Thursday, June 9, 2011

Skating Away On The Thin Ice Of A New Day...

Couldn't resist the title after seeing Jethro Tull/Ian Anderson, celebrating 40 years of fame,  sound surprisingly good last night at Red Rocks.  Anderson, the Scottish rocker/bard, will be 65 in August.  But let's get on to it...

Many of you already saw this credit downgrade of the U.S. Government by a German ratings agency.  A commenter posted the link yesterday in the comment section but I didn't have time to do a blog post:  LINK  It's worth the quick read if you haven't seen it and here's information on Feri, the entity that issued the report: 
Feri EuroRating Services AG is a leading European rating agency for the evaluation of assets in markets and products and one of the leading European economic research and forecast institutes  LINK
I would certainly trust Feri's assessment of the U.S. creditworthiness over that of any U.S. credit assessment company and I believe even Feri's view is far too optimistic.

I also wanted to post a great summary of the situation facing this country and the inability of most of the citizens to either comprehend how dire our situation is OR unwilling to look at it and deal with it, preferring instead to cover up their eyes and hope for the best.  Here's LINK and I highly recommend spending the time to read it.  It's the most honest assessment of what's to come in this country that's been hung out for public perusal and I believe even this one is too sanguine...

As a follow-up to my Monday post about the brewing liquidity problem in the banking system from mortgage delinquencies, here's an accounting of a family in Florida that has been living in its home for 5 years without making a payment:  Wow  You wanna know who's making up those payments to keep the bank balance sheets above water?  We the Taxpayers are.  You like apples?  How do you like those apples?

And speaking of past, present and future Taxpayer bailouts and subsidizing of banking employee bonuses, recall that AIG's stock is down 55% since January.  Well it looks like the U.S. Taxpayer is being set up to transfer even more wealth to AIG and the crooks who run it, courtesy of Geithner and the Obama people.  Read this from Zerohedge:  LINK

I'm still shocked that the American public looks the other way and accepts this arrangement between Obama and the big financial firms.  I'll finish with this little anecdote.  Was chatting with a long-time colleague earlier who was meeting with a client who works for a big insurance company selling insurance products.  This fella was in a meeting with some big hedge fund managers earlier this week.  The hedge fund guys made the comment to the insurance guy that "he should expect that down the road the big insurance companies will never be able to cover the claims which come from all of the crazy insurance coverage they are underwriting because they are in such bad shape financially now."

Just like everything else in American finance, big insurance is a giant, derivatives-infested Ponzi scheme getting closer to blowing up.  I think the truth of that statement is contained in the 6-month performance of AIG stock...buona giornata a tutti.


  1. “The Devaluation Against Gold Is The Inflation“

    Now that you’ve mentioned the “Currency Wars“ of the past, let us look at the current one of our time. Isn’t the real battle royal in that “Currency War“ the one between gold and all fiat currencies, especially the U.S. dollar?

    That’s where it will end up. I agree that this is the endgame. You start out by devaluing with each other, but that ends up in failure, and so you need something to devalue against – and gold is always the last resort, because gold is the one thing that doesn’t devalue on its own. For example, if the U.S. devalues the dollar against the Chinese currency, and then the euro devalues against the dollar, U.S. exports might be helped, but the dollar devaluation could be hurt by the euro devaluation, so as I have said no one is really further ahead and you’re not getting the inflation that you want. But one way you can always get inflation is the devaluation against gold – or even maybe the devaluation against gold is the inflation. Anyway, the purpose of this is to cheapen the currency, help exports and lift commodity prices across the board.

    This has happened two times, of course. In 1933 President Roosevelt devalued the dollar against gold, and in 1971 Richard Nixon did the same thing. I think it will happen again. The currency war is playing out for a while, but they don’t really get what they want and so at the end of the day they have to devalue against gold. For instance, you will see a lot of up and down between the euro and the dollar, the cycle is repeating over and over and over, back and forth, and as a trader you can make a lot of money on the swings between the euro and the dollar, but as an investor it really doesn’t matter very much. My analogy for this is that the passengers on the Titanic can go to a higher deck or to a lower deck, but they can’t go all off the ship. The life boat, if you will to pursue that metaphor, is gold. That is the one thing they can all devalue against. I think this is where it all will end up.

    What would be the most important signals (beyond positive real interest rates) that the end of the bull market in gold is near?

    Well, I gave you two metrics to explain why gold is not in a bubble. I would watch them also when we get closer to a bubble territory. For example, gold at $7000 an ounce with the current money supply and the current supply of gold, then we would be back where we were in 1980, and that might indicate a bubble. But we have plenty of room between $1500 and $7000. And remember also: a bubble can always overshoot.

  2. Anyone that doesn't believe bonuses were a function of saving the banks is delusional....

    The destructive power of weak money

    Using the broadest measure allows the Fed to argue that deflation arising from contracting bank credit must be balanced by the expansion of raw money, when their true concern is the prevention of a banking collapse.

    The replacement of bank credit by expanding non-borrowed reserves amounts to a gift given by the Fed to the banks. Without it, the American banking system would simply be insolvent.

    Stagflation seems to be poorly understood by mainstream economists, who habitually associate price inflation with excess demand, not understanding that over-supply of paper money produces the same price effect.

    At some stage, these inconsistences will be revealed for what they are. The markets’ ability to ignore the gathering clouds of stagflation, coupled with a banking system moving back into crisis, will be tested. The financing of a rising budget deficit at negative real interest rates, as the economy slides and revenues collapse, is unlikely to continue for long. The scene is set for both a lower dollar and rising bond yields. The distortions have been wound up so much that a return to normality will be a violent, disorderly event.

    Gold has only just started to anticipate this risk with its rise from severely depressed levels. The Western financial system, which has been in thrall to Keynes, is short of gold, and this folly is about to become more widely understood. Those central banks not sitting at the Bank for International Settlement’s high table see the danger, and are accumulating gold.

    Here again, the distortions are simply incredible, with over $50,000 of bank liabilities and monetary base in the US for every ounce of gold officially held by the US Treasury.

  3. If you had any doubt that our elected officials would not lie to us about a few trillion dollar skim project they orchestrated in digital credit land...think again...

    Japan raises spectre of Fukushima 'melt-through'

    Melt through into the environment,particularily the water supply, will effect a far greater region than a 50- to 100-mile radius around Fukushima. This will certainly complicate the clean up process and Japan's recovery.

  4. Huge fan of Tull!! Thanks for starting out the article with that line.

    Another good post from you! Thanks for the great work.

  5. Some can skate on thin ice forever! What happens to regular citizens when they perjure themselves??

    The 'Big Short' and Goldman's New Story

    What does any of this have to do with Sorkin? Not much, except to show that this latest story of Goldman’s about not having a “big short,” an argument they’re making with a slew of new numbers, is just that – a completely new story.

    When the government of the United States officially asked for those numbers last year, the two executives who were in the best position to give those answers basically said they didn’t know anything about anything. They apparently wouldn’t have been able to tell Carl Levin the time, if he’d asked.

    But all of a sudden, over a year later, when the bank is in deep shit both on the stock market and in the arena of public opinion, and multiple subpoenas are sizzling on their doorstep, suddenly the bank starts coming out of its amnesiac fog and coughing up numbers – to Andrew Ross Sorkin. As the Russians would say, I leave this without commentary.

  6. Isn't this the guy(nadler) that's always looking for lower gold??????

    Kitco Charged With Massive Tax Fraud Scheme, Business Viability In Question

    Kitco Investigated By Revenue Quebec In Tax Fraud Investigation, Seeks Receivership

  7. Eric Sprott - We’re Headed Over a Cliff, Be Wary of Paper Assets

    “Well I always chuckle when people at the Fed and the Treasury suggest there are no signs of inflation. There are nothing but signs of inflation, not withstanding the Fed suggesting the CPI is up one or two percent.

    We all know that the average guy on the street, his food costs are skyrocketing, his energy costs are skyrocketing, his tax bill is skyrocketing, his insurance, everything is going up and they are basically getting modest to zero wage increases. So that’s why some of these consumer confidence numbers are just falling right off the table here, and that’s why most of the data we’ve seen recently on the economic front has been incredibly weak.”,_Be_Wary_of_Paper_Assets.html