Garbage Bonds & Bonfires
July 6th, 2007This is an outstanding essay. I’ve included a few passages below, but these don’t do the piece justice. I highly suggest reading it in its entirety.
Via: 321Gold:
For years the homestead, the house property has been considered the ultimate inflation hedge asset. Sure, price inflation wrecked havoc in the USEconomy, but the nation of citizens had a home which was rising in value to offset the undermine from inflation. Now the leaders point to still substantial gains in home equity from the last six years when the housing bubble was erected. In two to three years, they will sing a different tune, since most of the gains from the entire six years, nearly $10 trillion in additional home equity, will evaporate. A strong claim. Just watch as it happens. Call me crazy, send me nasty emails, but not a single forecast of mine has been outlandish in hindsight. This devastation will unleash the extraordinary economic recession, the unending bond crisis, the USDollar global upheaval, and the political response. In a matter of several months to a couple years, a growing sense of chaos will take over the landscape. After chaos intensifies, a totalitarian state is a certainty. The cry will be for order, not growth or job preservation. The next painful phase will involve inflationary recession, not stagflation. The powers mismanaging matters of state and banks will hope for stagflation, and not see it except in this falsified statistics.
The USEconomy has already handed its manufacturing base to Asia. Banking officials and economic counselors have leaned upon the residential real estate as foundation for the entire consumption driven economy, against all sacrosanct wisdom in full heretical style. The price to pay will be economic decline, lost wages, a lower standard of living, and rising chaos. People will lose their homes and lose their jobs. People unfortunately will volunteer to forfeit their freedoms in order to maintain order. They will eventually beg for order when the suburbs are invaded. When? Something like by year 2010. What lies around the corner is the end of the United States of America as we know it.
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If an auction fails, what is the value of items raised for sale which do not sell? This is the key question asked after the failed auction by Merrill Lynch and Bear Stearns. They tested the market, sought price clarity, and received the worst of all possible news. NO VALUE. The exercise is surely to be repeated in subsequent months. How does a market respond? The process within more easy reach require stocks to halt trading during disequilibrium imbalance, as sellers mass, buyers vanish, and price is unclear. The stock reopens a day or two later, after news sets the stage more clearly, usually with a 20% to 50% price cut. Imagine that in the mortgage bond arena, a 20% to 50% slice off principal value, depending upon the type of bond, like subprime or Alt-A or a shade of anything below sterling ‘A’ rating. The real fun will be with the derivative leveraged paper, where the guys in propeller hats set up 20:1 leverage, are stuck with cancerous assets behind the paper, and value is without any question whatsoever negative. Why? Because a 5% loss employing 20-fold leverage produces a total wipeout of the original investment. A 20% loss, by the way, using again the 20-fold leverage, produces a 400% loss, meaning a total wipeout plus added losses by three times more. The power of leverage cuts both ways, with profit and loss.
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Without a doubt the USDollar is the weakest link, as numerous holes must be plugged to in the leaking dike. Gold and silver must be prevented from a zoom rise in price, since they serve as warning signals. Crude oil and natural gas must be prevented from a zoom rise in price, since they directly strain the USDollar. The long-term interest rates must be prevented from jumping higher. The stock market indexes must be prevented from falling sharply, since the public sees stocks as a visible signal of wealth. The USDollar must be prevented from a sudden freefall. The entire Wall Street and US Federal Reserve leadership is in the process of soiling their skivvies. The best investment might be in Depends Adult Diapers. These guys, leverage mechanics in financial engineering, destroyers of economies, snake oil salesmen of cancer ridden asset bonds, they are sweating bullets, pooping their pants, staring into space, stunned by failed auctions and uncertain valuation, wondering about leverage implications and debts called by creditors. These are no longer exaggerations written in tabloids, but rather front page news items.
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The untold story is that the strain on credit derivatives has put tremendous pressure on the USDollar, which cannot hold. The sale and liquidation of countless billion$ in credit derivatives will deliver a series of unending blows to the USDollar, sure to crack before long. With $120 trillion in notional value for credit derivatives, figure with 30:1 leverage that $4 trillion in original equity tied to margin investment is involved. The FOREX markets (foreign exchange for currency trades) involves between $1 trillion and $1.5 trillion in daily volume, less on holidays and more during crises. We have a crisis building. The USDollar in my view cannot be defended in the face of a credit derivative crisis. Look for coercion next, in the form of threats to those wishing to liquidate vast tranches of bonds. To expect no interweaving of military activity with the coercion would be naïve. It is a certainty. It has past precedent.
http://2photo.ru/2007/06/05/kreativnyjj_zhestkach_fotograf_koen_demuynck.html
13th photo down is on-topic. picture says a 1000 words…
West: I’d say the 17th photo is pretty on-topic as well.
Thank you, Kevin for posting this article. The Wall Street brokers aren’t the only ones messing their pants.
“The USDollar in my view cannot be defended in the face of a credit derivative crisis. Look for coercion next, in the form of threats to those wishing to liquidate vast tranches of bonds.”
This is why all of a sudden in the snooze, they have been telling us in the US of all the ‘Bad Products’ from China.
Damn, Karl, you beat me to it.
You should give attribution. The piece is by Golden Jackass newsletter writer, Jim Willie.
Consider that the Fed can see the future as well as any gold peddler can. The US will be having a political shift in 2008, and the big issues are the War, Health-care, and a wave of retiring baby boomers wishing to activate their retirements and other benefits.
Government may shift costs from private insurers for Health care to a national system (which looks likely with California attempting to do it on it’s own), and probably diminish retirement payouts. The private companies are running around trying to suck the value out of insurance and retirement plans even as we speak[I can’t be the only person to notice this]. The baby boomers are likely to get stuck with less money from any source, and government programs attempting to fill the gaps (albeit as cheaply as possible).
Asian imports are going to decline (as others have asserted), so business models that depend on those Connex containers will continue to decline, as Walmart demonstrates.
I expect higher unemployment, trade agreements may drastically change, and a series of conflicts in Mexico,Central and South America fueled by Venezuelan Oil power and the sudden decrease in capital from the US. This may interfere with Panama Canal traffic, with Mexico attempting to circumvent it with new highway projects to the US. Narco-trafficers will attempt control cargo and may already have allegences with Venezuelan/Columbian Social revolutionaries. Illegal immigrants in the US will be scapegoated, and will react with rioting/looting/arson in several large cities.
re: West
http://2photo.ru/2007/06/05/kreativnyjj_zhestkach_fotograf_koen_demuynck.html
personal fave appropos : 2nd from the bottom.
but then who needs a head if there’s nothing to eat? =P
Regarding your comment in one of your May crytopgrams about the elite’s (or some portion of the elite’s) desire to see the gold banks shut down. You are dead on in your ruminations. The more “absurd” the situation becomes vis a vis the dollar, the more desperate and more futile will be the attempts to squash gold. It’s a losers game, and the worst of it for the fiat scam meisters is that there is another precious metal to contend with, silver, that may turn out to be even more of a fiat killing bad ass than gold for the simple reason that not only is it beautiful but industrially very useful.