A New Casualty From The AIG Scandal

On March 18th, I posted where the AIG money was really going and why the US government wanted everyone to focus on a few million in bonuses on NOT where the $30B in bailout money went:

Apparently, our "free press" was told not to report on where the money was really going because of fears of backlash by the American people. It is more important for the American people to mad at people on wall street and NOT be angry with their government.

Now it appears that a CNBC Host, Dylan Rattigan, broke ranks and started talking about the real AIG scandal. You can watch the events unfold here as he starts talking about the issue surprising the three guests who were there to talk about the DOW. Notice also that after a little discomfort, they admit that it is the "REAL UNTOLD STORY" and then you see them actually wanting to talk about the issue. Video is here:

http://economicedge.blogspot.com/2009/03/this-is-way-america-really-works.html


It seems the executive management of CNBC were outraged and forced the show to cut away to announce what is laughable "breaking news" that GOOGLE is going to layoff 200 people. It was reported that, during the cut away, Dylan Rattigan was fired and did not appear on the show he hosts in the evening called "Fast Money".

And as usual, news of his termination is now being "spun" so that everyone thinks that there are contract issues with Dylan and also sending out stories to discredit him as a professional and a human being.

So let me summarize:
(1) The AIG scandal concerning sending US taxpayer dollars to bailout EU banks was already public information, easy to locate and I was able to publish the details more than a week ago on this blog.

(2) There is nothing wrong with AIG sending money to the EU banks because after all it was a contractual obligation-- no laws broken as far as I can tell.

(3) But it looks bad. And that makes the US Government look bad. At a time when they want to look good. I feel sorry for them because all they have is their image. Because they have no business skills, they are ill-equiped to deal with the problem. Because they have no leadership abilities, they can't allow what must (and eventually will occur) which is a lot of pain for the American people [Deflation, Inflation, Currency Devaluation, Income Confiscation through higer taxes]. So they are taking advice from the very people who caused the problem in the first place.
(4) The "free press" is no longer free. They are being told what can and cannot be reported. And, if you do try to do some investigative reporting and don't clear it with your network executive, you will get fired. And your famiy won't eat. And as soon as we get government run healthcare in place, we will take away your healthcare if you don't do as we say.

I liked Dylan, I hope he goes to Bloomberg or Fox Businesses. I have been drifting from CNBC viewership for some time now... Now I won't watch them at all.

The Bulldog Returns

I've been blogging since 2004. The large gaps in my archive are due to the fact that I needed to take down much of the investment advice I was posting under the so called "Bulldog Report". So, breaking with tradition, I am going to post some stock picks. Before you read on please remember that any information that follows is neither a solicitation to buy or sell securities. The writer of this article may or may not own such securities at the time you are reading this article. And, don't be a complete idiot-- do your own research before you buy financial instruments of any kind.

Whew.... now with out of the way. I am working on 2 strategies both based on China. The reason these strategies exist is posted here.

STRATEGY 1: CHINA RECOVERY

DBB: ETF for aluminum, zinc and copper
FXI: ETF for top 25 Chinese companies
UDN: ETF for shorting the US Dollar.

STRATEGY 2: COMMODITY RECOVERY

USL: ETF for United States 12 month oil
DIG: ETF PROSHares ultra leveraged long term energy
ENY: ETF for Canadian Energy (stay away from US companies unless ultra leveraged)
GLD: ETF for Gold
EGO: Canadian Gold Mining Stock (probably best financial fundamentals of gold miners)
UND: ETF for shorting the US Dollar


Of the two, I like Strategy #2 the best, since OIL crossed its 50DMA this week. OIL should move to $60-65US by end of 2009 because China has locked up reserves in Russia and Venezuela using excess US dollars in the Central Bank of China (afterall they can't keep buying US treasuries with those dollars earned from imbalance of payments). This move, along with the fact that Mexico will be a net importer of oil in 2010, will move all other buyers to the spot market. Also, remember that China has been providing engineering and financial aid to Iran and Iraq as well as selected countries in Africa for mineral rights.

The only downside I see here could come from a decision by the US government to sell Alaska to the Chinese to pay down the US debt or provide temporary jobs to displaced US workers. Other than that, I think this is pretty sound.

US Taxpayers to bailout European Union

"Among European banks, SocGen was the biggest recipient at $11.9 billion, Deutsche got $11.8 billion and Barclays was paid $8.5 billion."

AIG massive payments to banks stoke bailout rage
REUTERS — 2:03 PM ET 03/16/09 By John O'Callaghan and Lilla Zuill



Translation: US Taxpayers just pushed $30B more into AIG to prop it up and AIG sent all of it to Europe. If that wasn't bad enough, US politicians and the US news media are focusing on the $165million in bonuses paid to AIG employees to distract the US Taxpayer from what is really going on.



"The call for "realistic" expectations is in stark contrast to the hopes of a "new global deal" at the G20 summit espoused by Gordon Brown, the Prime Minister, who will host the meeting on 2 April in London...Doubts surfaced over the likelihood of agreement after France and Germany spoke out against the co-ordinated fiscal stimulus that Mr Brown and the US President see as vital."

Darling plays down hope of G20 plan to save world economy
Published Date: 14 March 2009 By Gerri Peev



Translation: As long as the US government is willing to pull the train; the EU is willing to ride. And why not? Why should the EU risk inflation and currency devaluation when the US is so willing to print money and take on debt.

Beware the SECOND DERIVATIVE

When x and y are real variables, the derivative of f at x is the slope of the tangent line to the graph of f' at x. Because the source and target....yada, yada, yada....I got a D in calculus but A's in economics, finance, and psychology.

Which qualifies me to advise you to "Beware the purveyors of the second derivative". These are the people who tell you that they are seeing positive indicators in the economy. What are the measuring? They are measuring the change in the change.

And, you should know that even when the change in the change is positive, it can still be negative.

Class, Dismissed!

Why You Can't Make Money In the US Stock Market

Not Legal

If the caption of the photographer is correct, then in the United States this is illegal. If they are Police SWAT (Special Weapons and Tactics) or the National Guard then it is OK. However, calling out the National Guard for a minor domestic disturbance is at least troubling.



U.S. Army soldiers patrol the streets of Samson, Ala., after a man killed 11 people, including his mother, in a shooting rampage before turning the gun on himself on Tuesday afternoon. Photograph by: Mark Wallheiser, Reuters

http://www.vancouversun.com/news/dead+Alabama+shooting+spree+Police/1375074/story.html

Where is the AIG bailout money going?

I get this question alot and the answer is simple:

(1) AIG is an insurance company.
(2) Of the many things they insure, financial instruments is one of them.
(3) Banks hold financial instruments (like CDOs) and they want to protect their investment a little by buying insurance from AIG which basically means that the Banks will get their money if the CDOs default because AIG has insured them.
(4) The CDOs default.
(5) AIG needs to pay the banks the insurance.
(6) Lot's of defaults occur and AIG runs out of money.
(7) So.... the USG gives/lends AIG money (billions) but it only passes through AIG to the banks in the form of insurance payouts. It is just another way of channeling money to banks.

Once all the insurance policies are paid off there will be no need for AIG to exist as an insurer of financial instruments. AIG will be allowed to declare bankruptcy which means the USG won't get paid back all the billions they (you) lent them.

The Trashing of Mark-to-Market Accounting

OK. I am going to try to make this easy for those not of the "Green EyeShade" persuasion.

The drum beat on the news is that we must suspend the Mark-to-Market rule! MTM is killing our financial institutions! And so on....

What is MTM? Mark-to-market, or fair value, accounting rules require financial companies to value assets based on what they could fetch in a current market transaction. Seems reasonable? Let's see how Mark-to-Market concepts work in the real world....

Our World - Two ordinary people: Let's assume you want to sell me your car. We could look up the market value of this car in a number of sources and that becomes the basis for our negotiation. And maybe I agree to pay a little more or a little less than the appraised value but if it is an honest transaction where no one is hiding anything, generally the deal is made at or near the market value.

The financial world: Banks have all these bad loans on their books. And nobody wants them. What do you think these loans are worth? A lot less than what the banks lent for sure. But the banks say, "if I have to show these loans on my books based on what I could sell them for, then I will be insolvent!" Too many liabilities and too few assets. I am too big to fail!!!!! And if I fail, you are going to be very, very unhappy. In fact, until you take these bad loans off my books or give me some way to say they are worth more than they are, I am not going to lend any money.

And so my dear readers, the drum beat begins. Everyone will start talking about how Mark-to-Market is killing our economy, destroying lives and ruining our society. Anyone who opposes repealing this rule will be swept aside or personally attacked.

But here is the best part.... only financial institutions will be exempt from Mark-to-Market rules. They will get to decide what their assets are worth not the market.

The rest of us, well, we are at the mercy of "bend over" Bernanke and the Central Banks of so many of your countries. Your house, your car, your investments, your business will be worth what the market says it is worth.

Mark my words.... you are marked to the market.....

Great Video on Understanding the Credit Crisis

Jonathan Jarvis did some great work on this video... very educational and easy to understand.


The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.

Coming To A City Near You

Economic conditions are stirring social unrest around the world. Pictures were published between December 2008 and February 2009.

UNITED KINGDOM

RUSSIA

FRANCE

ICELAND

PS: Did you know the Iceland Krona has completely collapsed (see above).

LATVIA

GERMANY

GREECE

CHINA

KOREA