Too Few Too Big To Fail

In the United States, a bank failure is the closing of a bank by a federal or state banking regulatory agency. The Federal Deposit Insurance Corporation (FDIC) seizes a bank's assets when its capital levels are too low, or it cannot meet obligations the next day.

The global financial crisis circa 2008 has caused 176 banks to fail as of this writing.

And now more failures are to come-- due to the new US Financial Regulation legislation recently signed into law with its "Pravda-esque" promise of protecting consumers and regulating wall street.

Interesting point #1: Three large financial institutions- the Federal Reserve Bank (a private bank) and Freddie Mac and Fannie Mae (quasi-government institutions) are all exempted from the legislation.

Interesting point #2: The stated intent of the legislation was to end taxpayer bailouts of financial institutions deemed too large too fail (TBTF). When in fact, what it has done is relieve politicians the nasty task of openly debating the next bailout in front of the public by establishing a taxpayer funded trust fund to bailout TBTF institutions. Get it? They didn't eliminate the bailouts only the public process was eliminated; the bailouts continue in secret with a private slush fund.

Here is what to watch for in the news:

Sooner or later, the US FED and FANNIE and FREDDIE who all have been buying up collapsing mortgages and mortgage backed securities, will now start forcing the banks that originally cast these bad loans to start covering the losses (i.e. buying them back). When this starts here is what happens:

1. Banks begin consuming their "loan loss reserves" and become unprofitable and eventually insolvent. Thank god the FDIC has hired hundreds of new auditors to handle a new wave of bank closures.
2. Banks know this is coming which is why they aren't lending now. They will lend less when the full power of the US government is unleashed upon them.
3. The last banks standing are the TBTF banks operating with a tax payer funded safety net and everyone who wants money will have to go to them. Because they are now government backed they are quasi-government agencies.

This is how to nationalize the banking system of a country without having to be very public about what you are doing.

For Whom Da-Gong Tolls

As is customary after my medical exam, my doctor and I chit chat about the world situation. He asked me, "Do you think we will go to war with China". I answered saying that conflict may already be underway but I doubted that we would ever engage in a "shooting war".

To which he asked, "You mean an economic war?". I said, "No, monetary".

So to my dear Doctor C and all my faithful readers, I submit the following excerpt from the Dow Jones News service reporting on an interview my the Financial Times:

"Guan Jianzhong, head of China's biggest credit rating agency, blames his Western counterparts for the global financial crisis and says China, as the world's leading creditor nation, should have a greater say in how sovereign debt is rated.

Rating agencies such as Moody's Investors Service, Standard & Poor's and Fitch "are politicized and highly ideological and they do not adhere to objective standards," Guan, who is chairman of Dagong Global Credit Rating, said in an interview."

So here we have the Dagong show. And why not, if you were the largest creditor in the world, would you leave the task of credit rating to anyone else? Or better yet, do your own credit rating and don't tell anyone else-- leave the current puppets in place and threaten them with their very existence if they reveal true credit ratings to the anyone else.

First Installment on $20B Shakedown

So, on June 17, I let you folks know how the $20B shakedown of British Petroleum by the US Government was going to unfold. The first installment is for $7B and was announced today at the Apache Corporation website.

Go back and take a quick look at my June 17 posting: here.

Now, after checking out the Apache Corporation website link above notice 3 things:

1. The underwriters for this transaction are all US financial institutions that have been bailed out by the US Government because they are insolvent,
2. The lead is Goldman Sachs former employer of just about everybody who is anybody in the US Treasury or Federal Reserve,
3. Apache Coporation does not have $7B to execute the purchase for the assets they announced they are buying.

This is getting really easy to predict. I hope you are making money. If you are just reading my posts for your entertainment; I at least hope that you are amused.

Sell into the Summer Strength

When you visit here please remember you are getting the news about a year before it happens.

Remember my treatise of April '09 on the coming double bottom? It was hard to see then with the stock market roaring back after its March '09 lows. Even harder to see when we were all getting real "giddy" in December of '09. But here is comes.

This past April, I encouraged everyone to keep an eye on their country's bank statement. After all, it is your money.

Well, based on the June 30th report from the US Treasury, it looks like we might just tip over the country's legal debt limit before the November 2010 elections. Its a close call.

Also, on July 1, 2010, the Congress of the US decided that they are not going to publish a budget for fiscal year 2011 which starts in September 2010. Never before -- since the creation of the Congressional budget process -- has the House failed to pass a budget, failed to propose a budget, then deemed the non-existent budget as passed as a means to avoid a direct, recorded vote on a budget, but still allow Congress to spend taxpayer money.

Should be an interesting 2nd half of 2010:

• A new supreme court justice (life time appointment btw) that was never a judge,
• A war that cannot be won (war on terror),
• A problem that cannot be solved (climate change),
• Growing disregard for the "rule of law" by the government,
• Politicians who cannot lead without spending,
• $955B in stimulus spending that didn't stimulate ($168=Bush;$787=Obama),
• An ecological disaster (Gulf of Mexico oil spill) that will not be re mediated,
• A central bank (the Federal Reserve) which has exhausted all its monetary "tools",
• Banks that won't lend,
• Consumers who won't spend unless the government subsidizes the purchase (home buyer rebates, cash for clunkers programs, etc.),
• shall I go on?

How to establish a $20B victims fund for free

The USG needs to look tough on BP. BP is a responsible company and would be happy to have its liabilities and obligations played out through the US Court System (ala Exxon Valdez). USG says, "payup". BP says "see you in court". Hence the need for a meeting.

Here is a win-win scenario:

• BP hires Goldman Sachs (GS)
• Goldman borrows $20B from the US Federal Reserve @ 0%
• BP sets up a Special Purpose Entity (SPE) and transfers some of its US based real estate from BP US to the SPE
• The SPE uses the real estate as collateral to borrow $20B from GS
• The land doesn't have to be worth $20B because Goldman does not have to comply with "mark to market" accounting so you use "mark to model" accounting because there is the "potential" for mineral rights on this real estate.
• $20B bond is floated.
• But buying a BP bond may be bad PR so...
• GS splits the bond issuance up and rolls it into CDOs (Collateralized Debt Obligations) to blur the source.
• The CDOs are bought by already underwater public pension funds (government workers, teachers unions, etc.) and GS reaps the underwriting fees and commissions
• AIG, a company controlled by the USG due to previous bailouts, is then directed to issue Credit Default Swaps as insurance against the CDOs in the event the BP SPE defaults. Goldman buys all the CDSs at a discount.
• $20B in cash transfers from the BP SPE to the USG for the victims fund.
• Later the BP SPE is determined to be under capitalized (ie. the land really isn't worth $20B) and the SPE defaults on the bond.
• The pension funds that bought the CDOs get a financial haircut causing them to go more deeply underwater increasing the pressure for a USG bailout of public sector pension funds.
• GS cashes in on the CDSs used as insurance so it has the $20B to return to the federal reserve.
• AIG is receiving government bailout money (TARP) so it gets $20B from the USG to cover the loss on the CDSs that it had to make good on to Goldman Sachs.

Bottom line:

• A $20B fund was set up with money printed out of thin air and put in control of the USG to be doled out to "deserving" victims of the oil spill.
• GS is paid for handling the financial transaction with money they never had to put at risk in the first place plus they got some land.
• Public Pension funds go deeper underwater setting up the "next crisis" that government must solve.
• BP had to give up some land.
• US Taxpayer bails out AIG for $20B effectively paying for the "victims fund".
• USG looks like it "got tough" with BP

That's a lot of alphabet soup in this fictitious story. And that is why it will work. There is no way the media could ever explain to the "man on the street" how he ended up paying for BP victims fund because it is too complicated.

Neutering The World

One of the techniques employed by the transnational groups against standing countries is the fostering of the notion of "measured response". This means that a country's military should not overwhelm its rival in any situation but rather only deploy enough resources to make the fight "fair".

I don't really care about your politics as it comes to Isreal or the US or the Middle East or Saudi Arabia or Taiwan or Tibet or anything else.

My point here is that governments that give in to media pressure or NGO pressure concerning "measured response" or "soft power" end up killing their own military personnel. And I think this is wrong.

In the words of TUCO from the classic movie "The Good, The Bad and the Ugly", I offer you this YOUTUBE link....

How The Mainland Europeans Got It Backwards

Bottom Line: A single form of government must come before a single currency. To reverse this sequence is absurd. The British and Swiss knew this from the start.

Facts:
1776 13 colonies declare Independence from Great Britain.
1791 The US Constitution is ratified effectively creating the United States of America.
1913 Passage of the Federal Reserve Act creates the first unifying monetary system in the US.

The EURO was unnecessary:
The creation of the European Union is a good idea. The creation of single currency showed a lack of understanding between the relationship of monetary policy and government policy. When the two are left to go in different directions- default and currency collapse are simply a matter of time. Once citizens of a country learn that they can vote themselves government payments without regard to the source of those funds, they will continue to do so until no money is left.

The rise of Germany:
Germany is accepting obligations of financially weak Euro members and yet is not getting any tangible assets from the counter parties. The German people will not let this go on for much longer. I am not talking about war - after all why destroy Greece militarily? You own most of the darn thing already that would be like bombing your own home.

France- the role of first follower:
An essential ingredient to being a leader is that you have a follower. Due to mutual banking interests (Soc Gen and DB), France will support Germany. Being first follower often takes more courage than being the leader, so give France some credit when it occurs.

Lastly- Ignore the BS that is reported in the media since it is all prepared for "public consumption". France complains they are not being consulted- this gives their government cover. Germany complains about speculators but they know they need the liquidity that speculators provide. Blah, blah, blah....

2X2 Analysis of The Near Crash of May 6th 2010

Five days after the near market crash of May 6th, we still don't have any answers or even plausible lies about what happened even though micro second trades are routinely logged and cleared AND ostensibly erroneous trades during that same time can somehow be miraculously reversed. Yet the data on root cause for an event that almost destroyed our economic system as we know it seems MIA.

Let's have some four quadrant fun.




X AXIS: The event of May 6th was either a coincidence (a confluence of loosely connected but interactive events) or a premeditated act (most likely a demonstration of power).

Y AXIS: The event was either preventable or unforeseeable.

QUADRANT A: If it was premeditated and preventable then we know who and what happened and we should have the facts by now. But we don't, so I don't think it is "A".

QUADRANT B: If it was coincidental and preventable, it must be that regulating agencies are so ignorant of how the markets work that they did nothing to protect the basis of our economic foundation.

QUADRANT C: If it was coincidental but unforeseeable, why didn't regulating agencies have the contingencies in place so that when the markets move beyond certain control limits (for whatever reason) the stop gap measures prevent a meltdown.

QUADRANT D: This was a premeditated demonstration of power over the market that was so sophisticated that it was unforeseeable and perhaps inconceivable upon which case the only possible response is capitulation to the victor.

What is your vote? A B C or D

Do you think a $1T EU Bailout over the weekend (bailout of banks not of countries and their people) was ransom paid?

Why the fascination with gold?

I freely admitted that I trade precious metals derivatives: http://tedbits.blogspot.com/2010/04/from-btq-pdq.html

Now with full disclosure let me tell you that I am NOT a "gold bug" nor do I believe that a country's currency must be backed by gold.

There is a reason why everyone wants nukes and it is not about using them. It is about keeping them in inventory. Don't bet against the dollar because it has the basis of the full faith and credit of the US Government.

And the dollar has very good backing:
Source: The Center for Defense Information (CDI) a member of the World Security Institute. The World Security Institute (WSI) is a non-profit organization committed to independent research and journalism on global affairs.

Stop Insulting Pirates!

I am not one for "political correctness" in speech but if I were a pirate, I would take offense at this report on The Borrowitz Report (note: I shortened it up a bit for posting)

NORFOLK, VIRGINIA (The Borowitz Report) - Eleven indicted Somali pirates dropped a bombshell in a U.S. court today, revealing that their entire piracy operation is a subsidiary of banking giant Goldman Sachs ... The pirate ... elaborated on the nature of the Somalis' work for Goldman, explaining that the pirates forcibly attacked ships that Goldman had already shorted." ... The pirate acknowledged that they merged their operations with Goldman in late 2008 to take advantage of the more relaxed regulations governing bankers as opposed to pirates, "plus to get our share of the bailout money." In the aftermath of the shocking revelations, government prosecutors were scrambling to see if they still had a case against the Somali pirates, who would now be treated as bankers in the eyes of the law." There are lots of laws that could bring these guys down if they were, in fact, pirates," one government source said. "But if they're bankers, our hands are tied."

I wonder if Borowitz is his real name... "borrow wits"?

I might add that if the Pirates do take bailout money that they infact will become government controlled at which time they must be considered Privateers not pirates. My guess is that their salaries will be capped as well. I hope they know what they are getting into.

Goldman Sachs - Old News

The recent actions against GS is about old news. The NYTIMES wrote about it last December:
http://www.nytimes.com/2009/12/24/business/24trading.html?_r=3&pagewanted=1

This is really old new because by the time it gets through the editors of a major newspaper, especially one so linked to the US Government like the NYT, you know that the story has been verified multiple independent times and was probably several months old by the time they printed it.

"Keep moving folks, nothing to see here".

So why did it take so long for the SEC to charge Goldman Sachs? One of two reasons: (1) They are not as good as NYT and most of the blogosphere at getting the facts or (2) The government needs everyone distracted for awhile.

What Goldman Sachs did may have been immoral by someone's standards but it certainly wasn't illegal under US Law. The process of packaging Collateralized Debt Obligations and then laying off the risk with Credit Default Swaps is also very old news.

Listen for the lie.

Notice that the drumbeat in the press is about how many pension funds were hurt because they invested in GS debt based special purpose vehicles that were destined to collapse. Notice how many pensions, mostly government pensions, at all levels of government are underfunded. Notice that GS made a deal with the devil in utilizing taxpayer funds to prop up their profits. Notice that AIG (the provider of Credit Defaul Swaps)to GS was nationalized in a blatantly illegal transaction executed by the New York Federal Reserve (under Timmy G) who later had to become Treasury Secretary in order to keep to truth buried. Recognize that none of these transactions could be accomplished without detection by GS the company or because of near incestous relationships in the fraternity of Goldman Sachs employees who now either work in government, the media or run their own hedge funds.

So to keep the real bad stuff secret, Goldman will take the fall. Like GM shareholders, GS shareholders will get financially hurt. GS will pay the government large sums of money which the government will use to prop up failing pension funds. Since GS got tons of money either directly from the government programs, near 0% interest rate loans from the Fed AND AIG insurance payments that are all funded by the US taxpayer; we have another example of pending redistribution of wealth from the tax payer to just about everyone else aforementioned above.

"Keep moving folks, nothing to see here". "The show is over; move along now".

It’s A Show About Nothing – Tribute to Seinfeld

There is no reason to worry if Greece defaults on its debt. Did you worry when Iceland and Zimbabwe were collapsing recently? Did you know that countries throughout history have defaulted on their debt and nothing bad happened? Did you know that even states of the USA have defaulted on their debt and nothing bad happened?

When General Motors corporation defaulted on its debt to its bond holders recently did anything bad happen? When Lehman Bros collapsed and its obligations defaulted, did anything bad happen?

If you want to know why, watch this Youtube clip from an episode of Seinfeld.



You see my dear readers we are engaged in a show about nothing. Banks around the world create money that they don’t have via fractional reserve banking. And where do they get the fractional amounts upon which to leverage? They get it from their Central Banks who create money out of thin air.

When you default on debt you cause money to disappear that was never there in the first place. It’s a show about nothing. For more proof, what this:

From BTQ PDQ

For those that are acronym challenged, the title means from Billions to Trillions to Quadrillions Pretty Damn Quick.

I must admit that I am part of the problem. I am a derivatives trader. Rather than buy real gold like the guys on TV, I buy and sell GLD. GLD is an Exchange Traded Fund which is nothing more than a proxy for the price of gold slightly discounted for expenses. A derivative is anything that you can speculate on that is a "proxy" for the real thing.

The great thing about derivatives is that you can leverage them up 10X, 100X, 1000X if you wanted to. So I could sell 100X more GLD contracts than I have gold in my vault to cover the contracts. This is allowed because your derivative contract is a financial claim on the gold but it is not a physical claim. In the event everyone tries to lay claim all at once, I simply default. If everyone tries to sell their contracts all at once, the price goes to zero.

In the end, I still have your money and you got nothing.

I was deeply concerned about total, global derivative contracts about this time last year when I published this post. But things have gotten much better as total exposure has dropped from $1.4Quadrillion to just over $1.0Quadrillion.

Remember when a billion was a lot. Remember how easy it became to start saying a trillion?

Math note: A Quadrillion is 1,000 trillions.

Now I present you with a similar table that has been updated since my last post. Please keep in mind that 100% default on all derivatives is very unlikely. However, what if 10% went bad?

How Eileen Became Bob

This is not a transgender discussion. Having said this, I most likely lost 50% of my audience already as they just clicked "next blog".

Recently I wrote that you and I can't make easy money in the market. The video is here.

We are all handicapped with one short leg. I am Eileen. We all are Eileen. None of us can stand straight. The individual investor is a "wobbly" lot.

Central banks of various countries, who can simply print money and either give it to banks or buy market futures, are impacting markets. This forces us to follow a "false herd", our short, twisted and withered leg was cut off. We transformed from Eileen to Peg.

This week I talked to a really smart man about investing. He was a professor, technician but mostly he was a Quant. He didn't like PEG and I asked him, Why? His equations dazzled me into the realization that-- the reason I get 2 stock picks wrong for every 3; is because I am lucky.

Based on the "corrected PEG", I should be 100% wrong all of the time! This, my dear readers, requires some analysis of the broader market because I cannot be that wrong, could I? Or that lucky?

Therefore, I further applied his modifed PEG to about 50 of the more popular stocks based on volume traded. And you know what? They all stink! And if this guy is right, we are going to lose more than a leg. We are going to lose both of our legs and both of our arms.

Do you know what you call the guy with no arms and no legs? His name is Matt. Matt lies at your doorstep. Matt is the guy that everyone steps on and cleans their shoes. Eileen became Peg and Peg became Matt.

But we are not done.

You see after all the money printing, it seems that we must take more money from the people and give it to the governments. But the governments are not keeping the money because they are obligated to the people who are printing the money. So the money is returning to the rightful owners-- the people that printed it in the first place. So the story goes that more taxes are needed. And not just for the rich, but for everyone. Here comes the national sales tax or a VAT.

So let's take Matt, the poor unfortunate door rug with no arms and no legs and toss him into the toilet. For you see, the guy with no arms and legs that is now floating in the water is not called Matt, he is now called Bob [Define Bob: a small float usually made of cork; attached to a fishing line].

So now that we are all bobbing, please.... no one flush!

Thomas Jefferson once said, "The central bank is an institution of the most deadly hostility existing against the Principles and form of our Constitution. I am an Enemy to all banks discounting bills or notes for anything but Coin [coin = gold in the early 19th century]. If the American People allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the People of all their Property until their Children will wake up homeless on the continent their Fathers conquered."

Check your country's bank statement

I live in the USA and always check my country's bank statement. You should check your country's bank statement too, to see how things are going. This is the US statement as of 31MAR2010.



https://www.fms.treas.gov/fmsweb/viewDTSFiles?dir=w&fname=10033100.pdf



If you don't know what the line items mean, you should. After all, it is your money.



One particularly important segment is Table III - C Debt Subject to Limit. Think of it as the self-imposed credit line established by the government. Unlike you and me, when the government reaches its debt limit it simply votes to increase the limit. In the US, this was done on 12FEB2010.


The point -- On average, the USG borrows $152B every month, which means that in roughly 10 months it will once again be bumping up against the debt ceiling.

But then again, it is only debt if you plan to pay it back. Right?

Do you think the Citizens of the PIIGS are checking their country's bank statements?

The Three Little "F"s

I was worried about the markets today. March 31, 2010 marks the end of the US Federal Reserve's buying of mortgage backed securities-- an effort to try to stabilize the US housing market, the banking industry and keep the economy from a double dip recession. Year-to-date, the US Fed has purchased nearly $1.5Trillion in troubled mortgage backed securities.

What happened?

Good ole Fannie Mae and Freddie Mac (Government Sponsored Entities) said they will take the Fed's place and purchase MBS to keep the $5Trillion MBS market stable.

Of course no one asked where Fannie and Freddie were going to get the money to do this. After all, the FED can just print the money it wants to spend. But Fannie and Freddie rely on the US government to use US taxpayer dollars to absorb the losses.

Now maybe you understand why the following news report about certain US Government actions taken on Christmas Eve 2009 occurred:

"On Christmas Eve, Treasury's said it would allow the cap on funding commitment under agreements with the two GSEs to "increase as necessary to accommodate any cumulative reduction in net worth over the next three years." This was announced although neither firm is near the original $200 billion per institution limit established under the agreements. Total funding provided under these agreements through the third quarter has been $51 billion to Freddie Mac and $60 billion to Fannie Mae. Treasury also made the requirements to reduce the GSEs portfolios more flexible.

Treasury said it was removing the caps to "leave no uncertainty about the Treasury's commitment to support these firms as they continue to play a vital role in the housing market during this current crisis."

Hmmmmm...

Pension Confiscation and Haiti

"President Obama has announced that he will push forward with his healthcare plan. Commendably, the president has pledged to avoid adding to the deficit, promising that tax increases and spending cuts will cover the full cost of the overhaul. But one tax increase in the president’s plan spells trouble for the economy. For households with incomes above $200,000 ($250,000 for married couples), the 2.9 percent Medicare payroll tax on labor income would be extended to interest, dividends, capital gains, and profits from passive investments in partnerships and S corporations." (Associated Press 2010.03.09)

Now we could say, Good! Let's soak those rich bastards! But after the cheering and more importantly after it actually occurs, here is then what happens to the rest of us working stiffs.

(1) There is no way to safely get gains greater than 2.9% and still make a profits so conservative investing techniques slow down.

(2) Remember that the 2.9% medicare tax is in addition to any income tax applicable to the gain also, so the return needs to be well above 5% to make any money at all.

(3) To get the higher gains, the risk is too great.

(4) Investment stops by the top 1% of the country-- who do most of the investing anyway.

(5) Financial firms lay off people.

(6) Financial (brokerage) firms pay less taxes because their profits fall.

(7) Investment arms of banks close - more layoffs more decreased taxes.

(8) The value of securities fall overall because the market for securities has been destroyed.

(9) Pension plans that are holding securities find their asset balances falling below solvency levels established by the federal government.

(10) Failing pension plans are forced to turnover their assets to the US Government's Pension Benefit Guaranty Corporation resulting in benefit cuts to the affected people.

(11) The unaffected people with 401K savings find their nest eggs now having been decimated by the same events turn to the government which will require them to turn over to the government all of your savings in return for a government supplied annuity.

(12) Argentina Redux. "come to papa.".

I Feel Uncomfortable About This

I've had the opportunity to travel to many different countries and see what they watch on television. Unfortunately, I only speak english so much is lost in transalation but "pictures do speak a thousand words".

Here is a news clip from IRINN [IRINN stands for Islamic Republic of Iran News Network and is a full news channel, part of Islamic Republic of Iran Broadcasting corporation, headquartered in the Jame Jam Park in Tehran, Iran. The main programs are political, but sports, science and medical news programs also exist. Its language is mainly in Persian but there are special programs in English and Arabic.]

The news feed is courtesy of RIANOVOSTI [A Russian News services that provides much of its content in english]. There is no speaking so you won't need translation.

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.

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**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.