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Monday, February 18, 2008

This Past Weeks News In The Markets

This past week saw less visible volatility to the public eye. The stock indices which "Joe and Jane public" watch saw less volatility. However there was tremendous volatility in commodities, such as the grains and energy complex. The big story was the credit complex. The ARM [auction rate municipal] market saw some rates go as high as 20 %. This because of the uncertainty with MBIA, AMBAC, and the other insurers, plus the big brokers backed away and did not support this market once the bids dried up. These brokers in the past would step up to smooth out any poor or failed auctions. They are afraid to/and don't have the capital to lend the support now needed. Imagine 20% rates on tax free municipal bonds! I thought the Fed just cut rates! The bond insurers have until next Friday to come up with a plan, or face ratings downgrades. What is happening in the credit markets now is "our collective worst nightmare" and "mathematically expected and assured". Virtually all foms of debt have been impacted by this credit crunch. Once a credit based economy experiences a "lack of faith" the end is near since more credit is needed just to sustain life. We have seen the entire debt complex from commercial paper and ARM munis, to credit card and auto loan securities, to home equity and all forms of mortgage loan securities, to AAA Munis, all the way to the most exotic forms of derivatives, freeze up/blow up/implode.

What we have not seen yet to any large degree is a major convulsion in the US Treasury markets. THIS IS NEXT! The federal deficit is set to explode with receipts cratering, and expenditures exploding because business is contracting. This fiscal trainwreck will happen while the Fed lowers and lowers rates, and pumps and pumps more money into the system which further debases the Dollar. We are watching desperate measures being used to buy time, and obscure bankruptcies from public view.

Since the Fed cut rate 1.25% ALL Treasuries with a maturity longer than 3 years have risen in rate and fallen in price. Not drastically yet, but rates have risen. We are watching the last haven of US debt start to bend. So far this has been in somewhat slow motion. We could be very close to Treasuries convulsing. Foreigners have funded US deficits since 1980. If foreign capital decides that either the Dollar is too risky of a currency, or that the US Treasury is not the "AAA" credit that it once was, we go directly into implosion mode without passing go or collecting $200. I assure you, things will speed up! Our entire system is predicated on credit. Bad things are already beginning to happen across the the whole economic spectrum. Can you imagine what things will be like if Uncle Sam gets shut out of the credit markets? EVERYTHING will change!

This is another way of saying foreigners won't accept $s. Not buying Treasuries, or even selling Treasuries would be a function of not wanting Dollars. The results will be disastrous. We will be forced for the first time in x number of years to actually live within our means. This poses a big problem because the US no longer produces much in the way of real goods. Less than 1 in 10 jobs now are in the manufacturing sector. In the last 10 to 15 years the US has spent nearly all of its accumulated capital ie[fat], sent more than half of its manufacturing overseas ie[muscle], ruined the world's reserve currency ie[blood], and bankrupted the greatest empire of all time. None of us made this situation what it is, everyone of us needs to do what is necessary to protect ourselves and loved ones.

2 Comments:

  • At 8:51 PM, Anonymous Phil Paule said…

    and what do you suggest we do Allan ?

     
  • At 10:40 PM, Blogger Allan Bartlett said…

    I believe the die is cast. This is a systemic problem that has built up over time. There's not much the politicians can do except offer platitudes like the so called "stimulus bill" that won't work. We will go into a huge depression just like in 1930s. As individuals, this is a once in a lifetime opportunity to position ourselves for huge moves in the precious metals and other commodities. I also intend to short the hell out of the stock market and the US dollar. I'm buying put options on the S&P 500 index and shorting futures at the right moment. A few people made a fortune when the stock market collapsed in 1929. I intend to be one those few this time around. I truly believe that our financial system as we know it is going to implode. That means that our fiat paper dollars will eventually return to their true intrinsic worth...zero. Our whole system has been built on faith in paper dollars. As that faith starts to erode, eventually we are going to see a huge stampede by the public out of the dollar and into things that have stood the test of time as far holding real value and that is silver & gold.

     

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