Wednesday, October 8, 2008

Stocks get routed-There's Deflation worldwide

Overseas markets are getting crushed. Japan is now down 952 points or 9.38%. The cascade started in the United States when our incompetent Fed Chairman, Ben Bernanke gave a speech, worried about inflation?


We are in the greatest deflationary spiral since the Great Depression and he's worried about inflation?

In his speech today our incompetent Chairman said, "Still, the inflation outlook remains highly uncertain, in part because of the extraordinary volatility of commodity prices. We will need to continue to monitor price developments closely."

Highly uncertain? What planet is he on?

He also said this: " We have learned from historical experience with severe financial crises that if government intervention comes only at a point at which many or most financial institutions are insolvent or nearly so, the costs of restoring the system are greatly increased. This is not the situation we face today."

Not the situation we face today? What planet is he on?

Citigroup isn't already insolvent? Who is he kidding? Is he that stupid? Does he actually think their level 3 assets are really marked to market? Does he actually think Citigroup's loans are marked to market? Mark them to market and they are insolvent. How about their $1 trillion off balance SIV? Does he think that is marked-to-market? By any definition, except the self delusional valuations that exist in his head, Citigroup is already insolvent. The trick is to not let the world know. So make them solvent. Cut rates to 1% for starters. Make it so they have more spread. And cut the vig that homeowners pay on loans. "This is not the situation we face today?" He's an idiot!

Does Bernanke think that just because the government can actually hold loans to maturity, that the rest of the world has that luxury? Does he think that the lossses that the hedge funds are now taking are not realized? That this money is not lost?

Did he see Bank of America today? What the cost of raising $10 billion is? And this wasn't even to shore up BofA's balance sheet but Merrill. Remember the Fed and their $10 billion loan to Merrill Lynch for their 52 million shares of BlackRock? That stock fell from 200 to 171, and going lower. How expensive was that vig to BofA shareholders when you can't monetize an equity stake? I'll do the math for you. The stock fell from 37 to 22 the last week. That's $70 billion in shareholder value, and shareholders get a halved dividend. That's wealth destruction, and deflation. Does Bernanke think those retirees living off the BAC dividend are now better off since it has been cut in half?

We know Bernanke's personal investments are in Treasury investments. Is he that daft, that he thinks that 1% cut in rates will affect his income? Let me be sarcastic for a moment, but does anybody really think that his ill-conceived alphabet soups plans work? He's been at this for 14 months, and it has not done one bit of good. Use the hammer of rates, and recognize what the whole world already knows but you. We are in deflation, and it is deep, entrenched and pernicious. Get a clue, get a grip, and move. And move now!

During his speech today, he said this: "The steps being taken now to restore confidence in our institutions and markets will go far to resolving the current dislocations in the markets."

Go far? The markets are down 13% the past week. Emerging markets are down 20%. You can't open many others. Asia is collapsing, and Hong Kong is following Australia's lead by cutting rates. Today, during Bernanke's speech, the markets fell in on themselves again. Here's the message that Bernanke isn't getting. We don't have inflation, but deflation. And let's make it very simple. A house, that used to sell for $300,000 is now selling in foreclosure for $150,000 but the same house last month costs about $200,000 to build. He thinks that the market is thus being irrational. It isn't. The market accepts the reality that he doesn't. Deflation will bring the current cost of building this house down. This month it's $195,000. And if that cost of building this house comes down, it will come at the expense of people's jobs; and without jobs, the economy collapses, because the safety net of wealth in portfolios and equity in homes has been eviscerated.

But Bernanke and his minions are worried about inflation! Does Bernanke even see the collapse coming in commercial real estate and oil? Has he been to a strip mall? Has he seen the vacancies? Does he even know what is happening to the U-6 workers, those discouraged workers that aren't counted in the nation's 11% unemployment rate? Go to Nordstroms and check their inventory. Then go to the Dollar store and check theirs. Which one has bare shelves? Then stop by Wal-Mart on the way home. Then he might have a clue on how the underbelly of the economy is already coping and their social discontent.

Does Bernanke even see what is happening to gold? How the actual "physical gold" is trading at such a premium to "paper gold?" Does he even know about the buyers that are attempting to acquire physical gold? It just happens that the "coins" they are buying are measured in metric tons and even these are done at a 7% premium to spot. That signifies panic in currency at the highest levels in the world. Does he even recognize that the emerging currencies around the world are about to be dismantled?

In the Presidential debate tonight, Obama made a comment on how in this current economic environment "you may not go out to dinner as much or buy a new car." A new car? People aren't buying tires!

And just liked sub-prime trickled up into Alternate A, and prime, and then wiped out HELOC's, the underbelly's misery will trickle up into the rest of the economy.

So give me some inflation Ben. And fight the battle of deflation. If you fight that battle, the markets will do the financing, that the Fed is now doing.

Because markets want leadership at the top.

And now, markets are forcing the panic to make you move.

Trichet and Bernanke. Central Bankers talking tough with a pair of deuces.

Make me gag.

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