Nationalization, Fiasco, USDollar, Gold

by Jim Willie CB

Jim Willie CB, editor of the “HAT TRICK LETTER”

Use the above link to subscribe to the paid research reports, which include coverage of several smallcap companies positioned to rise during the ongoing panicky attempt to sustain an unsustainable system burdened by numerous imbalances aggravated by global village forces. An historically unprecedented mess has been created by compromised central bankers and inept economic advisors, whose interference has irreversibly altered and damaged the world financial system, urgently pushed after the removed anchor of money to gold. Analysis features Gold, Crude Oil, USDollar, Treasury bonds, and inter-market dynamics with the US Economy and US Federal Reserve monetary policy.

THE HAT TRICK LETTER PROFITS IN THE CURRENT CRISIS.

A grotesque grandiose nationalization initiative is gradually being forced upon the USEconomy, US financial system, US political system, and the hapless US citizenry. Its crucible for construction comes from the desperate situation unfolding for the banks, the mortgage holders, and homeowners. Rising costs, falling incomes, failing banks, declining home values, eroding mortgage bonds, interfered financial markets, corruption in Congress, endless war, destructive economic counsel, an unconstitutional USDollar without gold backing, these factors all contribute toward a crisis without remedy. The only possible response will be an implosion with greater state assumption of losses, responsibility for operations, and extended power. Systemic failure, credit seizures, profound job loss, severe supply disruptions, and violence in public places will force a more urgent solution. The irony is that the agents and mechanisms that produced systemic failure will next be granted almost total power as reward for their ineptitude, corruption, and connection to the power centers. Reaction to systemic failure, orders for nationalization, and other desperate measures ensure the USDollar will fall significantly, leading to gold rising toward 1500 and silver rising toward 40.

WE ARE BEGINNING THE ACUTE PHASE OF BANK AND BOND BREAKDOWN NOW, WHOSE EPICENTER HAS EXTENDED FROM WALL STREET BANKS TO FANNIE MAE. THESE GROUPS ARE THE PRIMARY CENTERS FOR CRIMINAL FRAUD, ALL TO BE BAILED OUT. A broad bank asset liquidation in several weeks will exacerbate the crisis and invite immediate action, some of which might be well orchestrated in a power grab. The solutions will all appeal to the current devices, which tend to mean greater state controls. The authorities seem totally lacking any list of alternative methods. With bailouts come controls. If truth be told, the failure is of economic policies, the scummy relationships between the USGovt, the US Federal Reserve, the Dept of Treasury, the regulatory agencies, the Wall Street bankers, several giant banks, debt rating agencies, certain private equity firms, and the media news networks. Some wonder why media networks would be so subservient, not report stories of substance. Check their advertisers, which pay the bills, and also check where they obtain much of their international information. The USGovt supplies data, interviews, video clips, and stories for reasons of efficiency, safety to correspondents, which tends to permit a gradual slant that has turned absurd over the years. Many stories just are not covered at all, like recent foreign summit conferences among banking groups, in Asia and South America.

Harken back to my first article in January. It is worth a quick review read. In “Enter 2008: The System Breaks” (click here) numerous systemic factors were listed. Many are infesting our doorsteps, fouling our economic winds, and dampening national psychology to the point that the nation had best prepare for change that will rival those ordered at the tail end of the Great Depression. This economic depression will be different. It will be called a recession. The losses incurred will be an order of magnitude larger. Instead of Wall Street bankers jumping out of windows, they will take top USGovt agency spots for wresting control. The nation is not ready to institute national infrastructure programs like the TVA back in those day. Hurricane Katrina and the Endless War amply demonstrate that priorities have shifted toward private profiteering and corruption being the primary priority for national leaders. People will not stand in bread lines, but rather break into supermarkets in search of food. Home ownership was not at any lofty figure back seven decades ago. People now will continue to lose their homes at the tune of 7000 per day due to foreclosure in the Untied States, the current tragic pace. The housing market will continue down, led by endless growth in unsold inventory. The advent will dawn on the bankers, lawmakers, and key investors that Fannie Mae is sitting on a treasure trove of income potential, IF ONLY the acidic agency can rent its foreclosed properties instead of attempt to sell them on an already depressed bloated market. The Fannie Rentals will emerge as a business segment.

NATIONALIZATION TREND

The following industries are on a clear path toward nationalization, in order of likelihood:

§ Fannie Mae & Freddie Mac (mortgage finance)

§ major banks

§ airlines

§ Detroit automobiles

§ gasoline & diesel refineries

§ some transportation systems including trucks, railroads

§ home rental (limited to Fannie Mae properties)

§ steel industry

Already, the Federal Deposit Insurance Corp (FDIC) will guarantee bank losses on accounts up to $100k. Another federal agency guarantees bond & brokerage accounts up to $500k. Already, the Pension Benefit Guarantee Corp will pledge to provide up to 35% of pension income for anyone whose corporate pension is lost or reneged upon. In the absence of any insight, imagination, or independent thought, the nation will resort to the state to underwrite the losses, and thus to institute measures toward remedy. Enter Big Brother with a checkbook, or better described as a credit card, no no a printing press!!! However, most solutions will simply be patchwork with restoration of order the main theme. The system will turn to the same broken apparatuses that killed the system, ensuring degradation and more need for control. Eventually martial law will fit like a glove. The result will be an ugly outcome a few years from now, marred by shortages, and eventually managed shortages, as in rationing and price controls. This fits perfectly with the next chapter of the Fascist Business Model. That would be a broader tighter state control with the collusion of bankers. The selective enforcement of law will be much worse than simply limiting short selling against financial stocks.

We have begun to see what finally has been labeled as ‘Financial Triage’ among the financial firms. The authorities are probably unable to price Fannie Mae bonds, heavily tied in spread contracts to USTreasurys. The USFed, Dept of Treasury, and Wall Street control agents have been forced to decide which firms must be rescued immediately, which are too big or important to fail, which can be permitted to die without unduly harming the system, and which cannot be tended to as in benign neglect. The resemblance is to the soldier battlefield. The theme that strikes very clearly is that the US Federal Reserve and its agents will continue to bail out bondholders, but let stockholders wither and die. Bonds are typically held by the elite, while stocks are usually held by commoners. The usual arguments are used when the bankers trot their easels, promotional byline notes, and weak reasoning before the dimwitted and angry legislators. They talk of systemic risk, and hordes of innocent being trampled among the public if action is not taken. The rescue initiatives are very tilted to aid the wealthy, and to deliver price inflation to all. However, one must note that the wealthy have never taken such enormous losses in modern history, as they are today. Their woes are nowhere ended. Look for Union Bank of Switzerland to fail in Europe. Look for Royal Bank of Scotland to fail in England. Look for Commerzbank to fail in Germany. Look for the Canadian Imperial Bank of Commerce to fail in Canada. Look for numerous to fail in the US, the epicenter of the big bank bust.

FIRST FACE OF MELTDOWN

I CONTEND THAT FANNIE MAE IS THE PRIMA FACIE OF THE END OF THE US FINANCIAL EMPIRE. Fannie Mae, the national US secondary mortgage supplier and vast agent to assist in controlling interest rates, is failing. Their high jinks maneuvers a few years ago to buy their own debt securities constituted self-dealing and self-propelled Ponzi methods, doomed to disaster. Denials are thin. All talk about not nationalizing the firm is confirmation of eventual nationalization. All talk about its equity not being destroyed is confirmation of an eventual zero stock price for FNM shares. All claims that Fannie Mae remains structurally sound are about as false as a claim that USGovt statistics are accurate. All denials of their insolvency serve as confirmation that they are indeed badly over-burdened by debt obligations in excess of assets. All claims that their implosion, meltdown, and failure are unlikely should be heard as clear confirmation of precisely that risk.

Removal of the short rule on upticks on the US-based stock exchanges has contributed to this mess, opening the gates of corruption. Fannie Mae might be the biggest lynchpin involved in such short practices. It has $500 billion in short-term rollover debt commitments, around $10 billion per day. It might be on the verge of illiquidity, with insolvency masked in the background. The Federal Reserve Bank of New York has been given authority to aid Fannie & Freddie directly. Its $2.25 billion credit limit is inadequate by a factor of one hundred. Fannie & Freddie own over half the entire US home loan mortgage market. What we are witnessing is Wall Street in increasingly public demonstrations of desperation trying to rig the rules to favor themselves, and reduce the risk of a total death episode, sure to inflict additional tremendous personal loss for the conmen bank executives. Still they are not even required to sidestep criminal investigations and court defense for billion dollar fraud.

The focus of attention inside the distressed US system has been on US banks and investment banks for a long time. Fannie Mae has avoided attention, well hidden within the bowels of the USGovt. The bank deposit runs, like has begun with Indymac, coincide with the renewed attention for the Fannie Mae national disaster. They are related. If Fannie & Freddie go bust, then we could see dozens of banks suffer sudden death overnight. Nothing in the insanity of the US mortgage morass epitomizes better the recklessness, risk acceptance, and criminality than Fannie Mae. It is also the object of intense, pervasive, systematic, and very deep crime syndicate activity, some linked to USGovt agencies. In my opinion, few have given serious consideration that Fannie Mae & Freddie Mac (F&F) must be bailed out, or else a large cast of ugly dangerous people will be exposed for two decades and hundreds of billion$ of fraud, theft, corruption, and crime syndicate activity. More can be said on this point, perhaps even touching past presidents. F&F cannot be liquidated with full disclosure and resolution of colossal criminal fraud.

CHANGING TRENDS

The precious metals mining stocks have vastly outperformed in the last two months time. Since June, the HUI has risen much more than the XOI, the energy stock index. Energy had its big run, and now it is the turn for gold & silver miners. Much crude oil money will flow into gold. The green circle highlights the recent rise in mining stocks over energy stocks.

Since the springtime, a pronounced negative correlation is vividly clear between the HUI and the mainstream S&P500 stock index. As the banks and most every other sector drags down the stock market, during that time the precious metal mining stocks have benefited. This rare negative alignment is ridiculously favorable for mining stocks, and very welcome news. Por fin! (finally!) The mining sector is receiving positive press, more respect, and some recognition as a viable hedge from the prevalent deep price inflation witnessed on a global basis. Wait until the bank runs come in force! The flight into gold will be profound. The green circle highlights the recent rise in mining stocks over mainstream S&P500 stocks.

THE KEY TO GOLD

In my view, that key is the bank system bailouts, including most importantly Fannie Mae. Since last August, when the bank crisis began, gold launched into record territory, only to continue soon into higher record territory. Their USGovt federal guarantee will open the door to other bailouts and nationalization movements. The most profound of the upcoming socialist actions will be the assumption of the Detroit carmakers. This event will be promoted in order to save jobs, to prevent enormous supply chain damage, even to assist in some military supply contracts. An argument will be made that its assumption under the national umbrella will offer stronger support for the steel industry. One by one, the sectors listed will see nationalization, pressed by urgent need as the system continues to break. The seminal event was the bust of subprime mortgages that led to gigantic bank losses. The bank & bond contagion, unlike what Bernanke has said, is total, absolute, and deep. In fact, USFed Chairman Bernanke has not made a single correct economic or banking forecast, par for the course on a university Economics Dept chairman. Back to the gold issue. The nationalization movement, especially its first step with a Fannie Mae and continued big bank bailout, will heighten the risk for the USDollar. Get the printing press ready. Everything is going the wrong way for these conmen control freaks!

My conjecture is that recent Wall Street stress tests revealed that the most important piece was Fannie Mae. The FDIC list of troubled banks, which incidentally did not list Indymac, might have included some investigation to reveal that 20 to 40 banks might be ready to dump a bunch of Fannie Mae bonds in order to improve their cash balance sheets. Perhaps China has been dumping some of their reported $400 billion in Fannie & Freddie bonds, and JPMorgan is under strain to buy them all up quietly, before news breaks beyond their hardened corrupted walls. Regardless, the big risk with bailouts is the USDollar breakdown. No way in Hades can the USGovt sell a new mountain of USTreasurys to finance such bailouts. No way in Shangrila can the USGovt appeal to altruistic multi-billionaires in the Arab world to foot the bill. The answer is the printing press finally, which to date has not been used too much. Oil it up! This has been boasted to be the great American advantage. Hardly!

Gone is the positive sentiment that the USFed would indeed follow though on inflation vigilance. Gone in fact are all the USFed and US banking system options. Options are gone. The euro stands as the primary beneficiary of US$ extreme duress. The Euro Central Bank has wrested leadership from the inept destructive bubble engineers in the Untied States. The euro managed to give back roughly half of its gain from the previous breakout above 149 to 159. Next it should make a move to 164, my target. This is analyzed more fully in the July Hat Trick Letter. Gold will follow the euro lead, as the gold price, the silver price, and the euro exchange rate might all march to new record highs together.

HAS ANYONE NOTICED THAT THE DOW IS UP, BANK STOCKS ARE UP BIG TODAY (THURSDAY), OIL IS DOWN, THE 10-YEAR TREASURY IS BEING SOLD OFF SOME, BUT GOLD IS UP $13 WHILE SILVER IS UP 20 CENTS !!! Gold & silver are up despite the flagship Dow rebound, despite the bank sector rebound, which is 90% short covering and vaporous.

Gold has distinctly different markets in the different continents. Gold has broken out into record territory in Japanese yen terms. This is a very significant event. The Asian continent is where the big savings are accumulated, outside the oil trade from the Middle East. Among the North Americans, Europeans, and Asians, the Japanese gold price is first to register an all-time high this summer. As Japan exits its seemingly endless period of price deflation that began back in 1990, times have changed for its citizens. Prices are rising, and investors have turned clearly to hedge that inflation. The same Cup & Handle reversal pattern is clear, evident with the euro currency. It indicates a price target of 11.50 to pursue. The yen gold price is negotiating the right side handle, where hesitation, doubt, change of hands, and debate occur. Its momentum will move gold higher in Asia. Never under-estimate the power of quiet hidden Chinese gold buying.

INSTITUTIONAL CRIME & DISHONESTY

My claim has been for four years that the US financial system in its entirety represents institutionalized dishonesty, the latest example of a US-style Fascist Business Model, made easier by control and ownership of the world reserve currency, unbacked by gold. Anyone who denies it cannot be observing the developments too numerous to count. Listen to Bud Farrell (click here or here) at the Financial Sense Newshour, interviewed by Jim Puplava. Farrell shares his insider experience on vast pervasive naked shorting of stocks, which he claims is just the tip of the iceberg. The broadcast is a follow-up of a Bloomberg research piece several months ago, and is entitled “The Crime of the Century.” Unsound money invites pervasive corruption from those close to the printing press, a principle that traces back to Ludwig Von Mises from his fiat money teachings. My maintained list of crimes of the century is long, starting with the Greenspan monetary drug dealer actions to create the failed bank condition (while taking a second Swiss paycheck), the Clinton-Rubin raid of the US Treasury gold supply (near zero cost leasing), the ongoing suppression of key prices (gold & silver in the futures market), the price capping of long-term USTBond yields (in futures market and credit derivatives managed by JPMorgan), the continued Enron accounting in the hidden banking system (see off balance sheet charade in defiance of BIS & G7), then the export of fraudulent US-based mortgage bonds worldwide (Wall Street handiwork). Let’s not forget the purchase of FDA approval of certain lethal drugs, such as is rumored for Nutra-Sweet. Then there is the entire story of gold heist, bond obliteration, insurance fraud, interruption of Pentagon fraud investigation, rumored to have motivated certain events in a big financial center NorthEast city about seven years. Few seem to realize that a raft of 30-year USTreasury Bonds dated before autumn 1971 were to come due in late 2001, all redeemable in gold.

The recent action to prosecute naked short stock selling is more blatant corruption on its face. The US regulators are trying to halt short selling of 19 financial stocks, led by Fannie Mae, Freddie Mac, Lehman, Goldman Sachs, Citigroup, JPMorgan, Merrill Lynch, and Morgan Stanley. Near collapse of their stock prices is wrongly blamed largely on short sellers. Regulators do not care about non-financial stocks right now, curiously. They seem to deny that banks are insolvent, calling the diverse troubled bank cases isolated. The villains are trying to fend off panic in the bank stocks. They want to stop false rumors, when Goldman Sachs is guilty of similar tactics. GSax is under investigation for doing exactly that in London before the Bear Stearns death. Regulators want to extend the tight requirements on short selling between July 21 and July 29, through the month of August. Removal of the short rule on upticks has contributed to this mess, opening the gates of corruption. Fannie Mae might be the biggest lynchpin involved as an object of stock shorts. It has $500 billion in short-term rollover debt commitments, around $10 billion per day. The Federal Reserve Bank of New York has been given authority to aid Fannie & Freddie directly. Its $2.25 billion credit limit is inadequate. Fannie & Freddie own half the entire US home loan mortgage market. What we are witnessing is Wall Street in increasingly public demonstrations of desperation trying to rig the rules to favor themselves, and reduce the risk of a total death episode, and tremendous personal loss for the conmen bank executives. Their efforts have earned some criticism.

After the stress working through the entire system becomes even more acute, a big factor will favor gold & silver. The ability for the Powers to control USTreasury long-term yields, to control the USDollar, to bring the crude oil price to heel, to manage the interest rate swaps and other overgrown credit derivatives, that control will diminish. They will be forced, just like under the triage tents, to decide what they must let go. The agents to control prices, rig those prices, and distort those markets will be under huge strain themselves. They might be burdened by the mundane task of survival. My full expectation is that gold & silver will be released from control, by expedience. It will be too costly and unprofitable to attempt control anymore. JPMorgan will continue to manage its ‘Garbage Can’ free from the nuisance of accounting disclosure. But they too will become too distracted by the credit derivative mess that they contributed in building.

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Jim Willie CB is a statistical analyst in marketing research and retail forecasting. He holds a PhD in Statistics. His career has stretched over 25 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at www.GoldenJackass.com . For personal questions about subscriptions, contact him at JimWillieCB@aol.com