A LOT to Watch Today

Well, normally I only post “3″ things to watch. Today I could stay home and post all day long as it is flying and the fan is not smelling so hot. The biggest thing to watch now is the 13 week Treasury Bill. With the yield at 2.95% and some very unusual activity going on behind the scenes, namely Bernanke calling the Financial institution leaders himself, not the other way around, there must be something very large looming like an ax over the head of our economy. So I say be concerned, don’t panic, but watch all of the Treasuries carefully. If the commercial paper can not be rolled over this week and the money market funds continue to get bombed with cash requests along with the seizing up of the credit markets, there is no possible way for the Fed to inject enough liquidity into the system.

With that being said, the warning signs are there. This is paralleling 1929 and 1987 way to neatly and Helicopter Ben is aware of this. I have the feeling if not today, then maybe tomorrow, we might see a surprise Fed Funds rate cut of .50% to 1.00%. This, of course, would be viewed as a panic move but a wise one. The result might well be an equity snap back rally to the mid-13,000 range but could also result in a total tanking of the U.S. Dollar Index into the mid to upper 70’s. Right now, I’m camping more into silver as it has the longest and most ground to make up and should skyrocket into the upper teens on such a move as big money moves rapidly into safer investments.

Wednesday is going to be a huge day. There is a very high percentage of some earning warnings and I can tell you now, one of the biggest warnings I am looking for is coming from two homebuilders who have huge outlays and liabilities in California and Florida. The whispers are that one of the big boys is no longer paying it’s bills down here (I deal with a lot of subcontractors) and that the cash squeeze is forcing them to slash home prices into a market where their homes can not get financing, even for qualified buyers. If this validates with a public warning, which I expect soon, they will not be long for the world. The one company only builds “luxury” homes which in Florida means an automatic jumbo mortgage which no one seems to able to get at this time. Perhaps if the phone lines ever clear up at a Countrywide office, someone can help these poor souls with 760 FICOs and the ability to put 30-40% down get some money.

There is a lot of fear and what we are witnessing is essentially a millionaire’s bank run. Think about that. The money markets, hedge funds and brokers are all getting pummeled with redemption requests for the uberwealthy to be moved into cash or safe positions.

What do they know, that we are not supposed to know, but all suspect? It doesn’t take a lot to follow what is happening. Read the posting below from Martin Weiss and look at the graph in the posting. Have fun and I shall return later today after my meetings to comment some more. If I get some time, perhaps I’ll visit and old friend (if they were not laid off) at the CFC Full Spectrum offices in Fort Myers. I’ll bet she’s been notified already of her future, but who knows……

Huge BREAKING NEWS!!!!

Panic in U.S. money markets! (by Martin Weiss and Mike Larson)
8/20/2007 6:00:00 PM

Martin and Mike here with an urgent afternoon update.

Despite the Fed’s biggest cash infusions since 9-11 …

Despite the Fed’s surprise discount rate cut on Friday …

And despite its desperate efforts to persuade big banks to borrow the money …

Panic Is Now Hitting
U.S. Money Markets!

We are witnessing the most dramatic — and potentially most consequential — panic rush to safety in modern history.

We can’t tell you exactly what set off today’s new fire. No one knows yet.

But we can clearly see the smoke. It’s all over the money markets!

Here’s what’s happening:

Some of the world’s largest and most “professional” investors, so cozy in their complacency just days ago, are dumping short-term loans (commercial paper) like hot potatoes, especially those backed by mortgages.

And with virtually no one willing to buy them, the rates that borrowers have to pay on these loans have gone through the roof.

Meanwhile, investors are so utterly desperate for a safe haven, and so anxious to throw more money into short-term Treasury bills, they’ve caused one of the greatest plunges in T-bill rates of all time …

* The 1-month T-bill rate has plunged from 4.52% last Tuesday to as low as 1.25% today. That’s not a typo! It was actually down by more than THREE full percentage points in just four trading days!

* Today alone, the 3-month T-bill rate was down by over one full percentage point before recovering a bit.

* The all-critical spread, or difference, between the 1-month T- bill and 30-day commercial paper rates is now as much as THREE times bigger than it was just a few days ago — another confirmation of panic in these markets.

Things are happening so fast, even the nation’s leading news organizations are having trouble keeping track.

At noon today, for example, Bloomberg sent out a release saying that today’s decline in the 3-month T-bill rate was the biggest since the Crash of ‘87. Then, a half hour later, they quickly followed up with another release saying that it’s actually the biggest decline since they started collecting data in 1983.

We’ve looked back at our records and we can tell you flatly: In percentage terms, today’s decline in Treasury-bill rates is the largest since World War II, another indication of how severe this panic has become.

Here’s what all this could mean to you …

First, even investors in the shortest-term debt market are shunning any kind of loans with risk attached to them. They don’t want sub-prime paper. They don’t even want prime paper. They just want ultimate safety — short-term Treasury bills backed by the full faith and credit of the U.S. government.

Your action: Stick with your stash of safe, conservative investments we’ve been recommending all along.

Second, if you’ve got a chunk of your nest egg in one of our favorite short-term Treasury-only money funds, good. It means you already own what nearly everyone else now wants.

But if your fund has an average maturity of just a few days, don’t be surprised if your yields start dropping sharply very soon.

One way to help offset that drop: Favor Treasury-only money funds that have a longer average maturity. Examples: MTB U.S. Treasury Money Market Fund (VSTXX) with an average maturity of 45 days and Weiss Treasury Only Money Market Fund (WEOXX) with an average maturity of 51 days.

Third, don’t be surprised if the panic in the U.S. money markets soon becomes a panic in the U.S. stock market. Heck, if investors think normally-safe commercial paper is so risky, why should they believe stocks are any less risky?

Your action: Use stock market rallies as an opportunity to unload any stocks you’re seeking to get rid of.

Fourth, with the yield on U.S. Treasuries plunging, watch out for another, even more severe plunge in the U.S. dollar, especially against the Japanese yen.

Your action: For protection and oft-dramatic profits, consider buying foreign currencies. Years ago, that would have been very cumbersome. But fortunately, today it’s easy as buying almost any security traded on the NYSE or Amex. (See this morning’s Money and Markets for details.)

Fifth, brace yourself for more. Today’s panic in the money markets is just a sampling of what’s possible in the days ahead.

Best wishes,

Martin and Mike

‘Shares to fall further, banks will go bust’

Julia Finch, City editor
Friday August 17, 2007
The Guardian

A top-performing fund manager warned yesterday that the markets turmoil would result in “one of the greatest banking crises in decades”.Ken Murray of Edinburgh-based Blue Planet - whose Worldwide Financials Investment Trust has been one of the best-performing financial funds in recent years - said: “The credit cycle has turned, bad debts are soaring, banks will go bust and stock markets will fall much further.”

His views are among the most pessimistic, but institutional UK shareholders are almost universally gloomy about the outlook for the markets and deals.

Read the rest here:

http://business.guardian.co.uk/story/0,,2150499,00.html

As far as I am concerned, I’m doing a tremendous amount of soul searching this weekend and will do so next week. I should have a large article in the next 48 hours about what’s coming up for everyone in this economy in my opinion. It is not going to be pretty. Stay tuned….

Three Things to Watch 8-17-07

Well, since the last couple of “three things to watch” were so popular, I’ll try to make this a daily feature along with a little commentary…

1. The dollar/yen price. So far in 24 hours we have watched fluctuations from 116 to just under 112 yen to the dollar. While those that do not understand the implications of this ignore it, it could well mean the Japanese will be unloading as many of the MBS and CDO’s that they purchased from our hedge funds and are repatriating a substantial amount of money back home in anticipation of a market shock coming down the road. One thing you have to remember is that their mindset, despite all the rhetoric one hears, is much more forward looking after their stock market crash and if they think our market is too unstable, they will protect their economy first and divert their resources to servicing the Chinese, Indian and Middle East markets while taking their lumps in our market. This is not what it seems and I refer back to the op-ed I wrote last week here on “American Irrelevancy” to try to give everyone a clue as to what the rest of the world is doing.

2. The financial sector stocks. Watch them closely. If GS (Goldman Sachs) crosses 155 any time today, there will be a massive sell off in almost all of the bankster and financial stocks so watch it closely. There could be an artificial rally at the open or close, but watch anything tied to real estate as the hedgies are liquidating positions as fast as they can and selling into every rally.

3. Dean. Watch the long range models at the 1700 EDT update. This storm is looking to grow into a monster and may well impact the oil markets by the end of next week. I shall update what information I get tonight on my show.

The Q-Files for Friday August 17, 2007

Watching the Tropics and the Intensifying Economic Crisis.

To listen to the Q-Files you can do so as follows:
1. 7.465 Mhz from 7-8 pm (1900-2000) EDT

2. Streaming via www.wwcr.com (stream 1)

3. Streaming via www.stevequayle.com

The Nightmare Crash No One Talks About

August 16, 2007

By John Galt

Twas the night before football
And all through the house,
Most Americans were stirring,
Even the mouse.

As we screamed Go Bucs
While others “go Colts”
The stock markets were crashing
Because of the dolts.

As we chanted and sang,
A terror hit a guy named Chang,
As the something in Shangai
Went Boing and then Bang!

The markets were churning,
But we did not care,
Kudlow was crowing,
”Don’t worry Ben’s there!”

Then all of the sudden,
With a violent thrash,
The speculative bubble
In China did crash.

This horrible poetry sounds like a far fetched story out of a Tim Burton movie, yet tonight it is not. There is an 800 lb. gorilla blocking the America citizen’s view of the television, yet most just figure it’s “summer programming” or Cramer forgot to shave. No, the Shanghai markets have not crashed. And no, the Yuan has not been revalued to par on the dollar either. That gorilla in the room is about to eat millions of people alive and beat the snot out of them, yet few dare to notice it on either Main Street or Wall Street. The thrashing of our markets continues to dominate the media worldwide, as the fears of the credit lockup will spread into a full fledged banking crash. The reality of this lockup should terrify everyone even more, because despite the fraud and Ponzi scheme perpetuated on the general public and most investors by the derivatives and housing fiasco, there is a larger problem ten thousand miles away that is being denied like a Bill Clinton midnight adventure when he was the original Governator.

A little background on this story is in order, first and foremost. For over five years now, we’ve been preached to about the “China miracle” which is neither Chinese in origin, nor much of a miracle economically speaking. It does not take a lot of effort to change an agrarian regressively authoritative economic structure into a semi-capitalist turn of the twentieth century robber baron fiefdom. The United States was determined at all costs, including it’s future, to keep labor cost structures down and exploit the larger more populated nation’s prospective future growth. If this meant sacrificing industrial production in our nation to stave off labor inflation and increase profitability, be it in any currency that was on a more solid basing than the dollar, then so be it. Article after article was being produced proclaiming proudly “see, they’ve changed” and of course my favorite line in almost every article “the introduction of capitalism will eventually lead to a democratic society” or words to that effect. The key phrase that pays, as usual, was ignored by the American public because it’s a dirty word which has been translated into meaning you’re a racist or redneck if you use it: Communist.

You see, the “Communist” Chinese Party has never had any intention of reducing it’s power, it’s reach, or it’s desire to have regional if not hemispheric domination at any cost. They attempted to use older methods based on the Soviet model for decades, but when the USSR faded into oblivion, it became painfully obvious that their methodology was flawed. Upon further review, they determined it was more logical to use our own greed as a weapon against us, and of course our banksters and robber barons said “dude, that rocks” and proceeded to outsource millions of jobs to benefit the Rust Belt so that plastic widgets at Chinamart would only cost 89 cents instead of costing 92 cents like they did when Americans made them. This logic of course was so flawed that our banksters could not just stop with widgets and weapon systems being outsourced to a nation which has nuclear missiles pointed at our cities, oh no, we could not stop there. Instead, we thought “let’s teach those good old boys in the Communist Party how to manage a stock market and make a big bubble there so we can all speculate and make a fortune.”

Needless to say, there is a huge Communist Chinese stock market bubble and the banksters made a fortune.

The consequences of their foolishness was not limited to the smog ridden shores of China or India, oh no, the Pirates had to set up hedge funds around the world to move unregulated monies about and pray that nothing went wrong. Well, guess what sparky? It’s gone wrong. The concept of creating a Communist Chinese economic machine at the expense of the American worker finally came home to roost when it was discovered that the former American factory worker now working two jobs, one at an Indian owned franchisee of a 7-11 store and the other stocking Communist Chinese goods at the local Chinamart overnight did not cover the “A” in the A.R.M. Suddenly it was discovered by the banksters that manipulating the government data to say there was not much inflation when there was and people choosing to eat and buy medicine for their children was more important than paying for their homes because in their minds the logic was that there was no way the government would ever let the banksters put them out on the streets. Theory A meet Result B. Whoops, they went on the streets, the cash flow stopped to the banks, and an asset appraised and estimated incorrectly plus all the derivatives on the original paper came crashing down. And now, as if this was not unforeseen, we have a major credit and liquidity crisis in the good old US of A, much like the late 1920’s. The difference this time is that we are the largest debtor nation in the history of capitalism and our currency is based on Ben Bernanke’s and the bankster’s whims as opposed to gold as our Constitution originally mandated.

So what does this have to do with the price of egg rolls in Nanking you may ask? Let’s take a look at the mitigating factors in the Communist Chinese economy which will cause much more pain than a Goldman Sachs hedge fund defaulting someday. The Communist Chinese have had it pointed out in numerous financial publications that they manipulate their stock market and have no clue about proper accounting practices or how to deal with every aspects of banking operations. They are sitting on about $1.3 trillion in their foreign currency reserves which is wonderful if you’re opening up a money laundering operation in the Cayman’s for government treasuries (whoops, did I say that?) but not so hot for the average Chinese citizen to open up dry cleaners on every street corner. The mania that everyone forgot about that is my nightmare scenario is setting up perfectly and Wall Street has less control over that than it does the housing fiasco they helped create here. The average Communist Chinese citizen was forced since birth to accept all edicts and teachings from the government as the gospel thanks to a rigid “this is it or you get shot” education system. Since the average Communist Chinaman has about as much experience running a capitalist economy as my cats do running a Bear Stearns hedge fund, they imported “help” to manage their economy. And it does not take much of a reach to figure out that the banksters were more than eager to create a speculative bubble there in exchange for selling out our industrial heart and soul.

“So get to the nightmare John” you scream futilely at your computer screen. Time, grasshopper, in good time. The problem is the same problem America experienced and in short order we can all discuss if this is a dangerous or correct assumption on my part. The banksters were so successful modeling the Chinese economy after the American 1920’s economic miracle that the nation has experienced huge growth if you can believe the figures published by a Communist Chinese government who learned how to calculate and publish government data from the same nation which has been publishing faulty and in some cases fraudulent government data for the last fifteen years (gulp!). The figures were so good, so beyond belief, that the average Chinese citizen decided that stocks were the only casino really worth playing because the Communist Party would never lie to it’s citizens and if you caught them in the lie, so what because if you talked about it, you would get a fair, speedy trial and hung like the Director of Quality Control for the Communist Chinese food exporting companies. The average citizen in Communist China discovered that what we did in the 1920’s was brilliant so they started taking out second and third mortgages on their homes, pawn loans on their vehicles and selling family members if they could get that burden off their backs and buy some more shares in companies who like to paint Barbie with lead based paints to poison those evil capitalist Americans. The perception created thanks to such brilliant souls that have brought you the Dot Com bubble and the Housing Bubble was the same one sold to Americans in 1928, 1986 and 1998; that markets can never go down as long as there is a “report” of economic growth coming from the government. Since our government is laden with the same rocket scientists who created the hedge fund Ponzi scheme, why should we doubt any reports coming from them, right? The Communist Chinese happily allowed their economy to be bubbled up and now are humming right along posting figures to make everyone happy, keep our banksters smiling, and our industrialists fleeing here for there without thought of the consequences here in America to their actions. So what could go wrong, right?

As with all Ponzi schemes, they eventually unwind. The greatest danger facing our markets right now, our economy, is not just the current credit crunch, that’s small potatoes compared to what could be on the horizon. The Communist Chinese speculative bubble is showing signs of bursting, but nobody wants to mention the thought. The shuddering in fear you here is in the back rooms of Wall Street where already they are trying to figure out how their Quant funds could possibly be in trouble when they hired the best video gamers in the world to insure that they would never lose money in their programs. The proverbial “whoops” is right around the corner. Assuming the Communist Chinese experience a correction in their markets of twenty-five percent, that would rattle our markets even further to the down side for several reasons, the least of which is that our hedge fund morons invested in a Communist country thinking they can manipulate people who have nuclear warheads pointed at their own offices. This correction could easily snowball into a full blown crash which would be a logical leap since the only way the Communists know how to control bad events is to shoot people or run them over with tanks. This would create a liquidity crisis at home as the average citizen in China would want their money immediately and almost all of them would try to sell all of their holdings at the same time. The safeguards that worked so well here in 1929 and 1987 will fail there as usual, and create a liquidity crisis in Communist China that will crash the U.S. Treasury market almost instantly. How? Simple. The Communists will not care what our banksters say and will insist that the Communist Chinese re-inflate their economy even though inflation is pretty rampant now. As opposed to that, they will dump their U.S. assets on to the world markets to raise cash and bring their Yuans home as they have seen what a wonderful job the hedge fund managers have done here and after watching our markets have figured out that our banksters are absolutely clueless. Once our Treasury market collapses, the nightmare crash there, will result in our markets tanking completely. And the stock market aspect is the small potatoes; my concerns are more with the debt markets imploding totally, bringing our entire economy to a grinding halt and into a full blown depression within twelve months.

The motto of this story? For the intelligent soul, I would have several months of salary set aside outside of the banking system. I would have several months more of salary in precious metals like gold or silver just in case it is finally revealed just how worthless our U.S. Dollar really is. This nightmare before kickoff does not have to happen, but every indication that the education we gave the Communist Chinese was too good. Unfortunately, we failed to educate them on how to manage the downside risks, as apparently everyone here has forgotten the consequences of speculative credit and equity bubbles that we have created throughout history also.

Three Things to Watch 8-15-07

1. Watch the big investment banksters. Tomorrow is the deadline for redemptions of hedge funds in the 3rd quarter and if we see a sudden spike in put activity and shorts on any of them (especially GS and BSC) then start watching gold and silver. There is a play there and if the September and October puts that are out of the money suddenly skyrocket with activity, someone in the Caymans may well be telegraphing something as that’s how derivatives work; to cover their tails at the little guys expense.

2. Watch INVEST_91L probably soon to become Tropical Depression #5 overnight. Recon is in there now and it is basically stalled but pressures are dropping and that could indicate an intensifying system. Impact on anything forming that hints at Texas or Louisiana means the oil markets start to go nuts.

3. Watch the Fed. There is a major pickle forming for them right now and it’s called the reality of the real estate crash hitting home. First they had the idiocy of the banksters, then the greed of Wall Street to pile on top of it. Now they are recalculating the methodology of the FICO scoring system (Link to Story ) . If the Fed hints at an interest rate move in this environment it might be viewed as a panic move and cause more problems. If they do nothing, they will be compared to the 1929 Fed. And if they do cut and the markets rally, China starts to liquidate in earnest.

The 15th shall indeed be an interesting day…..

John Galt

The BEST Derivatives Crisis Explanation Ever

Gang, there is a talk show host I listen to, among many, named Phil Grande from “Phil’s Gang” which has some of the best financial insight from the average Joe’s perspective but with a very intelligent outlook. His Friday August 10th show was the best explanation of the derivatives crisis I have ever heard. Thus why I am linking it to my site and telling everyone to make it required listening.

Phil Grande Friday August 10, 2007 Show-MUST LISTEN

Watch out for falling bags of cash

Ben has them warmed up and ready to go…..

If you do not believe me, check out this article from the Sunday London Times:

Rescue plan to stem market crisis

The Final Stand of the “300”

By John Galt

August 12, 2007

Some five thousand years ago and change, a brave group of three hundred Spartan soldiers stood on the grounds of Thermopylae determined to protect their homeland and the city states of Greece from the onslaught of Xerxes and his army. Despite the bravery and valiant efforts of those souls, they were slaughtered. This lesson in history should not go unheeded as futility can some times bring hope, renewal and the ability to turn defeat into a rallying cry for victory.

This week’s financial markets are under the category “none of the above.”

“Molon Labe” was the answer the Greeks gave to Xerxes when he demanded their surrender and it I have the feeling the answer from the hedgies this week was “Molson Golden” and a lot of it. You see, there was another stand of the “300” this week yet to the average person it went un-noticed, ignored and unbelievably thought of as just that another one of those events that involves the wealthy and is nothing to worry about. Yet as the American Idol Fan Club snoozed in front of their Wii or other distraction of the week, they all became fully vested in the largest economic crisis since the Tulips got root rot and John Maynard Keynes said “We will not have any more crashes in our time.”

Each and every one of us were given a taste of the pain this week, but alas, it is just a taste as the sample meal is passing us by and the big kahuna is coming out of the broiler. This injection of liquidity by the Federal Reserve, said to have topped some $88 billion this week, insured that every taxpayer now has a vested interest, although small, in their neighbors not losing their homes. It’s sort of a perverse analogy where if your neighbor smokes in bed and burns their own house down in the process, the government wants to burn yours down also to keep us all together and to distribute the “pain” equally.

In a not so hilarious note, the people who are responsible for the crisis, the “banksters” as I so appropriately named them last year, are going to still sit in their asbestos lined castles, free from the pain and agony they are creating in this world as it burns down around them. This injection of liquidity was designed to fill the need of redemption notices being poured into hedge funds worldwide and to stabilize the banking system by providing short term relief for a long term problem. To give everyone a tad bit of perspective, the amount added just on Friday by central banks worldwide totaling some $300 billion (hereafter referred to as “The 300”) was basically spitting on a five alarm blaze in a fifty story fire to put it out. If you look at the overall structure and liability of the entire notional derivatives market, the estimated risk of everything is around $500,000,000,000,000.00 ($500 trillion for short). To say that this is a paltry amount of reserves added to a crisis which is leveraging itself up daily is an understatement. The problem with the estimates the general public continues to hear from the banksters and our government is that by failing to report the numbers accurately, not one entire soul in the regulatory or private sector community have one iota of a clue of just how much more bad news is about to come down the pike. The 300 was to stem a stock market crash and provide an orderly decline as opposed to letting everyone liquidate and run for the exits all at once. However the stories continue to drip and drab out on a daily basis about hedge funds, mortgage companies and banks losing tens of billions of dollars because of “miscalculations” on these various derivative instruments. The 300 did nothing but postpone the day of reckoning or stretch it out over the next few weeks. The truly severe problems start to hit in October when the third quarter financials are reported by corporate America and shareholders worldwide want one question answered: “How much exposure?”

The 300 will forever be a number that seems to repeat in human history and for my part, I shall keep the stories alive. The monies added last week have done nothing but guarantee that the true flight to safety and stability will begin in earnest and that the rest of the world really does have a reason to lose faith in the ability of our nation to manage it’s financial affairs in a legal, open and transparent manner. The world markets indicated quite openly that gold and silver will make a come back and the first nation to move to a commodity basket base for their currency will be the winner as hyperinflation over takes the former members of American hegemony. The Imperial Senate is not in session and there are no Spartans to protect our shores from this financial barbarism about to invade. On the shores of Thermopylae there is but one monument which states the following:

“Stranger, go tell the Spartans that here we are buried, obedient to their orders.”

Where the Hedge Funds which destroyed America are headquartered, I shall go forth and put a monument on the side of one of the condos in the Caymans which shall state the following:

Stranger, go tell the world that all bank deposits are not guaranteed to be returned.