Greenspan Warns as Market Tanks

Greenspan Warns on Fannie, Freddie Again
Thursday May 5, 12:17 pm ET
By Jeannine Aversa, AP Economics Writer
Greenspan Issues Fresh Call to Limit Multibillion-Dollar Holdings of Fannie Mae, Freddie Mac
http://biz.yahoo.com/ap/050505/greenspan.html?.v=9

WASHINGTON (AP) -- Federal Reserve Chairman Alan Greenspan issued a fresh call on Thursday for Congress to limit the multibillion-dollar holdings of the mortgage giants Fannie Mae and Freddie Mac, warning that their huge debt could hurt U.S. financial markets.



Greenspan's comments came in a speech that focused on the broader issue of the growing use of complex financial instruments, known as derivatives. The Fed chief, as he has done in the past, saw problems with the use of derivatives but also warned against increased government regulation in this area.

Concerns about potential market disruptions posed by the two mortgage giants "will remain valid until the vast leveraged portfolios of mortgage assets held by Fannie and Freddie are reduced and the associated concentrations of market risk and risk-management responsibilities are correspondingly diminished," Greenspan said.

Greenspan's speech was delivered via satellite to a Federal Reserve Bank of Chicago's annual conference on banking. A copy of his remarks was distributed in Washington.

On Capitol Hill, various proposals have been offered to rein in Fannie Mae and Freddie Mac.

Fannie Mae is the No. 1 U.S. buyer of home mortgages, while rival Freddie Mac ranks as second-largest buyer.

Congress created Fannie Mae and Freddie Mac to inject money into the home-loan market. They buy mortgages and bundle them into securities for sale to investors worldwide.

During a question-and-answer period, Greenspan said the two mortgage companies "should hold only the minimum level of assets needed to accomplish the primary missions mandated by their charter."

Shrinking their holdings, he said, could be accomplished "over the course of several years."

He also said limiting the size of Fannie's and Freddie's portfolio holdings probably wouldn't affect mortgage rates for homeowners because so many big banks and other lenders compete with them in the home-loan market.

Federal regulators last year accused Fannie Mae of serious accounting problems. It was ordered to restate earnings back to 2001, a correction that could reach an estimated $11 billion. The accounting fiasco, which partly involved how derivatives were accounted for, led to the ouster of the company's chief executive and top financial officer.

Freddie Mac had its own accounting debacle in 2003, which also involved how derivatives were accounted for, and three top executives were forced out. It had misstated earnings by $5 billion for 2000-2002.

On the broader issue of derivatives, Greenspan said that banks, hedge funds and other big financial players that use derivatives must always assess whether they are effectively managing their risk.

"The rapid proliferation of derivatives products inevitably means that some will not have been adequately tested by market stress," Greenspan said. Financial players, he said, "must be aware of the risk-management challenges associated with the use of derivatives ... and they must take steps to ensure that those challenges are addressed."

Derivatives essentially are contracts whose value depends on an underlying asset such as the value of a currency or a bushel of wheat. They are used by financial companies to guard against losses from unexpected market movements.

Over-the-counter derivatives traded privately between investors are largely unregulated, in contrast to those derivatives traded on futures exchanges.

The global over-the-counter derivatives market is estimated to have a value of $220 trillion, Greenspan said.

On energy, Greenspan predicted if businesses and consumers believe energy prices will be persistently high in the years ahead, they will decide to conserve more. Such decisions, he said, could "significantly alter the structure of the American economy over the next decade."

For example, businesses would invest in energy-efficient production and equipment and consumers would buy more energy-efficient appliances and cars.

Oil prices soared to a new peak of $57.27 a barrel at the beginning of April, and have since retreated to about $50.

In his speech, Greenspan did not address the future course of interest rates or the state of the U.S. economy. The Federal Reserve on Tuesday boosted a key interest rate by one-quarter percentage point to 3 percent. That marked the eighth increase since the Fed began to tighten credit last June. Economists expect additional rate increases through much of this year.

Federal Reserve: http://www.federalreserve.gov/

http://finance.yahoo.com/
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He obviously knows something that we don't. I am totally ignorant on how derivatives work.................but I hear tell (a rumor) that there are trillions upon trillions of dollars in derivatives holding up all our markets. This is truly a house of cards. The house that Alan Built.

Is this a DOT ?

old bear said:

Is this a DOT ?

Click to expand...

Old Bear, this is a great big DOT. The rumor is that there are 88 trillion dollars in derivatives worldwide. That would mean if each of those dollars were put end to end, you could probably walk to the nearest planet and back...............no problem.

How long would it take for a person to count to a trillion.............here's the answer.

To find how long it would take to count to a trillion dollars divide 1 trillion by 31,536,000. That is 1,000,000,000,000/31,536,000 = 31,709.79 years.

That's right, it would take 31,709.79 years. Now multiply that number by the rumored number of 88 trillion........................Hmmmmmmmmmmmmmmmmmm, I think you'll have to figure that number in light years.

---------------------------------------------------------------------------------------------------------

Here's a JPEG from Yahoo! Finance at 2:00 p.m. where the numbers show the markets dropping hard but the charts don't reflect it. The charts WERE updated when I checked just now, but why would Yahoo! have a two-hour lag on the graphs in the first place? I don't WANT to be cynical about the financial markets, but they make it so easy sometimes ...

Check out the spin!

From Yahoo Finance currently - (They had Ford/GM as the top story less than one hour ago. No longer.)

David

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


Top Stories

Merck Replaces CEO Gilmartin With Clark [In large type]
Thu 11:45AM ET - AP

Merck & Co. said Thursday that Raymond V. Gilmartin has stepped down from the top jobs at the drugmaker, which has been slammed by mounting lawsuits and falling revenues since recalling its blockbuster painkiller Vioxx last fall.

· Stocks Drop on Automakers' Debt Downgrade AP
· Retail Sales Modestly Beat Expectations AP
· Productivity Climbs, Jobless Claims Rise AP
· Greenspan Warns on Fannie, Freddie Again AP
· Market Overview: Thu 2:30 PM ET Briefing.com

bumped my essay

Take a look at my essay "the perils of Fannie Mae" I just bumped. Written waaaaaay back in October 2004 by the way. Damn I am not only brilliant I'm modest too.

The Titanic (our economic/monetary/financial system) hit numerous icebergs a while back, though few knew it then or now, and Captain Greenspan has just announced, so as to be on record in a CYA strategy, that he's already warned everybody first that icebergs are very dangerous and should be avoided.

OK, so let the party go on, our Captain sounds like a diligent fella there keeping an eye out for our welfare, he does!

- Shane

shane said:

The Titanic (our economic/monetary/financial system) hit numerous icebergs a while back, though few knew it then or now, and Captain Greenspan has just announced, so as to be on record in a CYA strategy, that he's already warned everybody first that icebergs are very dangerous and should be avoided.

OK, so let the party go on, our Captain sounds like a diligent fella there keeping an eye out for our welfare, he does!

- Shane

Click to expand...

Yeah Shane, we're all eating at the Captain's table tonight.............only problem is, I'm wearing a tux and he's wearing a very large life preserver and poka dot shorts. Do you think he's trying to tell us something?

doctor_fungcool said:

Yeah Shane, we're all eating at the Captain's table tonight.............only problem is, I'm wearing a tux and he's wearing a very large life preserver and poka dot shorts. Do you think he's trying to tell us something?

Click to expand...

Well put, doctor_fungcool, though the first thing I'm hearing is that he's trying vainly to cover his ass with a perfunctory "I told you so" there on the record now.

The other thing this tells me is that as hard as they try to keep the markets pumped up, it's gotta be very close to that shocking "cold water creeping up one's ankles time" to ever risk saying such negative things otherwise.

- Shane

Isn't it amazing that Greenspan who helped create the mess we're in, takes no responsibility for it?

He just wants to "warn" us.

Well between him and our Republican spendthrift leaders, watch the collapse of the ENTIRE world economy. Thanks guys.

Quentin said:

Isn't it amazing that Greenspan who helped create the mess we're in, takes no responsibility for it?

He just wants to "warn" us.

Well between him and our Republican spendthrift leaders, watch the collapse of the ENTIRE world economy. Thanks guys.

Click to expand...

This particular market site I'm going to post is great for finding out what's happening after hours or pre market opening (in the morning)

http://dynamic.nasdaq.com/aspx/USMarketsAndNews.aspx

Watch carefully overseas markets tonight, especially Europe............Europe opens much later than Asia. Fallout from the Gm debacle could be big.

What the heck, one more gripping flashback into these words of wisdom by Magoo. He actually said it February 23, 2004, but his words linger on like black mold. And note the FedGov may be going to fixed 30-year debt itself:


http://www.truliantfcu.org/page1_art.php/sid/9/a/1/nid/89

So right Kimber, and those very knowledgeable senators just sit there and butter him up like he's the Wizard of Oz...........

Here's the article..........http://news.goldseek.com/DailyReckoning/1057155955.php

Remember, it was written in 2003..............scary.

A little ditty from Bill Bonner
drunken Irish economist, lurching into a bar, might offer the following remark:

"This is all a load of malarkey y're handing us. And y'know it. For everything y'say...y'say just the opposite a minute later. Y'don't know what y're doin'. And now all the saints in heaven can't save you. You'll roast in hell, all of you. And y'deserve it, y'do. "

doctor_fungcool said:

So right Kimber, and those very knowledgeable senators just sit there and butter him up like he's the Wizard of Oz...

Click to expand...

With the sole exception of my Comgressman, Ron Paul, as there's a guy that has a pocket full of legit 'I told you so's', that we'd of done well to heed as seen here...
http://www.lewrockwell.com/paul/paul-arch.html

- Shane

I wish we had a different boat to get on before it all tanks.

Greespun talks and markets tank

Click to expand...

I do not think it is that simple.

Yah there is a mess out there and there are gonna be loosers and winners just like in the S&L crisis in the 80's. The small accounts lost it all, the folks that could buy up the spoils did very well. (No I am not in that club as I found out how much you had to bring to the table to play). But the market did NOT tank today, -44 on the Dow is in the noise. Some portfolios rose... go figure.

They will shove fanny Mae and Freedie on the backs of the US tax payer. Refi the debt with fixed 30 year T-Bills.... Mom and Pop will buy those notes at under 5% yeild, and then they will pump up the money supply and inflaute the Stock market again. Mark my words.


This investing advise is worth what you paid for it..... Nothing.

Helium

HeliumAvid said:

I do not think it is that simple.

Yah there is a mess out there and there are gonna be loosers and winners just like in the S&L crisis in the 80's. The small accounts lost it all, the folks that could buy up the spoils did very well. (No I am not in that club as I found out how much you had to bring to the table to play). But the market did NOT tank today, -44 on the Dow is in the noise. Some portfolios rose... go figure.

They will shove fanny Mae and Freedie on the backs of the US tax payer. Refi the debt with fixed 30 year T-Bills.... Mom and Pop will buy those notes at under 5% yeild, and then they will pump up the money supply and inflaute the Stock market again. Mark my words.


This investing advise is worth what you paid for it..... Nothing.

Helium

Click to expand...

Maybe so, maybe not.............but here's a picture of some guys who went on their merry way until it was too late. By the way, Brother.............................can you spare a dime? Here's a breadline from the 1930's. Notice their nice shoes..................these guys were once middle class until.............the big 'D' happened.

As for many of the stats that are but out for public consumption, I have only one thing to say..............

The original Depression. I've been looking at Doc's picture above and remembering what people who lived back then told me about it. Was it deliberate? Will ours be (I believe so)? Did they handle it well enough back then? Will we do any better now if it happens again? It galls me that with all the plenty in our country that we would go through that again..... and the threat of being surrounded by hostiles on top of it all.............

MsKitty...altogether different ball game now...from the one our father's lived through.

The home base was different and even hobboes could fend for themselves...few fat bodies...but they had a lot 'can do.' Today 'can't do' is the better word...in the 1930's a hungry man would just stare at a cake in a bakery window. Today that window or cake would not last ten minutes.

And without beer some people don't function at all. That's just a speckulation on my part!

USDA, that's because they still believed in the money system and still lived by it back then, and it took many years to get out of it, a lot of it via WWII. And the general population didn't all weird out and go berserk and try to tear everything down and throw the government out.

You're right, this time is different. And now we got over 10 million Mexicans to feed on top of it.

It all makes me want to run shrieking............... We can do so much better.

"The rapid proliferation of derivatives products inevitably means that some will not have been adequately tested by market stress," Greenspan said. Financial players, he said, "must be aware of the risk-management challenges associated with the use of derivatives ... and they must take steps to ensure that those challenges are addressed."

Click to expand...

(my emphasis added)

What Greenspan is saying, IMO, is that computer simulations of how derivatives may be valued under "stress tests" are not a perfect (to say the least) analog for realtime market behavior, when traders smell blood.

I also thought the phrase "risk-management challenges" was just soooo... um, PC.



nanna

"The rapid proliferation of derivatives products inevitably means that some will not have been adequately tested by market stress," Greenspan said. Financial players, he said, "must be aware of the risk-management challenges associated with the use of derivatives ... and they must take steps to ensure that those challenges are addressed."

Click to expand...

But of course, that statement is being ignored by the and Mass Media.

This is a disaster waiting to happen. Thus my sig.

JohnGaltFla said: This is a disaster waiting to happen.

Click to expand...

LoL ! No, this is a HUGE disaster, waiting to happen, from what I've read. This is not my subject, but I got curious one day about 3 years ago, and spent a couple of days reading on it. But what I learned gave me a few new grey hairs.

I first heard about the Derivatives market about 3 years ago, not being a financial-type weenie, myself. Back then I found an excellent piece that explained what they are, and how thaqt market works (It is totally unregulated, BTW).

The title is: "For the Record" By Richard Lancaster. I found the link posted here, in fact. It is a long read, but well done and will certainly scare hell outa ya when you realize just how huge the market has quietly become, and who's in it, both feet.

Now, the figures in the piece have not been updated since it was penned in 2002, but those are bad enough!

Here a few quotes from the article to answer doctor_fungcool's statement:

"I am totally ignorant on how derivatives work.................but I hear tell
(a rumor) that there are trillions upon trillions of dollars in derivatives
holding up all our markets."

Click to expand...

"We...see the phenomenal growth of derivatives from approximately $7 TRILLION
in 1990 to over $51 TRILLION in 2001 with just the major US Banks, of which
JP Morgan Chase is by far the largest holder with nearly 60% (approx. $30
Trillion) of the total - an amount too staggering to even imagine."


Here is one of the scariest portions, which most folk are blissfully ignorant of:

"JP Morgan Chase has currently leveraged its equity over 750 to 1!! This is
unheard of in the past, no bank of the importance and position of a JP
Morgan Chase should be allowed such leverage, after all they are FDIC
insured, if they fail...you got it!.. we the people pay!" (emphasis mine)

Did you get that? JP Morgan, who is something like a 40% shareholder in the Fed. Res. is upside down 750 to 1. Normallly they come lock the doors of a bank that gets much more than 8 or 9 to 1 upside down. They are just too big, and too far in debt to even think about it. No one could absorb the losses.

Ah, but the other ugly fact here is, that they are FDIC insured. Theoretically, if JPM gets cold feet themselves, or some other monetary event forces the hand, they could hand the entire debt to the US Gov't, and walk. (At the time the article was written JPM had close to $42 Trillion in the stuff! Imagine going to bed, our nation's debt is $7 Trillion, you wake up to find we're nearly $50 Trillion in debt. )

The folk at JPM aren't fools either. Not with their money, anyway. Something I gleaned from the facts of the article, but the writer never fully discussed is this. When he said they are "upside down 750 to 1" he meant the ratio between their "notional debt" (derivatives) and the value of the stockholder's equity, which was, at that time about $42 Billion (remember this number, You'll see it again, in a sec).

What they carefully, and purposely (I think) have maintained among their holdings was a position in gold. How much? Amazingly, JPM's gold holding at that time was... $42 Billion.

What this says to me is, they've gone off into this flakey, unregulated market to the point that they are, by any sane measure, insolventl; But... No Matter! Because, as long as it works, they make enormous sums off of it and if it blows up they can take the whole mess, dump it off on the US taxpayer, and recoup the stockholders equity in gold! Then run like hell!

Now, in light of this, let's look at what Greenspan said again, it has a bit more meaning:

The Fed chief, as he has done in the past, saw problems with the use of
derivatives but also warned against increased government regulation in this
area.

Click to expand...

No kidding he thinks the government should stay out of the market! The gov. cannot enforce any kind of sane limits on things, it's way too late for that!

The link to the source article, again is:
http://www.depression2.tv/ForTheRecord/index.html

(edited 11 hours later to get rid of the bum bold tag I put in there. S'what I get for typing in the dark.)

Well, Fred, another POS tad of information to ruin my day. Not that everyone will understand, of course, that's planned into it, but......... cripe. They put you in shackles and run off with the gold. They fix it so you can't unfix it. Same old story, same old song and dance......... yet, they're our "betters" they want you to believe.

Totally OT, but mzkitty, read this http://www.foreignpolicy.com/story/cms.php?story_id=2829

from the man that brought you the war in Vietnam. It's a fast read, and it's very
scary!

Another concern I have, though, is that when it is fixing to finally implode, to further distance themselves from being blamed for that crash and subsequent depresssion, is that we'll have then an 'outside event' unleashed with which the media and history books will, instead, point all to as the 'real' reason for that economic/financial/monetary collapse.

War, terrorism, major oil disruption, something anything, with which to then direct all the sheeple's frustrations towards, and away from TPTB decades of inept and criminal mismanagement of the economy and debasement of our currency.

Thus, the TPTB coming draconian solutions they'll next offer up, for the problems they really created, will be more readily embraced by all the sheeple then in their desperation for any relief from their pain and suffering.

Shane

Talk about tanking markets....has anyone looked at this mornings Gold prices....??

The markets are out like a rocket...........up 42

mzkitty said:

They put you in shackles and run off with the gold. They fix it so you can't unfix it.

Click to expand...

I agree, mzkitty, but we do have a golden opportunity here on an individual basis, right now, before this great epic panic is unleashed, to greatly minimize our personal financial vulnerability to this coming storm. Count your blessings that you have a clue to what's coming that few fellow Americans can presently grasp or imagine in their worst financial nightmare.

We've all got to start to do now those things that most everybody will eventually and enviously see as brilliant, and deeply regret not also having done sooner, a few years from now.

Like dumping, before everybody has to and is also trying to and prices collapse for, all those non-essentials, like second cars, boats, motorhomes, jet-skiis, motorcycles, non-primary resident real estate, etc. Especially if any money still owed on it. Keep what would be needed for enhancing your self-sufficiency, but dump, while you can still get a good price for it, everything else. We've got to do this before everybody has all their front yards and driveways crammed with their 'for sale' stuff as they scramble to scrape together enough cash for their next mortgage payment. Letting go of some toys now, before the rush, will also be easier to swallow if you remind yourself that you'll be getting yourself in a much better position then to buy 'bigger, better, later.'

Also, for everyone convinced that TPTB have been hiding and forestalling the inevitable market/financial/monetary day of reckoning, then it's not unreasonable to assume that suppressing the price of gold (the traditional barometer of confidence) has also been a part of their sham as well.

When they finally lose their grip on the one, and it tanks, the other will surely be no longer restrainable then as well, and it'll soar.

Moral of the story; Scrambling now to minimize one's exposure to the coming financial storm, after acquiring family preps, might should also include acquiring some little bit of hard money, too, like physically held gold & silver.

The cheap prices today for gold/silver is a true blessing for those that grasp why it has been hammered down so much to make it appear less attractive as an alternative 'safe harbor' to the majority that's less astute to what's really going on here, or coming next.

- Shane

Yeah, the markets are way up and gold is way down on the new job growth numbers. Those numbers are soooo reliable and they would never manipulate them

The sad part is that people chew them up and swallow them whole without an ounce of question about what is on their plate.

It's a good thing that there are so many jobs being created , I may need a second one to afford groceries.

BW3

bw3 said:

Yeah, the markets are way up and gold is way down...

Click to expand...

Jim Sinclair's take on junk bonds, dollar, perspectives & gold from his posting last night. Then a new chart below it that shows that even though gold may be restrained by TPTB it's still been steadily asserting itself upward regardless.

- Shane
_____________

http://www.jsmineset.com/

Thursday, May 05, 2005, 5:49:00 PM EST

Gold and Dollar Market Summary

Author: Jim Sinclair

Dear CIGA:

Although expected, it’s still shocking to witness the downgrade of the creditworthiness of the largest corporation in US History. Both GM and Ford Motor Company’s debt were officially labeled as JUNK! If conditions present today remain intact for the next 42 months GM will be out of cash!

To rationalize this development without looking at the long term consequences is to ignore:

1. The trickle down impact of the cash flow problems of both these companies on their many suppliers.
2. The negative impact on the many employees of GM and Ford and the buyers of their products.
3. The potential expense that will passed along to all US taxpayers should these companies be unable to fund employee entitlements.
4. The impact on the cost of financing for the many companies now occupying the awful distinction of JUNK as borrowers.
5. The fact that one level of debt always impacts the level of debt above it and so on until you reach government paper.

You have to admit that managing investor perceptions is akin to a choreographic performance of academy award status.

The spin is that this is nothing new at all and has been expected for many months and, as a result, is not a negative for equity investment overall. The Financial TV stations are pounding this out across the airwaves.

Like the Federal Reserve's fortuitous mistake that healed the impact on the equity markets of its hawkish statement earlier this week, congratulations are in order for those whose job it is to manage public perception which as well all know is a keystone of those that support the new economics of Authoritarian Free Enterprise.

There is however a cost to maintaining perspective which is the application of form over substance. That cost was clearly demonstrated yesterday. It can be defined as the “Dollar be Damned” if it is a choice is between maintaining confidence in the equity market and maintaining positive perspective in the dollar market.

The system of Authoritarian Free Enterprise in terms of Federal Reserve management of economic activity is defined as:

1. Maintaining a positive perspective by ensuring the continuation of a positive equity environment which is the most potent perspective engine for the US and world business community.
2. By maintaining a positive feeling and outlook for business, decision makers are likely to be expansive in their business thinking.
3. Expansive decisions by managers will result in maintaining the general level of business conditions and employment expectations.

The management of liquidity in today’s world is a global concept and no longer the insular mechanism it has been since the inception of the Federal Reserve System. Therefore, more hangs on perception than a simple concept of a national economy.

The world will move in tandem, breaking itself down into the Western economy and the Asian economy in the same direction relative to each other. The dance then is all in unison with differences only in the energy level of the participants world wide.

To be able to explain away the junk bond status of GM and Ford is to make it OK for the largest corporation and its nearest rival to run out of cash in 42 months. Now there is an accomplishment that has to get your attention.

The Market that CANNOT be Controlled

The crack in the dyke is this: There is no way that you can talk into the largest market on earth a trend that does not qualify itself fundamentally. The international market in the US dollar turns over $1.6 trillion dollars per day. Yes, you can cause a short term counter-trend rally by catching the short side in an overpopulated condition. But what you cannot do is turn a bear into a bull or a bull into a bear by spin on that great green blob that will in time eat the entire planet.

Conclusion:

The fundamental constitution of the US dollar is putrid. In time, US long debt of ten years and now to thirty years will itself be declared JUNK by interest rates, not Standard and Poors' rating service.

Those of you who have gone long the US dollar and short currencies like the Cando are in for a skinning. Those that have followed the Gold Community advisors who have actually said not to own anything gold have followed false profits.

Those of you who have been run out of your gold shares by professional short sellers - both legal and illegal - are investors and traders whose decisions have been purely emotional and lacking in any common sense.

Here is Kenny Adams take on the markets:

"Gold, silver, and the USDX are still holding fairly well to expectations, as to time and pattern. I continue to think that we are on the very edge of a major move upside for the metals and downside for the dollar.

A little snip from Dow Jones marketwatch for y'all ...

(fair use rules)


15:57 DJ MARKET TALK: A Little Something For The Bears...
SYMBOLS: 80000X N/DJN N/DJWB N/ALMT N/DJMT N/DJWI N/MKT N/NDQ N/NYS N/SMC N/STK M/NND
Edited by Nathan Barker
Of DOW JONES NEWSWIRES

(call: 201 938 2397; e-mail: nathan.barker@dowjones.com)

MARKET TALK can be found using N/DJMT

3:57 (Dow Jones) The Stock Trader's Almanac has issued an alert - decidedly
bearish. "Our outlook calls for the market to return to the area of last
October's lows (Dow at 9750, S&P 500 at 1095 and the Nasdaq Composite at 1903)
before moving higher," says Jeffrey Hirsch, editor of the tome that tracks
trends in the stock market. The Nasdaq Composite has already closed at 1904
this year, making it likely that it will fall below 1900 before this correction
is over - perhaps back to the August 2004 low of 1750, Hirsch says. "The
potential also exists for the Dow, S&P 500 and the rest of the market to break
those October 2004 lows." In other words, according to Hirsch: "Cash is king"
right now. (KJT)




nanna

nanna said:

3:57 (Dow Jones) The Stock Trader's Almanac has issued an alert - decidedly bearish...

Click to expand...

3 minutes before the close on a Friday they suddenly have this revelation! Talk about ruining one's weekend with that kind of timely insight!

- Shane

Shane said: "...is that we'll have then an 'outside event' unleashed with which the media and history books will, instead, point all to as the 'real' reason.."

Click to expand...

Yup.

One of my favorites, though not financial in nature, has to do with another recent/current topic, the India/Pakistan resumption of nuclear weapons programs.

Ask almost anyone about how that got started and they'll tell you about India re-starting their program (usually seen as an over-reaction), and usually over Pakistani action in their disputed territory. Pakistan then reacted to this by re-starting their own program, and off they went. This is the basic chain of events you'll see most everywhere.

In fact, India's action had little to do with Pakistan. They were reacting to actions China was taking on several fronts.

First, the two still have disputed territory, from their war 50 years ago, and technically a state of was still exists between them to this day.

Next, China was moving a large amount of military equipment into "occupied Tibet".

What finally prompted India to restart their program was China began deploying their navy up and down the coast of India, and started engaging in what amounted to old "US/Soviet cold war-style games of chicken, and harrassment" along their coast. This was in fact the final straw that sent them back to their weapons program.
___________________

But the press, and diplomatic folk, didn't pay attention, or get excited about any of this, until Pakistan reacted to India, so China managed to side-step all ensuing noise.

fredkc said:

One of my favorites... has to do with another recent/current topic, the India/Pakistan resumption of nuclear weapons programs.

Click to expand...

Great recent and real-life example, fredkc!

Think how much more easily the public here will be deceived and herded around when the economic/fianancial/monetary implosion occurs (even without an 'outside event') via our controlled press, combined with our sheeple scared silly and in a panic, to then have TPTB stampede them all into eagerly accepting whatever draconian measures presented holds promise of any hope of relief from their misery.

Few folks now, as a %, remaining here that are made up of the self-reliant and independent stuff of our grandparents day, so I fear this current majority won't suffer very hard or long before eagerly accepting darn near anything proposed.

- Shane

doctor_fungcool said:

Totally OT, but mzkitty, read this http://www.foreignpolicy.com/story/cms.php?story_id=2829

from the man that brought you the war in Vietnam. It's a fast read, and it's very
scary!

Click to expand...

Yeah, Doc. But nobody will go for it. Nobody will be happy until East Jesus has their own nuke too. It's a plague.


Fred, your post about India and nukes - supposedly they've been nuked before!

http://search.yahoo.com/search?p=india+ancient+history+nuclear+explosion&ei=UTF-8&fl=0&x=wrt

Shane, the way things are, more people would be prudent to listen to your advice, but for the really poor it can only go so far, then they're stuck.

Well anyway, it's the weekend. Maybe I can breathe for a little while.....

There is no doubt that the present structure of the world's financial system is ready to collapse. The following article discusses the coming collapse and the reasons behind it.

Published on 3 May 2005 by ASPO. Archived on 5 May 2005.
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The Second Great Depression : Causes & Responses
by Colin J. Campbell

RELATED NEWS:
Top oil groups fail to recoup exploration costs...

The End of The Oil Standard...

Analyst fears global oil crisis in three years...

Odac warns of global shortage of oil after 2007...



Financial Consequences of Peak Oil

It is becoming evident that the financial and investment community begins to accept the reality of Peak Oil, which ends the First Half of the Age of Oil. They accept that banks created capital during this epoch by lending more than they had on deposit, being confident that Tomorrow’s Expansion, fuelled by cheap oil-based energy, was adequate collateral for Today’s Debt. The decline of oil, the principal driver of economic growth, undermines the validity of that collateral which in turn erodes the valuation of most entities quoted on Stock Exchanges. The investment community however faces a dilemma. It desires to protect its own fortunes and those of its privileged clients while at the same time is reluctant to take action that might itself trigger the meltdown. It is a closely knit community so that it is hard for one to move without the others becoming aware of his actions.

In this situation, interest shifts to commodities and to short term trading to benefit from daily or hourly fluctuations in price, implying that there are few valid genuine long-term investments left.

The scene is set for the Second Great Depression, but the conservatism and outdated mindset of institutional investors, together with the momentum of the massive flows of institutional money they are required to place, may help to diminish the sense of panic that a vision of reality might impose. On the other hand, the very momentum of the flow may cause a greater deluge when the foundations of the dam finally crumble. It is a situation without precedent.


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The following is the summary of a presentation to the Edinburgh Conference by C.J.Campbell, which extreme as it may sound, seems consistent the new posture adopted by the International Energy Agency.


The Second Great Depression : Causes & Responses

SUMMARY

Oil was formed but rarely in time and place in the geological past, which tells us that it is subject to depletion. It also has to be found before it can be produced. Finding oil is primarily a matter of geology, notwithstanding the technical, political and economic factors. So, an understanding of petroleum geology forms the bedrock for forecasting future production.

Depletion itself is easy to grasp as every beer drinker knows: the faster he downs his draught, the sooner it is gone. However, the issue is not about finally running out of oil, which will not happen for many years. What does concern us – and most gravely– is the long downward slope that opens on the other side of peak production. Oil and Gas dominate our lives, and their decline will surely change the World in radical and unpredictable ways.

How has this self-evident reality been so successfully confused and denied? In short, oil companies under-reported discovery to comply with strict Stock Exchange rules, and revised reserves upwards over time, delivering a comforting but misleading image. But those days are over, forcing the major companies to find reserves by merger rather than in the ground. Some OPEC countries, for their part, started reporting original, not remaining reserves, as they vied with each other for quota, explaining why their reported reserves have barely changed for 20 years. Furthermore, definitions of the several categories of oil and gas are confused. Public data are grossly unreliable.

Production has to mirror discovery after a time lapse, as amply demonstrated in one country after another. The peak of production comes broadly when half the total has been consumed. Deciphering the conflicting evidence as well as possible indicates that approximately 944 Gb (billion barrels) of Regular Conventional oil have been produced; 764 Gb remain in known fields (Reserves); and 142 Gb are Yet-to-Find. If so, the midpoint of depletion was passed in 2003, meaning that peak production is imminent. On present estimates, the overall peak of all categories of oil arrives in 2006, with that of oil and gas combined coming about two years later.

A widely held myth proclaims that technology will deliver more, when its main impact has been to hold production higher for longer, accelerating depletion. The observed growth in reserves has been an artefact of reporting, not technology, save in special cases.

The First Half of the Age of Oil now closes. It lasted 150 years and saw the rapid expansion of industry, transport, trade, agriculture and financial capital, allowing the population to expand six-fold. The financial capital was created by banks with confidence that Tomorrow’s Expansion, fuelled by oil-based energy, was adequate collateral for To-day’s Debt.

The Second Half of the Age of Oil now dawns, and will be marked by the decline of oil and all that depends on it, including financial capital. It heralds the collapse of the present Financial System, and related political structures, speaking of a Second Great Depression.

But there are survival strategies. Governments may be persuaded to sign the Depletion Protocol whereby imports are cut to match world depletion rate, such that world prices fall into reasonable relationship with cost, and profiteering from shortage avoided; the current monumental waste of energy may be reduced; renewable energies from wave, tide, wind, solar, hydro and geothermal sources may be brought in; and the nuclear option re-evaluated.

The survivors, whose numbers may not greatly exceed those of the pre-oil age, may find silver linings as they rediscover rural living, regionalism, diversity and local markets, coming to live in better harmony with themselves, each other, and the environment in which Nature has ordained them to live. But the transition will be a time of great tension, including international tension as consumers vie for access to dwindling supplies, and as city life becomes unsustainable.

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Here are the preps I would make...................

1. Flee from any large cities...............find small towns even if there is no
industry.

2. Learn how to do subsistence living. Warning: If you are a yuppie,
forgetaboutit.

3. Have a couple of acres to use for personal crops.............and a few
goats. They are a wonderful survival animal.

4. Do not chose a location within one hour of a large city.........the
hoards will be too close if you are not careful.

5. Make friends with a local farmer...........I have.

6. Have no debt..........if possible.............and only those possessions
that are needed for survival or barter.

7. Have a network of friends and neighbors.

8. Have access to a good water supply.

9. (Feel Free to add as many items as you are able)......
10. Have alternative facilities for heat and electricity.
11. ????????
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Over the years I've harped about a great depression coming. It's almost here................personally, I don't think we'll make it to October before it hits. Greenspan has finally warned us concerning the derivative exposure. He knows, because he's The Great and Powerful Oz.......................but behind the curtain, is a frightened old man. Where's the tin man when you need him.

P.S. I know there are some great prep guys in TB2K.......pipe in.

Deflation: The unseen peril
http://www.jasmts.com/shepherd.php?page=deflation&OVRAW=deflation&OVKEY=deflation&OVMTC=standard

by James A. Shepherd
of The Shepherd Investment Strategist,

a service of JASMTS, Inc.
www.jasmts.com <http://www.jasmts.com>
Two conditions that financial markets are constantly concerned about are inflation and deflation, for excesses of either can have serious consequences for the value of assets. Webster's Dictionary provides the following definitions:
Inflation: A persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency.
Deflation: A fall in the general price or a contraction of credit and available money.
Ideal conditions for financial markets are created when the economy is experiencing low inflation and strong growth. However, a deflationary economic environment can have a devastating effect on the value of most assets. We have been experiencing a steady descent in inflation for several years and recently entered into an environment of disinflation. There is a very thin line between disinflation and deflation and when that line is crossed during a weak economic environment, the results can be horrendous. This is especially true when outstanding debt levels and debt defaults are at record highs as they are at the present time.



Deflation is a growing concern.

As I write this, severe deflation is perhaps the most serious concern to the economy and to the value of most assets. Of course, knowing when a deflation problem is in the development stage is of far more value than waiting until the problem has begun swallowing up the value of assets and sending them into a dangerous downward spiral. I first began to notice a threat of deflation developing almost four years ago when some of the data I monitor began flashing a warning signal. That was long before it became a topic of discussion by either Wall Street or The Federal Reserve. That warning signal was coming from a chart that I developed to measure inflation/deflation at the wholesale level based on the Producer Price Index. My calculations are done on a year-over-year, month-to-previous-month basis and measure the change at the production level, before it reaches the consumer. This allows us to take advantage of developing trends long before they become obvious. It is clear that we entered into a deflationary environment in October 2001. The only question remaining is whether or not it will become severe enough to generate the kind of massive deflationary downturn that occurred in the 1930s. Most investors, and in fact, many in the financial media, are unaware of the importance of the content of the data produced by the various Federal Reserve Banks that I constantly monitor. In fact, most financial journalists, individual investors and even their investment advisors are so focused on the day to day movements of the stock markets, that they are oblivious to the warning signs that are being emitted. I can assure you that Alan Greenspan, the economists at the various Federal Reserve Banks and their governors are fully aware of the warning signals that are being emitted. Ignoring these warning signs is akin to driving your car at high speed on a freeway while totally ignoring oil, coolant, alternator and heat gauges that are warning of disaster in the near future.

I frequently update my clients and subscribers about the deteriorating problems that are being delineated by the alarming declines in M1, MZM, M2, and M3, I am including the following chart of the Velocity of Money to quickly illustrate to you the importance that all of those pieces of data are to those who understand and use them as a barometer of the economic health of the country.
Velocity of Money:

"the amount of GDP growth produced by a given amount of money supply, thereby reflecting the 'turnover rate' of the available money supply."
Velocity of Money:

Source: Federal Reserve Bank of St. Louis: April 28th 2005
As is apparent in the above chart, every measurement of money supply is sharply contracting on a percentage basis at an annual rate. With interest rates at multi-decade lows, if we were in a normal environment, you would expect to see certain developments take place. What is actually taking place is completely contrary to what the major pundits and commentators are saying. Remember, this chart has been compiled from data that is representative of the overall health of the economy. Yet, it would be foolhardy, as many are doing, to ignore reality in order to proclaim a desired outcome as being inevitable. The so-called re-inflation of the economy simply does not appear to be taking place. The lower the velocity, the less effect a particular quantity of money will have. As you can see, velocity of money continues to move to new lows. In an environment of overcapacity, excessive debt and a slowing economy, this is exactly what you would expect and it almost always leads to the same destination---a strong deflationary environment.

What Alan Greenspan knows...but isn't saying!

I have said many times in the past that one of the chief indicators of a burgeoning deflationary environment is the measurement of the velocity of money. This tells us just how effective any stimulus has been, and how efficiently the economy is utilizing the resources available. Month after month we have seen the velocity of money decline. This tells us that the economy is becoming more and more likely to slip into serous deflation. As you can see in the previous chart, two measurements of the velocity of money are struggling to increase. Do you think that Alan Greenspan does not know about this data? Do you think he does not know that the Adjusted Monetary Base is not growing at all on an annual percentage basis? Do you think that none of the big brokerage house economists you see every day in the media are aware of this data? Of course they are! It is just that they are not about to tell you since this would undermine their argument against deflation, and cast serious doubt on the likelihood of any imminent economic revival.
We can now confirm we are in a period of poor economic growth and one that is dangerously close to slipping into deflation. The rapid deterioration of the economy was first led by a fierce contraction in the manufacturing sector. Layoffs that started there have now spread into other parts of the economy, including service and retailing. During the official recession from March through November 2001 the economy lost over 1.2 million jobs. From November 2001 up to the end of July 2003 the economy lost an additional 1 million jobs. Under other circumstances laid off workers could expect to find new employment in a reasonable time period, or could fall back on their savings to help bridge the gap. However, new jobs are not being created fast enough and US savings that are coming off record low levels have left many American families unable to pay credit card and mortgage obligations on time. Mortgage foreclosures are at 50-year highs and delinquencies are continuing to rise, forcing many into personal bankruptcy.
If a severe deflation were to happen it could have serious implications for the economy. In fact, much of the data that I use is mirroring the deflation problems that were so prevalent during the Great Depression. And although the data that I use has not yet confirmed that we are entering into deflation, it is very, very close and I do not expect any improvement in the economic situation that could turn things around. If deflation were to happen it would be devastating to any remaining value of stocks, corporate bonds, and some Municipal bonds as local governments will be unable to honor their obligations. Inflation hedge assets including gold and real estate investments will suffer serious erosion of value as well. Remember that in Japan, where deflation has been present for most of the last 10 years, real estate values have fallen by at least 50% and during the 1930s our real estate values fell even more than that. I assure you, if this type of environment emerges in full force, we will all see something that no one has witnessed in this country since the Thirties: prices actually falling for almost everything.
Debunking the myth.

Wall Street, aided by some in the financial media, has waged a successful campaign to convince most of the investing public that lower interest rates are going to be the savior for the economy once again. Their chief argument is that falling interest rates will turn around the economy and bring about a return of the bull market for stocks. While it is true that at some point the economy will rebound and stocks will soar again, I do not believe that this argument is valid under the current circumstances.

So far, the efforts of the Federal Reserve to re-liquefy the economy have proven ineffectual. Although there has been an attempt to pump up the money supply, it has not resulted in the growth of the monetary base as would normally occur. But this is exactly what you would expect in a deflationary environment. Liquidity is sucked into the black hole of declining prices, forced sales and increasingly burdensome debt service. This is precisely what happened in the 1930's, and to assume that such an environment could never emerge again is just unrealistic. As the Japanese discovered, and as we learned here in the 1930's, there can be times when monetary stimulus does not have the desired result. As the deflationary environment has strengthened, it has put more and more pressure on consumers and businesses alike, leaving companies with virtually no pricing power. Furthermore, since debt is at record levels for corporations and individuals, debt service becomes a real issue. You see, as deflation deepens, it makes outstanding debt relatively more expensive. Combine that effect with the added difficulties faced by the unemployed or underemployed and you have the recipe for disaster, just as we saw in the 1930's.

A lemming's life is short, and then ends in disaster.

Nothing really changes because human nature never really changes. As each generation forgets the previous generation's experiences, the stage is set for the same mistakes to be made. As Bernard Baruch, that famous stock market investor of the past said, "Yet I never see a brilliant economic thesis expounding, as though they were geometrical theorems, the mathematics of price movements, that I do not recall Schiller's dictum: Anyone, taken as an individual, is tolerably sensible and reasonable - as a member of a crowd, he at once becomes a blockhead." This is the reason so many have made so many disastrous mistakes: They have become caught up in the excitement of the crowd and have been convinced of certain things that logically could not be correct.
Preparing for deflation.

As I have said, although we do not yet have the strong deflation signal from my model, we are very close. If it should come forth it would have ominous implications for real estate. The beauty of the advance notice is that, if we desire, we should have ample time to liquidate our holdings before prices are severely impacted. It will also permit us to take positions that could virtually explode in value as the economy deflates.
Summation - Updated May 2005.
Although there had been some moderation in the trend away from lower inflation during the last few months, the official PPI data was skewed by higher energy costs resulting from the build up to Iraq and the ensuing difficulties to that countries oil supplies. But higher energy costs have actually had an inverse effect on inflation and have, in my opinion, increased the odds of the economy descending toward deflation. This is, of course, what the Fed was fearing when it issued its statement following the May 6th meeting and a fact that was confirmed on September 10th 2004 when the PPI was released showing a dramatic decrease in wholesale prices. My expectation that the forces of deflation will continue overcoming the ongoing attempts to re-inflate the economy is again being reflected in the five year rally of bonds, which is undoubtedly forecasting an even greater weakness in the economy going forward. Bonds now have the clear potential to gain dramatically, and currently, we have a confluence of three conditions that are favorably affecting them. First, as I said, it is clear that the near-term economic outlook is bleak. Second, there are obvious deflationary pressures continuing to develop. And third, the real level of long-term interest rates is still far too high to truly stimulate an economic revival. This may actually lead to buying of Treasuries by the Fed in order to drive long-term rates even lower, a strategy they have said they would use if necessary. But this move, like all others, is dependent on the proper timing, and our subscribers will again have the benefit of my model to stay informed.
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It's coming, and this downturn will be worldwide. Remember, deflation is like a giant whirlpool. Feed the whirlpool as much liquidity as you wish, it will just suck it up. Once deflation starts, there's nothing stopping it............even all the trillions of dollars that have been spent trying to stem it's encroaching tide
would be for naught. Case n' point............Japan............They are still in deflation. Deflation plus Inflation =s stagflation.............which is worse than deflation outright. That's where we're headed..............high energy prices and high cost of living with depreciating real assets such as homes, cars, jobs, and health benefits. Yes, I consider a job as an asset.

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Lemmings are abundant on Wallstreet. They will follow the crowd over the cliff. However, if these same lemmings took the time to inform themselves, they'd live a longer life, and preserve more of their assets. Turn off that T.V. and prepare, read, and prosper.

Why do people keeps obsolete products in the hope that they will someday once again be valuable? If money and profit should be obsolete as a war weapon and strategy and crime, why isn't it? That our country should have to endure a manufactured deliberate criminal enterprise call the Second Great Depression when there's no need for it, is beyond belief. Yet people say they are going to endure years of it in order to preserve some nasty FUTURE profit again. I have a bad feeling about it all. Truly. I think I need a beer now.