3SOF

Gold up+oil up+ USDX down=Fed inspired illusion of prosperity...

A depression in a sector ( such as housing) usually precedes a recession...

The stock markets may rally next year,based only on high inflation...

Today, stock markets continue to trade on rumors of further monetary inflation by the Fed ,to maintain the stealth of the secular bear market which has existed since 2000..Out here in the West,new homes sales spiked as builders dumped inventory at fire sale prices...The dollar remains moribund...Oil and precious metals continued their  rise and  service as a true measure of inflation...Nervous accountants at investment banks continue their sleepless nights,knowing that sales of CBO and SIV are but a month away,and true valuations will be uncovered...     

A stock market dependent on a Fed supplied fix, is a market at risk for painful withdrawal symptoms...   

A 1/4 point easing in the interest rates by the Feds should give us a pop up in the stock markets,as well as $100 a barrel oil,$800 gold, and further tumble in the dollars value to 75 USDX...It will not reinvigorate the housing industry, make overvalued assets (i.e. bad debts) more valuable, or put money in the hands of unemployed Americans to pay their credit cards...In December, America will realize they are in a recession, except unemployed Americans will be in a depression...In August,foreigners were net sellers of US Treasuries...One wonders how much longer the Fed will be in "control" of our  interest rates,when our massive Federal debt is dependent on foreigners,especially Asians, continued purchase of US Treasuries with their surplus of US dollars...Avoiding increases in interest paid  by US Treasuries appears unlikely...   

With the assistance of Alan Greenspan,the housing bubble took 5 years to produce over 60% price appreciation...It will take a few years  for housing prices to drop 30%...The evaporation of trillions of dollars of household wealth will have a long term negative effect on consumer spending...Unemployment in  housing related businesses will be over one million...Fed reduction of interest rates will have the effect on housing as if  throwing grains of sand at a tsunami surge...Wasn't it Greenspan who said it was smart to get a variable rate mortgage???   

So far,the Fed instigated inflation has given us $95 oil,$800 gold,and a 76 USDX...Despite this obvious double digit  commodity and monetary  inflation, the Commerce Dept had the gall yesterday to claim a gerrymandered GDP rise  of 3.9% for the quarter... To achieve this figure,they assumed an annualized inflation rate of 0.8%...When our government says everything is fine,be afraid,be very afraid...   

The Fed and the government has granted Citigroup,J P Morgan,and Bank of America permission to buy,through the "Master Liquidity Enhancement Conduit" , mortgage backed assets off the banks  balance sheets...Didn't Enron get prosecuted for this off balance sheet accounting???  You know that Wall Street is in desperate straits when the Fed approves  criminal cover-up techniques...

At a meeting in Tokyo today Alan Greenspan said the dollar's slide was neither favorable or unfavorable to the US economy,and he expected further losses in the US currency against east Asia currencies..He also  stated, "...The discounting of the  expectation of growth of the ( current accounts) deficit to this level has already affected the exchange rate.To say it is going to move further as a consequence of this is double-counting..."

Alan wears glasses that are supposed to correct his nearsightedness...There was alot of double-counting of Germany's current accounts deficit in 1922...It can have an increasingly negative effect on currency exchange rates...The dollars slide will result in withdrawal of foreign assets from America...It will necessitate higher yields on US treasuries to attract capital to maintain our massive national debt...While banks can manage an immunity to inflation,The American consumer doesn't stand much chance to maintain his standard of living in a high inflationary economy...Indeed,the dollars slide IS unfavorable to average Americans...

Who hires these people to protect our interests???  Oh I forgot,the banks do...

Ben Bernanke looked sick today testifying before Congress...Perhaps he suffers from a sense of impending doom, knowing it is just a matter of time before they discover he murdered the dollar...

Hedge funds heavily invested in mortgage backed securities have begun to freeze redemptions...They are using the excuse that it is impossible to value the worth of their securities...All they really need to do is start selling them to find their value...When the Hedge funds slam their door in the faces of their customers, institutions and accredited investors, they are incurring the anger of the rich and powerful...Corporate attorneys are going to get rich in the resulting suits ,and government regulation of Hedge funds will be created...

Even Citibank will need to do some fancy footwork to avoid being  held accountable for  their delay in reporting losses...The extent of damage from holding  bad debt in the financial industry should be exposed as quickly as possible to minimize investor losses and to take steps to  prevent financial firms from repeating the same mistakes...   

Bernanke also testified to Congress that estimates that set the total losses from subprime mortgages at about $150 Billion were probably " in the ballpark."...  The total subprime  market is about $2 Trillion...  According to the ABX index,subprime mortgage CDO's  are currently selling for 25 cents on the dollar...Paper losses in subprime   are therefore $1.5 Trillion...Just when you thought it couldn't get worse,better quality residential mortgage CDO's are also selling at  a big discount...

Either Bernanke committed perjury or he is playing ball in Wall Street's ballpark...They have different rules for the game...

Despite the Fed's and The US Secretary's  Pollyannaish predictions that a recession is unlikely and the US dollar "will shine", I have warned you that when the government says everything is fine,be afraid, be very afraid...Economist subdued  predictions that any recession will be short lived has caused me to project our economic landscape changes  from 2006 through 2009...

1.  3 million jobs lost
2.  6.4% unemployment
3.  2 million home foreclosures
4.  house prices in recently over-heated markets dropping 25% from their highs
5   $120 a barrel of oil
6.   $4 a gallon of gas
7   20% increase in price for Asian imports
8.  major financial institutions unprofitable
9.  cheap credit terms unavailable to business
10.   USDX 60
11.   farmers have a mini  "dot com" profit revolution


Through this short term misery,the US stocks markets will suffer some major dips,but will recover number wise only because of a cheapened dollar...In 2010,we will be back to our illusion of prosperity...   PS-the Swiss Franc will make a comeback     

Reality sucks for the bulls...Fannie and Freddie are doomed by their partially hidden SOP 03-3 losses...The ABX nose dive in GSE mortgages since the beginning of October has sent them into technical insolvency...They can't raise  capital...How do you spell, "Federal government bailout"

PS--- my SKF and SRS are doing well today                                                           

1.2 million homeowners will NOT see their mortgage rates frozen for 5 years...The Bush administration plan should be called, " the 2007  Full Employment Act for Lawyers"....The owners of the mortgages will be busy suing the mortgage servicers for holding back contracted  interest earnings and devaluing their investment...This is more than a housing crisis...It is the greatest financial crisis since 1929...The Fed will keep lowering the interest rates through accelerating inflation and a further devaluation in the dollar..The Fed  will attempt to save their employers,the banks,hedge funds, and Wall Street firms...The house of cards the financial industry  created,through derivatives and other machinations, is falling down....Not all can be saved...The failed , bankrupt Citicorps of financial institutions  must be put out of their zombie existence of the walking dead by a strong Resolution Trust agency to remove the dead bodies from the landscape...All government/industry action taken so far will fail...

Stock traders threw a hissy fit when the Fed only gave them a normal dose of feel good...These greedy addicts always want more, even if it eventually kills them...They will get over their little temper tantrum tomorrow and the stock prices and gold will go back up...Perhaps these investors have a subconscious realization that with on oncoming recession stock prices are seriously over-valued...I wait for the moment  that their defense mechanisms break down ,and they awaken from their sleep which was induced by the calming  reassurances of the Fed and Paulson ... Then  a wave of fear sweeps the markets within a month..In morbid anticipation, I have 20% exposure to leveraged shorts on four indexes and 60% exposure to bonds and cash...Time will tell if my cynicism is prophetic or pathetic...

The Fed's continued lowering of interest rates encourages eventual inflation in prices and devaluation in the dollar...This may be good for banks and businesses,who can quickly adjust their pricing,but it is hard on American consumers whose wages adjust more slowly...In the last 3 months the USDX dropped like a rock  from 80 to 75, only to mysteriously recover to 76...With the market forces unchanged from a devaluation mode, one must ponder what machinations are responsible for this recent recovery...I hope to find out the answer and will get back to you...