month and I just don’t think so. And that’s why there’s a lot of speculation that this has to do with deleveraging and dehedging and Matt talked about this last week on the program, Marc Rich’s trading program out of Switzerland, his company Glencore. If you take a look at Matt’s latest speech, he’s got a graph which show credit default swaps inverted to the drop in the price of oil and they match up and line up almost perfectly. I guess the question we have to ask is do the fundamentals line up with the current price of oil, and definitely I would have to say no to that. [48:18]

JOHN: Consistently throughout the decade is the oil kept making higher and higher prices like we were talking about earlier in the year 125, 145 – everyone kept predicting it’s going down. Well, everything blew out largely because of more financial issues than supply and demand issues and it went down. Now they’re saying it’s going to hit 25 dollars a barrel and there’ll be some political crowing in that one too, you can hear that, “Well, we're back to the good old days again.” But is that going to happen, do we have any surety now?

JIM: In the short term if it did, anything is possible. And I would have never thought we’d see silver prices below 9 dollars at a time you can’t get it, or gold prices where they are where you can’t get it. Well, you know, we've got oil prices today that have no relationship to what’s going on on the fundamentals, but that’s the way markets work. Sometimes markets are 90 percent psychological and right now that’s all you hear ad nauseum is demand destruction. All the signs tell us things are very tight, usable inventories are very low, demand not slowing as fast as all perceptions, very much like the front cover of the Economist in 1998, where they said we are “awash in oil.” Supply we know is not going to grow as fast and if you take a look at the recent IEA report, they are saying current energy trends are patently unsustainable and future prosperity depends on how quickly we tackle this issue right now and it’s going to require massive investment and that’s just the opposite of what’s occurring right now. So time is running out on this process and who knows what’s going to happen. But I think we're going to see some kind of change in perception or some kind of supply event that can change dramatically and I think that will take place next year. As to timing, I just know that prices will be higher next year. I don’t pretend to be a market timer, I got the prices right this year but the timing wrong, so I wouldn't want to lay out a time frame. Is it going to happen in the first six months. If I said it was going to happen the first six months, it could happen in the first three months, or if I said it was going to happen at the end of the year it could happen in the first six months – I don’t know. I just know the fundamentals eventually kick in because everybody that I’ve talked to, in trying to run down this story in the energy industry, tells it’s higher. [50:37]

JOHN: I know your investment philosophy tends to be for the long term, looking at fundamentals and you’re holding energy and service stocks right now. So given where we are right now, what would you be doing if you were making some investment decisions?

JIM: If you’re an investor and you’re looking long term, I mean there are very attractive dividend yields from the energy companies and the dividends are very secure. That’s one route you can go, if you don’t want to take a lot of risk you can go to the big integrated companies where dividend yields are very attractive. If you want a little bit more growth, oil service companies are being given away at these prices. That looks very attractive.

Personally, for the first time, this January is going to mark my 30th year in the business and those 30 years I’ve only invested and gone directly into the commodities markets three times in that 30 year career and this is one of those times. For the third time in my investment career, I’m long the commodity in the futures market because the odds from everything I see are stacked in my favor. So what I’m going to want is the maximum amount of leverage that I can get with the cash reserves to back or give myself staying power when things fluctuate. But I’ve only done this probably three times and it’s only when the fundamentals were so out of whack between what was going on in the paper market and what was going on fundamentally in the physical market and so this is probably the third time in three decades that I’m in the futures market and because that’s where I think the big gains are going to be. [52:15]

JOHN: And coming up next we’ll be talking about the Crimes of the Century and all the corruption that seems to be running around everywhere else, which may be preventing what is needed in terms of regulatory control.

You’re listening to the Financial Sense Newshour at

Crimes of the Century

JOHN:This segment is called Crimes of the Century, this part of the Big Picture, and one of the things you’ll hear if you talk to people on the street, what caused a lot of our problems, “Well, deregulation caused a lot of these problems.” Now, there is some truth to that in terms of the repeal of the Glass-Steagall Act, but in reality it’s one of the most heavily regulated markets in the world, and that hasn’t seemed to stop a lot of what has been going on. As a matter of fact, if you look really deeply, you’ll discover that somehow there seems to be some sort of collusion among people in Wall Street and at the Fed and maybe at the SEC and government as well.

And recently, Newt Gingrich, former speaker of the House, gave a very important address. This was a couple of months ago – you’ll tell by some of the comments he makes. It’s dated. But he had some very profound insights to the levels of corruption that we have and things that need to be corrected in order to make work in the future.

I think there are going to be two scandals coming out of this process when we get around to all the historians and reporters and people who pay attention because this is now a big enough scandal. You might even get a book by Bob Woodward about this by the time it’s over. It’s reached a stage where you might actually have political reporters try and understand financial things. One of the scandals will be the entire process of political donations and power on Capitol Hill and the degree to which people like Senator Chris Dodd, who was the largest recipient of Fannie Mae and Freddie Mac is also in charge of the committee overseeing them. And I suspect you may see a serious proposal to adopt a rule that no one who’s a member of a committee can take money from any political action committee or anyone involved in the industries they oversee. We're clearly going to have to look deeply because there is something fundamentally sick about watching the way in which the Congress has dealt with this.

The second, though, is Secretary Paulson. I think it is profoundly troubling that the chief of staff to the president worked for Goldman Sachs, the Secretary of the Treasury worked for Goldman Sachs. I’m told the person brought in to oversee Fannie Mae and Freddie Mac was a past chairman of Goldman Sachs. We learned in the New York Times on Sunday that the only private sector institution that was in the meeting at the New York Federal Reserve to discuss the future of AIG was the chairman of Goldman Sachs, and that Goldman Sachs had a 20 billion dollar interest in AIG and two weeks later the Federal government found 85 billion dollars to bail out AIG.

I received an email this morning from a very, very successful businessman who literally is worth hundreds of million of dollars and is very shrewd, who said, and I can’t prove this yet but we’ll be working on it all day today, if you look at the collapse of Bear Stearns, that it was his understanding that Goldman Sachs had been shorting Bear Stearns and that the head of Morgan said he would have paid more for Bear Stearns and was told by Paulson that he could only pay $2 a share.

Now, no one has slowed down – and here’s what’s happened. Liberal Democrats have no particular interest in learning any of this because they like bigger government, they want more power in Washington, they believe in bigger spending, so they’re happy. I mean this administration has given them a greater chance to move towards a socialist America than anything in modern times. They can’t imagine how good George W. Bush has been for them being able to centralize power in Washington and spend your money. They got 152 billion dollars in a stimulus package in the spring that didn’t work and would have been far better off being spent on investments to create jobs. They got 300 billion dollars this summer for a housing bailout that didn’t work. So they’re already up 450 billion dollars. If you’re a liberal Democrat, it doesn't get much better than this. It’s very hard to imagine that if Obama gets elected how he’ll ever match the Bush administration in increasing federal spending. And now they have a chance to have 700 billion dollars at the Treasury that they get to spend because they expect to replace President Bush with a Democrat. They’re thrilled. Why would they raise any questions?

On the other hand, Republicans are so embarrassed that this is a Republican administration that they have felt timid about telling the truth and raising questions.

But here are things that need to be looked at. Was Goldman Sachs shorting Bear Stearns? Did Secretary Paulson insist on the lowest possible price deliberately, and if so, why?

Why did he punish those particular shareholders, or was he in fact indirectly rewarding Goldman Sachs? Was Goldman Sachs, as the New York Times alleges, the only company in the room at the New York Federal Reserve in deciding the fate of AIG? And by what standard, by what right?

I think this is frankly a level of such appearance of corruption, and I think that Secretary Paulson has shown in every way his complete misunderstanding of the job of Secretary of the Treasury (and I just cite – go back and look at his original proposal to give him personally 700 billion dollars with no accountability, no legislative oversight and no judicial review) that I really think the president would be vastly better off to accept his resignation and allow Bob Kimmitt to be the acting Secretary of the Treasury from now to the end of the administration. [58:27]

Now obviously, Jim, that was time dated, but he was calling upon these very, very questionable actions. And as you mentioned earlier on, what we were going to do with this bailout money changed from day to day to day. No one seemed to know what was going on. It was like they were shooting from the hip.

JIM: Yeah, and it created and added to the instability of the markets because we were told. And remember, they had to pass this thing in a week or everything was going to fall apart and then as soon as they passed it, they immediately began changing it. And right now they’re going back – John, what is it? They’ve got less than two weeks to decide on releasing the next 350 billion and nobody has any idea what they’re going to do with that money. [59:12]

JOHN: Right. And a lot of this is happening over the Christmas break – The holiday break if you notice. And there are certain things that according to the way things are set up that have to happen within a certain number of days. So, of course, what Congress people are going to hang around and wait for something to happen in this category? Even if they should be there, they’re going to be home or whatever it is they do over the Christmas break. So there’s all sorts of strange stuff going on here.

JIM: The amazing thing is to follow the pattern, and you know, I’ve got stacks of articles here from Hedge World from Forbes to Bloomberg to the Wall Street Journal calling into question what has gone on at the SEC. You know, there are a number of things that contributed that we talked about earlier and one of the big things was in 2004 when Hank Paulson, then chair at Goldman Sachs, approached the SEC and said, “You know what, you’ve got this dumb rule that limits us to only a 12-to-1 leverage ratio. We're really uncompetitive compared to European banks and other banks around the global that were greater leveraged than this 12-to-1 leverage rule.” So they lifted the leverage rule that allowed companies like Lehman to go to 40-to-1 leverage, Merrill to 30, 33; Bear Stearns to 33; Goldman to 25 and 30-to-1. And look what the trouble it got them in, and then on top of that, allowing them to not only leverage up their balance sheet and basically say, “Well, you know what, we’ll turn over monitoring this leverage over to you guys because you’ve got these smart PhDs and all these fancy computer systems that you can manage it.” So we had that problem.

And then of course as we talked about last year was naked short selling. And then when they do begin to enforce it, as they did in July and said, “Well, look, you can’t naked short sell the 17 financial companies,” and people are saying, “What?! You’ve got a rule on naked short selling but you’re saying you’re really only going to enforce it against the 17 companies who themselves are now under investigation and could be sued for possible short selling. So you’re saying you can’t short sell the shortsellers?” And then we had the insider trading . Forbes did a story on this and so did Bloomberg where there was Gary Aguirre who was looking into insider trading with a major investment bank and a hedge fund and had the goods and wanted to get subpoenas and then he was told to go on vacation, and when he was on vacation he was fired from his job. So the SEC was suppressing the investigation of insider trading. And then of course the Madoff case that we’re now looking at where CNBC – I don’t know, maybe if you’re listening to this, you might have seen it on Thursday night where they did a one hour special on this – the SEC was tipped off to Madoff as early as 1999 that he was running his private investment vehicles as Ponzi schemes. Several times over the last decade they were provided with information that said, “Look, you need to look into this. It looks fishy.”

It reminds me, John, when I first moved to California, in 1982 and I lived in a community – a private community – and up the hill on the mountain was this gated entrance into this sort of compound of this individual who was the head trader for a company called J. David Dominelli and very similar to the Madoff case. Dominelli was very well respected and his program used currency trading. And it was like these incredibly consistent returns of 2 to 3 percent a month; rates of return of 20 to 30 a year. I mean he was a gadfly around town, gave just like Madoff to charities, gave to the San Diego Symphony, gave to the opera, to the Globe Theater. Very well respected and people were trying to get money to raise partnerships, investment advisor to give money and it turned out just like the Madoff scheme, a Ponzi scheme. The consistent rates of return – and that’s what you got in this CNBC special where they showed that he was doing these trades that even when the trade should have produced losses, he was producing gains and they were consistent.

And so if you take a look at this, in this decade, not only did we have the scams, the internet scams of investment bank recommending internet IPOs and internally saying they were junk; we had the accounting scandals earlier in the decade – the Enron scandals and then we had Sarbanes-Oxley. And so here we are in this decade, we allowed the investment banks to leverage, we allowed naked short selling, we allowed insider trading and we allowed this Ponzi scheme to go. And one of the problems Newt was talking about is this incestuous relationship between the Fed and the big investment banks and the SEC and Wall Street. John, why don’t we go to that clip from Thursday night’s CNBC, they were calling it Crime of the Century, or something like that. [1:04:29]

According to the complaint, within hours of his arrest Madoff admits to committing the largest Ponzi scheme in history, ripping off pensions, individuals and charities of 50 billion dollars.

Investigators are sorting out what happened to the money and why someone of Madoff’s stature became a crook. Many investors are demanding answers to a very basic question. How could all the oversight, auditing and regulation have missed a 50 billion dollar Ponzi scheme. Many point to the larger inability of securities regulators to see the warning signs at Madoff Investments, despite multiple red flags and whistleblowers and visits to the Madoff firm by Wall Street’s top cop, the Securities and Exchange Commission.

“The SEC missed numerous red flags and in fact looked the other way when they were investigating Madoff. That conflict of interest is prevalent at the SEC. They’re more interested in helping Wall Street than investors.”

Jake Szymanski [phonetic] is an attorney on Wall Street for 25 years. He says the SEC is an agency in crisis.

“There’s too cozy a relationship between the people at the SEC and the financial industry. There’s a systemic and cultural problem and a revolving door.”

Here’s the deal: the SEC and Wall Street are joined at the hip.

SEC officials are littered across Wall Street. It’s part of a revolving door that’s gone on for years. [1:05:42]

So here is a story where they’re talking about this incestuous relationship. An in-law of mine works, not for the SEC, but for FINRA where she audits large hedge funds and one of the comments that you see, let’s say you’re a bright, up-coming lawyer just out of law school. You go get a job at the SEC. You’re not making very much money but after two or three years you learn how the system works and the next thing you know you’re working for one of the investment banks and making two to three times the salary plus bonus. So I mean that’s this revolving door that they were talking about in this CNBC special.

And one of the things – I have a lot of friends that are in the business overseas and I have been told repeatedly over the last couple of years they don’t trust the market, they don’t trust the COMEX prices for commodity prices. And look at the disparity between the paper price of gold and silver and the physical price of gold and silver, just as a lot of people right now don’t even trust these oil prices. And it’s like is this –


JOHN: Air of no confidence, I think is what you’re looking for there.

JIM: Yeah, and there’s talk right now that the US may lose its position in terms of control over the commodity markets as other markets are starting to rise; other oil bourses they’re talking about. Dubai is being set up as a major center for metals trading and could be oil trading. We are morally losing our leadership role in the world as a result of the series of these crises because what does it tell you right now when the price of silver is at 11 dollars or just under 11 dollars, but just try to find coin. You can’t get it. Or if you do, you’re paying premiums that are huge. Or the fact that you’re looking at spot prices at 34 dollars and you’re looking at contango prices that are so high for the price of oil that it makes it profitable for oil companies to instead of produce, just buy this stuff, keep it in a tanker and you can make money selling it forward one year from now. And so these are the things that – and everybody is talking about, well, we need to reform, we need more regulations, and I say balderdash. You already have laws. What good are laws if nobody enforces them? [1:08:03]

JOHN: Yes, and if there’s an incentive not to then it begins to look, ironically, you could almost say this is a case for RICO under the racketeering statutes because somebody is getting along with somebody here. But above all it destroys the credibility of the market and then that’s causing a major shift which will result in geopolitical shifts as well.

JIM: Oh absolutely. I’m really looking forward to doing an interview with Michael Panzner When Giants Fall because I think Michael has gotten it and it’s one of the things that I have noticed. One of my favorite areas of history – and I’ve become a student of Roman history and I’ve been studying it over the last couple of years and to see the parallels between our own history, as Michael alluded to in the first hour: the corruption, the concentration of power, which eventually led to the Caesars. And you’re seeing that, John, as a result of the credit crisis where power is being concentrated in the Federal Reserve, in the money center banks and in the White House itself, where increasingly you’re hearing the word ‘czar.’ And who knows, maybe at some point in the future, in the next decade under crises we eventually go to a dictatorship here in the US. But we’re following certainly a lot of these parallels and I think Michael is on to something here in his new book When Giants Fall because certainly we’re losing our credibility in the world. You know, we used to lecture the rest of the world on accounting systems, we used to recommend the rest of the world, this is how you run your economy, and take a look, we’re the epicenter of this storm that has branched out and moved globally. So certainly, just as this was a big story last year with naked short selling, it’s a big story this year. Naked short selling, Ponzi schemes, insider trading, over leverage; just look at the way this whole relationship was handled. You heard in that CNBC report on the Bear Stearns about shorting, there’s been so many numerous conflicts of interest, it’s just the people in the street are looking at this and saying, “Wait a minute, this doesn't seem fair that these guys go out and speculate and then we, the taxpayer, bail these people out.” And that’s the problem, John, with the moral hazard. When you subsidize things like this, you get more of the same activity. As we subsidized it with the tech boom, and the tech bust, and here we are subsidizing it as a result of the real estate bust and the mortgage bust. We’re doing the same thing with bailouts and people never learn a lesson. And if you get too big to fail, you can count on – well, if you get too big, the taxpayer will bail you out. [1:10:41]

JOHN: While the taxpayer himself is flopping around trying to stay afloat.

Now, we have managed to complete the program for this particular week. The next two weeks we’re going to play hooky for the holidays and take time off, but never fear, because we have lots of good stuff planned for you. So the next two weeks will be a review, not of this year necessarily, but rather of the last five or six years and putting it in the context of where we are now.

JIM: Yeah, how we got here. We've got a lot of categories, so we’re going to have them spaced out, so depending on your particular interest. And a lot of people that have really made some pretty good calls on the program. We decided to leave oil out because we've done, gosh, John, how many 80 interviews of authors on energy and it would have just been – how do you pick five or six out of 80. In fact, we've had some requests, and maybe we’ll consider it, of putting together these 80 interviews that we've done with authors of books on peak oil. And I mean we've had them all; we've had the geologist, the investment bankers, the analysts, the people that are journalists, environmentalists – we’ve had just about everybody on the program and it’s amazing the story that they tell. But maybe that’s a story for another day.

In the meantime, well, guess what, we've run out of time. We’d like to thank you for listening and tuning us in. And especially for listening throughout the whole year, we've got some great changes we're planning for the year ahead, but unfortunately it is that time. This is our last live program for the years, so until we talk again.

JOHN: Don’t forget! You have to wish everybody a Happy Hannu-Kwanz-mas.

JIM: Hannu-?

JOHN: Hannu-Kwanz-mas. That takes care of Hannukah, Kwanzaa and Christmas. See, all at one time.

JIM: Oh, okay.

Well, until we talk again, we’d like to wish you all of you a Happy Hannu –

JOHN: Don’t worry, he’ll get it by next year. Anyway, have a good holiday and bless you all. We’ll see you after the New Year but we will be here for the next two weeks with special reruns of some of the best interviews of the last five years.

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