Bruce Krasting

Fannie and Freddie Are Surviving, But Barely

Richard, You are correct, the conservatorship mandates a run down of the GSE portfolio starting in 2010. That does not matter. They still have unrestricted capacity to guarantee new MBS. They have $3t of that. They could issue as much as they wanted under the exiting rules.

They are already in wind down. The balance sheets have been flat for both of them. Ginnie Mae and FHA having been picking up the on book asset side of this.

I do agree with you that this is a rat hole.

Current U.S. Dollar Currency Controls

Gold ran up when we thought the financial world was going to end. When that did not happen gold faded, again.

Now we are pushing 1000. This time because of fear of inflation. Interesting that gold goes up with fear of deflation and it goes up with fear of inflation.

What happens if there is no hyper inflation or catastrophic deflation (the most likely outcome). Gold does nothing for you.

bk
brucekrasting.blogspot.../

The Case Against Gold

The ideal of Bond issues stuffing old bond holders with new paper is as old as the hills. Chrysler Ford and GM are doing it as we speak. The best one was the other day when the TreasuryCiti Bank Preff stock was converted to common stock. That resulted in a loss of 90% for the tax payer in just four months.

Iti s called cramming down. It happens all the time. Generally the bond only requires the conset of 50% of the bold holders to "cram down".

What they do is go out in the secondary market, buy up their bonds at a discount until they get to 51%.Then the cram down everyone. Only the bond holders lose.

It is not nice out there.




On Mar 04 03:32 PM auto44 wrote:

> Thanks for your portion on bonds. I have seen little written or
> probaly nothing that illustrates the danger of bonds not being paid
> off but just more paper being issued to cover them. Warren Buffet
> wrote his own deals so I guess he dosen't have this worry.

The Case Against Gold

You are right about Brazil. The people are great. As a country they do not like USA. It is not easy for an american to go there. Visa headaches. Tough to get any kind of work papers too.


On Mar 04 12:27 PM plumstupid wrote:

> Brazil? Huh. More likely that Brazil will be too unsafe for Americans.
> As will all of the Americas. Might think about someplace where there
> will be allot less animosity about collapsing the world economy.
> Someplace with less cultural propensity toward violence.

The Case Against Gold

Canada is too cold. Short growing season. Brazil on the other hand is a swell idea....


On Mar 04 12:17 PM yellowhoard wrote:

> I think perhaps Jim Rogers has the right idea. Buy farmland in Canada
> and/or Brazil. People gotta eat. Anybody know how to invest in farmland
> without actually running the farm? Are there any ETF's?
>
> By the way DAG is a good way to invest in food.

The Case Against Gold

My words: There is no place to hide.


On Mar 04 11:06 AM MGA_1 wrote:

> Short term gold may be a bad bet, but long term??
> Where's all the money going to go?
> The stock market?
> Real estate?
> T Bills?
> Dollars?
> Foreign currency?
> Where do you feel your money is safe? If we were on a gold standard
> like we were in the 30's I'd just keep dollars, but that was thrown
> out in 1970 - the price of gold has never even come close to the
> price of gold back then ($35/ounce). We're under tremendous credit
> deflation right now, but I think the govt is going to try and print
> their way out of this and I think the govt going to win the the inflation/deflation
> battle.

The Case Against Gold

You sound calm. Good for you. My hands are shaking.


On Mar 04 11:17 AM mr freddo wrote:

> I'm using gold as a hedge against hyper inflation, and as a safe
> harbor investment. I agree that it could go down as it did in late
> 2008 to the 700 level. But I am thinking that gold will retain its
> value over the near term as we are not finished with this financial
> thrill ride.
>
> The problem with the gold market is that I believe we are up against
> Fed and other central banks that do not want to see a runaway gold
> market sucking funds out of the normal investment channel.
>
> I'm already in a long position so I am going to enjoy the security
> that holding gold provides.

The Case Against Gold

I worked for Walter wriston at Citibank a billion years ago. He said to me on a bad day, "your worst fears will not come true". So I try to stay away from thinking about the real "dark side" of this that could come. I was thinking that when folks want to go to the wall mart to get some new stuff, they could just swap their old rings on the way in for sore credits on the way out. There is what appears to be a thriving business in this judging from the number of ads on tv.

Having said that I would now say that the risks are one in four that we fall off of an economic cliff one morning. This would get you to your anarchy thinking pretty quickly.


On Mar 04 11:10 AM silverwood wrote:

> Woops hit the enter key before I finished, sorry. Anyway to finish
> the above post, what will the people sell after the gold jewelry
> is gone? If things get that bad and people are faced with starvation
> then there will be anarchy. I don't believe the Fed and Government
> will allow that. They can reflate by handing out food stamps and
> economic stimulus checks if things get that bad. I believe they will
> risk hyperinflation before a revolt.

The Case Against Gold

Thanks. I agree. I came up with an out line for an alternate to the bad bank problem. Thoughts. bk.
seekingalpha.com/artic...


On Mar 04 11:15 AM lance sjogren wrote:

> "I think the govt is going to try and print their way out of this
> and I think the govt going to win the the inflation/deflation battle."
>
>
>
> There is no other alternative. With the amount of debt the US needs
> to issue to fund the stimulus, bailout, etc., Treasury will have
> to sell it to the Fed in exchange for newly-printed fiat money.<br/>
>
> Demand for US debt will be going down. China needs to spend its
> surplus on bolstering its economy, it can't afford to keep buying
> more US Treasury debt for a rainy day. The rainy day has arrived.
> If anything, China will want to SPENT a lot of its existing US debt.
>
>
> The only way US will be able to sell those trillions of new treasury
> bonds is if they jack up the interest rates. They can't do that,
> because that would jack up mortgage rates, dealing a huge new blow
> to the housing market.
>
>
> The government WILL win the deflation/inflation battle. It holds
> all the cards. It can print money out of thin air, and will have
> no hesitation in using that power to a massive degree.
>
> If anyone can propose an alternative scenario, have at it.

Historic Financial Collapse Underway?

I agree that the odds of a soft landing are not very good. I have trouble however, with your forecast.

Does any one remember the "New Paradigm"? The idea that emerged in the late 90's to explain that you do not need earnings to justify a stock price?

The "New-New Paradigm" of this decade is that the global economies have decoupled and that what happens in the US no longer matters to the global economic cycle. Rubbish.

If half of what you describe takes place we are headed into a great deflation. Not inflation. It it will happen globally.

Euro land has a lot of weak economies in it. That currency is no safe have in the storm you describe. The Japanese economy has been in the tank for 20 years. The aging population limits domestic demand. In the future economy you describe there is no safety in the Yen.

China is in trouble today. It's weakness is masked by the Olympics run up. That currency will be a bust too.

So what currency do we buy? No gold. Not silver. That is like getting long oil at $150. A losing strategy.

I am not sure where the safe place to hide is. I am convinced that the logical choices, precious metals, will not prove to be a safe haven in a massively deflationary global economy.

It will be interesting to watch this unfold though. Good luck to all.