by Larry Levin
Now that the Treasury has nationalized Fannie Mae and Freddie Mac, an awful lot of comments have been made. Some of it was scorn; however, most of what I heard and read was outright praise and lauding of the new financial socialism in the US . Investment expert Jim Rogers is no stranger to comments about US investments. He had this to say about America today: America is more communist than China is right now. You can see that this is welfare of the rich, it is socialism for the rich - it's just bailing out financial institutions. This is madness, this is insanity, they have more than doubled the American national debt in one weekend for a bunch of crooks and incompetents. I'm not quite sure why I or anybody else should be paying for this.
In another interview today with a Canadian reporter on Money Morning, Jim Rogers, who has never asked for a bailout himself I might add said - The U.S. financial crisis has cut so deep - and the government has taken on so much debt in misguided attempts to bail out such companies as Fannie Mae and Freddie Mac - that even larger financial shocks are still to come. The U.S. financial debacle is now so ingrained and a so-called Super Crash so likely - that most Americans alive today won't be around by the time the last of this credit-market mess is finally cleared away - if it ever is. Jimmy Rogers doesn't mince words.
As apt today was when Senator Bunning scolded Hank Paulson a few weeks ago - Third and finally, since I expect we will try to get right to questions in the next hearing, let me say a few words about the G.S.E. bailout plan. When I picked up my newspaper yesterday, I thought I woke up in France . But no, it turns out socialism is alive and well in America . The Treasury Secretary is asking for a blank check to buy as much Fannie and Freddie debt or equity as he wants. The Fed's purchase of Bear Stearns' assets was amateur socialism compared to this.
I managed to catch both Hank Paulson (Treasury Secretary) and Senator Schumer on television today explaining that this had to be done because (paraphrased) - Foreign central banks and foreign private investors have recently stopped buying GSE debt, which could have led to Treasury debt. So we HAD to do this to keep them buying.
Well, there it is. We may not be at war with China , Japan , Saudi Arabia , Russia , South Korea , Hong Kong or PIMCO, but they have us over a barrel. They said JUMP, and the Treasury Secretary said HOW HIGH, sir? They said - MAKE IT 100% GUARANTEED OR WE WALK! They said - SPECULATION DOESN'T APPLY TO US. WE OWN YOU! They said - WITHOUT US, YOU CANNOT CONTINUE YOUR PROFLIGATE SPENDING WAYS. And as sure as night follows day, the US Congress is not going to reduce spending.
So we have a new master, if you like, and it aint George Bush or the Congress. It's not going to be Obama or McCain. It is Communist China and Russia . It is Japan and OPEC. It is Hong Kong and PIMCO. It is sickening.
The government says, if the fit hits the shan, its estimate of the cost to the US taxpayer would be about $300-billion. Question: when has a large ticket estimate from the government ever been correct? If you were to take that estimate and triple it, then you might be getting close to the end cost. Therefore, if the fit hits the shan, expect your tab be roughly $1-TRILLION.
Since the US Treasury is, and has been broke for decades, where does it get this additional $1-TRILLION to make the loan losses good? Not the taxpayer directly - 100% of his funds are paid out to other programs and we still run an annual deficit of $400-billion. So I guess the Treasury will borrow it. From whom, one wonders? I'll take Communist China and Russia for 100, Alex. In this incestuous relationship we will keep borrowing from the aforementioned countries until the Treasury is paying 100% of our tax dollars to these countries in the form of interest payments.
God only knows what happens then.
But we're not done yet - oh no! Let's not forget about the auto industry's demands for low-interest loans. I wrote about that not too long ago. It's a done deal - Congress is writing the law as we speak. Did I miss a vote on that one too? Congress had already authorized $25 billion in loans last year, but apparently that is now not enough so they are demanding $50-billion total. It is believed that the loans would have rates between 4-5%. Even though market rates are fairly low already, the credit ratings of both Ford and GM have fallen below investment grade, making it difficult to borrow anywhere near 5%, which is exactly why I had always made a big deal about these firms' ratings being slashed by the ratings firms. Now we get to loan out the money. Grand.
And once this auto industry flim-flam is over, Lehman Brothers will be next. After that, perhaps Wachovia.
I think I'll end today's email with more quotes. However, these were from friends, which made me laugh.
A friend said to me this morning - So let me get this straight. A company with $5.7 T of mortgage exposure needs to be bailed out by Uncle Sugar, and stocks are up 300+ points. Well, that makes sense. I'm going to go drop a stone now and see if it goes up.
In the afternoon another said - John McCain must be pissed today. He was shot down, held captive and tortured because he was fighting communism. Today communism is alive and well in the USA . If I were him I would punch Paulson in the nose until he cries like a little girl.
Another said - It looks like TV commentators should stop calling this a Free Market Goldilocks Economy and start calling it the Karl Marx Financial System. Sadly, Karl Marx is grinning somewhere.
And finally, a friend made me laugh out loud when he said - This rally is bizarre. It's like an Indy Car driver crashing into the wall, getting out of the burning wreckage, saying "I meant to do that," like Pee-Wee Herman. Everybody claps and gives him a new car, all the while shouting "DO IT AGAIN!" Unfortunately, that is exactly what we're doing over and over again with these bailouts.
Real Time Trading Signals*for
Trade Date: 9/8/08
E-Mini S&P Trades*
(before fees and commissions):
1) OTF sell @ 11:30am at 1255.50 = -2.00 (1 lot)
2) TP sell @ 11:40am at 1257.75 = -2.00 (1 lot)
3) Engf buy @ 11:50am at 1257.50 = -2.50 (1 lot)
4) OTF buy @ 12:35pm at 1253.25 = -2.00 (1 lot)
5) Algorithm positions (3)...combined total...-8.25
ZB (30 Year Bond) Trades*
(before fees and commissions):
1) No trades today
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