US Government: No Surprises Left

The US government is pulling out all of the stops but the market is not convinced that the storm has passed. The price action in everything from stocks, bonds, the US dollar and gold indicates that every new rescue is having less of an impact. The government’s shock factor is disappearing. In addition to spending $85B to bailout AIG (AIG), the SEC has also issued new short selling rules that prohibits naked short selling in all US equities. Their goal is to reduce volatility and so far, it hasn’t worked.

Investors around the world are still nervous and not willing to take on counterparty risk. Trust is a commodity these days. LIBOR rates increased by the most in 9 years, indicating that banks have become extremely cautious about lending. US Treasury 3 month bill rates fell by the lowest amount in 54 years, while the 2 year swap rate hit a record high. Gold prices surged more than $50 an ounce. The TED spread, which is the difference between what banks and the Treasury pay to borrow hit the widest level since Black Monday in 1987. The degree of these move proves that there is still a significant amount of risk aversion in the markets.

In times like this, there is no safer asset than gold and we are sure that Sovereign Wealth Funds who may have been burned in their US investments are finally realizing this. It is time to overweight gold and underweight anything else. The clearest trade in the currency market is still short USD/JPY because none of the Fed’s efforts have stabilized the market. With the market looking for a potential buyer for Washington Mutual (WM) or even Morgan Stanley (MS), the problems in the banking sector are not going away. As for the dollar’s outlook against the Euro and British pound. The offsetting factors of US repatriation of foreign investors dumping their US investments should keep the EUR/USD and GBP/USD range bound.

Here’s some info to keep the intraday price action that we have seen today into perspective:

Comments

[MarvinMBA:]

Historically, this fiasco is going down in history as the major economic story since the big depression in the 30's. All I can say is that as the world economy downdrafts your buying power for your cash will updraft...its happening right now with energy and housing. Keep away from the markets and you will make a profit due to increased buying power that your cash will have. Too bad, investing was a way of life but this administration destroyed that option for a long time to come...changes are taking place where prudence will once again come back into our investing strategy. Marvin the Maven

2008 Sep 17 12:40 PM

[marine41:]

The same people advocating for small goverment, little interference ,always against thoe who earned "entitlements" with service to their country but now the "bigs boys" stand in line for government "Handouts"

2008 Sep 17 12:54 PM

[JasonC:]

They've lost 110,000 jobs and $2 trillion, and you want their heart's blood too. Guess what? If you get it, you will be broke.

2008 Sep 17 01:13 PM

[css1971:]

marine41.

I think you'll find that the people advocating small government are not in fact the same people running the banks and multinationals. They are perfectly aware that big government means easy money.

JasonC

They can be replaced by a set of printing presses. With better results too.

2008 Sep 17 02:00 PM

[HARM:]

<i>They've lost 110,000 jobs and $2 trillion, and you want their heart's blood too. Guess what? If you get it, you will be broke.</i>

"heart's blood"?? LOL Oh, give me a break --where's my tiny violin? The asshats in charge haven't even been forced to suffer major consequences, much less go broke. When I see Lehman's and AIG's BOD lined up for the TV "perp walk, with all their toys and mistresses gone and offshore accounts seized (for repaprations to taxpayers), THEN we can talk about real "pain".

So, I should feel empathy for rapacious Wall Street greedbags and their reckless, myopic minions? Screw 'em and let 'em fail --that's true "free market" capitalism. Why should *my* hard earned money go to bail these paper-pushing asshats out? Why should *I* be forced to support government baliouts designed to protect reckless idiots from the consequences of their own immoral and fraudulent actions? Why should more of *my* money go towards preventing bubble-inflated house prices from falling to truly affordable levels?

F**k 'em all. It's economically and morally the RIGHT thing to do.

2008 Sep 17 02:01 PM

[lance sjogren:]

istartedi:

Nobody in high places cares about gold except to hold its price down.

That doesn't mean they have the power to do so. Since you obviously are not a gold bug I presume you don't subscribe to the conspiracy theories that the central banks have been engaging in a coordinated effort to drive the price of precious metals down.


John Embry commented the other day that gold mines are shutting down because they can't break even.

I would contend that supply and demand may have some role in the gold market. I learned the hard way from investing in some gold mining and silver mining companies that $1000 per ounce of gold and $15 per ounce of silver are inadequate for a lot of precious metals mines to break even.

No one is going to run a money losing business indefinitely.

Who knows where gold demand will go, but I suspect that investment demand will pick up as the governments around the world print more paper money to prop up the economy.

But what I do know is that supply is weak and liable to get weaker because precious metals prices are too low to make it economically viable to expand gold production. And even if if it were more competitive, who's going to lend several billion dollars so that someone can construct a new large-production gold mine. The banking crisis also has a strong effect in suppressing supply growth.

John Embry indicated it would take $1200 gold before marginal mines that have shut down would find it economically attractive to reopen.

One other point: Many precious metals operations involve making money on by-products such as lead and zinc. Those base metals have seen their prices plummet. So even if precious metals prices go up some, the depressed prices of base metals, which I believe will continue for some time, make many precious metals operations less economically viable than you would think if they were generating all their revenue from the precious metal.

I doubt precious metals are going sky high but I do think that gold at $1000-1500 and silver at $20-30 are reasonable.

Now, we just need to get the financial gurus to stop being so paranoid about such prices so they don't scare the stock market down even further when those precious metals prices are reached.

2008 Sep 17 02:47 PM

[GMiki1:]

Wow, Kathy--and you, a Forex person, going for the gold. I gotta hand it to you. I respect your opinion in re Forex but personally have always preferred gold, myself. Welcome to the shiny side.

2008 Sep 18 12:18 AM

[bearfund:]

Gold is the universal money, always has been. JPY was down 9% today in real terms. Dollars don't matter; we're down to brass tacks here and when trust is nowhere to be found, gold is the ultimate asset. JPY, CHF, NOK, all fine paper. But still paper. The forex markets have become irrelevant; if you don't have gold, you don't have anything.

2008 Sep 18 01:03 AM

[monday1929:]

Whatever ones opinion on the near-term course of Gold prices, how can you not have 2-20% of your assets in Gold?

2008 Sep 18 08:37 AM

[User 264496:]

i know that central banks started pumping money into the markets some time last year.i would like some to help me find out the totals from last year to today.100 billion and 200 billion there can add up real fast

2008 Sep 18 11:00 AM

[alajac:]

In every failed rally there is a point where the longs think that the selloff has been overdone and they stage a big rally that also fails and usually spectacularly so. I think gold is a good short here. Gold needs inflation, not deflation, in order to bring in enough retail buyers to sustain a rally. Gold is in a 4th wave rally of its pullback and 4th waves fail. (I also called the 2nd wave top on gold in mid-July.)

Here`s how we should replace the Fed and its Debt-Money.

HOW TO FIX THE ECONOMY (change the system, not the faces)

a plan to stimulate the economy, lower taxes, start paying off the National Debt,
alleviate poverty and decrease crime

by replacing our OLD economic system with a NEW system based on

a new and debt-free U.S. currency to replace Federal Reserve Debt-Money,

a 0.5% tax on electronic transfers to replace the Federal Income Tax and the IRS,

and $1000 per month privatization compensation (non-Fed $) for all legal U.S. residents

There is NO BENEFIT AT ALL in having a Central Bank (well, none for us) compared to having the U.S. Treasury print and distribute our own debt-free money to ourselves. THE ONLY DIFFERENCE between having a central bank or not, is that ``One system costs us 95% of our wealth every hundred years and puts us and our posterity into mind-boggling debt until the end of time``... and the other doesn`t.

So the first thing we need for our NEW SYSTEM is our own, debt-free U.S. Government fiat currency, backed by all the property within the nation`s borders. Obviously I disagree with those who insist that `only gold is real money`. The hoarding of gold-backed money has led to and prolonged many U.S. economic depressions which explains why the U.S. has tried and abandoned `the gold standard` many times over the years. ``Bad money drives out good`` means people will always wind up using as money whatever has the least actual value that will still be accepted by others to facilitate trade. Debt-Free fiat money will work just as well as Federal Reserve fiat Debt-money, but without all the nasty side-effects.

Another problem with the OLD SYSTEM is that income-based taxation creates wasteful tax avoidance behavior, requires an expensive tax reporting industry and an intrusive collection bureaucracy, and is, arguably, a form of `involuntary servitude`. Under our NEW SYSTEM, we should replace all income-related taxes with a one-half percent, automatically-collecte... electronic transfer tax (also known as a `debit tax`) which will be avoidable by transacting business using cash or barter. This will not only rid us of the IRS (saving the billions currently spent on `tax reporting`), it will also end the current penalization of work and entrepreneurism, as well as freeing up untold billions currently spent on `tax avoidance`. A debit tax is `more just`, corresponding closely with ``benefits previously-obtained`` rather than penalizing labor and industriousness, and (as it can be legally avoided, even if only inconveniently so) this debit tax can be considered ``voluntarily-paid``. A small electronic transfer tax will also act to discourage excessive short-term market speculation and should be able to raise enough revenue to begin paying off the National Debt. The tax should be either paid with the new debt-free money or exchanged for it by the Treasury with tax revenue on Federal Reserve money being used to start retiring the National Debt.

As argued by Tom Paine in his 1797 essay ``Agrarian Justice``, the third problem with the OLD SYSTEM is that, because governments privatize all of their claimed property (allocating it however they like), everyone winds up being denied free access to all property (other than that which has been specifically allocated to them) without being compensated for that loss. That`s not a problem for those with access to capital and property ownership, but for the rest of us, it is totally unfair and creates a slanted playing field upon which wealth gravitates to the already wealthy and the well-connected. However governments allocate their property, every method has the same result of `denial to everyone of free access to all land`. It has taken 200 years for this injustice to be acknowledged in a place and time where something can be done about it and when events have conspired to make rectification not only just, but vital to our economic survival. Just as compensation for eminent domain takings are provided for in the 5th Amendment of the U.S. Constitution, governments should provide compensation for denying everyone `right of free access to all property`.

Thus, in order to remedy this, we must elect a Congress that will PAY EVERY LEGAL U.S. RESIDENT `Adequate and Equal Compensation for Denial of Free Access to U.S. Property`, compensation which can FUNCTIONALLY REPLACE ALL FORMS OF PERSONAL AND CORPORATE WELFARE AND SUBSIDIES, including rescinding Federal Minimum Wage laws and phasing-out the Social Security system. (Once everyone is getting `Denial of Free Access` compensation their whole lives, most people will be able to save enough to be able to comfortably cease working at some point in their lives.)

Our NEW SYSTEM should pay $1000 per month (of our new, non-Fed, non-Debt-Money) to every legal adult resident. Compensation for minors should be held in a trust fund to avoid incentivizing `baby factories`. Since everyone gets the same amount of compensation, this plan is not wealth redistributive, but will give the least wealthy the biggest relative monthly percentage increase of wealth. Because when people HAVE something, they have something to lose, we can expect a reduction in all sorts of crime under our NEW SYSTEM as well as better childcare, less poverty, more rural homesteading, better maintained urban areas, less intrusive and cheaper government with lower military-related expenses and a safer world in general. Once this NEW SYSTEM gets going, I expect residents of other countries will insist their governments either copy our NEW SYSTEM or else apply for U.S. statehood as Texas did in 1845.

HEALTH CARE...The AMA and FDA work to constrain competition in order to maximize the medical and pharmaceutical industries` ability to extort unconscionable prices for services and substances that should be affordable out-of-pocket. We need to train up thousands more doctors and other healthcare professionals and to decriminalize and unbridle access for adults to WHATEVER drugs adults want, obtained from WHATEVER source adults decide thay want to obtain them, for WHATEVER purpose those adults wish to use them, and let the market work to make prices of normal medical help and pharmacology affordable.

SEND A MESSAGE to candidates running for Congress in 2010 and 2012 (that, in order to get elected, they will need to support a change to a NEW SYSTEM, whether exactly like my plan or not) with a MASS WRITE-IN CAMPAIGN that `blows socks off` from DC to LA. I will be registered as a Write-In Candidate for US President in Michigan, and in other states as I get help with other states` registering processes. Pass this message along to several people every day (or, even better, to everyone you know today, and to everyone you meet from now on). IF EACH OF US EVERY DAY CONVINCE EVEN ONE OTHER PERSON TO JOIN US, OVER ONE BILLION PEOPLE WILL BE `ON BOARD` IN 30 DAYS. (Seriously. Grab a calculator and start doubling from 1.) For an e-copy, or to ask questions or volunteer, write me at alan_jacquemotte@yahoo... or P.O. Box 183393, Shelby Twp, MI 48318.

2008 Sep 19 05:06 AM