Right Wing Wacko Newsletter
This
morning it is my pleasure to feature a guest article from a careful
observer of the American economy. Reposted from the May 3rd edition of Counterpunch. --TRW
May 05, 2007 The Harder They Come ... A Stock Market Post-mortem
"There's class warfare,
all right, but it's my class that's winning."
--Investment tycoon, Warren
Buffett Mike Whitney
The real estate market is crashing faster than anyone had anticipated.
Housing prices have fallen in 17 of 20 of the nation's largest cities
and the trend lines indicate that the worst is yet to come. March sales
of new homes plummeted by a record 23.5% (year over year) removing all
hope for a quick rebound. Problems in the subprime and Alt-A loans are
mushrooming in previously "hot markets" resulting in an unprecedented
number of foreclosures. The defaults have slowed demand for new homes
and increased the glut of houses already on the market. This is putting
additional downward pressure on prices and profits. More and more
builders are struggling just to keep their heads above water. This
isn't your typical 1980s-type "correction"; it's a full-blown real
estate cyclone smashing everything in its path.
Tremors from the real estate earthquake won't be limited to
housing--they will rumble through all areas of the economy including
the stock market, financial sector and currency trading. There is
simply no way to minimize the effects of a bursting $4.5 trillion
equity bubble.
The next shoe to drop will be the stock market which is still
flying-high from increases in the money supply. The Federal Reserve has
printed up enough fiat-cash to keep overpriced equities jumping for joy
for a few months longer. But it won't last. Wall Street's credit bubble
is even bigger than the housing bubble---a monstrous, lumbering
dirigible that's headed for a crash-landing. The Dow is like a drunk
atop a 13,000 ft cliff; inebriated on the Fed's cheap "low-interest"
liquor. One wrong step and he'll plunge headlong into the ether.
The stock market cheerleaders are ooooing and ahhing the Dow's climb to
13,000, but it's all a sham. Wall Street is just enjoying the last
wisps of Greenspan's low interest helium swirling into the largest
credit bubble in history. But there are big changes on the way. In
fact, the storm clouds have already formed over the housing market. The
subprime albatross has lashed itself to everything in the economy
---dragging down consumer confidence, GDP and (eventually) the stock
market, too. The real damage is just beginning to materialize.
So why the stock market keep hitting new highs?
Is it because foreign investors believe that American equities will
continue to do well even though the housing market is slumping and GDP
has shriveled to the size of a California raison? Or is it because
stockholders haven't noticed that the greenback getting clobbered every
day in the currency markets? Or, maybe, investors are just expressing
their confidence in the way the U.S. is managing the global economic
system?
Is that it---they admire the wisdom of borrowing $2.5 billion per day
from foreign lenders just to keep the ship of state from taking on
water?
No, that's not it. The reason the stock market is flying-high is
because the Federal Reserve has been ginning up the money supply to
avoid a Chernobyl-type meltdown. All that new funny-money has to go
somewhere, so a lot of it winds up in the stock market. Evergreen
Bank's Chuck Butler explains the process in Thursday's Daily Pfennig:
"The Fed may have quit publishing the M3 data, but they continue to
publish all the data that goes into the calculation and our friends
over at Shadow Government Statistics have a chart which demonstrates
why the Fed decided to keep M3 under wraps. A look at the chart shows
the Fed is pumping up broad money supply at an astounding rate of 11.8%
per year! All of this rapid money supply growth is reflected in an
increase in equity prices. The stock market needs to rise just to keep
pace with all of this newly-created money. As long as the Fed doesn't
rock the boat with another rate hike or by turning off the spigot of
money flowing into the markets, the equity markets will continue to
run."
Ah-ha! So the Fed gooses the money supply, stocks shoot up, and everyone's happy---right?
Wrong. Growth in the money supply should (closely) parallel growth in
the overall economy. So if GDP is shrinking (which it is) and the money
supply is increasing then--Viola!--inflation. ("11.8%" to be precise)
Of course inflation doesn't affect the investor class or their
fellow-scoundrels at the Fed---the more money floating around the
markets the better for them. It's just the opposite for the pensioner
on a fixed income or the salaried wage-slave who gets a 15-cent pay
raise every millennia. They end up getting ripped off with every
newly-minted greenback.
But then that's the plan---to shift zillions from one class to another
through massive equity bubbles. All it takes is artificially-low
interest rates and a can of WD-40 to keep the printing presses rolling.
It's so simple we won't dignify it by calling it a "conspiracy". It's
just a swindle, pure and simple. But it never fails.
Every time the Fed prints up another batch of crisp $100 bills; they're
confiscating the hard-earned savings of working class people and
retirees. And, since the dollar has dropped roughly 40% since Bush took
office in 2000; the government has absconded with 40% our life savings.
That's the truth about inflation; it is taxation without
representation, but you won't find that in the government's statistics.
In fact, the Consumer Price Index (CPI) deliberately factors out food
and energy so the working guy can't see how the Fed is robbing him
blind. The only way he can gauge his losses is by going to the grocery
store or gas station. That's when he can see for himself that the money
he works so hard to earn is steadily losing its purchasing power.
The big question now is how long will it take before foreign creditors
wise up and see the maxed-out American consumer is running out of
steam. As soon consumer spending slows in the US; foreign investment
will dry up and stocks will tumble. China and Japan have already slowed
or stopped their purchases of US Treasuries and China has stated that
they plan to diversify their $1 trillion in US dollars in the future.
This has lowered demand for the dollar and decreased its value in
relation to other currencies. (The dollar hit a new low just last week
at $1.36 vs. the euro)
A slowdown in consumer spending is the death-knell for the dollar.
That's when there'll be a stampede for the exits like we've never seen
before--with each of the world's central banks tossing their worthless
greenbacks into the jet-stream like New Years' confetti. According to
Monday's Washington Post that moment may have already arrived. As the
Post's Martin Crutsinger says, "Consumer spending rose at the slowest
rate in five months in March while construction activity managed only a
tiny gain, weighed down by further weakness in housing".
The connection between housing and consumer spending is critical.
Housing has been the main engine for growth in the US in the last 5
years accounting for 2 out of every 5 new jobs and hundreds of billions
in additional spending through home-equity extractions. A downturn in
consumer spending means that foreign investors will have to look for
more promising markets abroad, which will trigger a steep reduction in
the amount of cheap credit coming into the country via the $800 billion
trade deficit. This will slow growth in the US while further weakening
the dollar.
Can you say stagflation?
The present currency and economic crises were brought on by Bush's
unfunded tax cuts, unsustainable trade deficits, and the Fed's
hyperinflationary monetary policy. These policies were executed
simultaneously for maximum effect. They were entirely premeditated.
Many people now believe that the Bush administration and the Federal
Reserve are intentionally creating an "Argentina-type meltdown" so they
can privatize state owned assets and usher in the North American
Union--the future "one state" alliance of Canada, Mexico and US--along
with the new regional currency, the Amero.
Stay tuned.
Nevertheless, monetary policy is not the only reason the stock market
is headed for a fall. There's also the jumble of scams and swindles
which have been legalized under the rubric of "deregulation". New rules
allow Wall Street to take personal liabilities and corporate debt and
repackage them as precious gemstones for public auction. It's the
biggest racket ever.
Consider the average hedge fund for example. The fund may have
originated with $10 billion of its own cash and swelled to $50 billion
through (easily acquired) credit. The fund manager then creates an
investment portfolio that features CDOs (collateralized debt
obligations) and Mortgage Backed Securities (MBS) to the tune of $160
billion. The majority of these "assets" are nothing more than shaky
subprime loans from struggling homeowners who have no chance of meeting
their payments. In other words, another man's debt is magically
transformed into a Wall Street staple. (Imagine if you, dear reader,
could sell your $35,000 credit card debt to your drunken brother-in-law
as if it was a bar of gold or a vintage Ferrari. That, believe it or
not, is the scam on which bond traders thrive)
So, the fund is leveraged, the assets are leveraged and (guess what)
the investors are leveraged too---either buying on margin or borrowing
oodles of cheap, low interest credit from Japan to maximize their
profit potential.
Get the picture; debt x debt x debt = maximum profit and skyrocketing
stock prices. That's why the face value of the market's equities far
exceeds the world's aggregate GDP. It's all one, big debt-Zeppelin and
it's rapidly tumbling towards planet earth.
KABOOM!
Deregulation works like a charm for the gangsters who run the system.
After all, why would they want rules? They're not thinking about
capital investment, productivity or infrastructure. They're not
building an economy that serves the basic needs of society. They're
looking for the next big mega-merger where two monolithic, maxed-out
corporations join in conjugal bliss and create a mountain of new
credit. That's where the real money is.
Wall Street generates boatloads of cyber-cash with every merger. This
pushes stock prices up, up and away. Deregulation has turned Wall
Street into the biggest credit-generating Cash-Cow of all
time--spawning zillions through seemingly limitless debt-expansion.
These virtual dollars were never authorized by the Federal Reserve or
the US Treasury--they emerge from the black whole of over-leveraged
uber-transactions and the magical world of derivatives trading. They
are a vital part of Wall Street's house of mirrors where every dollar
is increased by a factor of 50 to 1 as soon as it enters the system.
Assets are inflated, debt is converted to wealth, and fiscal reality is
vaporized into the toxic gas of human greed.
Doug Noland at Prudent Bear.com explains it like this: "We've entered a
euphoric phase of financial arbitrage capitalism with extreme Ponzi
overtones, a pyramid scheme of revolving credit rackets and percentage
spread plays completely abstracted from any reality of fruitful
activity. The reason we don't even call "money" by its former name
anymore is precisely because we realize at some semi-conscious level
that "liquidity" is not really money. Liquidity is a flow of
hallucinated surplus wealth. As long as it flows in one direction, into
financial markets, valve-keepers along the pipeline, like Goldman
Sachs, Citibank, or the hedge funds, can siphon off billions of buckets
of liquidity. The trouble will come when the flow stops -- or reverses!
That will be the point where we will rediscover that liquidity really
is different from money, and if we are really unlucky we'll discover
that our money (the US dollar) is actually different from real wealth".
Noland is right. The market is "a pyramid scheme of revolving credit
rackets and percentage spread plays" and no one really knows what to
expect the flow of liquidity slows down or "reverses".
Will the stock market crash?
It depends on the aftereffects of the subprime meltdown. The defaults
on existing mortgages are only part of the problem. The real issue is
how the "credit dependent" stock market will respond to the tightening
of lending standards. As liquidity dries up in the real estate market;
all areas of the economy will suffer. (We've already seen a downturn in
consumer spending) Wall Street is addicted to cheap credit and it has
invented myriad abstruse debt-instruments to get its fix. But what
happens when investment simply withers away?
According to WorldNetDaily.com Jerome Corsi that question was partially
answered in a letter from the Carlyle Group's managing director William
Conway Jr. Conway confirms that the rise in the stock market is related
to "the availability of enormous amounts of cheap debt". He adds that:
"This cheap debt has been available for
almost all maturities, most industries, infrastructure, real estate and
at all levels of the capital structure." (But) "This liquidity
environment cannot go on forever. The longer it lasts, the worse it
will be when it ends.Of course when ends, the buying opportunity will
be once in a lifetime."
Ah, yes, another wonderful "buying opportunity"?
You can almost feel the breeze from the great birds flapping overhead
as they focus their gaze on the carrion below. Once the stock market
collapses and the greenback flattens out on the desert floor; they'll
be plenty of smiley faces preparing for the feast.
Conway is right, though, the stock market IS floating on a cloud of
cheap credit created by a humongous trade deficit, artificially low
interest rates, and a 10% yearly expansion of the money supply. Like he
says, "It cannot go on forever." And, we don't expect that it will.
April 22, 2007
What? No Worry?
The sub prime problem is over. The government has figured out a
way to make the problem go away. One major mortgage lender has
received an offer of 96.5% of their loan portfolio. Hmmm!
Wonder who would make that offer. Who in their right mind would
buy these mortgages when over 10% of them are not good loans, and that
percentage will probably go up. Thankfully we have the government
and the fed to keep us from going under. The news organizations
are helping too. The news cycle is now over for that problem, and
they are off to more important issues. There is even
advertisements for “cheap” loans being offered.
Have you visited The Mortgage Lender Implode-O-Meter
website lately? You might be surprised. The number of
mortgage lenders that have met their demise is now 62 and rising.
Mortgages are getting harder to obtain. Home sales are going
down. House pricing will soon follow the escalator down.
What would you do if your house was suddenly worth much less that what
you owed on it? Give it back to the loan company that gave you
the loan? The real issue is that this is not a short term problem.
The stock market is going up. This helps to increase the value of
retirement funds. People feel richer, so they can spend us into
prosperity. Don’t you feel better now?
The FED is in quite a quandary. The dollar has been falling for
some time. What should they do with the interest rates?
Should they increase rates to help the falling dollar, or decrease
rates to support the housing market? Increasing rates will put
the economy into a free fall situation, so the only option is to
decrease rates. The question is when. There are several
countries that are looking at increasing their rates to help their
currencies. This will hurt the dollar in the role as the reserve
currency. Not to worry. This will only affect people
traveling or buying products from foreign countries. What if one
of the countries looking at increasing rates was China? What
would we do if all the cheap products from China became more
expensive? Do not worry. The government will figure out a
way to take care of us.
I hope that I am not the only person that is thankful that the Anna
Nicole news event is coming to a close. It may last longer that
any of us would hope. We still have the custody battle to contend
with, and legal battles over the money that is the primary reason that
the custody battle is so important. We are now on to more
important events. The Virginia Tech mass murders have become the
important issue.
Thirty three people have died. This includes 32 students,
teachers, and the killer himself. This was a tragic occurrence,
but it is over. It is over except for lawyers that now have taken
over the news cycle. That will take over the important news for
the next week. The healing process for the families will take
much longer.
We must have answers to the all important question: How will we
prevent this from happening again. First alert systems are
becoming available that will operate just like early warning for
weather alerts. The difference is that you will get the alert on
your computer or cell phone. Maybe we need to add more
psychiatrists to the school system to identify the crazed individuals
that reside in them. I am sure that these will only be government
recommended psychiatrists.
Let us get rid of all guns. Yes, that is the answer. If
only the government had guns, this would not have happened.
Now let me get this straight. We have over 10 million “illegal”
people in this country, and we can not find them all. We have
over 100 million guns in this country, but if we made them illegal,
they would all go away. This must be some kind of new math.
We had better add it to the school curriculum.
Until next time,
March 18, 2007
The Mortgage Companies that cried WolfAbout two weeks ago I read an article in our local newspaper. The
poor people in Oklahoma were going to see a large reduction in their
benefits. This was occurring because of a “huge” shortfall in the
money coming in from Oil and gas revenue. Revenue is the
governments buzz word for taxes. The government of Oklahoma had
expected an increase of $300 million dollars, and now the increase
would be only about $200 million dollars. Does anyone see a
problem with this analysis? Evidently the journalists do not.
Today was another article that told of a significant tax reduction that
may take effect this year. This would be very beneficial to the
citizens of the state. The journalists are on a roll. Both
articles were front page news. I guess that if you write for the
paper, you can say anything, and because it appears in the paper, it
must be right.
The above was written to show that there are very few who truly
understand the consequences of financial changes. If you have
been a regular reader of the RWWNL, you would know that money and the
markets are all controlled and in the hands of the government. It
is now happening again. It is taking shape with the mortgage
Companies position in the housing as well as other markets. The
government determined that it was a persons right to have a
house. This was true even for people who had bad credit, and had
already shown that they were not financially capable of paying off a
loan. How did the government do this?
They provided (through mortgage brokers) what is called “subprime”
mortgage vehicles to people who had poor or bad credit. I am sure
that you have received many E-Mails offering low interest rate loans
for a house where your bad credit would not be a problem. You
could even have interest only loans. Now you know how it got
started. There were even people sucked into this program that had
good credit.
The goal was to bring in new homeowners. This was
accomplished. The tease was a mortgage with very low rates.
The kicker was that the rates would go up with any increase in the
“prime” rate. This increase would occur over a period of
time. As we all know, this rate went up. The rates for
these hapless homeowners also went up. In some cases, even higher
than the prime rate. You have to read the fine print.
So what are these homeowners going to do? The answer is:
What they have done before! Default on these mortgages! The
only entities that will be hurt are those mortgage companies that got
them in trouble to start with.
The problem is what to do with the house. The mortgage company
must sell it. So the mortgage Companies that started these
programs put the houses on the market. The flood of these homes
for sale caused the selling price to go down in some areas. The
mortgage companies started losing money. Now they are going
bankrupt. To know how many have failed so far go here:
http://ml-implode.com. This is not over. The readjustment
of mortgages still has a while to run.
Some of the mortgage companies understood the risk. They joined
in obtaining the mortgages, but when done, they bundled the mortgages
together and sold them to Freddie and Fannie. This absolved them
of risk, and put the US government on the hook for any losses. There
were also companies that wrote derivative agreements on these
baskets of loans. Where is it all to end.
WOLF! WOLF!
One answer to this dilemma is that the government can offer assistance
to those in need. This will solve the problem. It will all
go away soon. Now let me get back to what is happening with Anna
Nicole's Estate!
May 30, 2005
The bubble is coming, the bubble is coming!
 Do any of you remember the TV serial called The Prisoner?
It was a British story that starred Patrick McGoohan. It was a
story that involved a British under cover that got caught and
imprisoned on an island. He had his own apartment, and there were
other townspeople that lived on the same island. They were all
happy, and pleased with their plight. He was not. He tried
to escape in every episode. When he was about to escape, the
"guards" sent a big clear bubble after him. It enveloped him
inside and returned him to civilization.
Will the same thing happen to the housing market?
The bad news is that it may have already started. When everyone
jumps on the housing market as the latest money making fad, it may be
time to get out. The first sign of a bubble is when everyone
decides to join the money making scheme.
Interest rates are relatively cheap. People are
of the opinion that the price of housing can never go down. They
are buying housing with 0 down, and interest only payments. If
housing ever starts down, there will be a lot of owners trying to get
out at the same time. The bubble will burst. If it gets too
bad, the Paul Volker may have to return. He is the person who
took interest rates on homes and other purchases to over 20 per cent in
order to wring the excesses out of the economy. This even
resulted in reverse amortization loans. I can tell you that Alan
is no Paul Volker. Alan wants to go out as our savior, not the
villain.
What could cause the bubble to happen? Inflation
that causes a rapidly increasing interest rate would do the
trick. As we know, the government has managed to convince
us that there is no inflation. Short term interest rates are only
going up at a slow and steady pace, and mortgage rates are actually
going down. This does not compute, but then when the fed is
in charge of our finances, that is not surprising. The idea is to
keep panic at bay. Yahoo Finance recently did a study and found
that over 28 percent of people in the US have not even heard that there
could be a housing bubble. The fed may succeed in providing us
with a controlled panic. Now would that not be grand. First
of all, they need to teach us the three rules of being the father of
the bride. These rules are:
1. Sit Down
2. Shut up, and
3. Shell Out
Now let us now go out and buy another house to keep the economy going.
Terence R. Wilken
Editor in Chief, RWWNL
May 17, 2005
And yet, there is no INFLATION
If anyone has filled their gas tank, or bought groceries, they would
take exception to the above statement. The government is faster
than the human eye. They have taken these off the consumer price
index list. They are too volatile. This helps them post
these statements. If they say it often enough, they can even get
all the economic analysts to repeat the mantra. When you control
the money, you also control all the rules.
If the above statement is true, than why do we have to increase
interest rates at all? Allan is doing exactly that even though it
is only "slowly and steadily." I guess that if you only do it
"slowly and steadily", it will not have the same affect as fast and
erratically. The only problem I see is that in the end it has the
same effect. It also has an effect on those Companies that made
the decision that interest rates would stay low forever. They
bought that Mantra hook line and sinker. After all, there was no
inflation!
Has anyone noticed the financial situation with GM and Ford?
Their bonds have been regulated to junk status. They sold their
cars at really cheap interest rates in order to meet sales targets, and
now they will have to pay back these loans at higher interest
rates. The regulators do not think that they made the best
decision, so they are saying that their ability to pay back has been
diminished. This may even be exasperated by the fact that their
sales have started to go down. There are some that say that GM
may be the next Enron. They may go bankrupt. Say it cannot
be so.
The same is occurring with AIG (the big insurer) and Fannie
Mae. They bet on the wrong side of the move in interest
rates. The biggest part of this is that these and other Companies
have made the same mistake. They have made it even worse by using
derivatives in order to make their play---bet. Now where have we
heard that term before? Let us hope that this does not lead to a
derivatives crisis, but if it does, it will affect a lot more than the
Companies involved. Is not that always the case?
We must stand by and watch Alan save the World for us. He must
keep up his slow and steady pace. Of course, if bonds go up, if
the stock market goes down, if a housing bubble starts, or if some
other financial crisis start, we might just have to reverse course and
lower rates at a fast and panicked pace.
Now let us now go out and buy some more goods to keep the economy going.
Terence R. Wilken
Editor in Chief, RWWNL
May 05, 2005
The Truth about Social Security
What has brought this issue to the front of the national agenda is
that the current administration has brought the idea forward that this
program needs fixed now. To add insult to injury, the idea that
we need to consider the idea of privatizing part of the money that is
put into the program is also on the agenda. How dare anyone
promote these ideas.
The idea of changing social security has brought out the
doomsayers. One response is that this idea will cost us trillions
of dollars. Another is that there is not a problem. We need
not do anything. Why is it so hard to believe either of
these? I think that the answer to that question is to ask
ourselves who is doing the responses.
Why will setting up private accounts cost us Trillions? As I
understand it, private accounts will be a voluntary program that allows
some of the people the opportunity to put part of their "contribution"
to social security into personal accounts. As part of this, they
will have to accept less money from the program when it comes their
time. That sounds like a fair trade off to me. This sounds
even fairer if one has the choice of whether to opt in or out of the
program. The money that they set aside is theirs, and if
something happens to them, it goes to whom they want. The only
reason I can think of that would create this statement (cost will be
trillions) is that the social security system is not really a
retirement program. It is a Ponzi scheme. Current retirees
are paid by current workers. If it is allowed to go on in its
current mode, it will come down like a house of cards, and obligations
as we know them now will not be met at some point in the
future. Offering personal accounts will require that the
government pay part of the current payout until sometime in the
future. We are told that there is a current surplus in SS, but
let us not confuse the issue. Let us only discuss the trillions
of dollars that we have to come up with.
To do nothing is not an option either. At some point in time,
we will run out of money. Do we have to do something now?
No we do not. The only problem is that the social security
program will not be able to sustain itself. The longer we wait to
make changes, the harsher the changes will have to be.
One final cry of wolf is coming from the AARP. I am sure that
you have seen their ad. For a clogged drain, you will have to
rebuild the entire house. Then they proceed to destroy the
house. I guess that the AARP thinks that as we get older that we
also lose our ability to think. They have certainly lost my
annual contribution.
The truth is that there are only two ways to fix the social security
program as we know it. Increase taxes, or reduce benefits.
These are the only methods that work when running a Ponzi scheme.
Either decision will take congress to admit that there is a
problem. Houston, we have a problem. Now that
we have that out of the way, let us bring all ideas to the table.
Maybe if we can get Congress to address the social security problem, we
can get them to start on other issues. Let us hope that they come
to their senses.
There is a third option. Allow all younger workers to opt out
of the system, and contribute the 15 percent of their pay to their own
accounts. Let them fend for themselves. No, we can not have
that. The government knows best how to take care of us.
Terence R. Wilken
Editor in Chief, RWWNL
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