Money Matters

Investment Houses And Loan Companies Fall Faster And Faster

Elaine Meinel Supkis

The collapsing mortgage market continues and far from slowing down, is accelerating. The inability to understand all this on the part of the media and our financial officers in the Government is a scandal we will pay dearly for this isn't over at all. The witless mortgage companies writing bizarre mortgage contracts didn't stop last year, far from it, they are doing it not just last quarter but this quarter! They are still at it, madly writing bad contracts and watching the older ones go bad at the same time. Digging deeper and deeper into the hole, they enlarge it and now some of the biggest players in this game are going down into bankruptcy.

From Bloomberg:

On Wall Street, Bear Stearns Cos., Lehman Brothers Holdings Inc., Merrill Lynch & Co. and Goldman Sachs Group Inc., are as good as junk.

Bonds of U.S. investment banks lost about $1.5 billion of their face value this month as the risk of owning the securities increased the most since at least October 2004, according to Merrill indexes. Prices of credit-default swaps based on the debt imply that their credit ratings are below investment grade, data compiled by Moody's Investors Service show.

The highest level of defaults in 10 years on subprime mortgages and a $33 billion pileup of unsold bonds and loans for funding acquisitions are driving investors away from debt of the New York-based securities firms. Concerns about credit quality may get worse because banks promised to provide $300 billion in debt for leveraged buyouts announced this year.

Bloomberg tends to have writers who call the shots. I have used it as a link, more and more because of this. Astonishing opening to a story! The top investment houses are 'junk'? Yesterday, the stock market managed to crawl out of the wreckage of the latest wave of fearful selling but if anyone thinks that is the end of it and everyone is going to rush back into the markets to place their money into the hands of the idiots and fools who are destroying America, they are crazy. These guys have cycled their crummy bosses,into our top government financial positions the guys who were the Goodfellas of these scheming investment houses that invested in wrecking our international standing. I still remember the hearrings in Congress to rubberstamp these guys. The politicians who all get money from these guys in the form of legal bribes we call 'campaign donations' all applauded Paulson, for example. Why, he would fix things! He would negotiate with the Chinese and ignore the Japanese and we would all be bathed in gold!

Indeed, he went to work to strengthen the messed up system we are trapped inside of and now it is devouring us. Instead of changing the fundamentals of our trade problems, he made them much, much worse. Then he thought, delusionally, that he and the US forced China to do what China planned to do way back in the mid 1980s when it seemed impossible: to surplant Japan and the yen as the controlling economic power in Asia. We didn't make China raise the value of the yuan. They raised it because it is time to begin moving towards this goal.

From one of the readers of this news service, Mr. Powell, a Phd.MBA (evidently, one of the smart ones, there are smart ones out there!) sent me his URL and he has interesting charts there:

Preface. The Impact of an Exponentially-Increasing Trade Deficit:
We're Between a Rock and a Hard Place

The U.S. economy will collapse. Repeat. The U.S. economy, and probably the world economy, will collapse because of the United States' exponentially-increasing trade deficit.

Anyone with a brain can see something went terribly wrong with the US back under Nixon. Our trade deficit began small and then took off in the last 10 years. The second graph shows the true nature of our fix: international investment funds. Note the bulge in the years of great inflation and at the very beginning of the trade deficit: this was the US investment houses and corporations in our industrial base outsourcing our factories. Once that was done, the money flow has been in the opposite direction. The red ink is, as on all our scales, flowing like blood from a severed limb. This flood isn't being staunched, it is flowing ever more.

From the Bloomberg article:

Prices of credit-default swaps for Goldman, the biggest investment bank by market value, Merrill, the third largest, and Lehman, the No. 1 mortgage bond underwriter, also equate to a Ba1 rating, data from Moody's credit strategy group show. Bonds of New York-based Goldman and Merrill are rated Aa3, seven levels higher than swaps suggest. Lehman is rated A1, the same as Bear Stearns.

About 1 percent of the thousands of companies followed by Moody's have a gap of more than five levels between their actual and implied rankings, analyst Tony Smith said in a July 19 report titled ``Broker Securities Climb a Wall of Worry.''

Wow. Just look at that. Talk about a mismatch between reality and fantasy. Why even bother with Moody's ratings if they won't rate anything correctly? This is part of a typical balloon scandal. Everything is hysterically overvalued and then everyone is encouraged to overspend on things that cannot support the financing behind it. If people can't afford $600,000 houses then they can't afford them! Creating means for people without means to buy things they can't afford is pure insanity! And the ratings of these securities which are grossly overvalued were enabled by Moody's who didn't cast a harsh light on these whores but rather cast a backlit glow on haggard Wall Street walkers seeking Johns in the dark.

This is part of the 'wand waving wizards' I keep talking about. The magic of declaring crappy bonds are triple A is magic. Everyone thinks these stinkers are valuable! Only when harsh reality exposes the coyote ugliness of these old whores do investors literally chew off their financial arms to escape the embrace of these supposed triple As. I hope all investors sue Moody and sue this organization to death. It doesn't deserve to be used as a guide if it guides people into traps that suck down all their life savings! Disgusting.

From Bloomberg:

Financing leveraged buyouts and bundling subprime mortgages and bonds into other securities called collateralized debt obligations generated about $21 billion in fees last year, data compiled by Freeman & Co., Thomson Financial and JPMorgan Chase show.

The fees these conmen culled from the herd of investors will seem puny in comparison to the loss of funds we are just now beginning to see. Every penny of these fees should be returned to the investors. These conmen then should be sent to prison. Every financial collapse has these features: previous geniuses and financial wizards see their wands break and they either commit suicide, go to prison or flee the country. Why can't we prevent this sort of madness?

It is simple: greed always wins. I remember when the right wing began their 'greed is good' campaign. This flies in the teeth of 99.9% of history. Interestingly, it flies in the face of nearly all fairy tales. There are so many of them! In many stories, the person is given the choice between a jeweled box or a golden bridle for a wild horse or some such thing and a plain, old, beat up box or bridle. The bad sister or evil brother will invariably choose the rich item and the kindly, loving sister or brother will always want the plain one. Then it turns out, the golden, rich item causes the death of the greedy brother or sister while the plain one leads to marriage and happiness.

Then there are the tales of wives of fishermen demanding more wealth and power from the magic fish or genie. Invariably, she demands to become a god and suddenly the wealth and power vanishes. Indeed, the intersection of money and magic is very strong. For much of wealth can become invisible with great speed. Last year's fine statues and paintings can instantly become ruins and can lie for thousands of years, unattended and unwanted. Because of this, to protect whatever wealth we accumulate, we have to be guardians and not just consumers. Fires consume. And the raunchy antics of rich brats that are in the news such as Paris Hilton who was just disowned and now has no future wealth, for example, these actions of rich children show us how swiftly wealth can be consumed in infantile fires.

I have seen major wealth destroyed this way! And the dangers of the present system are obvious: the guardians ignored the brats burning the wealth and now it is all going poof! Moody was supposed to be a guardian, not hander-outer-of-lollipops.

From the NTY:

The developments are the latest indications that the housing slump will affect a broader segment of the mortgage industry and that the problems will last longer than many officials had suggested earlier this year. Just last week, the nation’s biggest home lender, Countrywide Financial, acknowledged that defaults on second mortgages to prime borrowers were rising quickly.

The New York Stock Exchange never opened trading in shares of American Home Mortgage yesterday after the company said late Friday that it would suspend its dividend and was facing “significant margin calls” from its banks.

Already down 70 percent for the year, shares in A.H.M. fell 39 percent in premarket trading, to $6.39.

Later in the evening, the Mortgage Guaranty Insurance Corporation, or M.G.I.C., said it would write down its $516 million investment in Credit-Based Asset Servicing and Securitization, or C-Bass, possibly to zero. The Radian Group, which has a $518 million stake in C-Bass, also said it might have to write off its investment completely. The rest of C-Bass is owned by its management.

Here are more statistics and bad news. First, do note the name of this latest giant to go down the drain: M.G.I.C.= Magic. All the time, these guys love to pull our legs. Here is a typical example. Just like I said, people were nuts to give their life savings to an outfit called 'Pirates' for example, so it is here. Magic is all about illusions. Only there is another side: in this magic, the illusionist uses swords and runs them through the basket where the lovely girl hides. She hops out and the magician invites the investors into the basket. Then he runs the swords through it and blood runs all over the stage. Peeking inside, he says, 'Ooops, a 100% drop in value! The money is all gone and the investor is dead.'

Here is the official announcement of MaGIC's demise:

MGIC Investment Provides Update on C-BASS Investment MILWAUKEE, July 30 /PRNewswire-FirstCall/ -- MGIC Investment Corporation (NYSE: MTG) ("MGIC") announced today that it has concluded that the value of its investment in Credit-Based Asset Servicing and Securitization LLC ("C-BASS") has been materially impaired. C-BASS is a limited liability company whose interests are owned by MGIC, Radian Group Inc. and the management of C-BASS. C-BASS is principally engaged in the business of investing in the credit risk of subprime single-family residential mortgages. Beginning in February 2007, the market for subprime mortgages has experienced significant turmoil, with market dislocations accelerating to unprecedented levels beginning in approximately mid-July 2007.

MGIC's investment in C-BASS consists of approximately $466 million of equity as of June 30, 2007 and an additional $50 million drawn on July 20 and 23, 2007 under a $50 million unsecured credit facility that MGIC provided to C-BASS. As of June 30, 2007 on a pro forma basis reflecting the amounts drawn under this credit facility, MGIC's investment in C-BASS was approximately $516 million. MGIC has not determined the range of an impairment charge, although the upper boundary of the range could be MGIC's entire investment, less any associated tax benefit.

All that nifty talk about money with a stunning final sentence. Oh, they have all this money but for a small craveat: it ain't there no more. The upper boundry of losses is the entire amount? Gads! I would feel real good if I were holding bonds in this outfit.

From the NYT:

Later in the evening, the Mortgage Guaranty Insurance Corporation, or M.G.I.C., said it would write down its $516 million investment in Credit-Based Asset Servicing and Securitization, or C-Bass, possibly to zero. The Radian Group, which has a $518 million stake in C-Bass, also said it might have to write off its investment completely. The rest of C-Bass is owned by its management.

Note the chart here: the stocks took off when the Federal Reserve dropped rates to 1%. And the guys writing the Alt A loans thought they were all so smart because the rate differential between 6% and 1% was so great. But now the Fed is asking for over 4% and the higher it goes, the worse the differential and it shrinks and the loans become increasingly worthless. We must never loose sight on the real criminal in all this: the Federal Reserve. They cook these bubbles and the investment houses that usually run the Treasury enable this. They are the guys who build the magic boxes for the magicians to use. And they are the ones who hand over the real sword which slays the investors.

Here is another chart (click to enlarge) that shows who is selling off this company's stocks and look at the insider trading! The big boy himself is selling like mad. Whenever bosses sell their own stocks, run for the hills. 400,000 shares is a lot of insider wanting to be outsider, I would say.

And the long-term debt is $5.3 billion. This callapse dwarfs the previous collapses but it is not the last. It is still only the beginning. For the big guys may be trembling but they aren't falling, yet. This process takes time and the rush to declare it all over is a sign of panic not security.

Here is the home page of the AHMIC:

American Home Mortgage Investment Corp.'s primary goals in managing its portfolio are to gain yield through the benefit of self-origination, and otherwise seek to reduce risk. The Company attempts to minimize the risks associated with holding a leveraged portfolio of securitized loans held for investment by approximately matching the duration of its securitized loans held for investment with the duration of the liabilities the Company utilizes to finance those loans. The Company further seeks to mitigate risk by investing primarily in adjustable-rate mortgage ("ARM") and hybrid-ARM securitized loans.

The Company operates a mortgage origination business of retail offices through its wholly-owned subsidiary, American Home Mortgage Corp., wholesale loan production offices through its American Brokers Conduit Division and also purchases loans though its correspondent channel. The Company has been consistently ranked by National Mortgage News as one of the nation's largest residential mortgage lenders.

Here is some information from the American Home Mortgage Investment people:

Looking at this set of numbers of the ARM loans by this corporation shows how they got themsevles in trouble. Even as we approached the terrible day of reckoning, July 19th, this soon to be defunct company was still handing out ARMs like candy! The average price of the house being mortgaged fell from the dizzy heights of 2006 but look at the other numbers! Over 7% interest? Wow. These aren't cheap loans like we see in the ads on most web pages! And over half of them were for negative amortizations! This means the guy paying this loan sees the amount owed on the principal rise every month! How can so many loans be for such a foolish thing? This works only in a rising market, not a falling market!

From the NYT:

Earlier yesterday, IKB Deutsche Industriebank, a bank based in Düsseldorf, Germany, that provides loans to midsize companies, said that investments in American mortgage securities that it had pronounced healthy just 10 days ago had fallen sharply and would be taken over by a German state bank, KfW, which owns 37 percent of IKB. The bank’s chief executive, Stefan Ortseifen, said he would retire.

At A.H.M., lenders appear to have issued margin calls on debt that the company used to buy mortgage-backed securities that include its loans and those made by other lenders. At the end of March, the company had borrowed $6.7 billion to finance such investments and had $19.3 billion in liabilities.

July 19th will be seen as the beginning of the panic. All panics don't go straight down. They yo-yo from the peak to half of the first year's rise in value. Then the real bear market begins six months to a year later. This is when the entire bubble is erased and driven ever lower. Classically, it loses value from the peak to around 60-75%. This happens about once every 15 years. This means anyone my age has seen several. I know I have.

The trick of the magicians is to make people forget the past. Previous bubble bustings are called 'unique' and were due to some happenstance. The builders of the bubble were innocent. The few con men go to prison so all is well and the others commit suicide or flee the country so they won't cheap people a second time. Then the magicians sneak out their wands and begin their waving all over again. Europe is supposed to be stronger than the US but it isn't, no one is. We are the world's #1 economy and if we tank, the world tanks with us. And of course, in the background looms this dragon: we have been demanding it save us for the last 5 years and now we are whacking at the dragon and screaming like a twarted baby. Will the dragon save us from our own follies? Or will it laugh to death?

From the NYT:

The disclosure by IKB that its fund, Rhineland Funding, was having problems riled credit markets in Europe. Though it is a relatively small bank, investors worried that it may be the first of many others that could find itself in similar circumstances. In recent weeks, hedge funds as far as Australia have suffered big losses because of bets on American mortgage securities.

“The question right now is whether it will be solely a crisis for financial markets or for the real economy,” said Jochen Felsenheimer, head of credit strategy at UniCredit in Munich. “The challenge that we are facing is that these crises can be self-fulfilling.”

I hate it when the financiers suddenly pretend their shennanigans won't effect 'the REAL economy.' Of course it will. Also note how they backhandedly will admit they are magicians trying to fool people with funny money. But funny money magic tricks lead to world wars if they are connected with hiding the true conditon of a dying empire! The US is a dying empire. Even as we try to extend our power, it is poorly projected to the point that we can't control even tiny, disarmed nations we invade. The expenditures of funds compared to returns stink. And the sagging fortunes of America is at the heart of this financial mess aggravated by Bush tax cuts and Greenspan Federal rates cuts.

From the NYT:

“So far the banks feel pretty comfortable,” Mr. Best said. “There is a pretty high threshold before they would take a hit.”

And when did the big banks suffer in the Great Depression? In 1929? Or did they all go under in 1933 when the President suddenly confiscated all the gold bonds and rendered the ones still held 'illegal'? I have one of these bonds a relative kept as a reminder of the past! The internet is infested with people peddling gold bonds as a means of protection from general banking collapse. People trying to peddle their gold rings and diamonds in the wake of the banking collapse of 1933 couldn't find buyers. The value of valuables collapsed along with all the other assets.

For bankers to pretend they won't be harmed is pure silliness. Just as they assured us that hedge funds would spread the risk and therefore there was no limit to the number of deadbeats one could loan money to, so it is here: they are LYING. Like all con men, they know they must tell fairy tales that are false in order to keep the con game going a little bit further. Investing is at the heart of capitalism. And there is sane investing versus stupid investing. And being able to tell the difference is vital. The government should encourage this, not had over the hen house to the investment banking foxes! This is why the Treasury should NEVER be run by a Wall Street big wig. They always encourage bubbles, this makes them rich!

Here is a historic review of the month before the panic of October, 1929:

On September 1, 1929, with values on the New York Stock Exchange (NYSE) calculated at just under $90 billion, bank financed broker's (margin) loans equaled almost 9% of this total - the vast majority of which was channeled into NYSE stocks. Additional margin loans were funded by the well healed brokers, who were able to call on funds from "others," including corporations, wealthy individuals, foreign sources and out-of-town banks. Loans extended directly by banks on securities of all sorts were just as high. There was well over $7 billion in unsecured bank loans, and debts from installment purchases reached into the billions of dollars as well.

From all over the nation and the world, capital was attracted to New York and channeled by speculators into approximately 42 issues on the Big Board and a small number of other attractive issues on the other national exchanges, pushing them continuously upwards from one new high to another.

This massive inflow of private credit limited Federal Reserve Bank efforts to dampen the speculative excess. These efforts had pushed short term "call" rates to and above 15% in March, April, May, and July -- but they would not exceed 10% after the end of August.

The bond market was dull and most of the rest of the shares listed on the stock exchanges showed as many declines as advances. Despite the great bull market, the dividend yield average for NYSE stocks only briefly dipped below 3%. Except for France and the tiny Scandinavian nations, credit dried up all over Europe.

In the first 10 months of 1929, there was $9.2 billion in new securities issued. This was 30% more than in any previous 10 month period. Yet, so great was the flow of credit capital into New York that the supply remained capable of meeting all demands. In September, 1929, speculators could borrow at rates ranging from 8% to 10% and, from and after the first week in October, 1929, at 7% and less.

New York banks were able to increase their reserves. Many brokers were able to enforce new minimum margin levels ranging from 30%-to-50% on speculative stocks, and investment trusts were able to sell out a large portion of their holdings and carry hundreds of millions of dollars in cash and liquid assets.

Reading this is so...depressing. One of the most splendid tricks used by the guys running our economic systems is to laud international currency value trading and the fiat currency system. Then, when asked to explain the cause of massive panics and currency value failures and above all, depressions, they always throw up their hands and express befuddlement. So it is with the Great Depression. A very bankrupt Britian tried to hang onto its rule of the planet while borrowing money like crazy from the Chiense dragon...oops...from Miz America. And she, like China today, had huge FOREX reserves! So you would think the transition from British rule to American would be smooth?

It was not. And the cause, ultimately, of the Great Depression was Germany refusing to pay anyone back and Britain too bankrupt and poor to survive this. So it is here: the obvious parallel is China is the US to the US being Britain. And far from being able to prevent a global depression, the Chinese can no more stop this than we could stop Britain. For the same reason: Britain ruled the Seven Seas! They go down, world trade collapsed!

However, the overextended financial leverage meant that even a lull would be intolerable. On September 4, it was reported that broker's loans had increased $400 million in the month of August. This report caused a nervous downward reaction in stock prices. But the market started back up the next day. Then, at two o'clock, the ticker flashed the news that a "statistician" - Roger Babson - predicted a great break in stock prices - the greatest break ever - only, he didn't know when it would occur.

Bankers, some economists, and Babson himself, had been uttering dire warnings for well over a year without any previous effect. However, the demand for stock at present high prices and low yields had grown so thin, and the competing stock offerings - old and new - had grown so vast, and high interest rates and high price/earnings ratios so obvious, that this time a spectacular fifty minute crash ensued.

At the news, speculators started selling out and selling short. The market was honeycombed by "stop loss" orders designed to protect the profits of the last three months. These were reached in minutes and a vast flood of selling was thrown on the market "at the market" only to find few buyers at anywhere near previous prices. Finally, a flood of new buying poured in to take advantage of the low "bargain" prices and, with the help of "covering" by the shorts, provided a slight recovery in the last ten minutes. However, industrials were down over $10 (about 3%) for the day - all in the last hectic hour.

All market collapses are the same. They go up and up even as they go down. This is the violent yo-yo effect we are seeing today. This effect is a sign it is about to collapse. The government always intervenes and the Federal Reserve and Treasury will rush about the planet trying to undo the obvious messes they caused. As a person who has done tons of backhoe work at building sites, when a cave-in occurs, you can't rush in and dig it out. You have to wait for it to finish, you might even have to help it along or it buries you and more than one digger has died this way.

The time was not yet ripe. An economist - the prominent Yale Prof. Irving Fisher - was quickly found to contradict Babson. "Official" Wall Street sneered at Babson's "intemperate predictions." The advance would continue as before - despite such "gratuitous" forecasts.

HAHAHA. They never, ever change. The bears are always blamed for scaring everyone when they point out the obvious. And the magicians do believe waving wands and chanting 'Don't listen to the bears' will work.

Ownership (equity) capital was leaving the market. It had begun when the investment trusts started to build up their cash holdings. One trust, International Equities Corp., was reported holding 94% of its assets in cash. There was a shift towards bonds and utilities stocks, which was reflected in the rise of these prices. British investment trusts were getting out - and would stay out - resulting in excellent profits for 1929.

As steel production continued to slip, speculative issues slipped lower, and margin requirements and credit for margin speculators tightened. The "Hatry" scandal - which would cost investors about $57 1/2 million - broke in England at about the same time that the Bank of England was forced to raise its discount rate to 6 1/2%. This initiated a small but significant flow of capital out of Wall Street and back to England.

The market was struck by several sharp declines and sharp, but much smaller, recoveries as each drop drew more speculators in to buy at new "bargain" prices. After each drop, "experts" could be found for "confidence game" assertions that the liquidation had run its course. Brokers were congratulating themselves that their foresight in raising margin requirements had kept the number of margin calls low.

Yesterday's headlines were all about investors buying bargains. Things seldom change. The template was made long ago and it always works, doesn't it?

Culture of Life News Main Page

Fear Stalks Japanese Ruling Elites

Elaine Meinel Supkis

The political kaze in Japan is blowing through all the financial houses and if the Japanese cease their fake depression, this will be a dynamic change that will blow down more than one house of cards. China raises the reserve rate for banks yet again. And there is a typical scandal on Wall Street. Seems the analysts who advise investors are in cahoots with the big boys and accept bribes and make sweetheart deals. This is a perennial problem that never gets fixed which is why investors shouldn't be so trusting. The deteriorating quality of American financing coupled with the possibility of a total change of course in Japan means the world's financial future is now in doubt and the great change over is now commencing.

From the Nikkei:

Japan Firms Seize On Court Ruling To Further Cross-Shareholdings

TOKYO (Nikkei)--A number of Japanese companies have started to strengthen cross-shareholding arrangements with other firms after the Tokyo High Court acknowledged U.S. investment fund Steel Partners as "an abusive acquirer" in a case involving Bull-Dog Sauce Co. (2804), seeing the ruling as giving them the green light to pursue such activities.
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Nippon Steel, JFE Report Strong April-June Earnings

TOKYO (Dow Jones)--Japan's top two steel makers, Nippon Steel Corp. (5401) and JFE Holdings Inc. (5411), Monday reported strong earnings for the April-June quarter, as robust demand for high-grade steel for automobiles and ships offset higher costs from rising coal and iron ore prices.
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Stocks: Rebound, Offsetting Early Losses On Election, Wall St

TOKYO (Kyodo)--Tokyo stocks ended Monday slightly higher as late bargain-hunting helped to erase sharp declines earlier in the day on the massive defeat of Prime Minister Shinzo Abe's ruling coalition in Sunday's upper house election and continued plunges in U.S. shares.
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LDP Defeat Mustn't Derail Economic Recovery: Nippon Keidaren

TOKYO (Kyodo)--Japan's most influential business lobby on Monday renewed support for Prime Minister Shinzo Abe, despite a devastating defeat of the governing Liberal Democratic Party in Sunday's upper house election, saying the country's ongoing economic recovery should not be derailed by political uncertainties.
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Fortress Japan has fended off foreign funds and all the Japanese industrialists and businesses are now reorganizing themselves into an impossible to assault configuration. This development which I have watched for several months has gotten little or no attention in the mainstream media which doesn't surprise me at all. The phobia driving Japanese finances is remarkable. No other nation is so closed except for North Korea. The curious situation where the #2 economy of the world is so at odds with the rest of the world's financial systems and trade accords still astonishes me. When the US allowed Japan to rebuild after WWII, we launched the Korean war to 'stop communism' and China went communist so we wanted Japan strengthened so we could stop communism. And in Japan, there was a lot of communist activity.

So the US, instead of exploiting Japanese labor and building American-owned factories there, did a most astonishing thing: they allowed the Japanese to build, own and run major industries that were in direct competition with the US industries. Purchases for the war in Korea and then later, in Vietnam, were made in Japan, boosting their industries greatly. During this time frame, from 1948-1970, Japan exported to the US small items, little things like clothing and umbrellas and cheap toys. I bought some of these things and one of the things they exported were silk stockings, for example.

Then they began to move aggressively into the clothing industries and worked harder and harder to dominate various industries. Like cameras. At first, Kodak didn't complain. But as the camera tsunami grew, the battle to sell in Japan was lost almost instantly. With one way trade the norm and with cheap yens at 400 to the dollar, the Japanese rapidly figured out this funky financial scheme whereby they could keep the yen weak as if it were 1950 while selling in American markets and they would be rich!

By 1972, the US was in deep financial trouble and our government demanded all currencies be realigned to reflect real relative values. For example, the German mark doubled in value against the dollar and ditto, the yen. This collapse of the value of our currency was hailed as a magic nostrum for our trade woes which our anti-communism crusade created. The imputus for change also came from a sudden hike in world energy prices which are still nearly universally denominated in dollars. The only tool we have to fixing this is to devalue the dollar and thus, literally cheat oil exporting nations out of their new-found wealth.

During all this time since 1972, Japan's trade doors have been locked shut and nailed to the doorframe. Every attempt at prying it open fails as they construct a new door right behind the one pried open. So every decade, the US has a meeting of all the top industrial nations, the G8, for example, and demands they devalue the dollar and let us out of our own noose. They all always agree, cheerfully. There is a brief respite in the accumulating trade imbalance but this seldom lasts more than three years. Every time it happens, Japan goes into a severe recession. And they climb out every time using the same tools over and over and over again.

This time around, when things got better, they decided to stop this nonsense and to set in cement a status quo that would make Japan's industrialists stronger and stronger while preventing the US from using the devaluation tool against them! This was to enforce a depression on the working class. No longer fearful of communism riling the workers, they cut wages and hours ruthlessly. This dynamic is so out of control now, the utter collapse of the lives of workers there is severe and growing worse and worse. As oil prices rise, wages fall. And now the workers have just begun to fight back.

This disturbs all the ruling elites. First, spreading labor unrest frightens them to death. Secondly, like all systems, they got accustomed to this present dynamic and have figured out how to enrich themselves off it and the last thing they want is to change it. But to keep labor unrest down in the US, they had to go through the motions of the decal 'let's drop the value of the dollar to fix our trade deficit' game. Only this time around, the yen was the currency to get weaker and weaker which made the US trade deficit get worse and worse! We may have to thank the Japanese workers for finally daring to end this destructive system. If they can succeed, of course. There are many powers ranged against them.

From Bloomberg:

China's government curbed bank lending for a sixth time this year to cool the economy after the fastest expansion since 1994.

Lenders must put aside 12 percent of deposits as reserves, starting Aug. 15, up from 11.5 percent, the People's Bank of China said today on its Web site.

The restriction, coupled with three interest-rate increases since March, is aimed at stopping a $112.5 billion first-half trade surplus from fueling inflation and asset bubbles. Consumer prices rose 4.4 percent in June, the fastest pace in 33 months, and the key stock index more than doubled this year to a record.

The US dearly loves to pretend we are responsible for all the permutations and changes in Chinese currency and banking events. We are like a magician going out in the rain and waving a wand, yelling, 'I will now begin to rain!' The Chinese have goals and systems they are introducing one after the other. They are slowly setting up their own system that is based on several other systems, a combination of the Japanese system, the US system before 1970 and of course, the German system. This hybrid is difficult for us to understand because we want everyone to simply do whatever it is we want at any given time. 80% of what China exports to the US is stuff for American and Japanese corporations. China is the cess-pool of our pollution and it is the workhouse of our labor, it wrings out energy inflation.

But it doesn't end there. China knows, easy in, hard out. It is their ultimate game plan. They listened to some interesting people in America explain this process (HAHAHA---yup!) that the US, the world's biggest and most heavily armed empire is so accustomed to moving about the planet, putting things in and hauling things out of countries, they forget that not all countries are helpless. Nuclear armed nations with a strong central government can play possum and pretend to be weak and lure factories and industries inside and then take over. And so this became their plan. To their great joy, the US fell for it despite strong warnings issued via mail or via my dad who, incidentally, thought I was wrong back then.

Well, I am right! And China, as it soaks up the new technologies and as it trains its people in the new methods and as it strengthens the sense of being Chinese and native patriotism, it is preparing the world for a big surprise: if you want to sell inside of China, you have to make the Chinese part of your board of directors, company presidents, and holders of stocks! They want to get their hands on a beast we call 'profits'. And this is sensible, for them.

And it is foolish for us to ignore this. They will sell to us in the future and take a good bite of the profits!

From Prudent Bear:

So, why are the Big Boys still reporting record profits? It’s actually easy, with a combination of the following: 1) Taking on unprecedented risk by exploding up the size of the balance sheet; 2) Adding massive amounts of leverage, including hidden leverage through derivatives; 3) Robbing loan loss reserves; and 4) Playing accounting games that allow earnings to be booked today at the expense of losses tomorrow.

Included in the unprecedented risk category is when these same financial firms switch to the foreign carry trade. Big carry trade profits can be achieved by borrowing in a low interest rate foreign currency (such as the Yen). As long as the Yen declines in value, a fortune can be made borrowing below one percent interest, and investing in U.S. financial assets yielding much more. However, this trade is placed and highly leveraged and if the Yen ever goes up against the dollar, the carry trade losses will make the subprime fiasco appear like a minor footnote in history.

There is real fear out there in la-la land. The ability to take the carry trade home and get rich easy is ending. It was doomed in the end since this is, from day one, unsustainable. I cannot see any sane way for the Bank of Japan to raise rates to the level where it makes sense with the rest of the world. So they will do what they have done repeatedly over the last 50 years: violently lurch upwards. Looking at 50 years of Japanese financial statistics, one is impressed at how they do this repeatedly. Lurch, hang on until it is is impossible and then lurch again. I would think the other G8 nations would hold emergency meetings with them over this very issue! The Chinese love gradualism and so do note how they move in a direction steadily!

Someone else has become very prone to lurches: the US. When the world's #1 and #2 economies are run by bankers who have to hold steady until it becomes impossible and then lurch violently into a new status quo, well, we might actually be grateful when the Chinese surplant both the US and Japan in world currency markets! We might get some steadiness!

From Prudent Bear:

For financial institutions, CDSs are a way of making a credit bet (just like making a loan) without the inconvenience of putting any real money up or having to place the loan on the balance sheet, that would require equity. Indeed, there are now about 10 CDSs written for each and every corporate bond that actually exists! That means that 90 percent of the business is pure speculation because it is not hedged by someone who owns a bond or loan. Most of the CDS business is simply a way for the Big Boys to place big bets with no money down. Remember, if you own the stocks of big financial institutions, they are gambling with your money.

This 10X rule works great when going up and works horrible going down. And this is part of the lurch-lurch-lurching of our financial system. The Federal Reseve loves to pretend they tweak interest rates to keep us on an even course but this is a total lie. They change rates to get political power. And it has little to do with anything else. If they want to punish a President, they raise rates. If they want to keep some President in power, they lower rates. But there is a countervailing force: inflation. So even if they want to prop up a President, if inflation caused by them increases, they have to raise rates or the financial system collapses.

Note how the last year, there are rising demands the Fed drop interest rates again. But inflation is raging. I went to Home Depot and noted in horror, 1/2" 4x8 CD plywood was running at $15.75 a sheet! OUCH. I remember just 7 years ago, it was only $4 -5 a sheet! This is inflation. Due to the dropping value of the dollar versus the Canadian loonie.

From MSNBC:

Conflicts of interest may still be rampant on Wall Street, with a new study showing that nearly two-thirds of investment-firm analysts received favors from executives of companies they cover and suggesting that the companies get favorable ratings in return.

The academic study published Friday outlines a culture of blatant back-scratching on Wall Street as company executives bestow professional and personal favors on analysts — putting them in touch with top executives of other companies, recommending them for a job — and their companies receive positive ratings and evade stock downgrades. At the same time, executives punish analysts for negative reports by refusing to answer their phone calls or questions.

No one gives me any bribes. I am worthless. Heh. But the truth is, the system is corrupted up, down and all around town in a thousand ways. Money is used to bribe politicians via 'campaign donations', lobbyists abound in DC, many times more than the number of politicians waiting to be bribed and Wall Street has enough liquidity to pour into the pockets of anyone they wish to buy. And once they get their paws on all the controls in the system and one of them runs the Treasury, they always do the same damn thing: they get greedy and arrogant and run the system right off the cliff as they seek to loot it and everyone involved.

From the Federal Reserve Beige Book:

Reports from the twelve Federal Reserve Banks indicated that economic activity continued to expand in June and early July. New York, Richmond, St. Louis, Minneapolis, and San Francisco described the pace of growth as "moderate" while Cleveland and Chicago saw it as "modest." Philadelphia noted that economic conditions improved. Kansas City said the regional economy continued to grow but at a moderating pace, and Dallas characterized its economy as strong but said it decelerated. Boston and Atlanta described business contacts' reports as "varied" or "mixed."

And at the apex of all this, the unelected, controlled by the very rich, our own Federal Reserve that has few FOREX reserves issues yet another half-baked report that leaves out all mention of federal deficits and all mention of the trade deficit and their reports are nearly uniformly happy reading. But issuing Scrooge McDuck comics may appeal to the infantile sector of the US financial audience but it is foolish for anyone to take any of these reports seriously. What is growing in our economy is inflation. And this is killing us slowly, always starting at the bottom and like gangrene, moving from the outer limbs to the main body.

Culture of Life News Main Page

CIA-LDP of Japan Nearly Totally Destroyed By Angry Voters

Elaine Meinel Supkis

Depressions can go for hundreds of years. Escaping them usually involves either major wars or killing most of the ruling elites. Why do they love depressions? Easy: they get richer and richer the more money is restricted and wages and prices drop! Anyone with $100 is richer and richer during a depression while people with a plugged nickle starve to death. Japan has this absurd depression which is getting worse and worse while it makes the ruling elites richer and richer! So it never ends! For the first 10 years, voters believed the rulers. Now, they are obviously very irritated with the rulers and for good reason! Off with them! They are criminals!

From Mainichi MSN:

The ruling Liberal Democratic Party (LDP) suffered a heavy defeat in Sunday's House of Councillors election, official announcements and Mainichi exit polls have suggested -- a defeat worse than that which led to the 1998 resignation of then Prime Minister Ryutaro Hashimoto.

As a result, the opposition Democratic Party of Japan (DPJ) has become the largest bloc in the chamber, ousting the LDP from the top spot for the first time since its founding in 1955, and leading the opposition parties to a majority in the Upper House.

Ha-ha-ha! Serves them right! A stunning defeat for the 'depression' party and a great victory for sanity! I saw all sorts of explanations for this sudden collapse of the CIA-LDP but my own analysis is closer to the truth; the people of Japan are sick and tired of their stupid depression. They ask, quite reasonably, why are they alone, depressed, while the rest of the world had this roaring expansion while Japan sat on its duff... while the exporter companies of Japan made the biggest profits of the entire planet earth! Incredible.

Exports grew just as fast as the world economy grew. The money flowing into the private bank accounts of the guys running the corporations making so much loot in exports was fabulous. No one made out better than they! No one! But the wages and lives of workers in Japan collapsed and instead of improving, got worse and worse and worse! The Bank of Japan stole the life savings of millions of workers and gave it gratis to the industrialists! They go FREE FUCKING LOANS for FIFTEEN YEARS. This is amazing. Astonishing.

It is a crime. And I hope the entire CIA-infested traitors of the LDP go to prison some day. The destruction of the entire Japanese people can be traced directly to their plan to hand over all worldly goods to the USA so the USA would give back to the industrialists who no longer hire Japanese, give them the money back, redoubled. Japan is about to have another round of destructive wage collapses thanks to the US economy going into the hole thanks to the collapse of our own housing industry which is our last, great 'industry' now that we sent all our industrial strength to Mexico and China, to get rid of oil inflation.

From Mainichi:

Top Liberal Democratic Party (LDP) member Toranosuke Katayama lost his seat in Sunday's House of Councillors election.

Katayama, 71, secretary-general of the General Assembly of Upper House LDP Members, was beaten by Yumiko Himei, 48, fielded by the opposition Democratic Party of Japan (DPJ) in the Okayama single-seat constituency.

Thanks to pork, big shot party bosses can live forever in office. It takes a tsunami of rage to get rid of these leeches. And so this news is proof, the LDP, when it decided to raise the sales tax to punish workers and to eliminate any possible pay raises and thus, enforce the artifical depression they created themselves, well---DOWN THE HATCH! Hahaha. Bless the voters. May they dance on his grave.

From the Nikkei:

Monday, July 30, 2007 6:01 a.m. (JST)

Abe Vows To Stay On; Aims To Revamp Cabinet, Party Leadership

TOKYO (Nikkei)--Prime Minister Shinzo Abe pledged Sunday to stay on despite the crushing defeat his party suffered in that day's upper house election, stressing that his job is to continue pursuing reforms.
***************************************

LDP Suffers Major Defeat, DPJ Set To Take Charge Of Upper House

TOKYO (Nikkei)--The ruling Liberal Democratic Party suffered a devastating defeat in Sunday's upper house election, ceding control of the chamber to the opposition camp led by the Democratic Party of Japan, which won at least 60 seats against the LDP's less than 40.
****************************************

OPINION: Is Election Start Of New Chapter Or Just Same Old Story?

TOKYO (Nikkei)--Voters handed a humiliating defeat to the government led by Prime Minister Shinzo Abe in Sunday's upper house election. The public, which overwhelmingly supported Prime Minister Junichiro Koizumi and his postal reform in the lower house election in 2005, made it clear that they are not happy with his successor's policy management.
***************************************

DPJ Win May Cause Tax, Pension, Farm Issues To Stall In Diet

TOKYO (Nikkei)--The ruling coalition's resounding defeat in Sunday's upper house election has sparked concerns that economic and fiscal policies may stall now that the main opposition Democratic Party of Japan has become the largest force in the chamber.
*****************************************

The Nikkei is the 'ruling elites' own news service. Like the Wall Street Journal, they can't see a wall until they hit it full tilt. One wall in particular, they are blind and unable to see at all, is worker rage. Always, this takes them totally by surprise! If they think this is 'The same old story' they are insane. Either the upstart party makes life hell for the industrial owners and their pets or they, too, will be ditched and people will resort to the real voting booth: on one's feet, in the street! The US, thanks to being allowed to eat 25% of the world's output while only 3% of the population, is fat and happy, sort of.

But in Japan, they are unhappy. They are the #2 economy with the #1 weak currency and they are #1 in world export profits but the Chinese are passing by them, rapidly, living in better housing in the cities, driving more and more cars while in Japan, car sales have been flat and are now declining, the Japanese will soon be dragging around rickshaws while the Chinese leave them in the dust!

From Japan Times:

New Party Nippon officially let go of its only two lawmaker members Thursday, thereby losing access to government subsidies available to a political party.

House of Councilors member Hiroyuki Araki and House of Representatives member Makoto Taki said their views differ from those of party chief Yasuo Tanaka over the party's platform announced in June ahead of Sunday's Upper House election.

The far right wing parties have no solution to the depression so they are dropping like flies. In the US, we had an election which featured truly frustrated voters. The DNC thought they voted for DNC middle of the road policies but the voters want Bush and Cheney arrested and charged with treason! And this, in a 'good' economy! Next year, the lynching mob will be out in full force.

From Xinhua:

U.S. Treasury Secretary Henry Paulson arrived here on Sunday afternoon, kicking off a four-day visit to China.
*snip*
As special representative of the U.S. President, Paulson would visit China from July 29 to Aug. 1 to exchange views on the process of the U.S.-China Strategic Economic Dialogue, Foreign Ministry spokesman Liu Jianchao announced on Thursday.

Japan's rulers thought they could ignore China. They thought they could use the US to control China. They thought that if they and the US build all their manufacturing plants in China, they both could defy workers at home, reduce wages of workers at home, crush the workers at home. And thus, they created the Godzilla of their nightmares: Communist China, triumphant! The Chinese workers get pay raises. The Chinese worker's yuan get stronger and stronger and buys more and more. And the Japanese worker's pay gets smaller and smaller and the American worker is worse and worse off. Chinese auto workers are getting richer while American and Japanese auto workers are getting poorer and poorer.

And this goofy trade scheme whereby the US and Japan have the world's crappiest currencies and the most oppressed workers will end one fine day when the richer Chinese begin to farm out their business to where workers are cheap and crushed to death! Here and in Japan.

I hope the new party taking over Japan changes course. Time is running out.

Culture of Life News Main Page

Pause In Panic, Counting Many Losses

Elaine Meinel Supkis

We don't know if the financial officers at the helm of the USS Titanic can keep the tub chugging forwards a few more months. The chances they can do this are diminishing. They will bend their wills towards luring the herd of investors back to the crocodile/lion pool. Japan wants to keep this mess going longer even as they still refuse to let in most imports from the US. And the real estate fraud of 0% down payments now threaten to bring down the entire global banking system. Thanks alot, guys.

From Big Picture:

Contrary to what you may have heard on Bubblevision, U.S. markets have been badly lagging the rest of the world's bourses year-to-date. As Jim Picerno's nearby table makes apparent, the rest of the world's markets have badly outpaced those in the U.S. This should come as no surprise, as the rest of the world's economies have similarly outperformed the "Bush Boom."

I decided to make a chart of the data they had at Big Picture. What interests me most is that the world's #1 and #2 economy both have the poorest stock markets. Both have the weakest currencies. Both had beggared their own workforces to cut inflation. But also outsourced jobs like crazy to cut inflation. But within this little scheme are several exact opposites. Japan has the world's biggest profit margin from trade, for example. Japan also has the world's biggest US bond fund, double that of China who is #2. And Japan has the biggest automobile trade surplus with the US compared to all other nations.

The real puzzle is not that Japan's Nikkei is so bad but why they keep it deliberately bad for this can't be accidental. If Japan was doing really badly in global trade, etc, then it would be understandable! But this is not the case here. The US struggles with inflation while Japan enjoys the ravages of depression and the Bank of Japan does nothing to fix this even as the US and indeed, the entire world struggles with oil-induced inflation.

From the New York Times:

In part to teach philanthropy and altruism, and in part as a defense against swarms of random plastic objects destined to clutter every square foot of their living space, a number of families are experimenting with gift-free birthday parties, suggesting that guests donate money or specified items to the charity of the child’s choice instead.

Witness, perhaps, the first hyper-parenting trend that does not reek of wanton excess.

Grown-ups who have everything have long politely requested “presence” instead of presents for later-in-life birthdays and anniversaries, and some couples have recently shunned the wedding registry, instead directing loved ones to donate.

Here, in a nutshell, is the problem: the US market is all market, all the time. We are consumers from hell. We see a tsunami of junk pouring in here as everyone hopes to make money selling stuff to us. In the case of children, this has been totally out of control. Indulging children is now nonstop thanks to television and the bottomless appetites for more that is a characteristic of children. The infantilization of the mind is all about wanting infinite amounts of everything. Thanks to free trade, we have endless stuff coming here in exchange for money.

As houses grow ever bigger, the need for more space is overwhelming our culture as we seek to park tons of junk in every nook and cranny. When my grand dad was a child, children got precious few things. Mostly, it was stuff they made for themselves out of materials lying around, near at hand. In his day, to own a bag of marbles was considered a wonder. Trading cards were popular because they could be easily purchased and took up nearly no room in crowded bedrooms. When we lived in NYC, we liked things such as Pokemon cards because they took up nearly no space.

When I was a child, we got exactly 3 presents a year plus a Christmas book and three summer books. If we wanted to play an instrument, in my case, a cello, we got it as a Christmas gift. All the other things I got as a child, I bought with my own earnings. My parents were not poor at all. They were actually rather wealthy. But this was the Victorian ethos at work.

My wealthy friends got everything under the sun. I marveled at how they had closets filled with clothing and toys. Boxes of toys lining the walls, etc. They were the beginning of the toy era whereby children in America were suffocated by toys. This degrades the character and can launch a lifetime of ruinous purchasing on credit. And this is having a huge impact on our world stature: we are drowning in things while also drowning in debts.

From Bloomberg:

The U.S. House of Representatives, ignoring a veto threat from President George W. Bush, approved a $284 billion, five-year farm bill that would provide subsidies to growers of wheat, cotton and other crops.

Lawmakers passed the measure on a largely party-line 231- 191 vote, sending the farm-bill debate to the Senate, which is expected to spend more on land conservation and food-aid programs. Senate Agriculture Committee Chairman Tom Harkin says he'll introduce a bill in September.

The Bush administration says the House bill is too costly and fails to significantly cut subsidies, a sticking point in world-trade negotiations. Democrats supported the bill for its increased spending on energy and fruit and vegetable programs, as well as on food stamps and conservation.

Food stamps has so grossly declined over the years, it is virtually worthless now. But increasing spending on biofuels is insanity. We won't fuel our SUVs this way. This is quite literally burning our cake while trying to eat it too. The Doha rounds are dead as dodos. The world is going to soon deal with real competition as the US tries to escape the clutches of the economic disaster we rigged for ourselves. Spending more money while going to China for more money so we can have unfair competition with Africa will end badly! China doesn't mind us subsidzing cotton farmers. They know this keeps us happy as they get to do the value-added production while we act as if this is 1850 and England was using all that cotton from the Deep South.

Farms are dying up here where I live in New York. My farming community barely exists now. I even had to quit sheep thanks to the glut in wool and lambs. These taxpayer-supported bills no longer even try to pretend they are aimed as saving 'the family farm.' They are simple supports for wealthy investors in farmlands and the guys holding and selling farm products. And of course, these subsidies create inflation. The sole method our government, like in Japan, to fight inflation is to hammer the wages of the working class.

From CNN Money:

Mirroring the sell-off in U.S. stocks, this week saw the biggest outflow from U.S. stock mutual funds in five years, according to TrimTabs.

For the week ending Thursday, fund investors cashed out a net of $11.3 billion. The biggest outflow came Tuesday, when investors cashed out a net $5.5 billion, making it the second-highest daily outflow of the year. The highest occurred on Feb. 27, when investors sold a net $6.5 billion worth of U.S.-focused funds following a plunge in the Chinese stock market.

To put this in perspective, at the beginning of the month, the average buy-out and buy-ups were over $10 a day. Take overs were booming and $20 billion deals were common as Mayflies in May. Now the process is reversed. Indeed, the inflow of funds were based totally on the assumption stocks would rise as the plutocrats bought out each other or bought up everyone else.

From Associated Press:

The pullback Thursday and Friday wiped out $526.1 billion in shareholder wealth from the stocks in the Standard & Poor's 500 index.
*snip*
The Dow, which had seen back-and-forth sessions before the declines Thursday and Friday, only last week traded above 14,000 for the first time. The Dow's retrenchment leaves it 756 points below its high from last week. That 5.4 percent decline puts it more than halfway toward the technical threshold of a correction, which is 10 percent.

Broader stock indicators also fell Friday. The S&P 500 ended down 23.71, or 1.60 percent, at 1,458.95. For the week, the S&P gave up 4.90 percent. It was the S&P's worst performance, in percentage terms, since the week ended July 19, 2002.

The Nasdaq composite index fell 37.10, or 1.43 percent, to 2,562.24. It was down 4.66 percent for the week, marking the index's worst run since the stock market had a pullback that began Feb. 27.

In the past, I have lost large sums due to sudden declines in asset markets. This is 'funny money', namely, something is worth something higher and higher but when I am forced to sell, it could be worth a lot less than it was when it was at its highest. This phantom value is not real. Events in the real world can change value instantly. For example, if you drop a nuclear bomb on a city, real estate values will plunge to $0 instantaneously. This is why one shouldn't cry over spilt milk like in this market washout.

The problem can arise when people borrow money to buy stocks. This is a mirror of the housing asset problem: when values rise, they can use the excess value to generate wealth. But when they fall, all the banks demand payment and everyone begins to go bankrupt. Just as lending money increases the value of a savings by 10x or more each time it is lent, this is ruthlessly true moving in the other direction. Each bankruptcy causes 10x more bankruptcies which is why it is a hard dynamic to stop.

From Bloomberg:

Blackstone Group LP shares closed at a new low, making the leveraged buyout firm the worst-performing initial public offering this year.

Blackstone has tumbled 22 percent since the New York-based company sold shares in June. Fortress Investment Group LLC of New York, the first U.S. buyout firm to go public, has fallen 47 percent from a high of $37 in February. The slump occurred as investors shunned riskier bonds and loans used to fund takeovers.

``If you believe private equity is under some pressure, you are definitely going to take it out on these stocks,'' said Frederick Lane, managing director of Boston-based investment bank Lane Berry & Co.

I wrote a story about the mighty Fortess that will fall about half a year ago. I went to their web page and laughed because the goofy jerks running that stupid fund were too lazy and too disorganized to have a working web page the day they launched their IPO! I said, 'Anyone who trusts these guys deserves to lose their money. A fool and his money are soon parted.' And so it is. Investors have a responsibity to research things on their own and then to think twice. Anyone researching Fortress should have yelled the second they saw the 'Under Construction' web page.

The WSJ from Big Picture:

The bears are out of hibernation: Small stocks fell sharply Friday and the Russell 2000 had its worst week since the trading week following the Sept. 11, 2001, terrorist attacks, dropping into the red for 2007. That index hasn't had a losing year since 2002.

On Friday, the Russell 2000 fell 13.65, or 1.72%, to 777.83, and is now down 1.2% for the year to date. The S&P SmallCap 600 declined 6.30, or 1.51%, to 410.05, but remains in positive territory for the year.

Summer meltdowns usually mean little. But this is no ordinary summer. The chart at the top makes it clear, the US and Japanese stock markets are both the least performing on earth. And the dying dollar and totally assassinated yen are at the root of the doldrums afflicting both markets. Both markets depend on ravaging workers for profit and to kill inflation caused by themselves and both depend on the US worker being able to go further into debt to keep the world's trade system going.

From Yahoo:

The next and biggest wave of problem loans could come as monthly payments soar for both prime and subprime borrowers who took out adjustable-rate loans with little or no documentation, or who used so-called piggyback loans on top of their first mortgages to make up for small down payments, analysts said.

These exotic loans were the only way many borrowers -- even those with good incomes and sterling credit histories -- could afford to get into the housing market as home prices soared in the last decade. But now those decisions are looking suspect.

That was one of the messages that sent a jolt through the mortgage industry and the stock market on Tuesday after Countrywide Financial Corp. reported its second-quarter profit shrank by nearly a third as softening home prices led to rising delinquencies and mortgage defaults.

Sensibility always is thrown out the door when people want things. If housing is too expensive, one doesn't do dumb things to get a house. One has to be careful. If you can't buy a house today, one can rent until prices fall. In California, the belief was, housing would go up forever. Even so, it made no sense to buy if it meant overextending one's finances. A huge number of people literally participated in a huge lending fraud scheme! The entire point of having a downpayment was so the buyers could 'earn points' for lower interest rates from a bank because it shows they have a stake in keeping payments up and won't dump the house into bankruptcy!

As a person who has paid more than 20% down on properties, I resent people wrecking the mortgage market by this fraud. If they can't afford it, they shouldn't buy. If they need a 100% loan, they should pay a higher risk rate. This, of course, would have killed the housing asset bubble a lot earlier but the banks winked at this fraud, the real estate agents promoted this fraud and home sellers participated in this fraud!

And like all frauds, when it collapses it takes everyone down. This is why it is irresponsible for regulators, bankers, the Federal Reseve, etc to allow this and to conspire to keep it going. The Washington Post even had a series of articles ADVISING home sellers how to cheat! This was one of the most open bank fraud events in our history! Arrest everyone involved. Heh. A huge number, of course.

From the Nikkei:

EDITORIAL: Stock Sell-Off No Reason To Panic

TOKYO (Nikkei)--The global stock market retreat triggered by a plunge on Wall Street should not be taken lightly, but there seems to be no reason to fear the full-blown credit crunch that is apparently to blame for the bearish mood in the U.S.

TOKYO (Nikkei)--Market speculation that the Bank of Japan may hike interest rates in August is cooling due to a global stock market sell-off touched off by worries over surging defaults on U.S. subprime mortgages.

Japan is going to use this latest mess as an excuse to continue onwards. Just like the entire financial system in America conspired to keep the housing bubble going even if this meant fraud, so it is with Japan. They need to keep the present system going no matter what. Instead of world trade balancing, they want it unbalanced and for this unbalance to get worse and worse and worse. Of course, unbalanced systems tend to crash due to this fact they are unbalanced. The Japanese hope they can somehow avoid a crash even though it is obviously impossible. But the longer this unbalanced mess continues, the worse the crash for all things accelerate as they go downhill. It is called 'gravity'.

From Japan Times:

One year after the lifting of Japan's latest ban on U.S. beef over mad cow concerns, imports of the meat remain far below the levels seen before the first ban was imposed in 2003, an official said Friday.

The U.S. beef industry was exporting 20,000 tons of beef per month to Japan before the meat was first banned in December 2003, according to the U.S. Meat Export Foundation.

For the 10-month period from last August through May, Japan imported 15,205 tons of U.S. beef, farm ministry official Mayuko Nishibori said. The period was the most recent one for which statistics are available, she added.

And part of the unbalanced trade deal is for Japan to lock out all US imports. They keep doing this and they will never, ever stop. They, not the Chinese, are at the root of the unbalanced trade dynamics.

From Associated Press:

Chevron Corp.'s profits soared to new heights in the second quarter, capping another round of astounding oil industry earnings that have piled up as high gasoline prices squeeze household budgets.

And as always, including energy companies in the stock figures gives a false picture of the prospects for a good economy. For when energy stocks rise, this is doom for all other stocks. And the reverse is true. Energy companies should have their own listings. They go up, everyone should panic. As it is, everyone is finally in a panic. Even the lowest level of investors can see the obvious.

Culture of Life News Main Page

Crocodiles and Lions Are Feasting On Panic On Wall Street

Elaine Meinel Supkis

Risk is how investors makes profits in the stock markets. Just two weeks ago, the huskers on Wall Street were all yelling we were in a new economy that will be fueled by corporate mergers and consolidations as well as buy backs and this would go on forever and forever. This was a silly lie. Another hedge fund, a really big on, the Man Fund of Ireland, is now dying. The herds of investors who keep markets alive are now spooked and running like hell for cover as the lions of Bankruptcy stalk and kill them, one by one.

From Bloomberg:

July 27 -- European stocks headed for the biggest weekly decline since March on mounting concern financing difficulties in the credit markets will stifle mergers and acquisitions.

Deutsche Bank AG and Man Group Plc led a drop in financial shares. Valeo SA, Europe's third-largest maker of car parts, and computer-services company Cap Gemini SA slipped after earnings missed analysts' estimates.

Another hedge fund in trouble, a bigger fish. As Bear Stearns discoved, having outside the main group hedge funds does not isolate risk and destruction, it probably makes it worse. This is because if a financial house spins off various funds which they still run, if any of these collapses, they can't hide it within the organization. It is out there in the open for all to see! And all seeing people then run like hell from the parent organization.

All the stupid schemes cooked up to 'spread risk' also spread risk by contaminating everything with risk. Investors must be risk-adverse when risks lead to bankruptcy. Pulling out before the whole house burns down is the art of investment. Just like selling in the housing market, timing is important. It is better to take the potential loss of some extra profits and sell an asset just before a turn than to hang on, overprice it and then get stuck. Many houses for sale these days are overpriced. The market turned back at the beginning of 2006. Most professional home builders cut prices and sweetened deals to get out before the fall was obvious to everyone.

The builder's association spokespeople would always talk about how good things were, how the bottom already was past, etc. This wasn't to boost the hopes of builders, they knew their numbers and knew the loss of 'traffic' was killing them. They know how long these things take to unwind. The happy talk was insurance: to fool customers and to fool competition. Competition always lurks in capitalism. It is the power of capitalism. Competition+labor+resources=wealth. Ordinary people who are home owners innocently put their houses on the market setting the price too high and swiftly, housing surplus builds.

Hope springing eternal, despite no buyers and no 'traffic', they read about how much houses sell in their communities and keep the prices high while the professionals unload all their excess stock by ruthlessly cutting prices to move properties. This is how Wall Street works, too: the professionals unload while their spokespersons talk about optimism and how there is nothing wrong, it is a good time to buy.

In the teeth of an obvious downturn brewing for the last 1 1/2 years, all the happy talk people have been nearly hysterical, trying to trick investors who are not professionals, into believing all was well and the world was going to go into a super-boom, bigger than the one caused by 1% or lower interest rates. This, in the teeth of a rising headwind of hurricane force as all world central banks except for Japan raised interest rates higher and higher due to excess 'liquidity' which is French for 'banks making money out of thin air using their magic wands.'

From Forbes, just one month ago:

The world is awash in cash. Global liquidity is a phenomenal force. Some economists like the Conference Board's Gail Fosler call it "the garden of Eden"--low interest rates, lowish inflation. Only intermittent volatility, new record peaks in many markets. Money is being made hand over fist.

One amazing factoid: Central banks bought more securities than the Treasury issued in 2006--a total of $320 billion according to Brad Setser, a former Treasury official who follows the money flows better than anyone.

Some central bank economists believe there is a shortage of fixed income product in the world. That's right. You heard it here first. A shortage. Meaning there's not enough bonds to satisfy pension funds and insurance companies worldwide. No wonder interest rates are so low.

Interesting, isn't it? $320 billion extra 'securities'? I would suggest, they aren't all that secure. Actually, nothing is totally 'secure.' Not even the Bank of Japan! History is littered with the corpses of zillions of past 'securities' that ended up worthless. Whole nations can and do go bankrupt. Some empires go bankrupt. This usually causes vast historic changes and ever-bigger global wars. Up until just a year ago, the extra $300 billion in securities went into real estate. That option is now shut so it is groping about, seeking a way of existing. Pieces of paper sitting in banks not being lent to home owners are sad puppies and usually go for less than the rate of inflation.

In the 1970s, when we had similar financial problems, it went to gold, raising the value to spectacular heights.

From Bloomberg:

July 27 (Bloomberg) -- The risk of owning corporate bonds increased by the most ever in Europe and Asia on concern banks and hedge funds face widening losses on subprime mortgages and leveraged buyouts, according to credit-default swap traders.

A sell-off in the U.S., Asia and emerging markets extended to Europe, where the cost to protect company debt approached the record high in 2005 when General Motors Corp. and Ford Motor Co. lost their investment-grade credit ratings. Deutsche Bank AG's risk premium jumped to five times the amount on June 1.

Investor wariness caused more than 40 companies worldwide to reorganize or abandon borrowing plans in the past month. The retreat forced banks to take on $20 billion of LBO loans they had planned to sell for Kohlberg Kravis Roberts & Co. and Cerberus Capital Management LP this week.

And this is bad in the long run. Bankers eating their own is sort of capitalist cannibalism. They got to eat new flesh, not each other. Indeed, the frenzy of pouring money into ventures that were pure cannibal in-feasting, corporations shape-shifting like mad, brought great profits to the financial houses but it was doomed to have a bad ending. Which we are beginning to see. The rush of IPOs has now collapsed and the latest one, Blackstone, is hosing its investors who are now desperately trying to sell. And unlike the housing market where people can put their pathetic houses up for sale for 10 years at a pop, in the stock and bond markets, you put it up for sale, it drops the price of all others instantly. The feedback-system is absolute! You can't make up a price, you hope for a sale at whatever anyone bids.

This is the old fashioned way of selling stuff. It is bascially a minute by minute multiple auction. This is why the floors of all the bourses look like near total chaos with everyone shouting and waving pieces of paper. Or using cell phones and computers these days. The chaos and uncertainty of the stock market is its strength. All attempts at controlling this wild beast, instead of taming it, cause it to turn into Godzilla. Supressing the time-honored emotional as well as crafty planning of gamblers playing with futures always ends up burning down the entire futures house. This is why all these stupid mechanisms created by brokers and financiers who don't want to be bothered with the chaos of attracting and interacting with a host of diverse investors always fail so spectacularly.

I happen to have some fondness for the classic system. I would hope real conservatives would support protecting this system instead of conspiring with rich people to prevert this system and tame is so they make money all the time, no matter what. Damn the investors.

From Bloomberg:

July 26 -- The risk of owning bonds of Wall Street firms soared and their stocks plunged as concerns escalated that investment banks will be hurt by losses from subprime mortgages and corporate debt.

Credit-default swaps on $10 million of Goldman Sachs Group Inc. bonds jumped as much as $18,000 to a record $85,000, according to broker Phoenix Partners Group in New York. Bear Stearns Cos. credit swaps surged as much as $29,000 to $110,000, also a new high. Lehman Brothers Holdings Inc. climbed as much as $24,000 to $104,000. Goldman shares declined as much as 7 percent, Bear Stearns fell as much as 7.5 percent and Lehman dropped 8.3 percent.

``You have a stampede of the animals away from the watering hole,'' said Scott MacDonald, director of research at Aladdin Capital Management in Stamford, Connecticut, which manages about $20 billion in assets.

The 'animals' who are stampeding have a name: investors. The guys who have their hands on the levers of the economic system have to please these animals. Investors are at the base of this organization and like wild creatures, they know when the lions are trying to eat them and they move in a herd for self-protection. They were lured to the watering hole by the Bank of Japan and the Federal Reserve who filled this hole with lots and lots and lots of pretty liquidity, a wonderful lure for thirsty critters! The surface waters were the super-low interest rates and the wellspring of this pool of liquidity is the trade deficit.

Heh. The crocodiles of the financial world ---who speak Chinese right now--hunt in the dark. They prefer to have no one know their own financial wealth. Bottom feeders seek opportunities and falling markets are filled with lots of prey.

Now the pool is muddy and drying up and the beasts milled around in the mud for six months since the brief late February panic when a few lions took out some of these wildebeest investors. The herders assured the herds that all was well, there was still lots and lots of liquidity around the corner and the dark clouds forming were not dust devils but rain. Now, as quite a few dead beasts litter the landscape, the vultures are circling and the hyenas are howling nearby. So quite naturally, the herd of investors bolt, enmass. And they should.

Unless the rulers come up with some system whereby one's investments are totally safe, they must do this. And of course, if investments are totally safe, then where is the risk? No one would gain anything if they didn't risk everything. Trying to fool investors into thinking there is little to no risk is a crime. Depending on them forgetting the past is dangerous. It increases the bolting reflexes.

Here is a few months of news about the most recent hedge fund to see Death's Doors yawn wide:

First comes the brave IPO news from Man Group:

19 July 2007

Man Group plc announces pricing of $3.8 billion MF Global IPO

Man Group plc today announces that the initial public offering of 97.4 million shares of MF Global Ltd. has been priced at $30 per share raising total gross proceeds of $2.9 billion. MF Global is the brokerage business of Man Group and was formerly known as Man Financial. MF Global’s common shares are expected to begin trading today on the New York Stock Exchange under the ticker symbol “MF”.

The 97.4 million shares represent approximately 80% of the outstanding share capital of MF Global. Man Group has granted the underwriters an option to purchase up to 9.7 million additional common shares of MF Global in the offering.

As previously stated, subject to shareholder approval, the net proceeds of the IPO will be distributed to shareholders in the fourth quarter of the calendar year.

Simultaneously with the IPO of MF Global becoming effective, Kevin Davis, CEO of MF Global, has stepped down from the Board of Man Group plc with effect from today.

Peter Clarke, Group Chief Executive of Man Group plc said:

“The successful IPO of MF Global completes our strategy to focus on the Group’s leading position in alternative investment management. We believe that this focus, combined with our strengths across investment management, product structuring and distribution will deliver attractive and innovative products for our investors and continued strong returns for our shareholders.”

Like a herd of warthogs, they wallowed into the churned up muck around the receeding equity fund pool. They thought sheer mass and speed would carry them past the lurking lions that have already killed a number of hedge funds who ran into the pool before them. They believed their sheer size would save them despite the gaping, bleeding wounds on Bear Stearns.

From Hem Scott:

Listed hedge fund manager Man Group PLC said chairman Harvey McGrath is retiring with non-executive director Jon Aisbitt taking over as chairman on Sept 1.

Aisbitt, a chartered accountant, joined the board of Man Group in August 2003. He has over 20 years' experience in international corporate finance, including being a partner and managing director in the investment banking division of Goldman Sachs.

Goldman Sachs thought they were gods but their stocks are dropping like wingless angels. Everyone in the Wall Street game imagine the guys manipulating the system are really talented people who can manipulate themselves out of difficulties. Instead of realizing they are subject to the logic of the wild herd of investor beasts, they imagine they can move this herd about skillfully. It is easy to do this when the herd of investors are relaxed and trusting. But if they are suspicious and angry, they become impossible to herd. I used to herd huge oxen and lots of sheep. If they were happy, I bang on the feed bucket and they run home and go into their stalls. If they are agitated or unhappy, they run all over the place including right over anyone stupid enough to get in their way. You can't stop them. Man Group is based in Europe. Interest rates there are rising rapidly. Like the Australian groups, they are now very exposed due to this. The housing and merger boom is now over and they are over exposed. Changing officers won't change that harsh reality.

From Bloomberg:

July 19 -- Shares of MF Global, the brokerage unit of Man Group Plc, dropped almost 10 percent in their first day of trading, amid investor concern that financial services firms may suffer from the shakeout in credit markets.

Man Group, the world's largest publicly traded hedge fund manager, raised $2.92 billion yesterday from the initial share sale of MF Global, about 23 percent less than it sought. The stock fell $2.67 to $27.33, at 3 p.m. in New York Stock Exchange composite trading, and earlier sank 9.6 percent to $27.13.

I chose this group to highlight how this panic evolved. Up until the 19th of July, everyone believed the lies that there was unlimited liquidity available just aching to be captured and spent. The rulers needed to feed these lies to attract the Wildebeest investors to the muddy watering hole. But the actual sale floundered, badly. A 1/4 fall from the goal is significant. This, like all deals, was offered to the big guys first who gave it a pass because they were all scared of the Bear Stearns collapse and were thinking not about drinking from the watery hole but running to the high ground to get a better view of the whole herd. There, they spotted the lions stalking everyone.

These lions are bankruptcy creatures. The blood dripping from their fangs is red ink. They can't be stopped except by eating more assets to give them what they crave: money with interest. This is why, when interest rates rise, they get more and more active. They can't be stopped by printing money, either, for that is double red ink and thus, they get even stronger, faster and more of them.

From NYTimes:

Man Group, the British hedge-fund firm, priced the initial public offering of its MF Global brokerage unit well below the expected range. The U.S. offering raised $2.9 billion, about $900 million short of its goal. The Financial Times said the low offering price was the “latest sign of nervousness surrounding companies with exposure to the credit markets.”
*snip*
Are private equity and hedge fund investors getting fed up with Tinseltown? Reuters reports that the funds, which have poured $10 billion into Hollywood films, are losing patience with long wait for profits.

Byzantine movie accounting rules provide that lenders, distributors, theaters and profit participants such as actors and directors, take the first cut of profits, so that a film that clears $100 million at the box office may not immediately return money to its private equity and hedge fund backers.

And July 19th was the high water mark for the party. Note the story about hedge funds putting investor funds into Hollywood. That is totally stupid. Hollywood always hoses investors! Backing movies is a great way to lose excess pounds. Better to go straight to Las Vegas to lose your shirt.

From Bloomberg:

July 26 (Bloomberg) -- U.S. Treasury Secretary Henry Paulson said the meltdown in the subprime mortgage market reflects a reassessment of risk that doesn't pose a threat to the economy.

``I don't think it poses any threat to the overall economy,'' Paulson, a former chief executive officer of Goldman Sachs Group Inc., said in an interview today in Washington. ``Risk is being repriced. As we get a broad reassessment of risk, we are getting volatility.''

Snort. Risk is overpriced? Is risk only slightly more than the real rate of inflation? Of course not! When inflation soars, people seek increasing risk. This is why oil price hikes cause stock market collapses several years after the price hikes begin. And Paulson should retire or stop lying. Unlike the liars on Wall Street, he represents our nation, not Goldman Sachs! So he has a duty to tell us the truth! Volatility is risk! If there is no volatility, there is no profits! This is simple capitalism. Sometimes people think they have a sure thing. They bet on Sea Biscuit and win every time! Only the pay off is lower and lower as the top race horse wins. So they begin betting on three legged nags, hoping Sea Buiscuit breaks a leg. This is 'risk'. This is why betting on the Trifecta makes more money than betting on a single race horse. The odds are against winning.

From MSNBC:

If the trend accelerates, it becomes even tougher for home buyers to get mortgages, pushing home prices lower. It also becomes more expensive for companies and hedge funds to borrow. That could cut off the flow of money into stock buybacks, mergers, and acquisitions, especially the private equity buyouts that have fueled the bull market. "Just like raising rates, this acts as an economic brake," Larkin says.

"People are starting to get nervous," Larkin adds, but it takes a while for these trends to show up. "It doesn't just — boom — happen." Are there lots of other forms of bad debt out there? Are lenders — as Larkin jokes, "using their garage door as collateral?" No one knows. "That's where the risk is," he says. "There's not a lot of transparency here."

When there is no transparency, there is fraud. And risk increases, of course. Magicians love the dark but so do lions. This is why most of their hunting is at night. And Mr. Larkin is lying when he says things don't just go boom. They certainly do. Anyone watching crowds and herds knows all about stampedes and panics. And once they begin, one can't go in the opposite direction. You get run over.

Culture of Life News Main Page

Brazil Suffers Sudden Currency Attacks

Elaine Meinel Supkis

Tom, one of our readers, kindly sent us a link that listed equity funds in difficulties raising money this last two weeks. One item in particular caught my attention. The Bank of Brazil cancelled its regular weekly auction of government bonds! This could mean we will see yet another round of currency collapses like in the late 1990's, for example. With everyone wanting to depress their currencies for trade advantage, this can lead to surprizing collapses that can embroil everyone since everything is now relative to everything else.

From Bloomberg:

Brazil's real fell the most since May 2006 as concerns about loan defaults in the U.S. made investors shun riskier emerging market assets.

The real lost 3.35 percent to 1.9285 per dollar at 5:47 p.m. New York time from 1.866 yesterday, the biggest drop since falling 4 percent to 2.2980 on May 22, 2006. The currency has gained 11.6 percent this year, the best performer among the 16 most actively trade currencies.

Brazil canceled a weekly auction of local-currency government bonds because increased investor aversion to riskier assets has pushed yields higher than the government is willing to pay. Stocks in the Brazilian stock exchange slumped, with the Bovespa stock index dropping 3.76 percent at 53,893.155.
*snip*
The yield on Brazil's benchmark zero-coupon bonds due in January 2008 rose seven basis points, or 0.07 percentage point, to 11.12 percent, according to Banco UBS Pactual SA.

Brazilian central bankers have lowered the benchmark lending rate by 8.25 percentage points over the past two years, most recently trimming the benchmark by a half-percentage point on July 17 to a record low 11.50 percent.

Every time we have a currency collapse coinciding with a failure of trade due to unbalanced trade/currency exchanges suddenly aggravated by huge oil price hikes, there is a chorus of economists standing ready and waiting to yell, 'No one could have foreseen this!' And, 'We don't understand why this happened!' Having the luxury of living through several of these currency collapses and having family members or friends suffer directly from these events, I come to expect them.

During the last currency crisis in Brazil, I was making breakfast when I heard on the BBC that a family member had been arrested there. We got this person out using a mixture of threats and bribes. Once, when the peso of Mexico collapsed, a girlfriend went to the bank in Mexico City and handed over her dollars to exchange for pesos and the clerk ran out the back door with all her money! I had to cable her some funds so she could escape the increasing chaos. Monetary chaos is no fun!

From CNN Money:

Credit Market Fears Intensifying

2 The 10-year Treasury yield sank 12 basis points to 4.78%, the lowest since May as investors reprice risk worldwide. Brazil pulled a regular debt sale and Tyco Electronics (NYSE:TEL) (NYSE:TYC) a $1.5 high-grade bond sale, both citing market conditions. Bear Stearns (NYSE:BSC) seized assets of 1 near-worthless hedge fund. An Aussie hedge fund halted withdrawals from 2 funds on subprime losses.

Everyone runs to the US bonds for 'safety'. I find this rather sad because this presumes the US is a world economy and not a financial basket case. Day in and day out, the media roars that the US is the world's strongest economy. It is a prime propaganda point. I see commentary about how weak China is. China is so troubled and weak, they are trouncing us in world trade. They are growing bigger and more powerful by the hour. They were #20 globally, just 10 years ago and now are #3 and rapidly catching up with #2, Japan.

The idea we all have is, China is desperate to keep us #1 and would never challenge us. They would keep our deep-in-debt society afloat so they can sell us cheap goods. Well, not so cheap. We want them to strengthen the yuan so we can't buy anything. Hooray for monetarism.

This story, six hours ago, was a bare-bones affair but the news is growing stronger and more information is pouring in. I suspect we may be hearing a lot more about Brazil in the future. For example, one thing I notice in the next story is, the markets and all the banking affairs in Brazil were absolutely booming just last week! Part of the global liquidity drinking binge. And like all such bubbles, it popps suddenly and dramatically. Here is a story from less than half a month ago, trumpetting how Brazil was the place to fly off to for romance and fun with money.

From FX Street:

Thu, Jul 12 2007,

Brazil's benchmark Ibovespa stocks index has been setting nearly daily records in recent days. The index broke through the 57,000-point barrier for the first time Thursday, with global funds heavily represented among buyers.

Meanwhile, foreign investors are also pouring money into fixed-income investments because of high interest rates. The Selic base rate is currently 12.0%.

"Such investors are typically drawn to higher interest rates among emerging market countries like Brazil," said a trader. Even persistent intervention by the Brazilian Central Bank has done nothing to stem the rise of the real against the dollar, the trader said.

The central bank buys dollars at nearly daily snap auctions, including a late-session auction Thursday. Traders said the central bank may have purchased as much as $1 billion at Wednesday's auction. They said it was too soon to estimate the volume of purchases at Thursday's auction.

Some analysts said the real could test the psychological barrier of BRL1.80 per dollar later this month.

Back to Brazil: this very large and well-populated country has been triangulating China and the USA. Both have been either courting or, in the case of the USA, attacking and destroying, Brazil. So far, the Chinese secret police haven't assassinated or physically removed the leaders elected in Brazil. For that, they are grateful. Knowing how important Brazil is for both the US and China, I thought it would be a good time to examine Brazil's recent past a little bit more.

From UNT Gov documents:

Facing increasing investor uncertainty and prolonged capital flight, Brazil devalued its currency (the real) on January 15, 1999, following Mexico, Asia, and Russia as the next casualty of the 1990s global financial turmoil. Although Brazil had ample foreign exchange reserves and International Monetary Fund (IMF) support, nervous investors withdrew a net $40 billion from Brazil over the four months following the August 1998 default in Russia. Yielding to market pressures, Brazil attempted an 8% "controlled" devaluation on January 13, 1999, only to increase investor anxiety and capital outflows. Rather than risk depleting its international reserves in the hope of outlasting the global run on its currency, Brazil chose to float the real, causing a major devaluation that eventually halted capital flight, but left the economy disrupted in other ways.

A combination of policy decisions and political events left Brazil exposed to the vagaries of international capital markets. First, Brazil had an overvalued exchange rate and huge fiscal deficits, which together could not be sustained indefinitely. Second, Brazil became increasingly dependent on the very capital markets that tend to abandon countries when they need them most. Finally, two political events in January triggered the final run on the real'. 1) failure to pass legislation that would have addressed the large budget deficit that epitomized the country's fiscal excess; and 2) announcement of a moratorium on federal debt payments by a large state government. To grasp how these events made Brazil vulnerable to capital flight, however, it is important to understand the role of economic policies implemented earlier in the decade.

'Controlled devaluations' can be very dangerous. Except for the #1 and #2 economies of the world, of course! In their cases, dropping the currency is great! Well, better forJjapan than the US. But both are quite frank, they are devaluing their currencies because this will bring both countries great advantages over all others. The US has dropped the dollar verus the euro from .89 euros to the dollar to 1.40+ euros to the dollar. This is a 50% drop in value for the dollar! Astonishing. And yet the money kept pouring in because the US runs trade deficits with the entire planet. Absolutely no one wants to stop the US from destroying itself with this huge trade deficit. But Brazil has to be super-careful.

Proof of this is with the IMF data. The US has a measly $66 billion in FOREX reserves. In contrast to Japan at nearly a trillion and China well over a trillion. Look at Brazil.... From the IMF:

Their FOREX reserves are twice as big as our own. Both Russia and Brazil went bankrupt during the huge 1997-1999 currency crisis. The excuse used to ravage Brazil's financial position was all about assuming Brazil would default. After all the money was withdrawn, Brazil defaulted! What a wonder.

From the Bank of Brazil:

Copom reduced the Selic interest rate to 11.50 percent p.a.
7/18/2007 20:30

In light of inflation prospects, the Copom decided to reduce the Selic target by 50 basis points to 11.50 percent p.a., without bias. Four votes were for the Copom monetary policy action, while three votes were in favor of reducing the Selic target by 25 basis points. The Committee will carefully monitor the evolution of the macroeconomic scenario until the next meeting, when it will define the next steps in its monetary policy strategy.

Here is a section from the Bank of Brazil, talking about how their international banking system is set up:

More news is pouring in by the hour. The entire world went bezerk this last winter due to fears Japan would raise interest rates. Since then, the whole world is seeing interest rates shoot up! As I keep saying, this is a very bad sign if instability.

Right on the heels of super-growth, super-good news, just three days later, about a week ago, the Bank of Brazil has to raise interest rates. All nations are doing this. There is some very serious instability going on here. The relentless rise of oil seems very much part of the dynamics here. Oil has been see sawing its way upwards this last four years thanks mostly to the Gulf war launched by the crazed monkey steering this ship of state. The #2 importer of oil, even as it hits $77 a barrel, has zero or negative inflation because of a successful program to destroy workers utterly in the name of preventing inflation. In the case of Brazil, they will end up living without much energy and thus, the global problem caused by China consuming all that oil will be fixed by turning many other nations into non