RCM Comment: Today on Bloomberg TV a promotion is running urging viewers to watch the 7:00 pm show, No Visibility Ahead: Predicting What’s Next, during which a moderator will question a panel about the current economic situation and the credit crisis. This panel will include the likes of Jack Welch and Meredith Whitney. I imagine this will be an interesting forum, however, in the promo the group dances around a key question and since they are unwilling to give a straight answer I will jump into the breach. Admittedly, it is easier for me to voice my opinion in this post than on national TV, but I hope I would have the integrity and moxie to answer this question on any medium.
The question: Should Ben Bernanke be reappointed to Fed chairman when his term is up?
While others dance I will stand like a Rodin and say emphatically, NO. Those of you who have been reading this blog for the last few years and/or have spoken with me know that since Ben took over as chairman we have been concerned. We contended that an academic who was known as “Helicopter Ben” was a perilous appointment. We voiced our concern when Ben decided, in March of 2006, to stop the government’s reporting of M3. We took this as a clear sign of Ben’s willingness to devalue the US$ and we launched our Fortune’s Favor Precious Metals fund in August of 2006 to benefit from this direction. During a time of rampant free credit Bush appointed a free credit junky. Many metaphors come to mind to describe the situation, but I think the arsonist and the fire will suffice.
If the desire is to further destroy the value of the US$, send treasury bond prices plummeting / rates soaring and lead us headlong into massive hyperinflation then by all means reappoint Ben Bernanke. As investors we welcome the continued policies of Ben as we have a clear road map to success through our commitment to Gold, Silver, energy and other commodities. But as patriots of this country and believers in the fundamentals established by Alexander Hamilton and our forefathers we urge the administration to appoint someone who will attempt to right the ship.
The following are a few stories that may shed some light on the effect of the current administration’s policies as well as Ben’s actions:
The rising cost of insuring debt is impacting treasuries too. The cost to hedge against losses on $10 million of Treasuries is now about $100,000 annually for 10 years, up from $1,000 in the first half of 2007. These rising insurance costs have helped push up treasury yields in the last few months. Worse still, the rising costs of insuring against government defaults will undermine faith in dollar. After all, the CDS market is telling us that 10-year treasury notes have become 100 times riskier in the last two years.
Remember hyperinflation is NOT an economic event, it is a currency event.
If you study market history you will see the glaring truth that the Weimar experience would not have happened if German debt markets were not used as a vehicle to heavily short the Weimar Mark.
It was the Weimar mark short sellers that created the Weimar hyperinflation just as the OTC derivative shorts will cream the US dollar with the unavoidable effect being hyperinflation.
I know of what I speak. About the above there is no doubt. There is no real argument to the contrary and you can count the number of those outside of our community on one hand who understand how hyperinflation is created.”
Dave from Denver on the real deal…
More fantasy housing numbers and prior revisions
New home sales were reported to be up .3% in April, HOWEVER, March numbers were revised from +.6% to -3%. That’s a huge revision. MOREOVER, new home sales plunged 34% compared with a year ago.
More disturbing yet, Americans fell behind on their mortgages and foreclosures hit a record pace in the 4th quarter. Mortgage delinquencies hit 7.9% of all loans, the highest level since 1972. Prime delinquencies are now higher than subprime delinquencies. This statistic should completely terrify everyone, as the prime mortgage market is 10x the size of the subprime/alt-a market.