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  • The Room – 04/03/2009

    In the March 6, 2009 edition of this missive/blog/column/whatever you want to call it, I listed three 'Desperate Measures' the U.S. government might turn to next in its futile attempt to rearrange the ruined economy into something more resembling a perfect world.

    Suspend 'mark to market' rules. At the time of my initial write-up (which you can read here), highly placed sources within the financial services industry that I spoke to were of the opinion that no significant changes would be made, for the simple reason that to do otherwise would risk destroying what little credibility was left for the financial sector.

    As you now know, the government has strong-armed the FASB into modifying the rules, essentially allowing companies to 'mark to model.' Which simply means that the same financial wizards who helped create the models so pivotal to causing the mess in the first place are now free to dust those models off, give them a little tweak, and use them to fabricate more attractive values for the toxic waste than the market was willing to assign. Some might term these rule changes outrageous, fraud even... I call it business as usual.

    Bad bank. The government has moved forward with this initiative as well, essentially rigging up a system that literally guarantees that a very small handful of firms -- likely just four or five -- will receive the sweetheart deal of the century, at the same time that the U.S. taxpayer gets the short end of the stick... right up the side of the head.

    Fed buys long-term Treasuries. This, too, has now come to pass and is likely to accelerate. While there are many ways that one could describe this latest initiative, I find it best to keep these things simple... it's called inflation....
  • The Room – 03/27/2009

    For this edition of The Room, I'm going to try to tell a story, but using snippets from other sources with, perhaps, a side comment thrown in now and again.

    I am taking this approach because, frankly, since hopping on the plane to Las Vegas last week, the sheer volume of proposed new regulations, legislation, and plain idiocy have outstripped my processing abilities. It seems that every hour or two over the past week, there has been a breaking story that has me saying out loud, 'What, are you kidding?' Or, 'Wow... we're really in trouble now!'

    It came to me as I started writing to you this morning, that these many stories – rather than just random spatters of inanity – together form a distinct pattern. And the pattern seems to point to a new paradigm now materializing here in the U.S. and, by extension, the world.

    As I think the following stories demonstrate, the new paradigm is not one any thinking person will embrace....
  • The Room - 10/10/2008

    In last week's edition of this meandering missive, I mused as follows... "What, I wonder, will the government do when next week, or the week after maybe, the U.S. stock market takes another header for 500 points? Stay tuned. Meanwhile, gold is at $826, down considerably over the past week. Like when a tsunami sucks the water away from the shore just before hitting, we're in a transition period. I'm not worried about where gold is going next. I wish I could say the same about the world." According to the number crunchers, the U.S. stock market is on track to have its worst week since 1937. Which, as you can see from the DJIA chart here, is an acceleration of the broader trend that has held sway for some time now. While we can't yet say what action the U.S. Government will take next, glancing over the horizon, we see a growing number of countries implementing a euphemistically named "market holiday." In Iceland, all banks and markets are now enjoying a day off. And Kevin Brekke, our Switzerland-based researcher, just wrote that there is a rising call to halt trading in Germany. It would not surprise me in the slightest if the same were to occur in the U.S....
  • The Room - 10/03/2008

    We're no longer in Kansas, Dorothy. At this point, the world's financial markets are in the firm grasp of a massive tornado. Our vision is blurred with fast-moving images of abandoned houses, crumbling banks, pontificating politicians, alien-looking Treasury secretaries on one knee, and suicide stock and commodities charts. When the whole mess crashes back on terra firma, the landscape will look considerably different. But, what? We remain convinced that the result, with the unavoidable time lag, will be inflation on an epic, global scale. But if history provides one lesson in rich abundance, it is that the future is unpredictable. Who is to say that the government of these United States -- and of similarly indebted and in-trouble countries "over there" -- aren't too late to the game? Or that even $700 billion, or a trillion... or...?... will not prove to be too little, too late?...
  • The Room - 09/26/2008

    What a world I have returned to from my cloistered retreat at the beautiful Vivenda Miranda, scenically situated on a cliff outside of the quaint port town of Lagos, Portugal. Everything has changed. Everything is changing. The storm we have so long tried to help you prepare for is upon us. At this point, I can only hope you have your sails rigged for the storm now breaking, because time is running out. The violent volatility I warned of when last I wrote has arrived, with towering waves now rising up and smashing into the economy - and as an unavoidable consequence, our personal portfolios -- from all sides. Overnight the holders of my mortgage, WaMu, failed, the largest bank failure in history. This week, the golf course that I usually play on was taken over by the government... last week it belonged to AIG. As you don't need me to tell you, that same government now wants to spend over a trillion dollars to bail out Wall Street and to shore up the money market mutual funds - which have so far flown under the radar screen despite portfolios stuffed to the brim with bad paper. While no one was paying attention, U.S. automakers used their election year leverage to win approval for $25 billion in low-interest loans....
  • The Room 09/12/2008

    In today's "special" edition of the Room, I want to go somewhat beyond the latest news and observations on same. Instead, I want to discuss the big picture as it relates to the U.S. and global economy. I do so because it is growing more important with each passing day to get a solid fix on where things stand and, more importantly, where they are going next and how you can protect yourself. It's hard to overstate just how unpredictable and dangerous the economic and investment environment has become. While these are topics we'll be covering in today's online event, Casey's Crisis & Opportunity Update, the situation at this point is moving so fast, and is so highly charged, that it is time to pay very, very close attention to things. As you should expect, we have been furiously fingering the tea leaves in an attempt to make actionable sense out of the big moves now in motion. While there is much that we know about the unfolding events, there is also much that is unknowable – for instance, how much longer the long-suffering foreign holders of U.S. dollars will be patient....