July 16 2008 show notes

Topics, guests, upcoming events, quotes, links to articles, audio clips, books & bumper music.

Wednesday 16 July '08 show

  • Article: Gloomy warning from Fed.
  • Article: Fed charts tricky course as clouds gather.
  • Article: Treasury chief defends 'blank cheque'. The bail out of Freddie Mac and Fannie Mae.
  • Other headlines: UK inflation hits 3.8%. Call to revalue the riyal by 30%. GM is suspending their dividend payments. The SEC are going to try and stop for a 30 day period the short selling of bank stocks, in other words betting against them, buying put options on them.
  • Article: It Has Hit The Fan, Jim Sinclair, Jim Sinclair's MineSet.
    "The financial system is broken and all that can be done by the US Federal Reserve and the US Treasury is monetize all major financial entities.

    The reason that all this has happened is the $1.114 QUADRILLION dollar mountain of crap paper made of unfunded, unlisted, unregulated and non-transparent financial specific performance contracts called OTC derivatives.

    Those that create and peddle OTC derivatives are guilty of financial murder one.

    I cannot imagine you reading the information above and failing to protect yourself, but knowing mankind, I doubt many did.

    1. You should hold no dollars except what is required to pay bills for six months. You know now that FDIC is grossly under-financed compared to potential claims. Get all your money out of financial entities now before you have to stand in line to get it. Screw interest rates. Keep six months of cash in your safety deposit box, invest the balance in short term treasuries of other currencies.
    2. You should put a minimum 1/3 of your LIQUID net worth in gold and gold equivalents.
    3. You surely know by now that SIPC is grossly under-financed when it comes to covering potential claims. The secondary insurance held by brokers is written to them for you, but not for you."
    The Annual Report of the SIPC, which is supposed to backstop investors, shows its assets as $1.5 billion.
  • Article: Wall Street Socialism, Robert L. Borosage.
    "If the guarantees work, private speculators, having driven the stock down, will clean up on the upside. And the bank's CEO's will continue to pocket the multi-million dollar salaries that are de rigueur on Wall Street. Call it Wall Street socialism. Their losses are socialized; their profits are pocketed. You and I will pay for their failures. And if conservatives have their way, their families will pocket their successes, without even having to pay a tax for the transfer of the estates we've helped to create."
  • Guest: Ravi Batra, professor of economics at Southern Methodist University, Dallas. Author of "Greenspan's Fraud: How Two Decades of His Policies Have Undermined the Global Economy" and "The New Golden Age: The Coming Revolution against Political Corruption and Economic Chaos".

    Are the Jim Sinclair going off the edge? The Financial Times is not saying take your money out of banks now but looks like the Saudis are getting ready to do that. He thinks things are getting worse by the day. He spoke of watching out for your life, disaster on the Friday 27 June '08 show. That it would start in July, as it did. Bernanke answering questions in the Senate. Not as bad as Sinclair says, but they could become so. Paul Krugman saying it's not so bad.

    Ignorance is bliss. Paulson, Bernanke and Bush are saying that everything is fine - a bad sign in itself. Creating more money, debt won't work any more. Paulson said there should no longer be a statutory limit on how much could be loaned to Freddie Mac and Fannie Mae. Giving the Treasury a blank check is running the printing presses, creating money out of nothing, like the Weimar Republic did after World War I to repay the the debt from the treaty of Versailles. They debased the Deutschmark. But they had to pay out in foreign currency; America does not have this problem because its debt is in dollars. Other countries have to worry about the debasement of dollars, not the US. The USA has to worry about inflation at home. The banking system could be on the verge of collapse within 6 months to a year. Giving a blank check to Freddie Mac and Fannie Mae would be very inflationary. We can always get cheap goods from China.

    Neither Dr. Batra nor Thom are investment advisors. This is a discussion of the larger issues, the bigger picture issues, how did we get here, what are the consequences of this, what does this agency, do that kind of thing.

    Physical things are going to hold value even if they lose price, though real estate is overpriced so not a good buy, whereas the stock market is betting on the economic health of the country. It could be at least as bad as it was in the early eighties, though not as bad as some fear. We likely won't hyper inflation because we don't have that kind of foreign debt.

    "Wall Street Socialism" by Bob Borosage. 401(K)'s should be with a bank, not a brokerage, up to the FDIC limit of $250,000. You can ask the brokerage for the physical certificates so you have them if the firm goes under, but then you have to take them in if you want to sell, a particular problem if stocks are falling sharply. Oil stocks are not doing well. Speculation. Refineries are losing money. His forecasts in "The New Golden Age" which comes after the economic chaos of the next 4 or 5 years. There are suggestions on how to prepare in the book.

    Aren't the mortgages held by Fanny Mae good? There are a lot of foreclosures, with no end in sight, the value of the holdings is falling. Fanny and Freddie together hod $5 trillion of mortgages, so even 1% of defaults is a lot. Are bonds going to take a hit? There are two types of bonds, triple A bonds will be safe, others may not. But Enron bonds were once triple A. Interest rates have fallen sharply. Bond prices have gone up. Inflation will rise soon, and interest rates, then all sorts of bonds will suffer. Energy independence. Wind farms off Cape Cod and NW, and solar power in the south. We could get energy dependence in a year if we raised sharply the margin requirements of all hedge funds to 50%, and break up the oil companies. People say this would lead oil to be traded in the Middle East, but they won't have the facilities to trade oil there for at least a year, and the oil price will crash.

    Would be it be a good idea to but Euros, and if so, how? You can buy Euro ETFs (FXE) - Exchange Traded Funds; funds that hold Euros. They are at an all time high right now so sell a covered option so you get some income. Investment in real estate; it's not going to make a comeback for some time. It will fall further with inflation. Money market funds offered by the banks are safer than others. Tax free municipal bonds are OK at this point; triple As should remain OK. In the early 1930s there were cities that were declaring bankruptcy. Disperse your assets.

    The recent change that Congress made about enforcing the law on short selling, but only against Freddie Mac and Fannie Mae and the prime brokers. It's been illegal for 70 years but it has not been enforced. Naked shorting, where they do not have the stock to sell. Paulson is now calling for the law to be enforced, but only for Freddie Mac and Fannie Mae. Patrick Byrne of Overstock.com. Orrin Hatch hearings were not allowed to pursue it.

    How will the American economy affect the Mexican economy? They'll be hit very hard; they depend so much on the United States, and repatriation of earnings by Mexicans working in the USA. Things could be cheaper there for visiting Americans, but crime would likely rise. Bank Certificates of Deposit (CDs) are safe, up to the FDIC limit. New debt creation is not the solution. The public should wake up ad read his book.
  • Bumper Music: Have You Had Enough?, Rickie Lee Jones, Tom Maxwell and Ken Mosher.
  • Bumper Music: In Your Mind, Johnny Cash.
  • Bumper Music: Crazy, Alanis Morissette.
  • Freddie Mac and Fannie Mae spent $200 million lobbying Congress. John McCain's campaign manager Rick Davis is on their payroll as were Jim Johnson who was Obama's VP vetter until outed for this kind of stuff and at least 20 of McCain's fundraisers are lobbying for them and receiving millions in fees.
  • Article: Day of Reckoning? Super Rich Tax Cheats Outed by Bank Clerk. "Technician in Liechtenstein Turns Over Names of Americans With Secret Bank Accounts"
  • We're backstopping the CEOs and the billionaires who are cleaning up while the average person is getting screwed. "Greed is good" philosophy rant. Corruption. Reagan did not believe in public service, citizenship, a 'we' society, the founders' view of patriotism. Are we here to serve the economy or is the economy here to serve us? Liberals like George Washington and Thomas Jefferson and even conservatives like Alexander Hamilton believed that the economy was here to serve us, not the other way around. Bobby Kennedy had enough money that he didn't need to be in it for the money.
  • Clip: "Too much and for too long we seem to have surrendered personal excellence and community value in the mere accumulation of material things. Our gross national product now is over 800 billion dollars a year, but that gross national product, if we judge the United States of America by that, that gross national product counts air pollution, and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for the people who break them. It counts the destruction of the redwoods and the loss of our natural wonder in chaotic squall. It counts Napalm, and it counts nuclear warheads, and armored cars for the police to fight the riots in our city. It counts Whitman's rifles and Speck's Knifes and the television programs which glorify violence in order to sell toys to our children. Yet, the gross national product does not allow for the health of our children, the quality of their education, or the joy of their play; it does not include the beauty of our poetry of the strength of our marriages, the intelligence of our public debate for the integrity of our public officials. It measures neither our wit nor our courage neither our wisdom nor our learning, neither our compassion nor our devotion to our country it measures everything in short except that which makes life worth while. And it can tell us everything about America except why we are proud that we are Americans."
    Remarks of Robert F. Kennedy at the University of Kansas, March 18, 1968.
  • The economy is being distorted by huge increases in the price of oil. It isn't all speculators. Some say that if it was peak oil then that would mean that there would be gas lines because of shortages, and they see no gas lines so say it can;t be peak oil. But America is rich; the gas lines are in other countries.
  • Article: NEPAL: Fuel shortages exacerbating food insecurity .
  • Article: Pakistan's poor hit as food prices soar.
  • Article: Zambia's sole petroleum refinery runs out of crude oil feed stock.
  • Article: S.Africa faces 2010 fuel shortages-govt official.
    "South Africa faces the possibility of fuel shortages when it hosts the 2010 Soccer World Cup, a senior government official said on Wednesday.

    "In the third quarter of 2009 we are expecting that South Africa won't be able to supply our inland (fuel) needs unless something drastic is done," Nhlanhla Gumede, deputy director of hydrocarbons and energy planning, told parliamentarians.
  • Bumper Music: A Day In The Life Of America, Ronnie Milsap.
  • Article: Impact Of Fuel Shortages On Gaza Sanitation

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