Buying Greek CDS and Watch Citicorp

Two things... really important... double check my data because I can't tell when I get a really independent, second opinion on the data or if I have a person that is simply repeating what I have already heard. Confirming sources is getting really, really difficult.

1. Legislation is pending in front of the US Congress allowing money market companies to delay withdrawal requests for up to 7 days after a customer request has been entered. In addition, Citibank sent notices to customers that they are not obligated to honor customer's withdrawal requests under certain circumstances. I have seen the legislation mentioned, but I am not a Citi customer so cannot substantiate the latter. However, I firmly believe that controls are being put in place so as not to expose the banking system to the "run of withdrawals" experienced shortly after the Lehman collapse. If you don't know what I am talking about, post a comment to this post and I will re-post the links.
2. If you are a bond fund holder in funds managed by companies similar to G.Sachs and Pimpco (these are only metaphors- since holdings change by the second) don't worry about any Greek Government Credit Default Swaps (CDS) held by similar institutions. The US Federal Reserve (central bank of the U.S.) has reasserted its authority to either buy Foreign Sovereign debt directly in order to provide stability to world financial markets or to buy CDS instruments from US holders. This, of course, is done at the US Taxpayer expense eventually.

So here's the tip to make money. You always need to be on both sides of any deal. For example, US Gasoline prices will be at $3.00+ within the next 6 months. If you want to hedge your increasing gasoline costs as a consumer, then you need to own some oil company investments. That way when prices do rise, and everyone is moaning, you can moan right along with them knowing all the time you are covered.

Same with Bond funds held by too big to fail financial institutions. You need to be in the game on both sides. If you are a US citizen then you are already a taxpayer and you will be bailing out everyone world wide. You must get in on the other side of this hedge. One way to do this (and I do not recommend this) is to buy foreign bond funds sponsored by too big to fail institutions knowing the Fed will bail you out at taxpayer expense when things go bad.

I know what you are thinking...this not a way to make money, this is a way to lose less than the next person. That is right. Capital preservation is about you and I meeting a hungry bear in the woods. I don't need to out run the bear. I only need to outrun you.

This means, if we are all heading towards zero, then my plan is to be the last man there. However, if we are all going higher, the I plan to be the first horse out of the gate.

Thanks to all my readers!

Every year around my birthday, I reset the visitor counter on this site. I would like to take this time to thank my many readers around the world for their frequent visits, comments and emails (click to enlarge).Blogging is my therapy. I feel better after I post. Please know that have tried to make the material interesting, entertaining and intellectually challenging.

In 2010, you can count on Finance, Economics and Government Policy to continue to be the predominate topics. I will try to be as global as possible. Also, I have no interest in blogging about "politics" - there are enough people doing that.

In closing, here is the visitors by country/region sorted by most visits.

One again, thanks to everyone.

United States (US) Europe (EU) Canada (CA) Belgium (BE) Germany (DE) Spain (ES) United Kingdom (GB) Australia (AU) Switzerland (CH) France (FR) Malaysia (MY) Netherlands (NL) Singapore (SG) Hong Kong (HK) Hungary (HU) Sweden (SE) Korea, Republic of (KR) India (IN) New Zealand (NZ) South Africa (ZA) Croatia (HR) Brazil (BR) Romania (RO) Jamaica (JM) Mexico (MX) Japan (JP) Chile (CL) Iraq (IQ) Poland (PL) Russian Federation (RU) Iceland (IS) Costa Rica (CR) Norway (NO) Czech Republic (CZ) Italy (IT) Dominican Republic (DO) Asia/Pacific Region (AP) Thailand (TH) Greece (GR) El Salvador (SV) China (CN)

Some Carry on while others get Carried away

There is a delicate line between "carry on" and "carrion".

The Carry Trade is when financial institutions borrow money from the FED at like .25% and then use that money (not to make loans) but rather buy something else that has a higher yield like US Treasury Bonds. It is a way to make tons of money without risk.

Now you probably think that only the big institutions can do that but you are wrong. The common person can too! But there is a lot more risk involved. In fact, what I am going to tell you I don't recommend. So take this as an exercise in mathmatics not an a discussion about investing.

So here goes and I will use round numbers for convenience.

1. There are 600 or so stocks traded on the New York Stock Exchange that have a dividend yield of 5% or greater.
2. If you can gather up enough resources to open a brokerage account with, let's say round numbers of $100,000; A brokerage will allow you to borrow up to $500,000 or more on margin @ 1.25%.
3. So let's say you buy $500,000 in stock and after a year you will have $25,000 in dividends @ 5%.
4. Now you have to pay the broker back interest, so you owe them $6,235 leaving you with $18,750 in profit pre tax.
5. Now current tax rate on dividends is 15% so you owe Obama $2,812.50 tax on your dividends. You do get a tax credit for your margin interest (assume 25% tax bracket) of roughly $703; so your net tax is $2,110.
6. Subtract the $2,110 from your $18,750 pre-tax profit (step 4) and you get a cool $16,640 in your pocket to spend.
7. Now the tricky part. The brokerage also wants their $500,000 back. If those stocks you bought with the original $500,000 tanked then you are in big financial trouble and this normally results in people jumping out of windows al a 1930.
8. And that is why you never want to do this.
9. Unless of course, you knew the government or the Federal Reserve were going to do their level best to ensure the stock market doesn't crash again.

The banks get away with this because they are not worried about the implications of step 7. The US government will use tax payer money to cover any losses in step 7 that they cannot absorb. That is why many free thinking people firmly believe that Washington is concerned about Wall Street and not Main Street.

This not a US phenomenom. This is being done by central banks all over the world.

Financial institutions all around the world have been taking advantage of the "carry trade" made possible by their country's central bank.

Which means they have all been buying assets to capitalize on the yield differential.

Which means all this buying has been inflating asset prices.

Which means someone at sometime will start selling.

Then they will all start selling.

What will you be doing?

What will your pension plan be doing?

China Currency Revaluation

China may revalue its currency soon. The Yuan does not float like most currencies but is rather "pegged" by the government. A 5% increase vs. the dollar is speculated- this will weaken the dollar. This is at a time when a stronger dollar will be better for the next treasury auction now that the US Government (via the executive branch) just raised the debt ceiling so the US can borrow more money.

However, a 5% increase vs. the dollar, while weakening the USD does make US exports look more attractive. That is if we were actually exporting anything anyone wanted because not much is actually manufactured here anymore. Hence, the conundrum from the state of the union speech calling for doubling US exports in 5 years. I am sure what the president meant was that we would be at 2X the amount of actual exportable products in 5 years allowing for adjustments in things we don't export anymore. This is mathematics similar to jobs created vs. jobs saved. My point being that success is defined as exporting 2X the amount of things we would of have been exporting if no action was taken. Are you following this? Cause that was the easy part.

China pegs its currency to the dollar. Why? Because that enables China to enjoy the same biased currency hedge that the US enjoys with having the dollar act as the world's reserve currency without taking accountability for being the world's reserve currency. Very clever. So why increase your currency and make your own product 5% more expensive. Doesn't that mean people will buy less Chinese goods?

Maybe. Or, maybe it doesn't matter if you buy less Chinese goods. Think about that for a moment.

Or maybe the Chinese are pressuring the EU. With the PIGS in near default (Portugal, Italy, Greece, Spain) the narrowing of the gap between Euro and Dollar is closing. Could a Yuan revaluation put so much pressure on the EU that the USG needs to bail out the EU and with what? More US Debt that is, by the way, purchased by China?

Editor's note: Keep an eye on this point. There is a growing drum beat that the EU's problems stem from Wall Street therefore the US (and therefore the US Taxpayer) is accountable to fixing any monetary problems in Europe. This is the same thing that happened when billions of US Taxpayer money was channeled to AIG only to go to EU Central banks.

Given the notion that China can now purchase US Debt in Yuan rather then dollars, this enables them to purchase 5% more of America without actually putting up any additional costs. Are you getting this? 5% is just the shot over the bow. 10% will come very fast.

Or if this happens and the US needs to float more debt then is planned and doesn't want to sell it to China, maybe the Federal Reserve can increase its purchases of US debt to keep liquidity flowing.

But does that make any sense? I mean the USG authorized the Fed to create money. The money created is given to the banks, who in turn, buy US Government debt. That is puting money from the left pocket to the right pocket and calling it a loan.

I am getting nervous that the conspiracy theorist I talked to in July of 2009 was right-- we may be at war and the matter is not made public. It may be everybody against everybody. But that is what happened monetarily just before the great depression.

=====================================================

**FLASH**: Not to freak anybody out but here is the pop up that I got right after I pushed the "PUBLISH" button on this post. Big brother is out there... no doubt. After all, if it was this easy to send me a targeted advertisement, just guess how good more motivated surveillance is!
http://finance.uncommonwisdomdaily.com/roi/war-on-the-dollar.php?sc=G100&ec=A97650&ga_campaign=uw+content+-+bernanke/obama/rwr+(a97650)&ga_adgroup=dollar-+text&ga_keyword=content&gclid=CKO8wpfH9Z8CFdRM5Qodb2ecfg

Part 2: Pension Confiscation?

The first post on January 8th, 2010 is here: http://tedbits.blogspot.com/2010/01/us-government-pension-confiscation.html

The matter is now officially public.

"The Department of Labor and the Department of the Treasury (the "Agencies") are currently reviewing the rules under the Employee Retirement Income Security Act (ERISA) and the plan qualification rules under the Internal Revenue Code (Code) to determine whether, and, if so, how, the Agencies could or should enhance, by regulation or otherwise, the retirement security of participants in employer-sponsored retirement plans and in individual retirement arrangements (IRAs) by facilitating access to, and use of, lifetime income or other arrangements designed to provide a lifetime stream of income after retirement. The purpose of this request for information is to solicit views, suggestions and comments from plan participants, employers and other plan sponsors, plan service providers, and members of the financial community, as well as the general public, on this important issue. "

Sounds benign. There is almost $4Trillion in privately held funds either in personal IRAs, 401Ks or Employer Sponsored pension funds. There are people who want to take your money and replace it with a promise. How do you feel about that?

If you would like to comment on the government plan you can email your response to:

e-ORI@dol.gov. Include RIN 1210-AB33 in the subject line of the message

If you feel uncomfortable with voicing your opinion you should reflect on why.

You can read the whole US Government Document here: http://www.zerohedge.com/sites/default/files/2010-02028_PI.pdf

Just so you know... you can use holdings you have now to purchase an annuity to ensure an income stream. You don't need government regulation to allow you to do this nor should it require you to do this. Interesting, isn't it?

Imaginary Numbers

In March of 2009, I warned of changes likely to occur in Mark to Market accounting. Well they did. The result? Bonuses at the big financial institutions skyrocketed.

Mark to Market was replaced by Mark to Model which means: build an interesting mathematical equation that calculates that your crappy toxic assets are worth more than the market value and put that concocted value on your books.

WARNING: Don't try this home. It is illegal (fraud) for anyone else to do this but a financial institution.

SECOND WARNING: I need to get a little technical for credibility...

In first quarter 2010, FASB FAS 166/167 regulations were suppose to take affect because there are more crappy, toxic assets out there owned by the banks but they are kept "off balance" sheet. Again, don't try this home.

Simply put, 166/167 says off balance sheet stuff needs to start being put "on balance sheet". No more hiding the junk. But wait! We really didn't fix the old toxic asset problem, we only changed the accounting to make it appear we are adequately capitalized! We can't take on more toxic assets into our balance sheet - DO YOU WANT ANOTHER LEHMAN WEEKEND?

Fortunately, the U S Government, took the following action in December, thus delaying any type of true up. http://www.fdic.gov/news/news/press/2009/pr09230.html

So let me make it "dirt simple":

1. If a bank is under-capitalized it must use its profits to re-capitalize the bank and secure its health. If it does not have to use its profits for re-capitalization, it gives them to the bankers in the form of bonuses.
2. Mark to Model accounting ensures that re-capitalization can be avoided thus leading to higher bonuses.
3. Delay of FASB FAS 166/167 ensures that re-capitalization can be avoided thus leading to higher bonuses.
4. The banks continue to borrow money from the Federal Reserve at 0% interest and invest the money in assets that yield greater than 0% thus ensuring risk less returns, higher profits, and higher bonuses.
5. The bankers then save these bonuses because when all of this unwinds (and it will) the US Government isn't taking any of the blame and the bankers may suddenly find themselves facing legal problems. At which time, the bonuses will signed over to the lawyers who will represent the bankers.

US Government Pension Confiscation

The news almost slipped out today so let's see if this gets legs. If this is real, it must be done in 2010 before the November elections.



Because the US government is now insolvent --> +$70Trillion in debt and growing. Fewer want to lend it money.



The Federal Reserve was propping up the US debt auctions but its owners (remember the Federal Reserve is a privately owned institution) don't want to keep buying US debt either.



The only way to keep the game going (at least for a few more years) is for the government to confiscate every one's pension fund, 401K and IRA replacing it with a guaranteed annuity funded with (you guessed it) treasury bills.



This is probably unconstitutional due to the 4th Amendment's protection from unreasonable search and seizure. However, you will happily give all your savings to the government after they cause the next market crash. That is-- government debt will be the only thing that seems safe.



Of course it won't be because the US government has no intention of paying on this sovereign debt. Which is why no one, including the Fed, wants to buy the debt anymore.



Now, if you didn't save for your retirement or you have one of those government pensions that over promised and underfunded, don't worry. You will get to use the retirement funds of everyone else.

Chinese Buying Mattresses for US Dollars

On 12/30/09 a curious thing happened-- US Treasury T-bills were auctioned at an interest rate payable of 0.0%. And if you don't find that odd, let me tell you that about $5Billion worth of these things were sold! Furthermore, this information was not considered newsworthy enough to be reported in the media.

Don't believe me? Click here: http://www.treasurydirect.gov/instit/annceresult/press/preanre/2009/R_20091230_1.pdf

Why would anyone give the US Government $5B so that they can get the same $5B back at maturity?
(1) US Citizens feeling patriotic and lending Uncle Sam some walking around scratch?
(2) Financial institutions being forced to buy T-Bills whether they want to or not?
(3) Things will be so bad in 2010 that just getting your money back will put you ahead of the game?

This is the equivalent of putting your money in a mattress.

In these times, perhaps it is best to turn to the largest single holder of US dollars and debt-- the Chinese government to see what they are doing.

Here is what I found in the WSJ (12/29/09):

"BY JAMES T. AREDDY
SHANGHAI—A group of financiers is trying to put a U.S. mattress maker now under bankruptcy-court protection into play by encouraging Chinese bidders to top an already arranged offer for Simmons Bedding Co., according to people involved in the effort."


Somehow I feel these two items are connected...

What befalls autumn bees

In the Northeastern United States, bees get very impatient and aggressive in the autumn.

I thought they were angry for having been born just before winter -- with a very short life time left.

However, science tells us that the aggressiveness stems from a growing shortage of quality food with impending onset of cold weather. This personality change makes them more likely to sting and swarm if provoked in the smallest way.

Money is the food of governments. It is the “mother’s milk” of politics. Did you notice that governments are now acting like autumn bees? Everything is a crisis. No time to read the legislation—just pass it! The taking of money and demand for legislative financial favors is at its pinnacle. What can’t be taken from the people will be printed.

As the money supply increases, the quality (value) decreases. Like bees with no honey, governments see the end of money.

But unlike autumn bees, what will bee-fall our hive?

To learn more about bees: http://en.wikipedia.org/wiki/Bee

To lean more about governments: http://en.wikipedia.org/wiki/Atlas_shrugged

Where Have All The Pictures Gone?

Remember my post of March 1, 2009 showing all the media coverage of economic based social unrest? http://tedbits.blogspot.com/2009/03/coming-to-city-near-you.html

Since then there has been nothing. What do you think? Did everyone suddenly get happy? Is there Censorship? Does the press not cover riots and protests anymore?

Something happened to the people of the world during March 2009...

It is not that there aren't things for people to be upset about, they are just not taking to the streets or, if they are, the pictures aren't getting out:

2009.12.06 Radio Liberty: "Workers at Russia's Molot arms plant haven't seen their salaries in nearly six months. Unable to meet payroll, management has resorted to passing out food parcels to its increasingly angry and desperate employees." "This is partially related to the devaluation of the ruble and the accompanying rise in inflation. The buying power of workers has fallen approximately 40 percent. We don't see this situation improving."

2009.12.09 AFP: "GENEVA (AFP) – Unemployment in Switzerland soared to a five-year high ..." "The Swiss government said last week that it would halve from next year its quotas of permits for workers from outside Europe in a bid to curb unemployment."

2009.12.07 Washington, D.C. - infoZine - "The global financial crisis is having a devastating impact on families in emerging Europe and Central Asia, with the risk of the region giving back a fifth of the poverty reduction gains of the past decade, according to a new World Bank report. By 2010, there could be over 10 million more poor people in the region, and close to an additional 25 million more who were almost middle class but now just above the poverty line with the potential of losing their homes, jobs, and basic services."

2009.12.07 New York Times - "BANGALORE, India — In the United States and Europe, people worry that their well-paying, high-skill jobs will be, in a word, “Bangalored” — shipped off to India."

2009.12.08 The Vancouver Sun - "Financial markets tumbled on Tuesday as credit rating agencies slashed Greece and Dubai government-related debt and contemplated the potential debt rating downgrades of the United States and U.K., as both countries struggle to deal with large fiscal imbalances and accumulated debt that have resulted from the global crisis. "Anybody who thinks we are through this credit collapse is delusional," said David Rosenberg, chief economist and strategist at Gluskin Sheff in Toronto. "It is ongoing."

2009.12.09 Bloomberg - "Greece’s socialist government, elected in October, plans to cut the budget deficit to 9.1 percent of GDP next year from 12.7 percent this year. In contrast, Ireland’s Finance Minister Brian Lenihan will announce plans today to cut spending by 6 percent in the face of the worst recession in Ireland’s modern history." “There’s certainly an element of panic and hysteria,” said Peter Dixon, an economist at Commerzbank AG in London. “The ECB will bend over backwards to ensure that one of the countries within its orbit doesn’t default."

2009.11.07 New York Daily News - "President Obama signed a $24 billion economic stimulus bill into law... The law provides another 14 weeks of benefits to all out-of-work people who have exhausted their benefits... in states where the jobless rate is 8.5% or more get an additional six weeks. The extra 20 weeks could push the maximum a person in a high unemployment state could receive to 99 weeks, the most in history."

HERE ARE SOME PICTURES FROM THE FEDERAL RESERVE DECEMBER 2009 MARKET REPORT (Click to enlarge):


No social unrest in the US because the government continues to subsidize unemployed workers. Now you can get benefits for almost a full two years. The unemployed are staying unemployed longer than any time in US history.







Of concern is the fact that even with continued extensions of unemployment benefits, continuing claims are dropping. Since total unemployment has not improved and continuing claims are falling, this can only mean people are falling through the US social safety net.

The Value of Lost Data

As quoted from the UK London Times (November 29, 2009):

"SCIENTISTS at the University of East Anglia (UEA) have admitted throwing away much of the raw temperature data on which their predictions of global warming are based. It means that other academics are not able to check basic calculations said to show a long-term rise in temperature over the past 150 years. The UEA’s Climatic Research Unit (CRU) was forced to reveal the loss following requests for the data under Freedom of Information legislation."

Fortunately, we no longer need the data because everyone accepts that global warming is occuring but the technique here can now be used in Copenhagen.

The plan is for Developed countries to emit less greenhouse gases in the future while Developing countries will be allowed to emit more. The idea being that at some point in the future, all countries will have contributed the same amout of greenhouse gases into the environment and then we will have another meeting.

Since developed countries have contributed the most green house gases and therefore have all the historical data, they will be in charge of keeping score going forward.

If, in the event Developed countries don't like the score going forward, they will simply lose their data and calculate events as they see fit.

After all, it is one of the worlds most greatest diplomats that said, "those that vote decide nothing; those that count the votes decide everything".

Look it up....

How to Transfer Wealth

I just picked a bank at random and retrieved these figures for 12/1/2009:

For savers: 12 month Certificate of Deposit: 1.25 % return
For borrowers: Credit Card Interest Charged: 19.99% ; 30 Year Home Mortgage: 4.875%
20 Year Home Equity Loan: 6.49%

So it would seem banks would be lending lots of money because the rate at which they pay versus the rate at which they charge is really big. They should be making tons of money!
But they are not lending because even though the spread is huge, there is a risk free way for them to make even more money.

STEP (1): The US Federal Reserve bank creates money out of thin air and makes it available to preferred banks at near 0% interest.

STEP (2): Preferred banks borrow money from the Fed at 0%.

STEP (3): The Preferred banks use this money to buy US Treasury certificates that yield more than 0%. Example: 10yr yield is greater than 4%.

STEP (4): US government pays the interest to the preferred banks using Taxpayer dollars.

WHY BANKS DON’T LEND:
So… if you were a bank, why would you ever lend any money to individuals when you can lend it to the US government who will in turn take money from its citizens to pay you back. All this accomplished by using money that doesn’t really exist which you borrowed at 0% interest.

WHY AN ASSET BUBBLE IS FORMING:
Shaving a couple of interest points from the US government can get boring after a while. So, why not take some of that money and start buying domestic and foreign stocks. After all, the money is free and you, plus other banks, will all start buying and pump up the stock market creating a “herd mentality”. Maybe even get your friends at the FED to buy index futures with additionally manufactured dollars to really accelerate the rise in the stock markets.

WHEN WILL FED INTEREST RATES RISE?:
Never. What has been created is a massive “carry trade” at an unprecedented scale that can never be unwound. Besides, in the old days the FED raised rates so banks, in turn, would raise rates to cool down the economy by making credit tighter. Credit is already tight at 0% so there is no need to raise rates because it would have no effect.

WON’T ALL THIS MONEY CREATION CAUSE INFLATION AND REQUIRE THE FED TO RAISE RATES?:

No. We are in a well hidden deflationary spiral. As more and more individuals have less and less money because it is being taken away from them or they are jobless, local prices will fall- eventually resulting in labor rate parity world wide.

When people can’t afford things the price naturally falls. This is why the US housing market is not done falling and won’t stop until median home prices begin to align with median incomes.

Imported goods will become more expensive and therefore appear inflated but that is just currency effect without change in real prices. However, imports will slow because no one can buy them- eventually resulting in global economies becoming regional. That is- local goods, produced locally and consumed locally.

And besides, the FED is not really creating money because the money is not being allowed to fully enter the economy. We are simply point shaving here and the preferred banks only have to pay back the principle (0% interest rate effect) or even if they default- who cares the money didn't really exist in the first place!

My Healthcare Solution For The U.S.

I wrote this back in July and never posted it. Time to weigh in...

(A) There is nothing wrong with health care in the United States. The Healthcare debate is about money.

(B) Today in the U.S., whether you can pay for it or not, everyone gets some form of healthcare.

(C) With US population growth near zero, the healthcare costs of the U.S. will be basically flat plus inflation in the future.

(D) There are three "costs" that occur within the healthcare system that do not contribute to healing and prevention. (1) Fraud, (2) Poor Productivity, (3) Insurance Company Profits. All three of these must be eliminated which further ensures point (C) above will be true.

(E) Fraud and Poor Productivity can be eliminated through the use of Information Technology provided some effort is put into business process re-engineering.

(F) Insurance companies would be required to operate at zero profit plus investment recap for their health insurance units. They can also leverage their back office operations with their other "for profit" insurance units (auto, home, etc.) to gain some economic advantages.

(G) Since Federal and State governments of the U.S. already provide more than 50% of the health care insurance coverage already, a government provided insurance option can be provided for those not wishing to buy private insurance. Government insurance programs for the poor and aged would continue as they do today.

(H) Those who remain uninsured, consume healthcare services and then refuse to pay for those services will be pressed into community service at healthcare institutions until their debt is repaid.

(I) Businesses may provide insurance coverage for their employees and/or self-insure as a means of retaining talent.

(J) Second amendment rights will ensure the government won't ration health care because the American people won't stand for it. The politicians will lose their jobs or worse.


Today my parents are covered by US government provided medicare and they buy additional insurance ("medicare supplement") from a private insurer to cover things that Medicare does not provide. What is wrong with that for all US citizens?

You see, if the arguments could be reduced to the facts and points above, we could make progress. But there are groups at work who are positioning the legislation such that their real agenda can be carried out later. And it is these groups for which the common citizens are most afraid and why protests are mounting:


#1) The anti-population crowd that believes there are too many people already and that death should be hastened for the unproductive and reproduction should be curtailed. Their basis lies in the belief that the planet's biggest problem is people.


#2) The anti-capitalist crowd who believes that anything that provides equal opportunity without equal outcomes must be eliminated.


#3) The anti-freedom crowd who believe that they know what is best for people and plan to use the provision or denial of healthcare to control people.

#4) The usual suspects that create massive legislative works in order to enrich themselves, their friends, or people who helped them get elected in the last election.

Federal Reserve concerned about its own solvency

Took a vacation from blogging for 2 months but the latest FOMC report from the Federal Reserve has gotten me back in action. Pretty short read. The whole text can be found here: http://federalreserve.gov/newsevents/press/monetary/20091104a.htm

Federal Reserve people are like scared ducks in a pond. They look calm on the surface but underneath the water they are paddling furiously. That's why you need to really look at what they are saying in these reports because it all sounds quite benign. It isn't.

"In order to promote a smooth transition in markets, the Committee will gradually slow the pace of its purchases of both agency debt and agency mortgage-backed securities and anticipates that these transactions will be executed by the end of the first quarter of 2010."

Agency debt is one of the reasons the financial collapse started. Agency debt is created by surrogates of the US Government created by the US Government. The US Government has taken no action AT ALL conerning US Sponsored Agencies, their policies, practices nor the legislation that mandates their actions and behavior. Everything that has caused the intial problem has continued, unabated, and even somewhat augmented by stimulus activity.

The Federal Reserve bank is basically saying in their report, "We've been buying your crap to keep you afloat. While we were risking our own solvency, you did nothing. Starting 2Q10, you are on your own".

===> If you are in the US and most of your holdings/cash are US dollars, you probably need to find an entry point to buy more gold. The price of gold is not going up. The value of the dollar is going down which makes it look like gold is expensive. We are just getting started.

Connecting the Dots on Electricity

As a blogger since 2004, this is going to be my most important post. The service I try to provide you, my readers, is taking a series of complex data points and embodying them in a story that makes you think. What I offer is simple: Entertainment and Insight.

Something big is about to happen with electricity and it is going to happen soon.

I have selected 3 videos about electricity from TED.COM. Watch them in sequence and tell me if you connect the dots the way I do.

VIDEO #1:
Concept: Shai Agassi wants to put you behind the wheel of an electric car -- but he doesn't want you to sacrifice convenience (or cash) to do it.
What To Watch For: This not about an "invention". This is about a fundamentally new business model for the consumer of automobiles, the auto industry itself and the companies that provide energy.
http://www.ted.com/talks/lang/eng/shai_agassi_on_electric_cars.html


VIDEO #2:
Concept: Eric Giler has a plan to beam electric power through the air to wirelessly power your laptop or recharge your car. You may never plug in again.
What To Watch For: The live demonstration on stage. It works.
http://www.ted.com/talks/eric_giler_demos_wireless_electricity.html


VIDEO #3:
Concept: John La Grou, a long-time electronics inventor, audio designer and entrepreneur, wants to save lives and energy with a new, smarter type of electrical outlet.
What To Watch For: This is the answer to how we can consume electricity for new things (like cars) without increasing our total consumption of electricity. It works.
http://www.ted.com/talks/lang/eng/john_la_grou_plugs_smart_power_outlets_1.html


THE FUTURE IS "BRIGHT":

The last 200 years of human development has been immeasureably accelerated due to cheap and plentiful sources of energy. Cheap compared to doing the work manually or with donkeys-> 1 Barrell of oil = 5.8 million BTUs = 23,200 hours of human labor (agricultural standard). Because energy is so cheap, we have been able to do almost everything with practically nothing. This transformed modern society.

The good news is that limitless, cheap electrical power will remain with us. According to Ray Kurzweil , "We also see an exponential progression in the use of solar energy," he said. "It is doubling now every two years. Doubling every two years means multiplying by 1,000 in 20 years. At that rate we'll meet 100 percent of our energy needs in 20 years. [with solar power]"

In summary:

1. The new business model for private transportation has been defined and some country somewhere will adopt it.
2. The ability to transmit electricity wirelessly has been proven, it will now be perfected.
3. The rate of progression of solar power is an exponential curve.
4. Legacy forms of energy production are requiring more and more energy to produce energy due to "high grading"
5. Smart outlets are a bridging technology providing safety and extraordinary savings.

My New Corvette

Probably wouldn't spend the money to own a Corvette but you must admit it is a great looking sports car with a colorful history. Because I am a US Citizen and therefore part of owner of General Motors, I will be one of the first in line to take advantage of the latest offer of a free test drive

More details coming on September 14, but here is what we know now (from above hotlink):

Details of GM's new Satisfaction Guarantee:

· Offer covers 2009 and 2010 Model Year Chevys, Buicks, GMCs and Cadillacs (except medium duty trucks)

· Customers (one per household) can return their vehicle between 31 and 60 days with less than 4,000 miles

· Customers will be informed in writing before they buy the vehicle of the terms of the Satisfaction Guarantee

· Customers must take delivery by Nov. 30

· The Satisfaction Guarantee covers the vehicle purchase price and sales tax, but not other add-ons like accessories, negative equity on a trade-in or other fees; other restrictions apply

· Leased vehicles are not included

· More details are available beginning Monday, Sept. 14, online at [Chevy][Buick][Cadillac][GMC].com/guarantee

Simple Truths

Too Big To Fail:
HISTORY: The US Government (USG) coined this phrase to apply to US based, multinational financial institutions whom upon failure, would trigger a systematic collapse of society as we know it. In addition, the USG was also sending a strong message to the rest of the world that America is "too big to fail".
IMPLICATIONS: The rest of the world will bail out the US since they cannot afford the alternative.

Convert Debt to Equity:
HISTORY: Rather than the USG "loan" money to "too big to fail" multinationals, it purchased equity (normally preferred shares) in target companies. When the auto companies went bankrupt, the USG wiped out the debt holders, drove the share price to zero, but converted the value of the company to "new equity shares" which it doled out to its political supporters.
IMPLICATIONS: Therefore "debts" whether they be financial or poltical are paid off in equity. China holds $2 Trillion in US treasuries and federal reserve notes. Since we cannot pay them off and will not risk a default, the USG will give Alaska to China.

Who Gets the "First Mover Advantage":
HISTORY: Demographics in developed countries show that there are more and more older citizens and less and less younger citizens as a percentage.
IMPLICATIONS: There will be less and less younger people wanting to buy my stocks, bonds, real estate and other things therefore my nest egg will shrink due to simple supply and demand. So older people (the majority) will vote in politicians who take from the young to give to the old.
IMPLICATIONS 2: In order for the young people to stop getting squeezed by older people there will be a systematic process by which older people are removed from existence and their assets transferred to those who weren't going to buy them in the first place. This process is referred to as "healthcare reform".

Maxine on Bailouts

*** This post has been removed since the facts are in dispute ***

Thank you to my commentators who have sent disputed evidence. All comments have been removed as well.

Tedbits

Pledge Allegiance To Debt

I pledge allegiance to America's debt, and to the Chinese government that lends us money. And to the interest, for which we pay, compoundable, with higher taxes and lower pay until the day we die.

This is worth a visit: http://defeatthedebt.com/

Watch the TV commerical:

Highlights from the 2009.Q2 FDIC Report

The only thing better than reading reports from The Fed is the quarterly FDIC report:

http://www2.fdic.gov/qbp/2009jun/qbp.pdf

Here is the highlights with pithy comments by me (in red):

INSURED INSTITUTION PERFORMANCE
1) Higher Loss Provisions Lead to a $3.7 Billion Net Loss

"Are you low balling the provisions to remain solvent?"

2) More Than One in Four Institutions Are Unprofitable

"That's 2,048 banks! Yikes...25%"

3) Charge-Offs and Noncurrent Loans Continue to Rise

"Meaning... things are getting worse and you are low balling #1 above."
4) Net Interest Margins Show Modest Improvement

"Duh... You borrow at near 0% and lend at much higher rates"
5) Industry Assets Decline by $238 Billion

"People are taking their money out of the banks"

Now for some scary graphs.

The FDIC can only cover 60% of the failing loans. So they are hoping that 100% don't fail? Which means they are in no position to insure your bank deposits in total if there was a "run on the banks". That's a pretty good indication that the 8,195 insured financial institutions in the United States are approaching insolvency and their primary insurer, the FDIC, is technically bankrupt.

Problem institutions were increasing >20% per quarter for 2 years! If this continues, by 2010 more than half of all insured US financial institutions will be listed as "problem". If this isn't the tipping point for the whole US financial system then simply wait till 2011 when we reach 100% problem institutions.

US Children Fund GM-CHINA Deal

"SHANGHAI (Reuters) - General Motors said on Sunday it has agreed to set up a light commercial vehicle production venture with major Chinese automaker FAW Group, with total investment of 2 billion yuan ($293 million)."

A bankrupt company taking money from the US government; money which the US government acquires by selling US debt to the Chinese whereby the future generations of the Americans are left to pay the interest.

Debt is future consumption pulled forward to the present. The result is less consumption in the future or default because--- nothing is growing faster than debt.

Chatter

I may have been a year too soon but the chatter is building again. Beware. Prepare.
If this is wrong what is the worst that can happen? You squirrel away 3 months of living expenses in your floorboards that could have been in a financial investment earning 0.05%.

People don't prepare because they are afraid of looking foolish.

http://tedbits.blogspot.com/2008/10/bank-holidays.html

Greenback Emissions

I heard someone say we are too worried about greenhouse emissions and better start worrying about greenback emissions! Jeez, I wish I could think of clever lines like this.

Anyway, his comment reminded me that I haven't written about something that I think is very important.

The Federal Reserve and the US Treasury have been placing well timed trades in the S&P Futures markets since early March. Some of this you can see on the balance sheet of the Fed. Some you can't because it is being held off-balance sheet.

Such futures action makes it look like the stock market is going to go up. This results is really smart people front running this trend and less smart people putting money in the market driven by herd mentality.

At some point this will stop. Further, at some point those positions may have to be unwound.

What do you think will happen then?

Now that you read this 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.

Sold Out

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.

Since some of you may have been following along from the market report I gave on March 20 (http://tedbits.blogspot.com/2009/03/bulldog-returns.html), I wanted to let you know that as of today, I am completely sold out of the above holdings and related equities. Signals were clear as of the first week of August that the market was weakening and I systematically tightened up my "stops". Over the past few weeks I have been taking money off the table and as of today, I am completely out. It was a great run.

I still believe in the China Recovery/Commodity Strategy but will not buy back in until I see a good 10%-15% retrenchment from current levels. My short position on the US Dollar is now closed and I am neutral on the dollar at this point. I like gold at $880/oz.

Other things I am watching:

Blackstone (BX) after it goes ex-dividend. Would love to see this at $10/share and probably start nibbling at $12.

China Battery (CBAK) at about $2.50/share.

And of course GLD, UDN, DBB, DBC, DBO after proper retracement.

For a speculative trade consider Image Sensing Systems, inc. (ISNS). Be very careful though because this stock is thinly traded. I am hoping for some institutional investors to move in on this one and send it to the stratosphere. I continue to have a minor position in ISNS.

It is possible that we will form a double bottom (http://tedbits.blogspot.com/2009/04/decoupling-double-bottom.html) because uncertainty is reoccurring in the financial markets as commercial real estate loans are defaulting.

Lastly, I must say I am getting more and more confused about inflation vs. deflation. I really believe we are heading for inflation if you've followed previous posts. However, I have read some compelling cases for deflation from reputable sources. The most clever point I read was a prediction for inflation in necessities and deflation in discretionary purchases. Ever since I read this it convinced me that this is probably our future.

Oxygen

If you are a regular vistor, I hope you noticed that often times you can read about something here in my blogs about 3 to 6 months before it becomes news. I am not a psychic. Trends and patterns are obvious and how this world works is quite predictable.

Here is the next topic to watch for: Oxygen

You see, global warming is getting old. And after 11 years of cooling temperatures the polls are showing "it isn't selling" anymore.

The same thing happended in the 1970's and 1980's when the big thing was the "next ice age" that was soon coming. During these decades temperatures were actually warming.

Whether warming or cooling, it seems we just can't get the world to buy into the catastrophe of dramatic climate change. We can't generate enough fear.

Now there is something brewing that will really scare people. The world is running out of oxygen. You haven't heard much about so far because we haven't figured out a way to blame human behavior. But as soon as we do, watch out.

If you are still part of the greenhouse gas crowd... remember most of the green house gases in the atmosphere are NOT man made. Here is a link to a prior posting