Posted by commendatori on September 9, 2010
Posted by commendatori on March 19, 2009
by Puru Saxena
Editor, Money Matters
Vicious selling continues on Wall Street and the pathetic action of the financials is dragging down the entire market. So far, the banking index has declined by roughly 83% from its highs! As I have said for years, banking is the only industry which is always in a state of permanent bankruptcy and people have finally realised that the emperor has no clothes! We can thank the fractional reserve banking system for this mess; a totally fraudulent system which allows banks to create multiples of credit compared to bank deposits. This is the reason why I urged you repeatedly to stay well clear of financial shares and I hope that you followed my advice.
Today, investors in financials have lost nearly everything and before this is over, I suspect the majority of banks in the West will be nationalised. This would mean a total catastrophe for those who invested in bank stocks or corporate bonds. So, no matter how strongly your private banker pushes you to load up on “cheap” financial stocks, please DO NOT go “bottom fishing” in this bankrupt industry. Banking is no longer a growth industry and financials will disappoint investors for many years. Furthermore, if you have any exposure to hedge funds, structured products, accumulators or derivatives of any kind, I sincerely urge you to get rid of all this highly toxic garbage. Such ponzi schemes were very good for the private bankers (due to the huge amounts of commissions involved) but they are a disaster waiting to happen. Today, our planet has roughly US$600 trillion worth of derivatives and this is roughly 10 times the size of the global economy! So, please get rid of your derivatives based “investments” immediately.
Even though the financials are getting killed, our fundamentally sound stocks in solid sectors continue to report good operating results and their stock prices are much higher than the lows recorded last fall. So, this is a positive divergence and shows that the market’s internal breadth is improving with fewer stocks breaking down to new lows. Another positive sign is that the Asian markets are faring much better and are nowhere near the lows recorded last fall.
During such turbulent times, it is worth remembering that your stocks represent partial ownership in underlying businesses with real assets (plants, reserves, land, machinery, technology, cash and human resources). And even though the stock market’s current appraisal is not favourable, it has no connection with the intrinsic value of your holdings.
Various central banks continue to steer this economy like drunken sailors and they are injecting TRILLIONS of dollars into the system. I would argue that many nations in the West are already bankrupt (US, Britain, Germany, Spain, Iceland and Ireland come to mind) and the ONLY thing they can do now is to print even more money. For example, America’s total debt is worth US$54 trillion and there is no way the US can ever hope of repaying its debt in today’s money. In other words, either the US will default (highly unlikely in my view) or it will print and inflate so that this huge mountain of debt feels much smaller in the future due to the loss of its purchasing power. Remember, the best way to make debt more manageable is by inflating the supply of money in the system. And this is precisely what the various central banks are doing.
It is worth noting that nations like Germany and the US have already started using the printing press and more nations will soon follow. When the entire planet is covered with oceans of paper “money”, its purchasing power will sink and hard assets will sky-rocket. At least this is what has happened throughout history. So, please don’t be fooled by this temporary contraction in hard assets and hold on to your positions. If anything, take advantage of the ongoing fire-sale and if your financial situation permits, convert more cash to quality assets in the resources sector.
A bunch of turkeys have hijacked our monetary system and all they know is how to print money. Rather than let the market clear itself out, central banks continue to use tax payers’ money to bail out insolvent institutions. This brilliant strategy has NEVER worked in the past and it will not work this time around. Instead of robbing innocent people of their savings, the establishment must allow the weak banks to go bust. For example, if Citibank is on the verge of collapse, then the US Treasury must let it go bust! All Mr. Geithner needs to do is to protect the customers of Citibank, allow Citibank’s investors (shareholders and bondholders) to suffer and sell the bank’s book to another institution. This is all that needs to happen. This way, depositors will not lose anything and only investors in Citibank will suffer – and they should! Why should the public share the losses with these investors? When Citibank did well in the past, did its shareholders and bondholders distribute the profits to the public? Of course not! So, why should the reverse occur now?!
Personally, I find these bail-outs absurd, unethical and a total waste of valuable resources! Who gave these politicians the authority to act like investment bankers? Mr. Geithner is not a qualified ‘merger & acquisition’ expert, so how does he have the audacity to use other people’s money to take over insolvent banks? Likewise, Mr. Bernanke is now using American taxpayers’ money and buying distressed debt! I find this outrageous! Is he going to act like a debt collector when people default on their loans?
Mark my words – the establishment is only making matters worse and prolonging the pain. Moreover, by printing insane amounts of paper, the politicians are setting everyone up for an inflationary nightmare! One thing is for sure – before this drama ends, the viability of the US Dollar as the world’s reserve currency will come under question. When the US Dollar starts to implode, hard assets will go through the roof. Remember, commodity prices went ballistic in the late 1930’s as well as during the 1970’s. We should expect similar action in the years ahead.
Posted in Economics | Tagged: A bunch of turkeys have hijacked our monetary system, America Bankrupt, America's total debt is worth US$54 trillion, Bailout, Financial Industry, Half Europe is Bankrupt, oceans of paper "money", purchasing power will sink and hard assets will sky-rocket, Puru Saxena | Leave a Comment »
Posted by commendatori on January 15, 2009
TROY, Mich. — The bad bets made by executives at Independent Bank of Michigan are on display in spots across the state: a defunct bowling alley, a new but never occupied shopping center and the luxurious Whispering Woods Estates, which offers prime lots for never-constructed dream homes.
Now it is the federal government making the big bet here.
The Treasury Department has invested $72 million out of the $700 billion in federal bailout funds to help prop up this community bank, which traces its roots back 144 years in Michigan. It is a small chunk of the giant rescue fund being wagered by Washington to encourage banks like Independent to resume lending and jump-start the frozen economy.
But Independent, hard put to find good borrowers in a suffering economy, and fearful of making the kind of mistakes that got it into trouble in the first place, is not doing much lending these days. So far it is using all of the government’s money to shore up its own weak finances by repaying short-term loans from the Federal Reserve. “It is like if you are in an airplane and the oxygen mask comes down,” said Stefanie Kimball, the bank’s chief lending officer. “First thing you do is put your own mask on, stabilize yourself.”
This is not what the Treasury Department had in mind when it started this program, saying it would give the nation’s “healthy banks” enough money to start lending again, so that people could buy homes and businesses could invest and create jobs, thereby invigorating a disintegrating economy.
A close look at Independent Bank’s handling of its government money demonstrates just how much harder this has turned out to be, and the conflicting challenges that banks across the United States are confronting in the new bailout era. Like hundreds of other banks, it is caught between the government’s push to increase lending and its own caution.
As of Tuesday, 257 financial institutions in 42 states had received $192 billion in capital injections from the Treasury’s Troubled Asset Relief Program, or TARP, out of $250 billion set aside for this purpose. Seven giant banks — like JPMorgan Chase and Citigroup — have received more than 62 percent of the total so far, and have gotten most of the attention.
But it is the smaller community banks like Independent that are seeing the largest number of investments, with 186 banks so far getting allocations of less than $100 million. With little public attention, this money in recent weeks has been streaming out to community banks across the nation, in dollops as small as $1 million — the amount set aside for Independent Bank of East Greenwich, R.I. Ultimately, more than 1,000 banks are expected to take part in the program.
While most of the banks that have received money appear to be relatively healthy, dozens of other banks that received federal funds are, like Independent Bank of Michigan, financially stressed by a high volume of delinquent loans.
Bailout Is Questioned
Economists say the decision by banks like Independent to use the federal money for purposes other than lending, while perhaps disappointing, is not surprising, given that the Treasury Department did not honor its plan to give the money only to healthy banks.
“It’s a matter of logic — when you are in a perilous position, like many of them are, you try to bolster your balance sheet,” said Alan S. Blinder, a monetary policy economics professor at Princeton. “But this is a real flaw in the program.”
Some banking experts are even questioning if the bailout may be doing more harm than good, in some cases, by giving banks like Independent a cushion as they struggle to fix their problems, rather than forcing them to sink or swim on their own. It could also delay mergers of weaker banks with healthier ones.
“You are keeping a lot of troubled institutions in kind of a status quo state,” said Eric D. Hovde, the chief executive of a Washington-based hedge fund that invests in the banking industry. “They can continue on their merry ways.” In Congress, anger over the management of the TARP program runs deep. Many lawmakers say that there is little oversight, and that they can see no evidence that the taxpayer money is making its way from the coffers of banks to businesses and consumers. The program is likely to be fundamentally changed under the administration of Barack Obama, who on Monday asked President Bush to request that Congress release the remaining $350 billion.
Some lawmakers have criticized the Treasury for allowing banks to use the government’s bailout money to acquire rival banks.
As additional evidence of the growing anxiety, bank regulators on Monday sent a notice to banks receiving federal money ordering them to disclose how they are using it. It also pushed them to emphasize new loans. “A lot of the money is already out there and the inspector general needs to get up to speed on how banks are using it,” said Senator Claire McCaskill, Democrat of Missouri. “We need to make sure we get this money back and the only way we can do that is with strong oversight on how this money is spent.”
Posted by commendatori on October 3, 2008
Who is Jim Rogers?