Bank Open Window For Deceit
by Jim Willie, CB. Editor, Hat Trick Letter. July 31, 2008
As vacation season approaches in the Untied States and Canada, the task of reading should give way to looking at pictures to tell a story, or gazing at scenery from a lodge or campground, or lazy afternoons at the beach. Among the many stories out there in the financial ethos, the one that strikes as most important is the bank sector. The selective enforcement of restrictions on shorting bank stocks sticks out like a child suffering acromegaly (Frankenstein disease) in deformity. Its blatant criminality has given the US financial sector its latest (and not last) black eye. This one is a loud banner of corruption waved for the entire world to see, put in the open. In fact, one can easily make the argument that price controls have finally come into the open. More on this in the August Hat Trick Letter. For the financial sector, price controls elevate prices of various securities. The Plunge Protection Team routinely rescues the S&P500 stock index, while JPMorgan routinely lifts the price of USTreasury Bonds of many types. The price controls, now in the open, will gradually find toeholds of political support in the tangible economy, like with gasoline and heating oil, if not natural gas. The issue of survival is critical, for home heating, as shutoffs are not acceptable. The upcoming widespread price control movement is a cinch, a lock, a guarantee to be seen. It ensures grand grotesque shortages to be suffered in the USEconomy, resulting in eventual rationing. The forced ration programs will invite violent response, growing disorder, and eventual chaos. An endless recession is what my forecast calls for, as the nation gradually slides into conditions leading to martial law. The irony in my view is that the US public will beg for martial law in a return for order.
The syndicate in power, widely entrenched in criminal enterprise (both financial and black market trafficking), which has assumed control of the USGovt administration and security organizations and military, might not wish to pass the power baton. Business is too good. They might relish and even salivate at the prospect of martial law. Gold and silver prices will love it, since the banks cannot thrive or even remotely recover in such a limited business opportunity environment. In fact, Wall Street banks have only one business left, managing their demise, as stock and bond issuance has all but vanished. Hatemail continues to my inbox, without much acknowledgement that my forecast in 2006 of a destroyed insolvent US banking system being correct. The bank conditions will lead to growing chaos, a pathogenesis few seem capable to discern.
Few people can also foresee that the many bank bailouts planned for the US national corporate structure make certain a continued decline in the USDollar. With a continued weakening of the USDollar comes greater cost pressures throughout the strained USEconomic landscape. The bankers with their bailouts are buying time before the next US November presidential elections. Whoever wins will have a single agenda: to manage crisis, not to enact new policy. Crisis removes the luxury of an agenda via mandate. A national energy independence program is a great idea. Let’s see if the syndicate in power, which is beholden to military and energy firms, is willing to pursue other energy solutions. The US is dead last among industrial nations for pursuit of unconventional energy apparatus development, with neither nuclear nor natural sources deployed to any meaningful degree. So, the US Federal Reserve encouraged industry to depart our shores and to build an entire economy upon a housing bubble, complete with the reckless insanity of a risk price model in the process of dissolving. So, the Wall Street banks served to destroy the bank system viability, a result of their reckless lending and fraudulent bond package sales on a global basis. So, the big oil firms served to destroy the energy system viability, by preventing almost all efforts to diversify. Thus is the basis of my conclusion that the US is slowly being recognized as a failed state, in a march to Third World status. A puppet government head and compromised Congress enabled the devastation. Even people here in Costa Rica almost daily ask me how the Untied States managed to ruin its country. My experience is that taxicab drivers, shop keepers, and head waiters at restaurants (all eager to discuss matters) in Costa Rica are better informed about the USEconomy, the US banks, and US leaders than the American public!
Let’s do a quick survey of various markets and price indexes, in order to gain insight on the conditions. This autumn should be chockfull of volatile events and reactions. One must be prepared. Desperate measures are being put in place. Shocking events lie on the horizon. People can smell something is awry, but they seem hopeless in identifying the problem sources. A very appropriate quote will lead the August Hat Trick Letter in the Macro Economy Report, a quote by French philosopher Voltaire, not the fellow who enjoys golf in Atlanta with his privacy, whose caddy is an angel.
Banker Quarterly Open Window
Notice the pattern. For each quarter, reality strikes as the end approaches right through to the actual reporting during the first month of each three-month period. Look at the succession of three-month periods. A bear triangle was crystal clear in the second quarter, identified in my public articles, as the Q2 came to a close, leading to a breakdown in the third month of that quarter. A breakdown occurred also at the end of 3Q2007 last summer. Look for a pennant pause pattern to be revealed this quarter, as more curiosity has entered the room that questions whether the worst in bank loss writedowns has occurred. The pattern to me is clear: each quarter is worse than the previous in terms of stated bank losses. Finally, my summer 2007 forecast of over $1 trillion in bank losses has come to be embraced. The IMF, Bill Gross, and Nouriel Roubini each have cited that lofty figure. The problem is that it is still low. Try $2 trillion. Why, for Lord’s sake, Fannie Mae and Freddie Mac alone will rack up $1.5 trillion in losses by themselves. Look for a truly fierce defense of the bank stock sector, which is facing annihilation and total ruin. As the mortgage giant cesspool continues to gain trucked (honey wagon) relief, gold & silver will thrive. In the business of septic bank service, they call them the Honey Wagons. As banks continue to spiral down, gold & silver will thrive.
Citigroup Flood Soon
Word has it that both Citigroup and JPMorgan will soon flood the credit markets with horribly impaired asset backed bonds. They are giving up to find fools in the hedge fund community and sovereign wealth fund centers. The Merrill Lynch sale at a mere 22 cents per dollar par value on CDO bonds (leveraged mortgage bond in-securities) is a widely seen signal that huge additional bank loss writedowns are coming. Citigroup is due to write down another $8 billion in losses just to remain consistent with Merrill, the first to get realistic. While Wall Street rejoiced that Merrill Lynch had come clean, or cleaner, it overlooked how the rest of Wall Street remains entrenched with balance sheet lies and colossal deceptions. The Citi chart is not in any way shape or form a picture of recovery. Not even able to climb above the 50-day moving average, it seems doomed to enter single digits. It publicly wears the contradiction of maintaining a dividend while seeking cash to replenish its core balance sheet as it sells capital. Those who deny the doomed fate of Citi are not based in reality. As banks continue to spiral down, gold & silver will thrive.
Fanny Mae Lifelong Very Thing
For almost all last summer and autumn and winter and spring, Fannie Mae & Freddie Mac avoided the public spotlight. That was a remarkable feat, since banks were going bust on balance sheets, entering insolvency. My guess is that recent stress tests revealed the principal nexus of weakness, enough to ruin the entire US bank system permanently, was Fannie Mae. Perhaps foreigners like China have threatened to dump Fannie Mae bonds of all type. With good reason, Treasury Secy Paulson avoided any cited estimate of eventual USGovt bailout amount for Fat Fannie. The true number is between $1.0 and $1.5 trillion. That estimate only anticipates an 18% to 27% writedown in their entire combined $5.3 trillion book of business. That figure seems low, given the other financial firm disasters in progress. So the eventual tab for Fraudulent Fat Fannie might be closer to $2.0 trillion. The recently passed bill to help homeowners and mortgage lenders out of their bind is again woefully inadequate, the same bill that authorizes a more formal bailout for Fannie Mae itself. My forecast all this spring was for a succession of bailout programs, culminating in a grand New Resolution Trust Corp, led by Fannie Mae, despite its gross insolvency, despite its massive corruption, despite its worsening financial foundation atop an acid pit. The New RTC will come to pass, perhaps not before the last month of 2009 next year. As this vast centrifuge of readily available mortgage finance funds is again revved up, and patched up for its grand acidic leaks, gold & silver will thrive.
Long-Term U.S. Treasury Yields Ceiling
By far the most corrupted, interfered, out of whack, distorted, and crucial market is the USTreasury complex. It is absolutely critical for maintenance of power by the Ruling Elite. They collect bonds and earn yields from them, also from spread positions. They order the massive printing of USTBonds illicitly by JPMorgan, and use their devices to maintain a price cap on the cost of money. The vast credit derivatives rely on the ongoing suppression of the USTBonds in order not to explode, implode, melt down, and otherwise eradicate every single financial entity know to Western humankind. In my recent article about “Long-Term Bond Paradox” many factors were cited as to why the long-term USTBond yield was likely not to explode upward. The main reason has to do with the fact that higher prices are almost uniformly on the cost side of the ledger, as labor wages are kept down from globalization forces. This simple reasoning eludes over-educated and incompetent US-based economists. JPMorgan stands as the gatekeeper to prevent any inconvenient rise in long-term bond yields, ready with a printing press, standby orders from the USFed, available offshore illicit agencies to hide their garbage can, and impunity from proper disclosure. The biggest eyesore on the US financial landscape is clearly JPMorgan, the chief architect and purveyor of the Fascist Business Model that embraces a tight corrupt bond between state and large corporations. The Model includes energy firms and defense contractors also, to be sure.
Notice that the 10-year USTreasury Note yield (TNX) really does not want to be above 4.0% in an uncomfortable position. The rise in the TNX all spring long coincided with a decline correction in the gold price, due in my opinion from drains by the USFed on the private sector banking system. One must subsidize Wall Street bailouts with private sector funds, a grotesque welfare system to benefit billionaires. As monetary presses begin to work not just for Wall Street benefit, but also for general public homeowner benefit, gold & silver will thrive.
An interesting note to put on the announced Gross Domestic Product. The 4Q2007 stated GDP was revised to MINUS 0.2% today. The GDP for 1Q2008 was 0.9%, a feeble number. The GDP for 2Q2008 was just released, a fiction-ridden estimate of 1.9%, again weak. The investment community continually is bombarded by fictional GDP data. To begin with, it is laced with hedonic nonsense, which double counts technological advances like anti-lock brake systems for cars, faster processors for personal computers, and better screens for televisions. All nonsense, all fiction. Nobody feels a lower perceived price due to a nifty added feature when a higher price is paid. Then past GDP data is usually revised downward, so that corrections toward reality are in the rear-view mirror, and attention can be better paid to the most recent fiction written for the latest scripted quarter. The financial markets are thus never tied to reality, but to the fictions. The truth is that the USEconomy has been mired in a recession for all but two or three quarters since year 2001. The “rice & beans” handout in the USGovt stimulus package is largely depleted, having run its course. The truth is that the USEconomy has been in recession by 2.0% to 2.5% in slowdown for the last two or three quarters. The rising energy prices, rising food prices, rising foreclosure events, falling home prices, and strictures among bank lending all make it a slam dunk that the recession will worsen.
Gold and Silver at Critical Support Again
Try as they may, the power center with the increasingly desperate gold cartel as their agent to suppress the gold price, are losing their grip. The banking system insolvency was bad enough, but now the rescue of Fannie Mae has undermined the already weakened state of the USDollar. Finally, the US homeowners will begin to benefit from the largesse of the USGovt via home loan assistance and other measures soon to be implemented. Up to now, the primary beneficiaries to the USFed bond swaps have been Western banks, in a grand elite welfare program to stave off financial ruin to billionaires. They have the ear of USGovt officials, or else control with puppet strings. Next comes the rescues for the public, who are under siege during the worst Middle Class erosion and depletion in modern history.
Gold will find continued support around 910, even from the 50-day moving average (in blue). On July 30, a remarkable sequence occurred. The silver price did an impressive reversal, going below 17 but closing over the 17.50 mark. See the impressive move on Wednesday. Gold followed silver, a day later. My forecast is for silver to break above the critical 21 resistance level before gold breaks above the critical 1020 level. THE HEAVY CORROSION TO THE USDOLLAR IS ABOUT TO ENTER A VERY DAMAGING PHASE. The autumn season is near, when the gold and silver bull markets realize some seasonal breakouts. By year end, gold should be near 1200 and silver near 25. One big reason why so many shenanigans are being played with banks and the USDollar, is that the gold favorable season is near in arrival. As the USDollar is undermined during a multi-faceted corrosive process and the season arrives, gold & silver will thrive.
Euro at Critical Support Again
The euro currency is in the middle of a big battle. The economic slowdown interferes with additional Euro Central Bank rate hike justification. The price inflation they are concerned about seems misplaced, since most of it resides on the cost side of the ledger. They might pursue cost reductions from the euro currency, a discount from a favorable exchange rate. Their oil price falls from a rising euro and steady crude oil price in US$ terms. Look for the euro to split into a Core Euro and Latin Euro, as discussed in the July Hat Trick Letter, a bold proposition to be sure. The euro correction has just about finished, on the wane. As the euro regains its footing, and continues higher versus the beleaguered USDollar, gold & silver will thrive.
Commodity Indicators Show Strain on Bull
The great commodity bull market is under strain. For over two years in the Hat Trick Letter, my analysis has centered on what are called the Three Amigos. The crude oil price, the copper price, and the Baltic Dry Index to measure shipping cost serve as excellent indicators. Back in 2004, my forecast was for the commodity bull market to hit a wall after the Beijing Summer Olympics concluded. That might turn out to be correct. The Baltic Dry Index has come down significantly. The crude oil price has begun a correction. The copper price is under strain. My Three Amigos will continue to be monitored. Asia cannot lead the global economy alone, with the Middle East oil producing nations. The crude oil price will continue to be supported by a very weak USDollar. The eventual disintegration of the Arab-led defacto petro-dollar standard will force the USDollar lower, when the Saudis lose faith in their US masters, or when the Saudis lose patience with the USGovt-led protection racket. Accepting US$-based transactions for crude oil payments simply cannot continue, since it is too stupid and reckless from an Arab perspective. As consumers capitulate and the USGovt stimulus packages become a series of desperate measures, thus undermining whatever integrity the USDollar has left, commodities will continue up in price, and gold & silver will thrive.
Consumers Last Gasp from U.S. Govt. “Rice & Beans”
US consumers cannot be expected under any rational experiment to support the entire USEconomy. They burned their homes in order to sustain economic growth, but that Greenspasmodic chapter is closed. The dispatch of the US manufacturing centers to Asia crippled the Untied States and its economic future, like the removal of a commercial spinal column. Back in year 2003, Sir Alan Greenspasm endorsed this insane experiment as valid, claiming the USEconomy could be supported from rising household balance sheets atop the housing boom. Inflation does not legitimize balance sheet rise. What incredibly heretical philosophy worthy of permanent banishment from all banking positions for life! The US consumer is exhausted, kept afloat for a couple months from a USGovt flimsy stimulus handout package. The trend is clear. The consumer cannot draw any more money from home piggy banks. The consumer is in trouble with job security, as 200 thousand jobs are shed each month, despite what fiction the USGovt producers among its creative accountants. As consumers capitulate and the USGovt stimulus packages become a series of desperate measures, thus undermining whatever integrity the USDollar has left, gold & silver will thrive.
The New Misery Index
Misery is not in short supply in recent months. The future prospects of the Untied States look rather bleak. Lies continue on the jobless rate, which is near 10% if you prefer to count those without jobs. Lies continue on the price inflation side also, which is near 13% if you prefer to count things that people purchase to carry on the functions of life. As people continue to take body blows on their financial stores, they will increasingly turn away from banks and toward other more reliable investments. The bank runs represent the flipside manifestation of the panic association with such misery. As this occurs, gold & silver will thrive.
General Motors Concurrent Indicator
A primary pillar of any economy is its transportation system and manufacturing structure to sustain that system. It produces a large number of jobs, from the main vehicle construction first and foremost, but also from the numerous other supporting industries working in the vertical integration. For a few years, the vertical integration of the housing industry supported the grossly imbalanced and permanently distorted USEconomy. Economists practicing their alchemy inside US boundaries failed to realize that houses are not productive assets where commerce is conducted, once completed. How utterly mindless! General Motors is heading toward a total collapse. The higher gasoline prices serve as the most recent death blow. Their absurd pension payment plan to retirees is another two-ton millstone around the company’s neck. GM has already seen the beginning of the nationalization in a USGovt guarantee contract. More bailout measures will be seen. The race is on to see which will fail first as a financial entity, Fannie Mae or General Motors. The USEconomy has become a total joke, a farce, a charade of mismanagement, corruption, labor union pressures, an abandonment to foreigners, and mindless outsourcing by the elite to undermine the workers. As the nationalization movement broadens, and its effect on the troubled USDollar becomes more recognized, gold & silver will thrive.
© 2008 Jim Willie, CB