 Nationalization,
Fiasco, USDollar, Gold
Jim Willie
CB
Jim Willie CB is the editor of the "Hat Trick
Letter"
Jul 17, 2008
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coverage of several smallcap companies positioned to rise during
the ongoing panicky attempt to sustain an unsustainable system
burdened by numerous imbalances aggravated by global village
forces. An historically unprecedented mess has been created by
compromised central bankers and inept economic advisors, whose
interference has irreversibly altered and damaged the world financial
system, urgently pushed after the removed anchor of money to
gold. Analysis features Gold, Crude Oil, USDollar, Treasury bonds,
and inter-market dynamics with the US Economy and US Federal
Reserve monetary policy.
A grotesque grandiose nationalization
initiative is gradually being forced upon the USEconomy, US financial
system, US political system, and the hapless US citizenry. Its
crucible for construction comes from the desperate situation
unfolding for the banks, the mortgage holders, and homeowners.
Rising costs, falling incomes, failing banks, declining home
values, eroding mortgage bonds, interfered financial markets,
corruption in Congress, endless war, destructive economic counsel,
an unconstitutional USDollar without gold backing, these factors
all contribute toward a crisis without remedy. The only possible
response will be an implosion with greater state assumption of
losses, responsibility for operations, and extended power.
Systemic failure, credit seizures, profound job loss, severe
supply disruptions, and violence in public places will force
a more urgent solution. The irony is that the agents and mechanisms
that produced systemic failure will next be granted almost total
power as reward for their ineptitude, corruption, and connection
to the power centers. Reaction to systemic failure, orders for
nationalization, and other desperate measures ensure the USDollar
will fall significantly, leading to gold rising toward 1500 and
silver rising toward 40.
WE ARE BEGINNING THE ACUTE
PHASE OF BANK AND BOND BREAKDOWN NOW, WHOSE EPICENTER HAS EXTENDED
FROM WALL STREET BANKS TO FANNIE MAE. THESE GROUPS ARE THE PRIMARY
CENTERS FOR CRIMINAL FRAUD, ALL TO BE BAILED OUT. A broad bank
asset liquidation in several weeks will exacerbate the crisis
and invite immediate action, some of which might be well orchestrated
in a power grab. The solutions will all appeal to the current
devices, which tend to mean greater state controls. The authorities
seem totally lacking any list of alternative methods. With bailouts
come controls. If truth be told, the failure is of economic policies,
the scummy relationships between the USGovt, the US Federal Reserve,
the Dept of Treasury, the regulatory agencies, the Wall Street
bankers, several giant banks, debt rating agencies, certain private
equity firms, and the media news networks. Some wonder why media
networks would be so subservient, not report stories of substance.
Check their advertisers, which pay the bills, and also check
where they obtain much of their international information. The
USGovt supplies data, interviews, video clips, and stories for
reasons of efficiency, safety to correspondents, which tends
to permit a gradual slant that has turned absurd over the years.
Many stories just are not covered at all, like recent foreign
summit conferences among banking groups, in Asia and South America.
Harken back to my first article
in January. It is worth a quick review read. In "Enter
2008: The System Breaks" numerous systemic factors were
listed. Many are infesting our doorsteps, fouling our economic
winds, and dampening national psychology to the point that the
nation had best prepare for change that will rival those ordered
at the tail end of the Great Depression. This economic depression
will be different. It will be called a recession. The losses
incurred will be an order of magnitude larger. Instead of Wall
Street bankers jumping out of windows, they will take top USGovt
agency spots for wresting control. The nation is not ready to
institute national infrastructure programs like the TVA back
in those day. Hurricane Katrina and the Endless War amply demonstrate
that priorities have shifted toward private profiteering and
corruption being the primary priority for national leaders. People
will not stand in bread lines, but rather break into supermarkets
in search of food. Home ownership was not at any lofty figure
back seven decades ago. People now will continue to lose their
homes at the tune of 7000 per day due to foreclosure in the Untied
States, the current tragic pace. The housing market will continue
down, led by endless growth in unsold inventory. The advent will
dawn on the bankers, lawmakers, and key investors that Fannie
Mae is sitting on a treasure trove of income potential, IF ONLY
the acidic agency can rent its foreclosed properties instead
of attempt to sell them on an already depressed bloated market.
The Fannie Rentals will emerge as a business segment.
NATIONALIZATION TREND
The following industries are
on a clear path toward nationalization, in order of likelihood:
- Fannie Mae & Freddie Mac
(mortgage finance)
.
- major banks
.
- airlines
.
- Detroit automobiles
.
- gasoline & diesel refineries
.
- some transportation systems
including trucks, railroads
.
- home rental (limited to Fannie
Mae properties)
.
- steel industry
Already, the Federal Deposit
Insurance Corp (FDIC) will guarantee bank losses on accounts
up to $100k. Another federal agency guarantees bond & brokerage
accounts up to $500k. Already, the Pension Benefit Guarantee
Corp will pledge to provide up to 35% of pension income for anyone
whose corporate pension is lost or reneged upon. In the absence
of any insight, imagination, or independent thought, the nation
will resort to the state to underwrite the losses, and thus to
institute measures toward remedy. Enter Big Brother with a checkbook,
or better described as a credit card, no no a printing press!!!
However, most solutions will simply be patchwork with restoration
of order the main theme. The system will turn to the same broken
apparatuses that killed the system, ensuring degradation and
more need for control. Eventually martial law will fit like a
glove. The result will be an ugly outcome a few years from
now, marred by shortages, and eventually managed shortages, as
in rationing and price controls. This fits perfectly with
the next chapter of the Fascist Business Model. That would be
a broader tighter state control with the collusion of bankers.
The selective enforcement of law will be much worse than simply
limiting short selling against financial stocks.
We have begun to see what
finally has been labeled as 'Financial Triage' among the financial
firms. The authorities
are probably unable to price Fannie Mae bonds, heavily tied in
spread contracts to USTreasurys. The USFed, Dept of Treasury,
and Wall Street control agents have been forced to decide which
firms must be rescued immediately, which are too big or important
to fail, which can be permitted to die without unduly harming
the system, and which cannot be tended to as in benign neglect.
The resemblance is to the soldier battlefield. The theme that
strikes very clearly is that the US Federal Reserve and its agents
will continue to bail out bondholders, but let stockholders wither
and die. Bonds are typically held by the elite, while stocks
are usually held by commoners. The usual arguments are used
when the bankers trot their easels, promotional byline notes,
and weak reasoning before the dimwitted and angry legislators.
They talk of systemic risk, and hordes of innocent being trampled
among the public if action is not taken. The rescue initiatives
are very tilted to aid the wealthy, and to deliver price inflation
to all. However, one must note that the wealthy have never taken
such enormous losses in modern history, as they are today. Their
woes are nowhere ended. Look for Union Bank of Switzerland to
fail in Europe. Look for Royal Bank of Scotland to fail in England.
Look for Commerzbank to fail in Germany. Look for the Canadian
Imperial Bank of Commerce to fail in Canada. Look for numerous
to fail in the US, the epicenter of the big bank bust.
FIRST FACE OF MELTDOWN
I CONTEND THAT FANNIE MAE IS
THE PRIMA FACIE OF THE END OF THE US FINANCIAL EMPIRE. Fannie
Mae, the national US secondary mortgage supplier and vast agent
to assist in controlling interest rates, is failing. Their high
jinks maneuvers a few years ago to buy their own debt securities
constituted self-dealing and self-propelled Ponzi methods, doomed
to disaster. Denials are thin. All talk about not nationalizing
the firm is confirmation of eventual nationalization. All talk
about its equity not being destroyed is confirmation of an eventual
zero stock price for FNM shares. All claims that Fannie Mae remains
structurally sound are about as false as a claim that USGovt
statistics are accurate. All denials of their insolvency serve
as confirmation that they are indeed badly over-burdened by debt
obligations in excess of assets. All claims that their implosion,
meltdown, and failure are unlikely should be heard as clear confirmation
of precisely that risk.
Removal of the short rule on
upticks on the US-based stock exchanges has contributed to this
mess, opening the gates of corruption. Fannie Mae might be
the biggest lynchpin involved in such short practices. It has
$500 billion in short-term rollover debt commitments, around
$10 billion per day. It might be on the verge of illiquidity,
with insolvency masked in the background. The Federal Reserve
Bank of New York has been given authority to aid Fannie &
Freddie directly. Its $2.25 billion credit limit is inadequate
by a factor of one hundred. Fannie & Freddie own over half
the entire US home loan mortgage market. What we are witnessing
is Wall Street in increasingly public demonstrations of desperation
trying to rig the rules to favor themselves, and reduce the risk
of a total death episode, sure to inflict additional tremendous
personal loss for the conmen bank executives. Still they are
not even required to sidestep criminal investigations and court
defense for billion dollar fraud.
The focus of attention inside
the distressed US system has been on US banks and investment
banks for a long time. Fannie Mae has avoided attention, well
hidden within the bowels of the USGovt. The bank deposit runs,
like has begun with Indymac, coincide with the renewed attention
for the Fannie Mae national disaster. They are related. If Fannie
& Freddie go bust, then we could see dozens of banks suffer
sudden death overnight. Nothing in the insanity of the US mortgage
morass epitomizes better the recklessness, risk acceptance, and
criminality than Fannie Mae. It is also the object of intense,
pervasive, systematic, and very deep crime syndicate activity,
some linked to USGovt agencies. In my opinion, few have given
serious consideration that Fannie Mae & Freddie Mac (F&F)
must be bailed out, or else a large cast of ugly dangerous people
will be exposed for two decades and hundreds of billion$ of fraud,
theft, corruption, and crime syndicate activity. More can be
said on this point, perhaps even touching past presidents. F&F
cannot be liquidated with full disclosure and resolution of colossal
criminal fraud.
CHANGING TRENDS
The precious metals mining
stocks have vastly outperformed in the last two months time.
Since June, the HUI has risen much more than the XOI, the energy
stock index. Energy had its big run, and now it is the turn for
gold & silver miners. Much crude oil money will flow into
gold. The green circle highlights the recent rise in mining stocks
over energy stocks.
Since the springtime, a pronounced
negative correlation is vividly clear between the HUI and the
mainstream S&P500 stock index. As the banks and most every
other sector drags down the stock market, during that time the
precious metal mining stocks have benefited. This rare negative
alignment is ridiculously favorable for mining stocks, and very
welcome news. Por fin! (finally!) The mining sector is receiving
positive press, more respect, and some recognition as a viable
hedge from the prevalent deep price inflation witnessed on a
global basis. Wait until the bank runs come in force!
The flight into gold will be profound. The green circle highlights
the recent rise in mining stocks over mainstream S&P500 stocks.
THE KEY TO GOLD
In my view, that key is the
bank system bailouts, including most importantly Fannie Mae.
Since last August, when the bank crisis began, gold launched
into record territory, only to continue soon into higher record
territory. Their USGovt federal guarantee will open the door
to other bailouts and nationalization movements. The most profound
of the upcoming socialist actions will be the assumption of the
Detroit carmakers. This event will be promoted in order to save
jobs, to prevent enormous supply chain damage, even to assist
in some military supply contracts. An argument will be made that
its assumption under the national umbrella will offer stronger
support for the steel industry. One by one, the sectors listed
will see nationalization, pressed by urgent need as the system
continues to break. The seminal event was the bust of subprime
mortgages that led to gigantic bank losses. The bank & bond
contagion, unlike what Bernanke has said, is total, absolute,
and deep. In fact, USFed Chairman Bernanke has not made a single
correct economic or banking forecast, par for the course on a
university Economics Dept chairman. Back to the gold issue. The
nationalization movement, especially its first step with a Fannie
Mae and continued big bank bailout, will heighten the risk for
the USDollar. Get the printing press ready. Everything is
going the wrong way for these conmen control freaks!
My conjecture is that recent
Wall Street stress tests revealed that the most important piece
was Fannie Mae. The FDIC list of troubled banks, which incidentally
did not list Indymac, might have included some investigation
to reveal that 20 to 40 banks might be ready to dump a bunch
of Fannie Mae bonds in order to improve their cash balance sheets.
Perhaps China has been dumping some of their reported $400 billion
in Fannie & Freddie bonds, and JPMorgan is under strain to
buy them all up quietly, before news breaks beyond their hardened
corrupted walls. Regardless, the big risk with bailouts is
the USDollar breakdown. No way in Hades can the USGovt sell
a new mountain of USTreasurys to finance such bailouts. No way
in Shangrila can the USGovt appeal to altruistic multi-billionaires
in the Arab world to foot the bill. The answer is the printing
press finally, which to date has not been used too much. Oil
it up! This has been boasted to be the great American advantage.
Hardly!
Gone is the positive sentiment
that the USFed would indeed follow though on inflation vigilance.
Gone in fact are all the USFed and US banking system options.
Options are gone. The euro stands as the primary beneficiary
of US$ extreme duress. The Euro Central Bank has wrested leadership
from the inept destructive bubble engineers in the Untied States.
The euro managed to give back roughly half of its gain from the
previous breakout above 149 to 159. Next it should make a move
to 164, my target. This is analyzed more fully in the July Hat
Trick Letter. Gold will follow the euro lead, as the gold price,
the silver price, and the euro exchange rate might all march
to new record highs together.
HAS ANYONE NOTICED THAT THE
DOW IS UP, BANK STOCKS ARE UP BIG TODAY (THURSDAY), OIL IS DOWN,
THE 10-YEAR TREASURY IS BEING SOLD OFF SOME, BUT GOLD IS UP $13
WHILE SILVER IS UP 20 CENTS !!! Gold & silver are up despite
the flagship Dow rebound, despite the bank sector rebound, which
is 90% short covering and vaporous.
Gold has distinctly different
markets in the different continents. Gold has broken out
into record territory in Japanese yen terms. This is a very significant
event. The Asian continent is where the big savings are accumulated,
outside the oil trade from the Middle East. Among the North Americans,
Europeans, and Asians, the Japanese gold price is first to register
an all-time high this summer. As Japan exits its seemingly endless
period of price deflation that began back in 1990, times have
changed for its citizens. Prices are rising, and investors have
turned clearly to hedge that inflation. The same Cup & Handle
reversal pattern is clear, evident with the euro currency. It
indicates a price target of 11.50 to pursue. The yen gold price
is negotiating the right side handle, where hesitation, doubt,
change of hands, and debate occur. Its momentum will move gold
higher in Asia. Never under-estimate the power of quiet hidden
Chinese gold buying.
INSTITUTIONAL CRIME & DISHONESTY
My claim has been for four
years that the US financial system in its entirety represents
institutionalized dishonesty, the latest example of a US-style
Fascist Business Model, made easier by control and ownership
of the world reserve currency, unbacked by gold. Anyone who denies
it cannot be observing the developments too numerous to count.
Listen to Bud Farrell (click here or here) at the Financial Sense
Newshour, interviewed by Jim Puplava. Farrell shares his insider
experience on vast pervasive naked shorting of stocks, which
he claims is just the tip of the iceberg. The broadcast is
a follow-up of a Bloomberg research piece several months ago,
and is entitled "The Crime of the Century." Unsound
money invites pervasive corruption from those close to the printing
press, a principle that traces back to Ludwig Von Mises from
his fiat money teachings. My maintained list of crimes of
the century is long, starting with the Greenspan monetary
drug dealer actions to create the failed bank condition (while
taking a second Swiss paycheck), the Clinton-Rubin raid of the
US Treasury gold supply (near zero cost leasing), the ongoing
suppression of key prices (gold & silver in the futures market),
the price capping of long-term USTBond yields (in futures market
and credit derivatives managed by JPMorgan), the continued Enron
accounting in the hidden banking system (see off balance sheet
charade in defiance of BIS & G7), then the export of fraudulent
US-based mortgage bonds worldwide (Wall Street handiwork). Let's
not forget the purchase of FDA approval of certain lethal drugs,
such as is rumored for Nutra-Sweet. Then there is the entire
story of gold heist, bond obliteration, insurance fraud, interruption
of Pentagon fraud investigation, rumored to have motivated certain
events in a big financial center NorthEast city about seven years.
Few seem to realize that a raft of 30-year USTreasury Bonds dated
before autumn 1971 were to come due in late 2001, all redeemable
in gold.
The recent action to prosecute
naked short stock selling is more blatant corruption on its face.
The US regulators are trying to halt short selling of 19 financial
stocks, led by Fannie Mae, Freddie Mac, Lehman, Goldman Sachs,
Citigroup, JPMorgan, Merrill Lynch, and Morgan Stanley. Near
collapse of their stock prices is wrongly blamed largely on short
sellers. Regulators do not care about non-financial stocks right
now, curiously. They seem to deny that banks are insolvent, calling
the diverse troubled bank cases isolated. The villains are
trying to fend off panic in the bank stocks. They want to
stop false rumors, when Goldman Sachs is guilty of similar tactics.
GSax is under investigation for doing exactly that in London
before the Bear Stearns death. Regulators want to extend the
tight requirements on short selling between July 21 and July
29, through the month of August. Removal of the short rule on
upticks has contributed to this mess, opening the gates of corruption.
Fannie Mae might be the biggest lynchpin involved as an object
of stock shorts. It has $500 billion in short-term rollover debt
commitments, around $10 billion per day. The Federal Reserve
Bank of New York has been given authority to aid Fannie &
Freddie directly. Its $2.25 billion credit limit is inadequate.
Fannie & Freddie own half the entire US home loan mortgage
market. What we are witnessing is Wall Street in increasingly
public demonstrations of desperation trying to rig the rules
to favor themselves, and reduce the risk of a total death episode,
and tremendous personal loss for the conmen bank executives.
Their efforts have earned some criticism.
After the stress working through
the entire system becomes even more acute, a big factor will
favor gold & silver. The ability for the Powers to control
USTreasury long-term yields, to control the USDollar, to bring
the crude oil price to heel, to manage the interest rate swaps
and other overgrown credit derivatives, that control will diminish.
They will be forced, just like under the triage tents, to decide
what they must let go. The agents to control prices, rig those
prices, and distort those markets will be under huge strain themselves.
They might be burdened by the mundane task of survival. My
full expectation is that gold & silver will be released from
control, by expedience. It will be too costly and unprofitable
to attempt control anymore. JPMorgan will continue to manage
its 'Garbage Can' free from the nuisance of accounting disclosure.
But they too will become too distracted by the credit derivative
mess that they contributed in building.
THE HAT TRICK LETTER
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(RickS in California)
Jul 17, 2008
Jim Willie CB
 Jim Willie CB is the editor of the "HAT
TRICK LETTER"
email: jimwilliecb@aol.com
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Jackass
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Trick Letter
Jim Willie CB
is a statistical analyst in marketing research and retail forecasting.
He holds a PhD in Statistics. His career has stretched over 26
years. He aspires to thrive in the financial editor world, unencumbered
by the limitations of economic credentials. Visit his website
at www.GoldenJackass.com. For personal questions
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