Commodities Should Profit from the Bailout Plan 19 comments
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Out comes the kitchen sink.
The actions of this last week will go down in history as the end of the U.S. as an economic superpower. I realize that’s a harsh view to take. And I love this country dearly. But the writing is now on the wall. The regulators—SEC, Treasury, Federal Reserve, and President Bush—have officially bankrupted this country, destroyed the dollar and guaranteed that our quality of life will be on the downward slope for the next decade.
I’ve already commented at length on the Fannie/ Freddie deal. In a nutshell that intervention added $5 trillion—at least $1.2 trillion of which is garbage—in liabilities to the US balance sheet. And it:
- Didn’t solve the housing crisis—housing starts fell 6.2% in August (a 17-year low) while building permits fell 8.9%.
- Won’t boost the homebuilder industry—you can’t sell homes if banks are lending.
- Sure as heck didn’t save the stock market: all we got was a feeble one day rally.
However, this latest intervention—one that required Congress to expand the statutory limit on the national debt to $11.3 trillion—is the kiss of death. The benefits to US taxpayers to this deal are even fewer than those of the Fannie/Freddie deal. The Feds have now thrown everything they’ve got, including the kitchen sink, at the market. How the markets react remains to be seen.
As for the commentators going ballistic and saying this move is “unprecedented,” they’re wrong. The government has attempted to solve financial crises before by creating a separate fund or trust to buy crummy assets. The last time they did this was with the Resolution Trust Corporation [RTC] during the Savings & Loan crisis in the early 1990s.
The RTC, like today’s superfund, was a separate entity meant to take over insolvent banks and then sell off their assets—both good and bad. However, the key difference between the RTC and the government’s proposed superfund is that that the RTC primary dealt with real estate holdings? real assets that are relatively easy to value? while today’s superfund will deal with mortgage backed securities or debt?intangibles or paper that are impossible to value.
When you buy real estate, the asset changes hands at a price and the deal is closed. Buying derivatives from someone entails a shift in risk, but for many securities, the deal is not closed until the derivative expires or is triggered. Thus, the Feds are lining up several hundred billion dollars worth of open-ended liabilities.
Until the deal is announced and all the details worked out, it’ll be difficult to gauge its impact. But one thing is for certain: It will be highly pro-inflationary.
Commodities have been slammed in the last two months due to the dollar rally. But we are now nearing a time of hyperinflation when the Feds paper over any and all problems with reckless abandon. As the market comes to realize this, commodities and other inflationary hedges will begin their bull market anew.
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This article has 19 comments:
Isn't that looking in the rear window for progress? We didn't give the housing markets a fair chance to stabilize. I think it won't be at least until 2009 until we can accurately judge the ramifications. I think you're being a little presumptuous. You may be right but it's early.
IT WAS ONCE SAID NO FOREIGN ARMY WILL INVADE AMERICA, BUT AMERICA WILL SELF DESTRUST IT SELF.
HERE IS THE PROBLEM:
TWO USLESS WARS BOTH UN WINABLE IRAQ AND AFGHAN.
AFGHAN FIRST THE RUSSIAN AFTER 10 YEARS THEY DID THE RIGHT THING AND LEF
IT IS MORE CHEAPER TO SPEND THE MONEY SEEKING BIN LADEN THAN INVADE, WE GIVE PAKISTON GOVT BILLIONS THEY
GIVE US SOME TOKEN SUPPORT BUT THE POPULATION OF PAKISTAN DO NOT AGREE WITH THEIR GOVT AND DO NOT SUPPORT OUR WAR IN AFGHAN.
REMEMBER VIETNAM FIRST THE FRENCH THEN WE GOT IN AND THE END A DISASTER.
IRAQ WE SUPPORT A GOVERNMENT IN A FORTRESS THE POPULATION OF IRAQ ARE AGAINST US TO KEEP SOME OF THEM QUITE WE POUR BILLIONS TO BUY THEIR FAVOUR.
THIRD PROBLEM FREE ENTERPRISE SYSTEM WITHOU ADEQUATE REGULATION;
THE FINANCIAL FISACO, WALL STREET WITH PUT, CALL, STRADLE, SHORTING ETC ALL A GAMBLING GAME, WE HAVE CONVERTED WALL STREET AS THE LARGEST GAMBLING CASINO.
LOW COST LABOUR DESTROY ALL OF OUR GREAST MANUFACTURING INDUSTRY WHEN THE LABOUR COST IN CHINA IS $100.00 AND THE COST GOES HIGHER THEN FIND ANOTHER COUNTRY WITH SLAVE LABOUR AT $50.00 PER MONTH PLUS
A BOWL OF RICE FOR THE WORKERS AT LUNCH TIME,
ULTIMATELY ALL MIDDLE CLASS IN AMERICA WILL BE DESTROYED, WHEN OUR UNEMPLYMENT REACHS 15%
THE IDEA OF COMMUNISM WILL BEGING TO GET HOLD IN AMERICA AND THE REST OF THE WESTERN WORLD.
HISTORY REPEATS IT SELF.
JOSEPH FOSTER A WORLD TRAVELLER AND A RETIRED
BUSINESS MAN.
When it became evident that the Financial Crisis in the US seemed to be accelerating, the dollar's rise ended very abruptly. The Bailout has added pressure and the further expansions on the original plan are going to accelerate the decline. Euro $1.49-1.50 is probable this week even without the final details.
The ECB is sticking to its Inflation Fighting mandate and a strong dollar does not help this.
The more entitlement spending added to the Bail out, the greater the pressure on the Dollar.
Hard Asset strength is a show of flight from the Dollar overall.
Having Bush and the Fed try to fix the mess is like having a vampire managing the Red Cross blood supply. Unfortunately, legislators are largely ignorant of economic principles and easily led by lobbyists.
Start paying legislators the mean average income of their electorate and send all lobbyists to Gitmo!
now lets just hope somebody doesn't decide to cancel the elections
While you're at it, you might want to take Greenspan's book off your 'must buy' list.. Volker suggested deregulating banks and investment houses was a bad idea as he was leaving. Greenspan, on the other hand, was all for it....
jegan ;-)
My view:
Trading positions (few weeks) carry risks. Short term (few months) positions carry risk. Long term (1 year plus) risks are low. On a secular basis (next several years), the risk is low and the potential rewards high. Have a look at more information on my blog.
maxkapital.wordpress.c.../
I agree the bail out of any large corportation by the government is a bad idea. It reeks of total socialism to have the government take over a corporation because some idiot CEO's fell asleep at the helm. Better yet where are the subpoenas or do we apply the "sunshine law" and force the corporations taken over by the government to open their records for public review. Including the CEO's and board members financial documents now they work for the Peoples Republilc of the United States of America.
I acn honestly say I have been a bad judge of character when it comes to politicians. I voted for Bill Clinton the first time and received an invitation to retire from the military ten months later. I moved to California and bought a home from his best friend Eli Broad. The home turned ot to be a lemon. I changed parties and voted for GW and now look what has happend. I can't win for loosing.
So far I have been batting o with the politicians I took a liking to. I don't like John Mc Cain but if the trend of my voting record is a good gage then he might be the guy to get things fixed in Washington.
If things shake out like the writer of this article suggests, then those who can should probably be looking at getting into their hands some precious metals to use as armor in the coming decade.
THE PROBLEM WAS CAUSED BY THE INITIAL $9 TRILLION OF DEBT CEILING REQUIREMENT!!!!
signed: GERRY MANDER
You really think the government has any control over this? You're cute.