Thoughts on Markets

Tuesday, September 30, 2008

A New World - A Different World - Lower Std of Living

Yesterday, we saw the Fortis Belgian Bank get some 11.2 billion Euro from Netherlands, Belgium, and Luxembourg. Then the UK nationalized most of Bradford and Bingley. Further, Icelandic government bought 75% of Gilnir. More creeping into the international banks. And there are more on the way.

The following is from Casey's Daily Resource Plus today:

The Lehman collapse marked the end of Wall Street risk intermediation as a significant component of system financial intermediation. Going forward, credit growth will be chiefly generated by the banking system, supported by various forms of government backing...Importantly, this new financial structure will ensure minimal risky lending as well as significantly reduced risk taking. And from a global perspective, I believe new-found fears of lending to the American financial sector marks the beginning of the end of our economy's capacity for trading new financial claims for imports of energy and goods. - Doug Noland, prudentbear.com - 26 September '08

The following our statements by German Financial Minister Peer Steinbruck in an interview by Der Spiegel. These are copied from The Daily Pfennig 9/30-2008:

"We are experiencing the most severe financial crisis in decades, although one should be careful about historic comparisons with 1929. One thing is clear: After this crisis, the world will no longer be the same. The financial architecture will change globally.

The source and focus of the problems are clearly in the United States. There are many causes. After 9/11, a great deal of cheap money was tossed into the market. Apparently some of that money went to people with poor creditworthiness. This led to the growth of the real estate bubble. The banks embarked on a race over profit margins. Then speculation spun completely out of control.

I see neither the need for nor the possibility of taking on the responsibility for American banks. Besides, our situation is more robust."

Yes, it is our fault. Our reserve currency has failed to be stable as it was promised to be. However, since August 15, 1971, the dollar is without backing; and therefore, without a bridle to reign it in when creation of this FIAT currency goes wild. In spite of this, the dollar remains somewhat stronger against most major currencies with the exception of the Japanese Yen.

Yesterday, the DJI was off 777+, the largest one day drop ever, but not the largest percentage wise. It was a very nasty day in the general markets which overflowed into the precious metals mining stocks. Some have said that it was due to the failure of the bail out to pass Congress. That may account for some, but there is great fear. It is world wide, as we have seen by the bail outs of not only our own, but international banks.

The world of finance will be forever changed as a result of this situation. Lenders will be more critical of the ability of borrowers to repaid loans. Collateral will be more closely examined for actual market value.

Certainly, there will be more dollars in circulation to head off recession or depression. Stagflation is here for some time as many jobs are lost.

The DJI is now up some 243 revealing yet more volatility. Folks, at times the best investment strategy is to get out of debt, to build up a currency reserve and possibly buy some more physical metal if you can find any. Be sure that you have your checking account in a sound bank. Others are due to fall before this situation is cleared.


Silver is definitely lagging behind gold. If you can find pre-1965 silver dimes and quarters latch onto them. Silver will not be down forever. And there is an availability problem. Few are being brought to market at these ridiculously low price for silver.
Gold has again been capped at $900. It is reasonable to assume that some of the downward pressure on the precious metals is due to some sales for cash by investors. However, there is only one thing that can explain the low physical price of the metals. That is government intervention; likely, due to the Plunge Protection Team (PPT). There is no other explanation for the significant and instantaneous decreases in the price of gold and silver every time they rise significantly. This is blatant intervention.

We As much as we would hope for free markets, we have none. In fact, we have almost a totally managed economy. This management has failed and we are beginning to reap the rewards, thereof. Stagflation, Inflation, Recession, and Depression are the rewards.

The free market would have allowed unprofitable, inefficient banks and businesses to shape up or fail. By bail outs, our government has condoned the inefficient use of our scarce resources. Further, the actions have delayed and increased the severity of the correction which we are now experiencing. Welcome to Amerika.

Be every thankful that our Sovereign God is in complete and absolute control. That does not mean that His people will not suffer along with the rest of the nation, but it does mean that we have great peace and comfort in knowing that He loves us and gives us great insight into the wonderful end He is creating for us as He balances the books in the last days. Praise God daily for His blessings and comforting promises.

Best to each, Doug

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