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The European Bailout

October 13th, 2008 by admin | 0 Comments | Filed in Daily News, Global Credit Crisis, Money Management, Recession

“European leaders meeting in Paris have agreed a plan to tackle the banking crisis, saying no big institution will be allowed to fail” 
 
Welcome to the European version of Peter Schiffs and Jim Rogers US nightmare scenario. 
 
They have to let them fail…there is no other way to avoid a hyper inflationary nightmare…but if politicians stand by and do nothing, as they SHOULD do…they will be kicked out of office. There would be uproar. They are interested primarily in self preservation, even if it blows the economy to smithereens in the process.  
 
Ask yourself honestly, if Gordon Brown sits by and do nothing and lets this process unfold…you would be screaming for his head…right? He KNOWS this…… 
 
Some quick thoughts on the European Bank Bailout. 
 
Lets put European banks market cap at $1tr, and that’s being incredibly generous  
 
Governments inject liquidity of 10% of this in preference shares or $100bn 
 
They guarantee interbank lending…that really doesn’t help because…. 
 
The CDS market is worth $60tr…a big chunk of that is held in Europe and no one knows who is holding the bag. 
 
The banks may lend to each other but they know that Lehman alone cost $400bn in CDS liabilities…so the loans will fly around and around in interbank lending…but for every loan dollar lent outside the banking system, it’s a dollar that they might need if more CDS liabilities spring up, which they will.  
 
It doesn’t help ordinary lending…mortgages, corporate lending…this isn’t covered from what I’ve read. The pressure will remain on households and most firms. Property prices in Europe will continue their decline. Default and repossession rates will continue to rise. We haven’t even gotten to credit card lenders or insurance companies yet…never mind “KEY Local Employer LTD.” 
 
The banks will hoard these interbank loans, if they are smart. Sure, they’re guaranteed against default WITH EACH OTHER, but are the government guaranteeing that they will stump up if Barclays for example has to find $300bn in CDS liabilities? No…not explicitly. The banks are operating now with one goal….to keep their businesses solvent. Their number one priority right now is self preservation…not some imagined altruistic mission for the greater good…they’re banks! 
 
The governments could go as far as to guarantee the CDS liabilities…but even they can’t afford to do that. Ultimately, by stating that they won’t allow any banks to fail…this is EXACTLY what they are signing up for. This is exactly what they will have to do to STOP any bank from failing. 
 
Politicians can say “we tried our best”. By being seen to be trying hard to help, this is their ONLY chance of re-election. It gives them a much better chance of re-election that sitting by and watching this play out naturally.  
 
The only course of action they can take to save the economy is to do nothing…to just stand by and watch it all unfold…but that too gets them kicked out of office by a population that can’t believe that “big daddy” can’t kiss it and make it better this time like he has done before. 
 
Taking away penalties for recklessness and failure (more accurately, moving them onto tax payers, people on fixed incomes and savers) is the problem…not the solution. 
 
The bank rescue package is a few hundred billion into a possible $60tr CDS hole (it will never be a 100% claim rate…but you get the idea). …the fractional reserve nature of the banking system will multiply this new capital by 10, so it’s a few trillion into a potential $60tr hole. 
 
This type of interference will continue until all the affected currencies are substantially inflated…and that my friend is the real problem that is waiting in the wings. That the real scary part. 
 
I’ve got a real comfy chair and am just sitting back and watching the fireworks…it’s not every day you get to watch someone try to put out a house fire with gasoline.

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The people who saw the crash coming

October 13th, 2008 by admin | 0 Comments | Filed in Daily News, Global Credit Crisis

Here’s are some economists/money managers who saw this crash coming and predicted the interference of the central banks in the market and the result of those interferences. They go as far as to say that the cure could kill the patient

  • Marc Faber
  • Jim Rogers
  • Peter Schiff

 
Here’s what Peter Schiff said last year on CNBC and he was laughed at 
 
Here’s Marc Faber’s book which everyone should read IMO 
 
here’s what Jim Rogers says will happen now 
 
Here’s what they say is going to happen as central banks intervene where they shouldn’t

  • The printing presses will be put into overdrive
  • Hyper inflation resulting in the loss and maybe even the confiscation of domestic savings and wealth, especially gold is a distinct possibility
  • Mass unemployment and a deep depression as a short sharp shock is turned into a deep long shock by central bankers
  • Asia will rise to be the new global economic leader
  • The US dollar will be massively devalued and America will lose its economic place in the world

 
Here’s what they said should happen to allow the situation to resolve itself

  • take the bitter medicine and don’t try to avoid the necessary corrective pain – let the markets work it out and stop meddling in the price discovery mechanism
  • Let the weak go to the wall and the strong pick up the pieces
  • End the culture of borrowing to consume and replace it with a culture of saving to produce (which made America loved, hardworking and very wealthy).

 
So these guys predicted the event and the central banks reaction to it and they were right.  
 
Apparently, Bernanke and Paulson aren’t able to predict a sunrise but Americans listen to them, (even if the market knows they are clowns…or worse).  
 
They’ve been right along and Bernanke/Paulson have been wrong all along. 
 
Someone please tell me what has happened to make Bernanke/Paulson right this time and why Faber/Schiff/Rogers are wrong.

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What the hell is going on?

October 13th, 2008 by admin | 0 Comments | Filed in Daily News, Global Credit Crisis

The current situation is basically global deleveraging….credit destruction. No intervention can stop it…intervention will just make the market mechanism of price discovery more prolonged and painful. Politically, leaders can’t be seen to sit there and do nothing…but there is nothing they can do to stop this. People have been predicting this for a long time. The same people have told us what the politicians and central banks would and what would happen when they did it. So far…everything has been spot on. The politicians and central bankers are behaving EXACTLY as Marc Faber said they would in his 2001 book “Tomorrows Gold…Asia’s age of Discovery”. Go and read it….you’d think he wrote it yesterday. Others like Peter Schiff, George Soros, Jim Rogers and Ron Paul have told us exactly the same thing…and been laughed at…there is really only one way for all this to work itself out…and it isn’t pretty. 

The state buying banks in the UK is not capitalism. More accurately, it’s called a corporatocracy. There is another, better known name for a corporatocracy….but it’s too emotionally loaded. Political leaders now have their hands on the basic levers of industry…the retail financial system…all nice and legal. George Soros has openly been fighting this move….which he saw coming a long time ago and which he recognised from his youth in Hungary, through his open society foundation.  Peter Schiff has been making a killing investing for this day. They have been laughing at him for years on CNBC. They aren’t laughing now. Ron Paul is fighting the move to a corporate state from congress with little effect. Jim Rogers, the billionaire co-founder of the Quantum fund, moved his young family to Asia so that he could enjoy greater civil liberties and economic freedom when all this is over. He has likened his move to a move to London in 1807 or a move to America in 1907. Its Asia’s turn for a century of economic domination, he thinks. Where does that leave us?

Basically, we will have to start making things again…and we will be competing directly with Asians for investment, wages and jobs. Out debt fuelled service economy is dead. It’s now time to get back to work.

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Jim Rogers calls Ben Bernanke a clown live on TV

October 11th, 2008 by admin | 0 Comments | Filed in Daily News

I love Jim Rogers. You always know you’re going to get it straight from the hip with him. He barely manages to hide his contempt for the cheering squad on the financial news networks. He comes on TV, obviously finishing the last of his lunch in a rushed manner, still chewing with some, no doubt, fine and expensive red wine staining his pursed lips, which are parted occasionally by the odd burp.

He launches into the ineptitude of the Fed chairman…and with good reason. Let’s look at Bernanke’s record. His analysis about the US economy during his time line at the Fed has been roughly like this…”It’s fine, It’s fine’s, It’s fine, It’s fine’s, It’s fine, It’s fine’s, It’s fine, It’s fine’s, It’s fine, It’s fine’s, It’s fine, It’s fine’s, It’s fine, It’s fine’s, It’s fine, It’s fine’s, It’s fine, It’s fine’s, It’s fine, It’s fine’s, It’s fine, It’s fine’s….Oh My God…give me $700bn or there will be systemic collapse! This is the worst crisis we’ve ever seen”

Now, either this guy is a complete moron, or he’s lying. Either way…he has to go.

Of course, Jim knows it’s not fine. All the time Mr Bernanke has been saying that everything is fine, Mr Rogers has been telling him that A) He should go on an undergraduate Economics course, and B) It’s not fine and C) You are a clown. How can you not love him?

He made a rather pertinent point to the anchor of CNBC. He asked the anchor man “If you had a pundit that came onto the program each week for the last year and got it wrong every single time, would you have that pundit on again?” Probably not.” Would you give this man your money to manage for you?” Probably not. Yet here he is…bold as brass Bernanke…managing the reserve currency for the entire globe! What is wrong with this picture? Why has this lame duck not been sacked? Answers on a post card please!

Jim (can a lowly mortal like me call him Jim…maybe I should refer to him as Mr Rogers?)  went on to recommend gold, the Swiss franc, agricultural commodities and to say that he’s covered many of his short positions. He said that the bottom would come when everyone gives up looking for it…and it doesn’t look like that’s happened…not yet.

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