Remember when politicians were supposed to fight for our rights and protect us from an abusive government? Ron Paul remembers. And thankfully he continues his uphill battle in teaching the rest of the people. Thanks Dr. Paul!
Tuesday, September 30, 2008
Friday, September 26, 2008
I Love Ron Paul!
Ron Paul giving yet another lesson to "Helicopter Ben" on the fundamental flaws in our monetary policy.
Dr. Paul's response to the President :
Dear Friends:
The financial meltdown the economists of the Austrian School predicted has arrived.
We are in this crisis because of an excess of artificially created credit at the hands of the Federal Reserve System. The solution being proposed? More artificial credit by the Federal Reserve. No liquidation of bad debt and malinvestment is to be allowed. By doing more of the same, we will only continue and intensify the distortions in our economy - all the capital misallocation, all the malinvestment - and prevent the market's attempt to re-establish rational pricing of houses and other assets.
Last night the president addressed the nation about the financial crisis. There is no point in going through his remarks line by line, since I'd only be repeating what I've been saying over and over - not just for the past several days, but for years and even decades.
Still, at least a few observations are necessary.
The president assures us that his administration "is working with Congress to address the root cause behind much of the instability in our markets." Care to take a guess at whether the Federal Reserve and its money creation spree were even mentioned?
We are told that "low interest rates" led to excessive borrowing, but we are not told how these low interest rates came about. They were a deliberate policy of the Federal Reserve. As always, artificially low interest rates distort the market. Entrepreneurs engage in malinvestments - investments that do not make sense in light of current resource availability, that occur in more temporally remote stages of the capital structure than the pattern of consumer demand can support, and that would not have been made at all if the interest rate had been permitted to tell the truth instead of being toyed with by the Fed.
Not a word about any of that, of course, because Americans might then discover how the great wise men in Washington caused this great debacle. Better to keep scapegoating the mortgage industry or "wildcat capitalism" (as if we actually have a pure free market!).
Speaking about Fannie Mae and Freddie Mac, the president said: "Because these companies were chartered by Congress, many believed they were guaranteed by the federal government. This allowed them to borrow enormous sums of money, fuel the market for questionable investments, and put our financial system at risk."
Doesn't that prove the foolishness of chartering Fannie and Freddie in the first place? Doesn't that suggest that maybe, just maybe, government may have contributed to this mess? And of course, by bailing out Fannie and Freddie, hasn't the federal government shown that the "many" who "believed they were guaranteed by the federal government" were in fact correct?
Then come the scare tactics. If we don't give dictatorial powers to the Treasury Secretary "the stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet." Left unsaid, naturally, is that with the bailout and all the money and credit that must be produced out of thin air to fund it, the value of your retirement account will drop anyway, because the value of the dollar will suffer a precipitous decline. As for home prices, they are obviously much too high, and supply and demand cannot equilibrate if government insists on propping them up.
It's the same destructive strategy that government tried during the Great Depression: prop up prices at all costs. The Depression went on for over a decade. On the other hand, when liquidation was allowed to occur in the equally devastating downturn of 1921, the economy recovered within less than a year.
The president also tells us that Senators McCain and Obama will join him at the White House today in order to figure out how to get the bipartisan bailout passed. The two senators would do their country much more good if they stayed on the campaign trail debating who the bigger celebrity is, or whatever it is that occupies their attention these days.
F.A. Hayek won the Nobel Prize for showing how central banks' manipulation of interest rates creates the boom-bust cycle with which we are sadly familiar. In 1932, in the depths of the Great Depression, he described the foolish policies being pursued in his day - and which are being proposed, just as destructively, in our own:
Instead of furthering the inevitable liquidation of the maladjustments brought about by the boom during the last three years, all conceivable means have been used to prevent that readjustment from taking place; and one of these means, which has been repeatedly tried though without success, from the earliest to the most recent stages of depression, has been this deliberate policy of credit expansion.
To combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about; because we are suffering from a misdirection of production, we want to create further misdirection - a procedure that can only lead to a much more severe crisis as soon as the credit expansion comes to an end... It is probably to this experiment, together with the attempts to prevent liquidation once the crisis had come, that we owe the exceptional severity and duration of the depression.
The only thing we learn from history, I am afraid, is that we do not learn from history.
The very people who have spent the past several years assuring us that the economy is fundamentally sound, and who themselves foolishly cheered the extension of all these novel kinds of mortgages, are the ones who now claim to be the experts who will restore prosperity! Just how spectacularly wrong, how utterly without a clue, does someone have to be before his expert status is called into question?
Oh, and did you notice that the bailout is now being called a "rescue plan"? I guess "bailout" wasn't sitting too well with the American people.
The very people who with somber faces tell us of their deep concern for the spread of democracy around the world are the ones most insistent on forcing a bill through Congress that the American people overwhelmingly oppose. The very fact that some of you seem to think you're supposed to have a voice in all this actually seems to annoy them.
I continue to urge you to contact your representatives and give them a piece of your mind. I myself am doing everything I can to promote the correct point of view on the crisis. Be sure also to educate yourselves on these subjects - the Campaign for Liberty blog is an excellent place to start. Read the posts, ask questions in the comment section, and learn.
H.G. Wells once said that civilization was in a race between education and catastrophe. Let us learn the truth and spread it as far and wide as our circumstances allow. For the truth is the greatest weapon we have.
In liberty,
Ron Paul
Dr. Paul's response to the President :
Dear Friends:
The financial meltdown the economists of the Austrian School predicted has arrived.
We are in this crisis because of an excess of artificially created credit at the hands of the Federal Reserve System. The solution being proposed? More artificial credit by the Federal Reserve. No liquidation of bad debt and malinvestment is to be allowed. By doing more of the same, we will only continue and intensify the distortions in our economy - all the capital misallocation, all the malinvestment - and prevent the market's attempt to re-establish rational pricing of houses and other assets.
Last night the president addressed the nation about the financial crisis. There is no point in going through his remarks line by line, since I'd only be repeating what I've been saying over and over - not just for the past several days, but for years and even decades.
Still, at least a few observations are necessary.
The president assures us that his administration "is working with Congress to address the root cause behind much of the instability in our markets." Care to take a guess at whether the Federal Reserve and its money creation spree were even mentioned?
We are told that "low interest rates" led to excessive borrowing, but we are not told how these low interest rates came about. They were a deliberate policy of the Federal Reserve. As always, artificially low interest rates distort the market. Entrepreneurs engage in malinvestments - investments that do not make sense in light of current resource availability, that occur in more temporally remote stages of the capital structure than the pattern of consumer demand can support, and that would not have been made at all if the interest rate had been permitted to tell the truth instead of being toyed with by the Fed.
Not a word about any of that, of course, because Americans might then discover how the great wise men in Washington caused this great debacle. Better to keep scapegoating the mortgage industry or "wildcat capitalism" (as if we actually have a pure free market!).
Speaking about Fannie Mae and Freddie Mac, the president said: "Because these companies were chartered by Congress, many believed they were guaranteed by the federal government. This allowed them to borrow enormous sums of money, fuel the market for questionable investments, and put our financial system at risk."
Doesn't that prove the foolishness of chartering Fannie and Freddie in the first place? Doesn't that suggest that maybe, just maybe, government may have contributed to this mess? And of course, by bailing out Fannie and Freddie, hasn't the federal government shown that the "many" who "believed they were guaranteed by the federal government" were in fact correct?
Then come the scare tactics. If we don't give dictatorial powers to the Treasury Secretary "the stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet." Left unsaid, naturally, is that with the bailout and all the money and credit that must be produced out of thin air to fund it, the value of your retirement account will drop anyway, because the value of the dollar will suffer a precipitous decline. As for home prices, they are obviously much too high, and supply and demand cannot equilibrate if government insists on propping them up.
It's the same destructive strategy that government tried during the Great Depression: prop up prices at all costs. The Depression went on for over a decade. On the other hand, when liquidation was allowed to occur in the equally devastating downturn of 1921, the economy recovered within less than a year.
The president also tells us that Senators McCain and Obama will join him at the White House today in order to figure out how to get the bipartisan bailout passed. The two senators would do their country much more good if they stayed on the campaign trail debating who the bigger celebrity is, or whatever it is that occupies their attention these days.
F.A. Hayek won the Nobel Prize for showing how central banks' manipulation of interest rates creates the boom-bust cycle with which we are sadly familiar. In 1932, in the depths of the Great Depression, he described the foolish policies being pursued in his day - and which are being proposed, just as destructively, in our own:
Instead of furthering the inevitable liquidation of the maladjustments brought about by the boom during the last three years, all conceivable means have been used to prevent that readjustment from taking place; and one of these means, which has been repeatedly tried though without success, from the earliest to the most recent stages of depression, has been this deliberate policy of credit expansion.
To combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about; because we are suffering from a misdirection of production, we want to create further misdirection - a procedure that can only lead to a much more severe crisis as soon as the credit expansion comes to an end... It is probably to this experiment, together with the attempts to prevent liquidation once the crisis had come, that we owe the exceptional severity and duration of the depression.
The only thing we learn from history, I am afraid, is that we do not learn from history.
The very people who have spent the past several years assuring us that the economy is fundamentally sound, and who themselves foolishly cheered the extension of all these novel kinds of mortgages, are the ones who now claim to be the experts who will restore prosperity! Just how spectacularly wrong, how utterly without a clue, does someone have to be before his expert status is called into question?
Oh, and did you notice that the bailout is now being called a "rescue plan"? I guess "bailout" wasn't sitting too well with the American people.
The very people who with somber faces tell us of their deep concern for the spread of democracy around the world are the ones most insistent on forcing a bill through Congress that the American people overwhelmingly oppose. The very fact that some of you seem to think you're supposed to have a voice in all this actually seems to annoy them.
I continue to urge you to contact your representatives and give them a piece of your mind. I myself am doing everything I can to promote the correct point of view on the crisis. Be sure also to educate yourselves on these subjects - the Campaign for Liberty blog is an excellent place to start. Read the posts, ask questions in the comment section, and learn.
H.G. Wells once said that civilization was in a race between education and catastrophe. Let us learn the truth and spread it as far and wide as our circumstances allow. For the truth is the greatest weapon we have.
In liberty,
Ron Paul
Monday, September 15, 2008
Leverage? What Leverage?!?
I'll spare you some reading and give you the quick summary. Here it goes:
*Dick Fuld over played Lehman's hand and now has to pay the ultimate price...bankruptcy.
*John Thain seeing what can happen now that the Fed and Treasury are done bailing out shareholders decided it was time to cash out. MER sold to BAC for 50B or $29 per share. Which is timely because they were going to get clipped at least 50% this week.
*Then there is AIG who is facing a ratings downgrade if they can't post some more capital. They only need 40B or so......brother can you spare a dime? There are players circling around this one looking for the right deal. More details on their restructuring to come, but they have some "systemic" qualities as well.
*The Fed has decided they will take equities now....which as one writer points out is slightly illegal based upon article 23a of their charter.
http://www.federalreserve.gov/newsevents/press/monetary/20080914a.htm
* 10 banks have decided to pool together 70B in order to mitigate risks from the LEH fall out.
This is just the type of panic we are looking for in order to achieve some capitulation. So look for a huge move down off the open and perhaps a slow grind up to positive levels for the close. If we get that we've capitulated.
I'm suspecting though going forward, after all these levered positions have been puked out by market participants; leverage is going the way of the Do Do Bird. Ratios of even 10:1 are going to become more scarce. What would equity markets look like in a leverage environment of 2:1? I think it would look less volatile, but also less profitable than some are accustomed. Don't get it confused though, 2:1 can still provide plenty of profits if managed properly. Astute lending will be key, but who's credit worthy? Rest assured this mess is not over quite yet, but getting closer for sure.
Some very old footage, but it's just funny how the parody still applies to today's shenanigans. It's 21 minutes in length, so only for those with time and an obsession for market related material.
"Fair Lehman, thy sons fierce with hunger and thirst. At this festive board now have their fill:
And arising with waist bands all ready to burst. Bless thy bounty in sending no bill."
*Dick Fuld over played Lehman's hand and now has to pay the ultimate price...bankruptcy.
*John Thain seeing what can happen now that the Fed and Treasury are done bailing out shareholders decided it was time to cash out. MER sold to BAC for 50B or $29 per share. Which is timely because they were going to get clipped at least 50% this week.
*Then there is AIG who is facing a ratings downgrade if they can't post some more capital. They only need 40B or so......brother can you spare a dime? There are players circling around this one looking for the right deal. More details on their restructuring to come, but they have some "systemic" qualities as well.
*The Fed has decided they will take equities now....which as one writer points out is slightly illegal based upon article 23a of their charter.
http://www.federalreserve.gov/newsevents/press/monetary/20080914a.htm
* 10 banks have decided to pool together 70B in order to mitigate risks from the LEH fall out.
This is just the type of panic we are looking for in order to achieve some capitulation. So look for a huge move down off the open and perhaps a slow grind up to positive levels for the close. If we get that we've capitulated.
I'm suspecting though going forward, after all these levered positions have been puked out by market participants; leverage is going the way of the Do Do Bird. Ratios of even 10:1 are going to become more scarce. What would equity markets look like in a leverage environment of 2:1? I think it would look less volatile, but also less profitable than some are accustomed. Don't get it confused though, 2:1 can still provide plenty of profits if managed properly. Astute lending will be key, but who's credit worthy? Rest assured this mess is not over quite yet, but getting closer for sure.
Some very old footage, but it's just funny how the parody still applies to today's shenanigans. It's 21 minutes in length, so only for those with time and an obsession for market related material.
"Fair Lehman, thy sons fierce with hunger and thirst. At this festive board now have their fill:
And arising with waist bands all ready to burst. Bless thy bounty in sending no bill."
Wednesday, September 10, 2008
Couldn't Have Happened To a Nicer Group!
Seems that the all those alpha hungry, beta hyper leverage hounds in the pits buying the top in energies are being carried out on a daily basis now. Today's energy inventory numbers coupled with saber rattling from OPEC (they're going to cut production by 500k barrels) is not enough to re-energize the bulls. The draw downs in inventories were huge due to Gustav shutdowns, and even next week's numbers should be lower due to shut downs this week from Ike's threatening pimp hand. That doesn't change the economic conditions permeating the globe. And that doesn't change the fact that there is a wave of redemptions flowing into hedge and mutual funds alike. So whatever you think the fundamentals are on a 5 to 10 year time frame it does not change the fact that folks are in forced liquidation mode. So for all those jerks buying at the top with hopes of a 200 handle on their contracts........boo hoo!...........see you at 84 jerks! Selling the rips is the most prudent thing to do here, because guess what? $100 oil is still too expensive in this macroeconomic backdrop, so SELL, SELL, SELL!!!
Friday, September 5, 2008
Confused?
Like my dear friend above I too have found myself waiting patiently through this unwinding process. Well, it seems that the WSJ is reporting some progress coming from our socialist think group (Fed/ Treasury.) Seems they want to reward some more financial fraud/alchemy with a good 'ol American (workin' man's back) liquidity backstop. Sometimes my dear friend and I look at each other with nothing to say. Just a patient, inquisitive stare as in to say; "are they done yet?"
Of course the answer to such a foolish question is "no....stop thinking like a monkey!" While it's easy to throw darts in a bull market; this bear has teeth and has a taste for blood. This is no place for a monkey to be. So it's time to put on the thinking cap, and stray away from conventional monkey wisdom.
Steve Liesman, of cnbc fame; points out a very obvious fact that is overlooked by the mainstream. FAS 157 is looming in the background due to kick in on September 30, 2008. So it's imperative they get a Resolution Trust established soon. Because if they don't they are going to have some serious competition from the rest of the banks when the next capital raising round gets underway. And it's coming right when it looks like the financials are going to break out. Why? Because that's how they do it. They'll sell assets for pennies on the dollar to the smart money to raise liquidity, and they'll mark up stock prices and further dilute common equity in order to gain some liquidity from the common man.
My point is a Resolution Trust is no magic bullet. Yes, it will inject a dose of much needed confidence in the system; and the moral hazard argument will be rekindled. However, history shows that even after the first Resolution Trust was established in 1989 there were still a record number of bank failures to come in the years after. 1990-1991 were the worst for bank failures.
http://www.fdic.gov/bank/historical/bank/1991/index.html
RTC
http://en.wikipedia.org/wiki/Resolution_Trust_Corporation
So be prepared to trade on the long side as euphoria sets in. Watch those charts for signs of exhaustion though as we continue to grind lower in an overall market down trend. Keep those eyes peeled for another capitulating move in the indices. When we get it we'll have another window to trade more aggressively with this long bias. But just as the bear of 1973-1974 drug it's feet; this bear will more than likely drag it's feet deep into 2009. So while you can not fall in love with the upside you most certainly can flirt with it in the intermediate time frame. As for me and my dear friend we are trying to accumulate some more for a long term holding on the next panic. Which, on top of the socialistic moves trying to be implemented; could take a moment. Patience is still required.
UYG is the vehicle for a bullish take on financials. And yes, my dear friend owns some. He's sharper than he looks!
Thursday, September 4, 2008
Margin Call Gentlemen!
With the confirmed blowup of the Ospraie Management LP the other day it's clear now that the risk manager is in charge of the books. What does that mean? It means forced liquidation of crowded trades. It means selling grandma's pearls. It means throwing the baby out with the bathwater. It means CAPITULATION could be around the corner.
Hedge funds blowing up is just the catalyst we need to drive us to a CAPITULATORY move in the indicies. It also helps when you've got Bill Gross on cnbc essentially calling the bluff of the Treasury. He says they (PIMCO) are not buying anymore GSE paper until Paulson makes a move. Pretty bold, scary stuff; eh?
Tick, tick, tick..............counting down until CAPITULATION..........let's just hope it's a high volume day that results in a nice hammer candlestick.
Hedge funds blowing up is just the catalyst we need to drive us to a CAPITULATORY move in the indicies. It also helps when you've got Bill Gross on cnbc essentially calling the bluff of the Treasury. He says they (PIMCO) are not buying anymore GSE paper until Paulson makes a move. Pretty bold, scary stuff; eh?
Tick, tick, tick..............counting down until CAPITULATION..........let's just hope it's a high volume day that results in a nice hammer candlestick.
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