Tags: alcoa, australia's central bank, commercial real estate, Fed, Geithner, hyperinflation, Inflation, obama, stagflation, Stimulus, US$

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Welcome to Black Gold the HedgeCo blog site about Energy and investing operated by logi Energy.  logi Energy is an investment management team that invests in the oil and gas sector in equities, options, futures, as well as on and off shore oil and gas fields and wells.  In this premier post, I’d like to tell you who we are and what we believe.  In other posts, other team members from logi Energy will provide detail and clarity to my mere words.  The basis of our investment approach is that peak oil has occurred in the world.  The world will never produce as much oil as it did in 2008 – ever again -.  Exploration has been conducted for over 130 years and every jungle, every desert, every mountain range, every rolling plain and every ocean site with potential to produce has been reviewed to identify where oil is.  As we look back at what the world has found over the decades, we now know that we’ve never found as much oil as we did in the 1960s.  Every decade since, we have discovered less and less oil. We are on track this decade to discover approximately 20% of what was discovered in the 1960s.  Today we use technology so sophisticated, it takes a PhD to refine the mathematics of the software processing the imagery. Complex engineering and deep mathematics are a hallmark of the oil industry.  Long gone are the days when geologists would lick the rocks taken from wells to identify pay zones for oil and gas.  We have technologies for finding, drilling, producing and improving oil production that allow us to very quickly identify opportunities and exploit them at a rate faster than we’ve ever been able to do.  Field after field, major region after major region, we have been applying these technologies to stretch out production well beyond original predictions.  These days our predictions are getting better and we are finding that even with the best of technology and nearly unlimited funding, we can’t stop major regions from peaking.  The latest unconstrained use of technology and money was the North Sea.  With no limitations in drilling or technology, it peaked in 1999 and today produces 70% of what it produced just 10 years ago.  The world is using oil at prolific rates.  Today we use six times the oil we used in 1950.  It is the most magical fluid in the world. One gallon of gasoline has the energy content of a man week of hard labor. Don’t believe me?  Assuming you get 32 miles per gallon on the highway like I do, how long would it take you to push your car 32 miles? A week? Longer?  Even more difficult, where could you get a week of hard labor for $2.85?  You can’t get that anywhere in the world.  The Egyptians used slaves to build their pyramids; the modern world uses liquid hydrocarbons. Some of us use our oil in more efficient ways than others. For the last 5 years, the third world citizen driving their moped has been impervious to price changes that have caused the economies of the OECD to cave in.  The summer of 2008 was the first of many price oscillations we will experience in the post Peak Oil world.  Prices will ascend until people can no longer afford the commodity, the demand dries up and prices drop letting the market rush back to the lower prices.  If it behaves like most other limited commodities, we can expect these oscillations to continue until the world transitions to other forms of energy for transportation.  Now knowing why and when the oscillations occur is our full time effort.  Check out our website at www.logipeakoil.com or contact us for details on how we do this.

BLACK GOLD posting  future

Tags: Bernanke, BlackGold, commercial real estate, COMMODITY, ENERGY, GAS, gold, Harvard Real Estate, hedge fund, LOGI, obama, OIL, OIL PRICES, PEAK OIL, President Barack Obama, Putting Money to Work, Real estate, Thomas J. Powell

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           As markets continue to produce signs of stabilization over the next quarter, it is unlikely that unemployment figures will show much improvement. With figures the highest they have been in more than 25 years, unemployment appears to have neared its peak. Lowering the rate to levels our economy can adequately support will prove to be a daunting task. But, with a little encouragement the corporate sector certainly has the power to handle it.

            Last week, Federal Reserve Chairman Ben Bernanke was quoted by multiple major news sources after he told the Brookings Institute, “The recession is likely over at this point.”[1] According to Bernanke, the economy appears to be growing, but not at a pace that will be sufficient for lowering the unemployment rate. Historically, economic upturns after recessions have been stamped with consumer demand. This time around, however, many Americans may not have the ability to help lead a recovery because they have been completely wiped out financially.

            In order to spur consumer-led demand, the corporate sector will again have to make jobs readily available. The unemployed are not the kind of consumers that are needed to invigorate our economy and induce growth. We do not need to turn to an economics textbook to tell us that our broken economic cycle can be patched with more available jobs—this much we know.

            Corporations large and small have been forced to adapt to this constricted economy and the majority of them were required to do so through downsizing. Now, company leaders are reluctant to increase their workforce until they are confident there is a significant increase in demand for their products and services. But, one strong possibility that could provide the encouragement needed to get company leaders hiring again is a temporary change in corporate tax policy.

            A temporary tax break aimed at equaling the payroll costs of adding new employees would strip the risk for companies that are awaiting a full-blown recovery before they hire. Plus, according to a recent article published in The Wall Street Journal:

“The impact of a two-year program on the federal deficit would be relatively modest. Using a conservative set of assumptions, an $18 billion annual program, which represents 10% of estimated corporate tax receipts in the next fiscal year could create nearly 600,000 good-paying jobs …”[2]

            Before they commit to hiring, companies are waiting for consumers to spend. But, before consumers commit to spending, they are waiting for companies to hire. The cycle is stagnant and will remain so until one side is persuaded to change their behavior. A government-sponsored tax break for companies that agree to hire could be the first action taken during this recession that encourages our country’s government, companies and individuals to work together.

Capital River is Frozen; We Can Thaw it

            Because of the severe impact of the recession, the stream of capital that once flooded our economy has been reduced to a trickle. The majority of the flow evaporated when banks were forced by the Fed to tighten their lending standards as delinquent loans polluted their books. Consequently, failing to restore the flow is making it extremely difficult for the Fed to take progressive measures toward recovery and has the potential to drop us back into another recession.

            According to Bloomberg.com:

“The Fed’s second-quarter survey of senior loan officers, released Aug. 17, showed U.S. banks tightened standards on all types of loans and said they expect to maintain strict criteria on lending until at least the second half of 2010.”[3]

With dropping values in commercial real estate, rising unemployment numbers and a seemingly unending onslaught of delinquent mortgages; banks are not lacking reasons to practice strict lending measures. Earlier this year, through a series of stress tests, the Fed found that 19 of the country’s largest banks needed $75 billion in new capital to protect themselves from mounting losses.

            With all of my recent writings and blog postings concerning the benefits of getting our private capital back in the game, I am by no means hiding my agenda for restoring capital flow. The economy will only be repaired once the flow of capital is rejuvenated. It is much easier to lead capital tributaries back into the main stream if they are first flowing. Over the next couple of quarters, banks will continue to deleverage and work toward a balanced lending system. But, without raising more private capital, banks will not be able to establish a lending system that enables credit-worthy individuals and businesses to acquire reasonable loans; which puts an enormous restraint on economic progress.

            Our economy is already positioned to attempt to force a jobless recovery, which will certainly create complications in sustaining a recovery. Trying to force a credit-less recovery will only exacerbate our struggles. Dragging our banks through a painful recovery without sufficient capital will only position them to break and lead us right back through more of the same. By identifying ways to put our private capital back into the equation we are positioning our financial system to rise from this recession stronger and more efficient. By investing in private enterprise, we are sparking long-term, mutually-beneficial relationships between capital-producing businesses and banks (while also earning gracious returns on our initial investments). Now is the time to put our private capital back to work.

Without Our Capital, Banks Get the Axe

            Our private capital plays an integral part in our local economies—which then all collectively have crucial roles in our country’s financial stability. Because banks have become over-reliant on easy credit, they are now struggling to keep their businesses running by raising capital the old fashioned way. Without our capital, our banks (and more importantly our communities) cannot function properly. Not able to fulfill their debt obligations, banks are closing their doors and falling under the control of the FDIC; which “estimates bank failures will cost the fund about $70 billion through 2013.”

            Banks are necessary to ensure that money circulates in our communities. They distribute the money of their depositors to borrowers who have a worthwhile purpose for the money. The banks secure our savings and lend the money to companies or individuals. Banks provide a convenient location for borrowers to acquire funds. Without banks, companies would find it very difficult to borrow large sums of money.

While banks perform their role as intermediaries, they also essentially increase the supply of money. By accepting deposits from its customers and loaning the money to worthy borrowers, banks “create” money. Consider the following simple example. Imagine a customer deposits $20,000 into her bank account. Even though the bills are no longer in circulation, the amount of money in our country does not change as a result of the deposit. Allowing the money to simply sit in the bank’s safe would not earn the bank anything. Therefore, the bank lends $10,000 to an entrepreneur in return for an additional interest fee. The depositor still has a $20,000 credit in her account and the entrepreneur has $10,000, therefore the money supply has increased by $10,000. The entrepreneur purchases supplies with the money and creates a product that he sells for a profit. As long as banks have depositors, they are able play their crucial role of increasing the money supply by making funds available to those looking to find backing for their ventures.

            The word “bank” itself is derived from the Italian word “banca,” which referred to the table on which coins were counted and exchanged in the middle ages. “Bancarotta,” from which the word “bankrupt” was derived, means “broken bank.” Originally, if a banker was unable to pay his debts, the authorities arrived to smash his table in half with an axe. Today, the FDIC seizes failed banks and seeks buyers for their branches, deposits and faulty loans—all, for some reason, without smashing anything with an axe.

All my best,

Thomas J. Powell 

Tags: banks, Bernanke, Credit, economy, ELP Capital, entrepreneur, FDIC, Federal Reserve, las vegas, markets, Money, nevada, obama, private capital, Real estate, real estate investments, recession, Recovery, reno, tax, Thomas J. Powell, unemployment

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The equity market rally has gained steam over the last few weeks not because of the much discussed possible economic recovery but because of the falling US$. As the US$ sinks to new lows cash in short term instruments is forced to seek refuge. Gold and silver are obvious choices for shelter, but these markets are tiny compared to the amount of US$ looking for cover and so the entire equity market structure is enjoying the massive flow of funds.

In fact, the market capitalization of the entire precious metals mining group is only about $225 billion compared to over $3 trillion in U.S. money markets. Can you see why we have made precious metals and the mining companies a major focus of the Fortune’s Favor Family of Funds?

But I digress, an increase in foreclosures will force the Fed to continue the easy credit solution. Monetization of U.S. treasuries will continue, world demand for a new reserve currency will get even louder and as a result the US$ will continue to decline in value forcing cash into assets that will outstrip the ever increasing inflation. “Here endeth the lesson.” (Another movie quote! “Somebody stop me!” I did it again!?!? The Jaime Lee Curtis quote from Wednesday’s post was courtesy of the movie A Fish Called Wanda.)

“Option” mortgages to explode, officials warn - Reuters.com
Reuters.com reports the federal government and states are girding themselves for the next foreclosure crisis in the country’s housing downturn: payment option adjustable rate mortgages that are beginning to reset. “Payment option ARMs are about to explode,” Iowa Attorney General Tom Miller said after a Thursday meeting with members of President Barack Obama’s administration to discuss ways to combat mortgage scams. “That’s the next round of potential foreclosures in our country,” he said… Because the new monthly payments can be five or 10 times what borrowers are accustomed to paying, they “threaten a much greater hit to the consumer than the subprimes,” Goddard said, referring to the mortgages often extended to less credit-worthy borrowers that fed the first wave of the financial crisis… The mortgages tend to be “jumbo,” or for significantly large amounts, Goddard said, making it even harder for borrowers to sidestep foreclosure. He said he expected to see an increase in scams as distressed homeowners become more desperate to refinance big debts.

Does the following story mean the U.S. Treasury is in effect stealing the premiums asset managers have paid for money market insurance? I would welcome any thoughts on this matter.

U.S. Treasury to keep $1.2 billion money fund premiums - Reuters.com
Reuters.com reports the U.S. federal government will keep about $1.2 billion in payments collected to backstop money market funds even after its insurance program ends on Friday, a U.S. Treasury official said. The money “will stay with the Treasury,” the official told Reuters on Thursday, speaking on condition of anonymity because the decision has not been officially announced. The payments, from asset managers, were essentially insurance premiums used to fund guarantees the Treasury put in place a year ago to prop up the $3.5 trillion money market fund industry.

Is the development in the story below the coup de gras for Goldman Sachs? Last year the broker was forced to become a bank to gain access to Fed handouts. Now it seems there is an attack building on the very core of Goldman’s earning power.

Volcker calls for restricting banks’ risk, trading activity – WSJ
WSJ reports former Federal Reserve Chairman Paul Volcker on Wednesday said banks should operate in a much less risky fashion, including not making trading bets with their own capital, comments that could provoke intensified debates over the future of financial regulation.

Mr. Volcker, who currently is chairman of the White House’s Economic Recovery Advisory Board, suggested banks should be restricted to trading on their client’s behalf instead of making bets with their own money through internal units that often act like hedge funds. “Extensive participation in the impersonal, transaction-oriented capital market does not seem to me an intrinsic part of commercial banking,” he said in a speech to the Association for Corporate Growth in Los Angeles.

Will the discussion about a new reserve currency continue to pick up steam? If so, the recent slide in the US$ could become a little steeper and in turn the Gold rally above $1,000 a little more secure.

September 30th:

“Sept. 30th is the fiscal year end for the U.S. Treasury. It is also the date when ALL banks across the globe must become Basel II and Basel III compliant.” Bill H. GATA The rules state banks that are not compliant will be restricted from trading with compliant banks. Due to the massive “off balance sheet” derivative exposure that U.S. banks have Basel III compliance will be problematic. Will this development create renewed weakness in the US banking system? We will need to monitor credit spreads closely in the coming weeks for clues of any Basel impact.

Tags: basel, g20, gold, obama, option arms, precious metals, silver, subprime, US Treasury, US$, volcker

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I’m not hearing much about this story in the news yet but I suspect the debt-ceiling will become center stage in the weeks ahead. At risk is the fate of the US$ trend. In the unlikely event that congress somehow puts its proverbial foot down and refuses to increase the debt ceiling then no doubt this would stem the slide of the greenback. However, I suspect the third paragraph holds the tastiest morsel of information. In order to avoid looking weak on fiscal responsibility right before an election Congress will pass all that is required now to increase the debt ceiling and in turn add to the US$ weakness. Stay tuned, this could get interesting….

Treasury gets ready for debt-ceiling fight - WSJ
WSJ reports the Obama administration, concerned about the possibility of a big political fight over the national debt, is looking at how it can continue funding the government in the event that Congress hinders its ability to borrow money.

Treasury Department officials are examining tools employed by previous administrations, including disinvesting government retirement funds and suspending interest payments to federal accounts, according to people familiar with the matter. They are also looking at what to do in the unlikely event of a govt shutdown.

At issue is the debt ceiling, a dollar limit controlled by Congress that dictates how much the U.S. can borrow. Treasury Secretary Timothy Geithner told the Senate in a letter last month that the $12.1 trillion ceiling could be hit as early as mid-October, and said it needs to be increased so the U.S. can continue funding operations and making debt payments. Mr. Geithner didn’t indicate the increase he was seeking. With the U.S. borrowing about $30 billion a week, some economists say the Treasury will need an increase of as much as $1.5 trillion if it wants to avoid another request before the 2010 midterm elections. The U.S. could default on its debt if Congress doesn’t raise the debt ceiling, but it is a remote scenario.

…Meanwhile, as the players in the US rearrange the chairs, the rest of the world wants to rewrite the playbook…

UN wants new global currency to replace dollar - Daily Telegraph Daily Telegraph reports the dollar should be replaced with a global currency, the United Nations has said, proposing the biggest overhaul of the world’s monetary system since the Second World War.

In a radical report, the UN Conference on Trade and Development (UNCTAD) has said the system of currencies and capital rules which binds the world economy is not working properly, and was largely responsible for the financial and economic crises. It added that the present system, under which the dollar acts as the world’s reserve currency , should be subject to a wholesale reconsideration. Although a number of countries, including China and Russia, have suggested replacing the dollar as the world’s reserve currency, the UNCTAD report is the first time a major multinational institution has posited such a suggestion.

In essence, the report calls for a new Bretton Woods-style system of managed international exchange rates, meaning central banks would be forced to intervene and either support or push down their currencies depending on how the rest of the world economy is behaving. The proposals would also imply that surplus nations such as China and Germany should stimulate their economies further in order to cut their own imbalances, rather than, as in the present system, deficit nations such as the UK and US having to take the main burden of readjustment

I’d like to take a moment and pose a question before you read the next story.

Now the question: Should you start a trade war with China at a time when your country is most vulnerable? Would that be smart? Would it be diplomatic? Or, in the immortal words of Jaime Lee Curtis, would it be STUPID? (Extra credit to those who can name the movie)

China strikes back on trade - WSJ
The Wall Street Journal reports China indicated Sunday it would restrict U.S. imports of chicken and auto products after Washington’s move to slap punitive sanctions on Chinese tire imports, raising tensions in a trade dispute ahead of two planned meetings between the countries’ leaders.

Citing a jump in Chinese imports, the Obama administration said Friday it would impose stiff tariffs on Chinese-made tires for the next three years, invoking a section of trade law that China agreed to as a condition for its joining the WTO in 2001. The move essentially would cut off the source of nearly 17% of all tires sold in the U.S. last year and hit cost-conscious consumers particularly hard, as retailers will have to find alternative sources for the lower-end tires that make up much of what China sends to the U.S.

Beijing responded quickly. Sunday, its Ministry of Commerce said it was starting antidumping procedures against U.S. exporters into China of chicken and auto products. It said it had received complaints from local producers that the U.S. products were being dumped in China at below-market prices. The ministry denied that the move, which could lead to sanctions, was protectionist. “China has consistently opposed trade protectionism, and the country’s actions since the financial crisis have reflected this stance,” the ministry said on its Web site. “China is willing to continue to act in accordance with countries around the world to push forward the world’s economic recovery.”

The announcement didn’t specify the timing or the exact kinds of goods involved. An official with the U.S. Trade Representative’s office Sunday defended the trade decision and warned that Washington would be “inquiring closely” over the next several days as to the basis for China’s response.

Tags: bretton woods, China, debt-ceiling, new global currency, obama, trade war, treasury department, U.S. Dollar, US Treasury

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Earlier this week, after wrestling with the spate of painful economic news provided by major media, I recognized that I had no immediate control over any of the massive economic concerns. The stock market zigged when I hoped it would zag. Unemployment numbers, often reported differently, moved at different paces in the undesirable direction. Our federal deficit grew, which increased our individual debt responsibility. The problems were not confined by the pages of the newspapers. When I peered through my office window I saw quality real-estate projects continuing to sit lifeless because they lacked funding. After a few moments of reflection, I recognized that I, and certainly the majority of us, am being forcibly weighed down by all of the negative. Instead of dwelling on the uncontrollable, we should be manifesting the positive by taking hold of the reins on those things in which we can have significant influence.

I decided to start anew with more refreshing thoughts. So, I turned to a medium in which I had some control over the information that was presented to me: Google. Two main pages topped the list when I searched for the words “Economy: We Are the Answer.” The first was an informal Yahoo Answer Board on which the following question was raised: “Is there hope for the American economy or should we just drastically change the way we live?” The user went on to define “drastically change” by giving up our private houses and cars. The second most-popular page that appeared was BarackObama.com, which suggests no one within Google’s reach really believes we the people have the capacity to be the answer to our economic problems. According to my Google search, the answer either rests in the hands of President Obama or we will all be forced to live in communal frat houses without automobiles.

When our economy is running smoothly, we all welcome the opportunities to be part of a do-it-yourself world. We bag our own groceries, scan our own documents, rent our own movies and print our own boarding passes. On a weekly basis, we all most likely take it upon ourselves to deposit, track, clean, swipe, dry, spray, refill, bus, organize, pour, dispense and scan in the presence of other do-it-yourselfers in the vast public. As long as the tasks are minimal and the goal is clearly in view, we are encouraged to do everything ourselves. The responsibilities we used to let others handle, we now do ourselves (I cooked my own meal at Melting Pot earlier in the month). About half of the times I visit a gas station, there is no reason for an attendant to be present—unless I am in Oregon or New Jersey, where state officials prohibit me from pumping my own gas. But, when an issue has options that are more complex than selecting diesel or regular, our individual accountability takes a vacation. Why do we turn our focus to other superpowers to take control and eliminate ourselves from the equation?

The Problem is Passivity                               

This economic downturn is nothing more than a collection of intertwined problems. Although financially painful and physically overwhelming, there is no reason for any of us to hide underneath our desks and wait for the shaking to end. Think about the steps we all take when trying to overcome a timely problem—for an example, a clogged drain. We take a short period of time to analyze the situation. We look at all the factors involved and ask ourselves crucial questions: Is the water draining at all? Is the clog causing the pipes to leak? How severe is the leak? Is it causing immediate damage? Next, inevitably, it is human instinct to search for the quickest fix. We switch on the garbage disposal and rub our lucky rabbit’s foot. When we are forced to take real action we must recognize the weapons we have to combat the problem (a plunger, a drain snake, Drain-O). After we extinguish our resources, we then consult the knowledge of an expert. 

Now consider the enormity of our current economic struggles. The formula for dealing with the problem is much more complex, but it should still follow the basic fundamentals. Why then have droves of investors been complacent to listen to long-winded “experts” before analyzing their situation and deducing what it is that they can do for themselves? The formula is flip-flopped when we let ourselves believe that any given problem is too big or too complex. Remember the old adage, “We can only eat an elephant one bite at a time”? Many of the intricacies of this recession are out of our control, but the sooner we take control over the issues we can influence, the sooner the complex problems begin to untangle.

If the severity of the problem is directly proportionate to the amount of time we take to analyze it, then we only need a brief moment to stare into a clogged drain. In that same vein, our economic crisis is much more complex and has required a longer period for analysis. I argue we have passed this stage of the process and action is required now. This summer brought about a number of signs that suggest we are now slogging around somewhere near the bottom. With home-improvement projects, summer vacations and outdoor entertainment, consumers typically spend more in the summer months. We are now entering what is destined to be a difficult autumn. Unemployment will continue to strain on families, foreclosures will mount and consumers will tighten the belts they let momentarily loosen over the summer.

On the other hand, as the leaves turn and nature gets stripped of its color, a buckled economy will continue to present opportunities for us to take action. It is time for all of us to stop viewing ourselves as helpless observers and again consider ourselves part of the equation. In some ways we already are important variables, but we rely on the inadvertent action we take to be sufficient. How many times have you heard an angry citizen blurt out something along the lines of “I do my part, I’m a taxpayer”? The somewhat-passive action of paying taxes funds many integral economic systems in which our country balances itself. Just as we hire plumbers to help unclog our drains and keep them running smoothly we elect (read “hire”) officials to help unclog our economy and keep it running smoothly. With our plumbers, we are responsible for paying the bill to enable them to do their job. The same is true for the officials; by paying our taxes, we essentially all pick up our share of the bill and expect them to do their share of the work. Without our capital, their positions would not exist; but this hardly means we have positioned ourselves as active parts of the recovery.

Investing to Make a Difference

To be an important cog in the recovery machine, we must put our money to work. Our money does not do any good stuffed in a mattress or buried underneath the deck. Private capital built this country and there are few economic problems that private capital cannot solve, if allocated effectively. During the Great Depression, a time when the economy constricted and the majority of construction projects were put on hold, the entire construction of the Empire State Building was completed. Thanks to funding from its principle backer, an automobile tycoon aiming to one-up a major competitor, the Empire State Building was constructed with staggering momentum. During the Depression, building materials were cheaper and workers were eager to earn a wage, much like today. The construction put people and money back to work in dire times; not to mention the mystique the building has given our country for nearly eight decades.

A project as grand as the Empire State Building might only come around once a century, but that does not rule out the need for quality projects in our own communities. When private capital teams with quality-managed projects, the outcomes can be extraordinary. But, you need both. Whereas quality projects cannot get off the ground without capital, poorly-managed projects get ran back into the ground even with all the capital in the world.

This recession has torn through our communities and left a stockpile of quality real-estate projects to collect dust. Without proper funding, the projects remain undeveloped, unproductive and severely underemployed. Placing our private capital into quality projects will bolster the number of available jobs in our communities and get people behind a meaningful cause. There are loads of individuals that could be taking charge and becoming part of this recovery. We will show great resilience when we, on our own, come out of this strong, super-charged and feeling part of something.

We have to put the days of excuses behind us. We should be searching for any project that someone says “can’t be done” and aim to defy. When the newspapers have stopped reporting stories that highlight economic blemishes, our unemployment numbers are approaching all-time lows and our government takes a permanent vacation from bailouts; we will only vaguely remember our current doubts. We will, however, remember the period of time when we all did our part to restore communities. We will remember the turning point when we took action to pull ourselves from the painful times and regained our spot as part of the equation.

Tags: bail-out, Bernanke, Billion, Business, Credit, deficit, do-it-yourself, economy, Finance, Geithner, media, obama, Paulson, Real estate, Retirement, Standing In The Rain, Stimulus, Thomas J. Powell, Trillion

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The American people are receiving a true education from our president regarding the various uses of the baffling word that is ‘Change‘.

And that brings me to the next use of the word ‘change‘. If anyone actually believed that Obama was going to change Washington then I respectfully request you review the phrase, ‘A leopard can’t change its spots.”

Read the rest of this entry »

Tags: ben bernanke, central bankers, China, Not Categorized, obama, tax increases, UK

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This story is quite disturbing. The Obama administration is sliding down a slippery, or should I say, slimy slope. In Q4 of last year fear mongering was the tactic of choice to push policy (e.g. auguring global financial ruin if senators didn’t quickly pass questionable legislation.) In Q1 & Q2 of this year financial market manipulation was the potion incorporated to conjure up support for far-reaching and possibly destructive government controls. Apparently Q3 ushers in a new age of coercion. When I read the story below I wonder: Is this a show of unbridled audacity (to use an Obama term) or is this the beginnings of something altogether more desperate? As ratings slip and agendas meet resistance is this how our “esteemed” president and his “brilliant” entourage conduct themselves?

Please take a good look at the June 30 post. You may feel a more acute impact of the cartoon’s message after reading about the behavior described in the story below. Shouting, expletives and coercion are a common trait for the gaggle depicted.

Geithner vents as overhaul stumbles – WSJ
WSJ reports Treasury Secretary Timothy Geithner blasted top U.S. financial regulators in an expletive-laced critique last Friday as frustration grows over the Obama administration’s faltering plan to overhaul U.S. financial regulation, according to people familiar with the meeting.

The proposed regulatory revamp is one of President Barack Obama’s top domestic priorities. But since it was unveiled in June, the plan has been criticized by the financial-services industry, as well as by financial regulators wary of encroachment on their turf. Mr. Geithner told the regulators Friday that “enough is enough,” said one person familiar with the meeting. Mr. Geithner said regulators had been given a chance to air their concerns, but that it was time to stop, this person said.

Among those gathered in the Treasury conference room were Federal Reserve Chairman Ben Bernanke, SEC Chairman Mary Schapiro and FDIC Chairman Sheila Bair. Friday’s roughly hourlong meeting was described as unusual, not only because of Mr. Geithner’s repeated use of obscenities, but because of the aggressive posture he took with officials from federal agencies generally considered independent of the White House. Mr. Geithner reminded attendees that the administration and Congress set policy, not the regulatory agencies. Mr. Geithner, without singling out officials, raised concerns about regulators who questioned the wisdom of giving the Federal Reserve more power to oversee the financial system.

Clunker plan gives car sales a lift – WSJ
The Wall Street Journal reports U.S. auto sales in July climbed to their highest pace in 11 months, as customers rushed to showrooms amid uncertainty about the future of the federal government’s “Cash for Clunkers” incentive program.

Now, car makers, the Obama administration and the Senate face tough decisions about how to respond to the clunker program’s apparent success. The administration on Monday stepped up a campaign to persuade senators to approve $2 bln more in funding before Congress goes on vacation at the end of the week. The House on Friday approved a $2 bln funding extension. Administration officials have warned the program could be forced to end. But some key senators in both parties are balking. White House spokesman Robert Gibbs said Monday that President Barack Obama would use a Tuesday lunch meeting with Senate Democrats to push for an extension of the program. The administration gained ground Monday when Senators Susan Collins (R., Maine) and Dianne Feinstein (D., Calif.,) dropped their opposition to additional funding, saying data released by the administration persuaded them that most vehicles scrapped so far have been sport-utility vehicles and trucks, and that 60% of the people using the program had purchased cars.

What they don’t tell you:

These cars need to have a lot of mileage on them to be considered “clunkers”

People driving old “clunkers” typically come from an income bracket that can’t afford a new car

This plan is encouraging these people to spend money they could be using to pay down debt or worse, inducing an increased debt burden
The incentive program requires car dealers destroy each clunker’s engine and drivetrain. This will drive up the cost of used car parts that lower-income car owners who don’t enter the program depend on.

Pulling demand forward, while possibly good for opinion polls, will make the future rather daunting for the auto companies.

History, unfortunately, must repeat itself. This demand pull through is identical to the shenanigans Barney Frank and his cohorts concocted in the real estate market and we all know how that ended. Barney’s bunch forced banks to lend to individuals who could not afford the home they were buying. Predictably, demand dried up and foreclosures exploded when the well ran dry.

Tags: auto sales, Barney Frank, cash for clunkers, castro, chavez, dianne feinstein, obama, ortega, susan collins, timothy geithner

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President Obama says US may be seeing beginning of end of recession -DJ
Sure, and the emperor was wearing clothes…

ECONX Summary of Fed’s Beige Book Reports suggest that economic activity continued to be weak going into the summer, but most Districts indicated that the pace of decline has moderated since the last report or that activity has begun to stabilize, albeit at a low level….

Amidst all the positive recession-ending talk looms the dark clouds of a weakening Treasury bond market. As the Beige Book illustrates, the pace of economic decline has slowed but not stopped; in order for any recovery to actually gain traction interest rates must remain low.

The Obama administration’s economic policies may be the undoing of his proclamation that the recession end is near. Allow me to explain. Apparently the Administration is employing a very scientific two-pronged approach for economic salvation: 1) If you close your eyes and say ‘the recession is ending’ enough times it will come true. We will call this the Oz method. 2) With your eyes closed, spend like a drunken sailor.

The problem with this brilliant technique is first, closing your eyes and wishing only works for little girls with pigtails and second, excessive spending leads to a rise in interest rates. The conundrum: spend to get out of the recession but spending leads to Treasury bond weakness/rate increases. The real estate situation in this country remains dire and an increase in mortgage rates will re-accelerate the economic decline.

Our job as investors remains precarious as this equity rally continues to pick up steam. We must monitor the conundrum by paying close attention to Treasury bond auctions. Weakness in these auctions creating interest rate creep will be telling signs of trouble to come.

To that end, I will be periodically posting data from various auctions of government debt. Keep a close eye and look for troubling trends.

And then Wednesday…

Briefing: ECONX 5-year Note Auction Results: High Yield 2.689% (2.635% expected); Bid/Cover 1.92x (2009 Avg 2.22x); Indirect Bidders 36.7% (2009 Avg 41.9%)

Previous offering saw $37B, 2.7% yield, with a bid-to-cover of 2.58x and an indirect bidder participation rate of 62.8%.

Tags: bond auctions, interest rates, obama, U.S. Dollar, US Treasury

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A must read story from the Investors Business Daily. The story illustrates how government meddling clearly led to the ruination of the housing market and in turn the financial crisis. We must understand what happened and raise our collective voice if we are to save the health care system from a similar fate.

Truth In Lending By INVESTOR’S BUSINESS DAILY Posted Friday, July 10, 2009 4:20 PM PT
Behind The Meltdown: Many Americans are unaware of the causes of the greatest economic calamity of our lifetime. A new congressional report details how government politicized housing, wrecking the economy.Rep. Darrell Issa of California, ranking Republican on the House Oversight and Government Reform Committee, has released a report that every American should read.
The analysis details how powerful Democrats in Congress insisted that government-subsidized housing be geared to serve the purposes of social justice at the expense of sound lending.squeezed out their competition and cornered the secondary mortgage market. They took advantage of a $2.25 billion line of credit from the U.S. Treasury.
• Congress, by statute, allowed them to operate with much lower capital requirements than private-sector competitors. They “used their congressionally-granted advantages to leverage themselves in excess of 70-to-1.”
• The two GSEs were the only publicly traded corporations exempt from SEC oversight. All their securities carried an implicit AAA rating regardless of the quality of the mortgages.• The Department of Housing and Urban Development set quotas for GSE investment in affordable housing.
• Encouraged by an inaccurate 1992 Boston Federal Reserve Bank study charging racial discrimination in mortgage lending, the two GSEs were strongly pressured to “lower their underwriting standards, particularly on the size of down payments and the credit quality of borrowers.”(Barney Frank was perhaps the loudest voice calling for the subversion of underwriting standards. This is one of the reasons why I have repeatedly called for his removal. My issue with Barney is purely based on facts and not partisan prejudice as some may argue.)
• In 1992, Congress directed HUD to establish multiple quotas requiring mortgage quotes for low-income families.
• In 1995, the Clinton administration issued a National Homeownership Strategy, loosening Fannie and Freddie’s lending standards and insisting that lenders “work collaboratively to reduce homebuyer downpayment requirements.”
• The administration complained that in 1989 only 7% of mortgages had less than a 10% downpayment. By 1994, it wanted that raised to 29%.
• Reduced underwriting standards spread into the entire U.S. mortgage market to those at all income levels.
• A complete decoupling of home prices from Americans’ income fed the growth of the housing bubble as borrowers made smaller down payments and took on higher debt.
• Wall Street firms specializing “in packaging and investing in the lowest-quality tranches of mortgage-backed securities, profited hugely from the increased volume that government affordable lending policies sparked.”
• Wall Street firms, homebuilders and the GSEs used money, power and influence to block attempts at reform. Between 1998 and 2008, Fannie and Freddie spent over $176 million on lobbyists.
• In 2006, Freddie paid the largest fine in Federal Election Commission history for improperly using corporate resources to hold 85 fundraisers for congressmen, raising a total of $1.7 million.

Here are some highlights of Issa’s blow-by-blow account:

• With an implicit subsidy to American homeowners in the form of reduced mortgage rates, Fannie Mae and its sister government sponsored enterprise, Freddie Mac,

(The first three bullets illustrate to perfection what happens when the Gov’t interferes with the private market. Take note because now the Obama administration is feeding us the line that increased Gov’t involvement in the health care system will create healthy competition. THIS IS A LIE! WAKE UP PEOPLE!)

As the Issa report points out, “the real tragedy of the government’s affordable housing policy is the impact on average Americans, particularly those of modest means. “Millions of these borrowers, who were supposed to have been helped by federal affordable housing policy, have now been forced into delinquency and foreclosure, destroying their asset base, their credit, and in some cases their families.”

Tags: Barney Frank, clinton, darrell issa, Fannie Mae, financial crisis, housing market, hud, IBD, obama, truth in lending

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