Elaine Meinel Supkis
Today is a harmonic number day and the music of the markets is distinctly more like a Schoenberg 12 tone tune. Chaos. We go around the world today to visit a number of markets trying to deal with inflation. We examine how this is impacting gold markets in Asia. And the price of oil and gold continues to climb while the dollar continues to drop against the euro and even the yen. China is continuing to slam the doors shut on everyone's fingers as I fully expected. While Gross of PIMCO thinks we are playing 'Old Maid', he is really playing 'Hot Potato' with fellow investment banks anxious to pass along trashy pieces of paper that are losing value. And Fannie Mae may be the Old Maid but these guys want her to also be the sucker here. To sop up all the stupid mortgages they made during the bubble.
An analyst at Saigon Securities Incorporation told Thanh Nien Daily that investors “didn’t believe in the market.”
Other analysts said the increasing inflation rate and absurdly high deposit rates had caused investors to shun the stock market.
“Many investors have opted to park their money in banks,” a HCMC stock investor said.
“The one-month savings rate has reached 1.1 percent.”
What is so absurd about offering interest rates that are greater than inflation? This should be the rule, not derided as terrible or stupid. Banks are supposed to be the safe harbor. If inflation is 12% then banks must offer 13% on savings, at the very least! Look at the US: we have a system that offers rates well below the rate of inflation. One keeps money in the bank only to pay bills. We have a banking crisis due to this. Savings has collapsed and debts have soared and now, soured. Global inflation has been prowling the planet ever since oil prices began to rise relentlessly due to US oil wars and our terrorist actions against oil pumping nations such as the attempted coup in Venezuela or the attempt to strangle the Iranians.
The US is going to the UN to demand this get worse. Isn't that shocking? Americans should be storming the State Department and string up the people doing this. Better still, going to the Boss, Mr. Cheney, and arresting him for treason. The more we pressure Iran, the higher the price of oil. This logic should be the subject of huge headlines in the US. Yesterday, I had to purchase fuel. I saw nothing but agonized faces at the pumps. Ouch. I was outraged that diesel rose over 20% in one month alone! At this rate we will be paying $200 a barrel for oil at the end of the year.
Fuel is fueling world inflation but the other thing fueling this has been the flood of easy loans put out by banks in Japan, Europe and the US. The G7 has flooded the world with a fabulous amount of money, over 12% a year increase, well over that. So it, in turn, has unleashed a flood of inflation everywhere. As with all periods in history, when the oil rises, inflation shoots up. The G7 discovered this nostrum for higher oil prices back in the 1970s. They now let this happen without a word of remorse. They will try to destroy the wealth of all the commodity nations if this is what it takes to maintain power of the bank.
Only this time around, there are other forces at work! China signaled this first by raising the reserve ratios and interest rates repeatedly right at the same time the cynics running the G7 banking system were turning on the taps and flooding the banking system with ever-lower lending as well as over a trillion in emergency funding. After some hesitation, Australia joined in the tightening process of the Chinese since they are a commodity nation, not a manufacturing nation and need to prevent inflation which would cause their profits from trade to vanish just as it is vanishing in Saudi Arabia. Unlike the 70's, by the way, the Middle Eastern nations now have not only their own banking systems but own a large chunk of the G7 banking system. China has been buying up on this, too. The bankers of the G7 sneer that they are losing money on these deals. But both China and Saudi Arabia know that once they get their claws into our banking system, they can eventually take over. And thus, begin to control how we inflate or deflate our currency or make loans!
They all know they are in a long-term game of nerves. They need to see who will fold first and they have no intention of folding. They can move money from one system to another rather secretively since their governments are very secretive and ruled ruthlessly. It is as if we are playing a banking game with the guys who made the Federal Reserve back in 1907 only this time, instead of being the robber barons of banking back then, these new players are foreign powers who want to rule us.
China faces ``relatively high'' inflationary pressures, said Han Yongwen, secretary general of the National Development and Reform Commission, the country's top planning agency.
The inflation rate was 7.1 percent last month, the highest in more than 11 years. The first-quarter rate may be 6.9 percent because of rising transportation costs and disrupted food supply, the planning body-affiliated State Information Center said today.
Note how the Chinese admit to food and fuel inflation. Nations that maliciously ignore this important inflation will fall beneath the wheels of history. I remember when our nation mocked Russia and China for their inflated happy-talk 5 Year Plan statistics! We thought they were very stupid to lie about reality. We warned them that pretending things were better than in reality would lead to a collapse. Both dictatorships finally did collapse due to exactly that! And what is the lesson here? HAHAHA. I better warn the Federal Reserve and the Treasury.
Indeed, I wonder if the ghosts of all those dead communist bureaucrats slipped over to the US and took over the souls of our leaders? Certainly, all the happy talk I read in many a government report coupled with the fantastical spewing of statistics from a bunch of lying bastards leads me to suspect they are communist plants! Meanwhile, the hard-nosed accountants of yore that used to be the backbone of America seem to be haunting communist nations. Let's look at another Asian nation:
South Korea suffered its biggest monthly current account shortfall in almost 11 years in January on higher commodities prices and may have to enlarge its deficit forecast for the whole year, the central bank said on Thursday.
The seasonally adjusted current account deficit widened to a provisional $2.03bn in January, the biggest since a $2.21bn loss in February 1997, from a revised $1.07bn deficit in December 2007, the Bank of Korea data showed.
Japan's fake depression is rapidly turning into a mess and dragging down all of Asia who do heavy trade with Japan. Japan has chased out yet more Korean businesses from Japan and they are busy trying to drive down Chinese trade. While the US flounders and flops. I said in the past that China doesn't really mind Japan doing this. It merely prepares the ground for China to suck in all its neighbors in the future. True, trade with China and Japan has surpassed Japan's trade with the US. But unlike the US, China is very determined to enter Japanese markets. And Japan much prefers the dupe to the East in the US rather than their near neighbors who understand them better and can see through their schemes more. Eventually, China wants direct trade with South Korea. The new train agreement between North and South Korea are part of a package to tie Manchuria into the Koreas and then to Siberia.
China was talked about on NPR last night and I listened while snow plowing. As I have often said, China's leaders would crack down on the 'cheap' exports and would try to move them out of the country in the long run. This is due to it being a waste of China's precious resources. China is a huge nation but doesn't have infinite water, air or energy resources. They want the maximum value-added activity because this brings in the wealth. This is why they want to be the manufacturing center for solar panels, maglev trains, jets, automobiles, etc. Coupled with hard-nosed population control policies, they hope to bring things under control. I also noted in the past, the rulers do NOT want a host of billionaires running amuck, making trouble. So they would squeeze them in the end.
Thirty-four years ago, each of the guests at Moon Sang Soo's first birthday party brought the customary baby present: a 24-karat gold ring.
When Moon was accepted to college, his parents had 20 of these rings, each weighing one don (3.75 grams, or an eighth of an ounce), melted down and recast as a miniature crown, which he now proudly displays in his living room.
But in December, at his own son's first birthday party, only half of Moon's 50 or so guests brought a ring. The others presented the baby with cash, slipping it into his parents' sleeves.
Gold prices have climbed due mainly to Asian people being able to buy more of it...up until now. The vast majority of global gold sales are in Asia. And as I keep pointing out, much of this is for magical purposes. Bride prices, baby good luck ceremonies, funerals, etc. These are the main reasons along with jewelry for the ladies who use it as protection money. If a husband is brutal, she can pawn her jewelry and flee. And yes, it is emergency money during wars, riots and revolutions. The fact that we are beginning to hit the top ceiling of Asian ability to buy gold is significant. In the West, gold buying continues. But mainly as an inflationary protection. This is quite simple. In Vietnam, people have stopped buying gold because the banks are sensible. They are giving good interest returns so inflation still hurts people who can't save but those who can are happy. In the US, we see rates being dropped on purpose. There is no profit in saving in banks! So the banking crisis worsens as savings continue to flee to gold, to anything but the banks!
Until the Fed gives up on this attempt at fake interest rates, gold will continue to see a flood of investors seeking returns that protect savings.
Factory production fell 2% last month, that was much more than economists were expecting, and compares with a rise of 1.6% in December.
Concern is rising that Japan's export-dependent economy is being hurt by the slowing US economy.
Last night, the Nikkei resumed it plunge. It floated upwards for a few weeks thanks to the happy news that the US was going to give huge rebates to people so they could buy Japanese products. But the news since then has been increasingly gloomy. For example, the yen continues to be strong against the dollar. They hate this with a passion. The other news is, commodity inflation can't be kept at bay in Japan any longer via the cool tool called 'cutting worker's wages' anymore. According the the Nikkei news, workers from the industries doing this are fleeing their jobs and moving towards or into Tokyo. There is no longer any incentive to work.
The former chairman of the US Federal Reserve Alan Greenspan, has warned that US economic growth has stalled and a quick recovery is not likely. Meanwhile, Bill Gross, manager of the world's biggest bond fund PIMCO, says that until recently, US and therefore global demand has been driven by the ability to lower interest rates and extend credit to an increasing majority of Americans. Gross says that because demand in the form of consumption has been artificially and fictitiously stimulated in recent years by financial engineering run amuck, there is a legitimate question as to whether its black hole imploding destructiveness can be totally countered with another dose of lower yields and deficit spending packages.
"As of right now US economic growth is at zero," Greenspan said on Monday, at an investment conference in Jeddah, Saudi Arabia's Red Sea commercial capital. "We are at stall speed."
The US Federal Reserve said last week that 2008 growth will be between 1.3% and 2%.
Dead in the waters. The red ink Red Sea. Greenspan created this. Now he goes to the people seeking to buy us out to tell us that we are PWNED. That's all, folks! Gross of PIMCO made a lot of money from the several bubbles created by Greenspan. Now he, too, tells us we are PWNED. We can all go to the PWNED shop with the three balls of the Medici on the outside and turn over whatever valuables we have left. Isn't this sweet? I remember these guys back in the old days of 2005. While I was yelling about the super-low below the rate of inflation interest rates and the fake inflation statistics that leave out all essentials, they were telling me that I was stupid to worry about all that stuff.
Why did we have "inflation"? Depending on the ideology and class biases of various economists, there is no real consensus of what is inflation and what causes it.
This is deliberate. They don't want to know what causes it because this means making life/political choices no one really wants to make.
American inflation: this is the result of wanting to have your cake and eat it too and pretend it isn't bad for the waistline. It is what happens to a currency when you want a free lunch.
We saw virtually no inflation during the Clinton Golden Years only because Russia suddenly joined world oil markets causing the price of oil to collapse. Then China joined world labor markets causing the price of labor to collapse.
Inflation is back because both Russia and China have now readjusted world price expectations and are now reaping the benefits of higher prices. So now, we have inflation without the nice side of inflation, our own wages going up. Instead, they are stagnating with means, in real buying terms, depression.
Elaine Supkis | 02.27.05 - 8:04 am | #
Germany is in the same bag as the ole USA and I will note that Germany and France are struggling to get out of the energy noose that will strangle their economies. If they succeed, they will be much stronger than us. We are pretending we can tax cut/run huge public debts out of our economic coming stranglehold. This is beyond dumb.
I wrote this 9 months before the housing bubble began to leak air. This was back when oil was still under $60 a barrel and gold was barely coming to life again. But the forces we see today were at work back then. A good system depends on people who can see reality before it hits them on the snoot. Being able to respond to possible future events is the highest skills required by guardians of any state. This is why our government should be scouring the postings of all people online who make predictions and analyze things. Those whose past postings are correct should be hired to run things. The ones in the public as well as private who miscall events or misunderstand the deeper forces should be fired. This means firing most of the guys running the top positions in the Federal Reserve, firing the head of the Treasury and of course, our top rulers in the White House.
Seeing all this mess as it developed was easy as falling off a log, of course. And the reason the guys who created this mess couldn't see it was because they did not want to see it. They and their buddies made money irresponsibly by ignoring reality and now, as reality bites our heads off, we have to play this game of 'who could have guessed?' Which is stupid, of course, since Google search lets us know that there were people who did guess back then.
The stimulus plan Congress approved this month may provide less of a jolt to the U.S. economy than intended, as most Americans plan to save rather than spend their tax rebates, a Bloomberg/Los Angeles Times survey shows.
Only 18 percent of respondents said they will spend their rebate on purchases, while slightly more than three in 10 said they prefer to use the money to pay off debt, and a third said they'll pocket it.
Maybe we can all put our rebate checks in a bank in China or Vietnam! Earn real interest. I know that a number of people want to pay down their debts for the simple reason, credit card debt isn't cheap. It is expensive as hell. And so people are frightened because the credit card companies are being hammered by late payments and defaults so they are raising rates and punishing penalties which increases the rate of non-payment. Far from easing, credit in the consumer class is shrinking rapidly. And the consumers are scared enough to make this worse by trying to undo it all. The system depends on more and more credit leading to more and more spending. Buying gold doesn't expand commerce, it kills commerce since it isn't part of a value-added system like manufacturing is, for example. But it is a good hedge against reckless inflation caused by government misallocation of money or wars. And we are at war! And like in all wars, gold's utility rises while war spending rages. And spending on the Iraq war has risen every year. The Pentagon's budget rises, too. And rose 7% this year so inflation will be at least 7% and since this is for wars where there is oil, this means oil will continue to rise in price, too. A vicious circle. Back when the US was joyful about 'winning' the Iraq war, I heard so many people say, 'NOW oil will be cheap again!' And it was at $50 a barrel back then. Now, it is over $100 and rising relentlessly.
Freddie Mac, the second-largest mortgage-finance company, posted a record $2.45 billion loss for the fourth quarter as rising defaults sent credit costs soaring.
The net loss, which amounted to $3.97 a share, widened from $401 million, or 73 cents, a year earlier, the McLean, Virginia- based company said in a statement today. Freddie Mac, which buys and guarantees home loans, had predicted the results would be similar to the third-quarter's $2 billion loss.
Government-chartered Freddie Mac and Fannie Mae, which account for 45 percent of the $11.5 trillion home loan market, are posting their biggest-ever losses as foreclosures and tumbling home prices increase costs. Freddie Mac Chief Executive Officer Richard Syron said today the company remains ``extremely cautious'' for 2008.
Both Congress, the President and the banks are all pushing to have Fanie Mac and Fannie Mae take not just 45% of the housing market risks but 100% of this! They want a COMMUNIST SYSTEM. Due to lack of savings, lack of paying realistic interest rates, these guys are now pushing to have the government eat ALL the losses if loans fail! See? Insanity! This way, banks can merrily issue loans of any sort and then PASS IT ON. To the taxpayer. Note how the losses here are shooting up! The intention is to have all losses end on the government side of the ledger. Remember the GOP push for 'privatization'?????
HAHAHA. It was a con job, of course. As I noted years ago! The ONE THING the government should NOT BE DOING is this! Why should our government be our bankers? Eh? And if they are, they should charge realistic interest rates! And who sets that? The Federal Reserve which is neither Federal nor a reserve! These private banks get to screw the Federal Government whenever they want! And the banks? They want to earn FEES on writing loans and then pass them off! Onto the tax payers! They will write loans to infinity if they don't have to worry about them going bad. And the collapse of the US economic system continues and speeds up.
I say, eliminate the Fannie packs and sent them to the banks. If the banks can't eat them, then we should declare a bank emergency and arrest all the bankers. Put them on trial concerning how they came up with the 0% down/super low 2% mortgages. Then arrest the politicians who egged this on. And they did. Bush even praised banks for doing this! This was a crime. No sane saver would trust a bank with their money while bankers were doing this stupid thing. As I point out again and again, we NEED compound interest and the method for paying for houses in ancient times like when I bought my first house years ago with 20% down, are good rules and work. I paid off all my mortgages before reaching 50 years! This is not impossible! My children are doing this right now. And they paid more than 20% down on their homes!
They won't bankrupt America. But the people who thought handing out funny free money would not cause inflation as well as banking collapses: they knew better. They wanted those damn fees.
But let there be no mistake: this description of Old Maids and PIMCO’s Investment Committee’s attempt to avoid holding one is serious business and the game playing does involve some of the same skills that little kids learned by playing cards generations ago. Pretend that you don’t hold the Maid? Banks have been playing that game for nearly 12 months now and only recently have entered the confessional to expose some of their sins. Are the monolines showing any of their cards? No – just ask MBIA’s CEO – they’re doing just fine thank you. “But by the way,” he’ll say, “take a card, one of these good ones on the end or maybe the one in the middle with the exposed edge.” Bank loans for sale by Wall Street at distressed prices? Nah, those Harrahs and Clear Channel loans are money good – “as a matter of fact all of the $150 billion or so we have in inventory are great assets” the banks will say. We’ll just hold on to these maids – unless you pay 95 cents on the dollar that is. Don’t wanna take a loss you know.
And so the game goes on and on. Its most recent twist involves an asset class known as Auction Rate Preferred Stock and the astounding revelation that its holders didn’t even know they were playing cards to begin with. Holders of ARPS – mostly wealthy investors, but also the likes of Bristol-Meyers and other visible corporations – thought they were holding AAA assets with money market liquidity. In this case, most of the assets probably are AAA, but the liquidity has suddenly evaporated, transforming them from a 30-day to potentially a 30-year asset. The assets on these Maids it appears are real but they have come with a marriage license. Whoops! Another Old Maid in masquerade.
Speak of the devil himself. First, note how he mocks the banks for wanting 95¢ on the dollar for crummy loans that should have never been made. He won't pay more than 85¢ on the dollar. The losses these represent is way the wailing-baby jerks who penned these loans want Fannie Mae to take on 100% of the loan holding risks. The Big Guys like Gross want short term stuff so they can flip or unload if inflation eats it. NONE of these clowns want to hold these things for 30 years. Well, the American people don't want to pay off, either. Note how as soon as the value of the house began to really climb, many were enticed into going deeper into debt? Thus, the need for everyone to pass the buck here. And the buck is losing value during all this. Massively. Now, they are all in a panic to pass it faster. People owing money love to pay with cheaper dollars but NOT if they have to spend every penny on food and fuel. This is why ALL PARTIES are getting 'poorer' in this mad cycle. This is a very destructive deflationary spiral despite the appearance of inflation as I noted back in early 2005.
Slow credit growth is a harbinger, however, for slow economic growth (if any) and that in turn leads to the necessity for low short-term interest rates for an extended period of time. I think Ben Bernanke knows that restarting the U.S. growth engine almost by definition requires nominal GDP growth of 5%. He’d prefer that nominal rate be composed of 3% real and 2% inflation, but desperate times sometimes require compromise: 2% real and 3% inflation may be the best he can hope for in 2009 as soaring commodity prices and a declining dollar add to the equation’s complexity. If so, a bond investor should expect a prolonged, several year period of low short-term rates (Fed Funds averaging 2½%) with vulnerability on the intermediate and long-term portions of the U.S. curve due to inflationary fears and the diminishing support of foreign central banks and SWFs. If, as a bond investor, I expected 3% inflation (2% in 2008 – higher in the out years), a 3% 5-year Treasury would not seem very appealing. Nor, I should add, would a 3.80% 10-year or a 4.65% 30-year bond.
He is a bond trader. What did these guys do the other day? Oh! They charged the munis selling muni bonds 20% interest! OUCH. And of course, the Fed rate will at at 2.5% forever. I thought this would be the magic number while snow plowing yesterday. And talk about a goofy idea. To keep Fannie Mae afloat with inflated tits, they are going to ignore inflation just like Japan is ignoring inflation. So what if worker's wages aren't dropping? They will continue to ignore true inflation statistics and true banking values. They will ignore all the dirty details while focusing on one thing and one thing only: lending money, collecting fees and dumping all this on top of the US taxpayer who owes not only nearly $10 trillion in US government spending but many more trillions in individual debts! And all of this will be paid for by these same people who have no savings? Are we nuts? This is like the banks funding their monoline insurers who are supposed to be protecting the banks from their own bad loans!
Merrill Lynch overstated cash flows received from derivatives-financing transactions.
I continue to try to figure out the Derivative Beast. No one can see it. We can see its footprints in the snow. They are the size of whole cities. Stomp, stomp, stomp, the Beast trudges across the earth, smashing everything under its paws. Or hooves. No one has any clear idea how this creature looks. I would suggest it has seven heads and the Whore rides on its back.
By the way, I may be on the radio soon. Will let everyone know when and where.