Sunday, April 26, 2009

Sorting Out The Reality

I turned on the TV this morning and there is somebody from the Whitehouse discussing how things are under control. I’m wondering, "My god, what happened now." After a few minutes I figured out that they were talking about, Swine Flu. It seems like it is one crisis after another, those guys are running around with their rectal muscles in knots. Do you get the feeling that they are already in panic mode? A Presidential address day after day is getting incredulous let alone ridiculous. I wish someone would tell the guy to let up, he won the election. If you are busy talking to me, you can’t be working solving the nations problems, unless you’re trying to sell me something --- Hmmmm.

Bank of America CEO Ken Lewis is in hot water. Paulson told him to keep quiet about the Merrill Lynch deal if he knew what was good for him. Now the guy is being hung out to dry by the share holders for keeping his mouth shut. He can already claim that he doesn’t have a Porsche to piss in (he sold it to his CFO). This could be a real feeding frenzy for his lawyers; it could take years, before they spend his last nickel.

At first the banks needed a trillion dollars in TARP money and now they want to pay it back? It seems like no one wants to work for Uncle Sam. Maybe if the banks pay back the TARP, then they will get their bonuses and then they can send the Fed’s some jingle mail. There is nothing like telling people how much they can earn a year.

The bank stress test was a success. Everyone passed, what that means is anybody’s guess. They may have been checking for TARP money stashed at home.

The suicide of the CFO at Freddie Mac was kind of like touching off a nuclear bomb in the back yard, the neighbors, or what’s left of them are real quiet.

It appears that the focus of this administration is to fix everything at once, right now. They are going to stop Swine Flu, protect our borders, solve the banking mess, fix health care and lower taxes. This blather sounds more like an answer to a beauty pageant question. Where is the money, to do all of this, coming from? If we take a page from FDR, the fastest way to raise taxes like he did, was to promise Social Security benefits to the worker. This time, it will be free (socialized) health care.

Just for a joke, look at your tax forms that you just filled out and sent in. We paid $6,000 in Federal taxes, $1,500 in state taxes, $6,000 in Social Security taxes (your employer matches it) and $1,500 in Medicare (your employer matches it). Contrary to the way it is stated the employer doesn’t pay into Social Security and Medicare. It’s figured as part of the wage your employer offered to you, so you pay it all. My wife and I, paid $7,500 in Federal and State taxes and we also paid $15,000 in Social Security and Medicare.

So, when Obama says we’re not out of the woods yet, it means they need additional revenue (spending money). Figure they need a half trillion more in funds to run the government each year, the fastest way to get it on the books is as a health insurance benefit (AKA tax). The employee pays half and the employer pays half (yea right). Figure $2,500 for the employee and $2,500 from the employer. At the same time they can drop your income taxes $500 and fulfill an election promise.

So look for a new government benefit called health care. It will be run like our public rest rooms. Our government is desperate for cash. Remember this quote from long ago, “What’s good for General Motors is good for the country?” It kind of has a scary prophecy to it now. I'm reminded of a ditty from 1929, "Mellon pulled the whistle. Hoover rang the bell. Wall Street gave the signal. And the country went to hell." Looks like the ride has started, hold on!

Thursday, April 23, 2009

Do You Know Where Your Money Is? (reprint)

Reprint from February 26, 2007

The question has to come up sooner or later. Why put money in the bank with these lousy interest rates?? Using the rule of 72, when you divide the savings rate into it (3%), you get the number of years for your money to double. In this case, it's 24 years. The inflation will eat you alive. A $100,000 in 1964 dollars is equivalent to $1,000,000 in purchasing power by today’s standards. So, to make it simple, over the last 44 years, we have had 90% inflation. The decimal point has been moved one space to the right. In 1964 gas was 30 cents a gallon and a house cost $20,000. Today gas is $2.65 a gallon and a house is around $200,000 (definitely not California!).

Examine a concept that is being glossed over and not taken at face value. Every house, stock, bond or mutual fund share has an owner at every instant in time. The certainty is, selling at the top is good and buying at the top is bad. Every dead horse has an owner (owning one is not a desirable thing unless you process dog food).

So let’s see, we have a zillion houses out there that are empty. We have 424,805 bankruptcies and 154,910 foreclosures nation wide according to The question comes to mind, who’s footing the bill? The money has been spent, just whose money was it?

It looks like the next thing to drop dead is going to be a credit card company. Wouldn't that be a real mess! Every layoff is a potential no pay. How many credit cards do you have in your wallet??

Any way you look at it, somebody OWNS all of this junk that is going bad. Its almost a forgone conclusion that whoever it is, has no idea of their vulnerability or their potential liability. Naturally this will all go away if we just close our eyes. My retirement fund or mutual fund couldn’t be that stupid or could it?

Friday, April 17, 2009

The One and One Half Trillion Dollar Loan?

The amazing thing about government is that they can solve all of our problems and give us all what we need. Step back one step and think about that. If it was true, all of our problems would have been solved hundreds of years ago.

The government is about to spend one and one half trillion dollars to stimulate the economy. Nobody has offered up the question of “Where is this money coming from?” The government is borrowing this money from somebody so we can consume what the savers denied themselves by saving it. The government is going to consume without producing new product for consumption.

Government taxation is a method whereby the government gets to spend a share of what the taxpayer produced. This spending is for defense, commerce, laws, education and other things that have become too numerous to mention let alone irritating to think about!

OK they want to spend 1.5 trillion dollars. Who’s going to be willing to loan to the government money at ½ percent interest (present 3 month T-Bill rate)? The Banks are getting free loans from the government and are declaring record profits. 25% interest on credit card loans from the bank’s ledger book are real “Money in the bank.”

Is something out of whack here? Banks get zero interest loans from the Fed, homeowner’s get 4.5% interest rates and the T-Bill rate is under ½% for 3 month T-Bills. If you figure the population of the US at 300 million and divide that into 1.5 trillion of proposed spending, we end up with $5,000 per person. So a family of 4 is about to spend 20 thousand dollars that they are never going to have to pay back? In other words, they are going to consume 20K that will never pass through their hands. Let’s add in free health care. Do you get the idea that we are dealing with someone with an addiction problem?

My question is this, where does the government get one and one half trillions dollars from, at these interest rates? If interest rates don’t rise dramatically, then it just might be time to buy gold. There is no reason to loan the government money at these low rates. It’s a little like pimping your sister, and you are her only customer. It kind of works, for all the wrong reasons.

Monday, April 13, 2009

Economic Terpitude (Reprinted)

Here's a reprint from October 21, 2007. It still has a pretty good punch. Maybe it's a bit more creditable today.

Banks, hedge funds and what ever are taking billions of dollars in loan loss provisions. I have been suggesting for over a year, that a lot of this money may be coming from our retirement funds. Think about it. If your wife buys a new fur coat with your paycheck, now you can’t pay the rent, that is obvious very fast. If the wife turned a trick with the old geezer down stairs and bought the coat, you are stuck wondering how she did it. The reason I suggest Retirement funds, is that the losses suffered so far appear to affect no one. But bear in mind, retirement income funds deal with the future. Most people are not ready to retire so these funds should have plenty of time to recover losses (keep quiet, keep your job). The write downs are massive. Nobody even blinks an eye. What’s a 10 billion dollar loss? The perspective is beyond comprehension. This money has to be coming from somewhere. Whoever’s money it is, they don’t seem to need it--yet.

The money supply worldwide seems to be contracting. Usually this would imply a rise in interest rates. That doesn’t seem to be happening. Commodities are increasing in value, which could be an inflation indicator. If reserves are being added to the banking system, then this could explain why rates are not rising (using a truck is cheaper than using Ben's helicopter).

A lot of the new earned money entering into the economy is not being used to create new jobs, its being “invested” in financial instruments. Workers are not creating new product, investors are placing side bets on the financial markets. The profit is gone from home building industry. Investment in rental property is a losing enterprise. Consumption seems to be tapering off. Home remodeling appears to have hit the skids. Starbucks seems to be doing OK, you have to draw the line somewhere.

Interest rates are dropping but you can't force people to borrow money unless there is some sort of return (like a house appreciating at 20% a year). That would explain why the stock market as well as the commodity’s markets are still in play. Cramer the other night was forecasting Google at $750. Everything is still going up. The stock market had a little hiccup on Friday. Nothing to worry about, Google kept on ticking just like a Timex watch. Of course it can’t be a bubble, bubbles don’t get that big!

You have a bunch of banks forming a consortium to bail out the CDO and SIV holders . They are creating a new financial instrument called a "USA," which is short for “Up in Smoke Assets.” It ought to be a hot item if they can figure out a way to package it. It’s kind of like selling invisible goldfish. Give the buyer one or two extra for free, so he thinks he’s getting a real bargain and then sell him some invisible fish food to boot.

The economy’s current condition reminds me of the embezzler and a millionaire taking a vacation at the same resort. The embezzler knows whose money he is spending. The millionaire has no idea that he is broke, but hey, everyone is having fun. Are we broke yet?

Monday, April 06, 2009

US to Sell Gold Reserves

World leaders agreed the other day, that the International Monetary Fund should sell gold to help stimulate world economies. Naturally the price of gold dropped below $900 per ounce when the markets learned that the IMF is going to sell 400 tons of gold.

Let’s just picture the IMF secretly located on some remote island with 3,400 tons of gold. Pretty implausible, isn’t it? This gold had to come from various world governments (i.e. members of the IMF). Most probably the IMF has pledges of gold in the form of paper certificates.

Here is where it gets technically twisted. Before when the world was on the gold standard; each country had a gold room with locations assigned to each and every country. If Germany sold one million dollars of goods to the US, one million in gold went from the U.S. part to the German location, and vice versa. If one country in the U.S. depositary got a pretty good size accumulation of gold, they might send over a boat to pick up the surplus. Then when you get about 10 of these world depositary storage vaults talking back to each other, the boat is not necessary, you owe to some other country your gain here.

If the IMF were to take a U.S. gold pledge certificate and submit it for cash currency, no gold is sold, but the IMF’s account now has less gold bars in it. It is here, that the true purpose of the gold backing can be realized. The gold guarantees the purchasing power of the sponsoring government's currency. If the US currency drops in value drastically, we have to cover the gold certificates at the present gold exchange rate.

Imagine that the IMF comes to one of these storage facilities to take physical possession of the gold, and then they sell it. Assume that the gold is sold in the US for dollars and the IMF gets a U.S. currency deposit of X amount of dollars. The extra effort to sell the gold on the spot market doesn’t make a whole lot of sense, does it?

Once you understand that the IMF holds no physical gold, the picture becomes clearer. World governments are realizing that there is a rush to convert currency into gold and as prices for the real thing escalates (it doesn’t seem like you can lose on this investment). So if we take the headline “IMF to sell gold,” and change the wording a bit to: “U.S. Government to sell down its Gold Reserves,” and I might add in parentheses, (in an attempt to tank the speculation in gold commodities), you see the real story. It didn’t work for Nixon and he had to eventually close the gold window.

I do caution the readers, I have not been able to really find any viable research information on what you have just read. Most references, from Google, were extremely vague in reference to the tangible assets of the IMF. You have to ask yourself, where do you get 400 tons of gold to sell, matter of fact like? Once you answer that question, this seems to fall into place. I could be accused of using a razor blade to make puzzle pieces fit, but I leave it to you the reader.

Sunday, April 05, 2009

Fictionalized Accounting -- AKA BS

Forgetting politics, I am getting tired of turning on the TV and every day there is Obama telling us what the government is doing next. A lot of Presidents were accused of shunning the media, not this one. He even stood up the other day and told us that the government would honor GM car warranties. Just who is going to pay that bill? It’s nice to know that when the Defense Department buys a tank from GM, we the people cover the warranty repair.

It seems as if the taxpayer’s wallet is removed from this whole situation. Congress is going to lower our taxes, on top of that many people won’t even pay taxes, (they’re unemployed). Government revenues will drop by 50% and at the same time government spending will triple.

The housing collapse is getting “better,” it still doesn’t cost anything to buy a foreclosure. And if it doesn’t work out give it back to Fannie. At least you get to live rent free for a year.

This bail out money going to the “banks” is another strange item. Why loan to perspective home owners at 4.5% interest when the bank can put in into the latest and greatest bubble credit card debt? In that market, financial institutions can clean a plow with 28% interest return on cash loaned at zero percent interest (by way of the Bank of Uncle Bernanke Sam). I get 5 credit card applications a week still. It’s hard to figure out why these companies issues more; haven’t they done enough damage already to people that are broke?

The Federal Reserve lists credit card write offs at 8.82% for February. They suggest that it could approach 10% by year end. I suggest it could approach 14% by June. The aggravating thing about credit card debt is the fact that many families could conceivably have 20 to 30 cards.

Sane banks might suggest that all credit be cut off; our government will suggest otherwise, extend credit to stimulate the economy. Do you get the feeling that the people in charge haven’t got a clue, but by golly they’re going to fix this mess, even if it kills the taxpayer?

The irritating statements I see being made lately suggest that the worse is over and we are emerging out of this slump. It’s kind of like being hit by a car, laying on a rail road crossing and the train is right around the bend blowing its whistle.