Freddie and Fannie Nationalization
UPDATE 5: Going into the opening in Asia (with electronic markets and Sydney already open), gold is up around $12 and silver is up 40 cents, while the U.S. dollar is off 40 basis points on the Dollar Index. It will be interesting to see how things develop as each market opens after this stupefying weekend.
UPDATE 4: Chris Ciovacco would like to welcome American taxpayers to the mortgage business. Among his many excellent insights is the following:
“Financial markets are always looking forward, albeit only about three weeks in the current trading-oriented markets. The markets have looked forward to Fed rate cuts and government bailouts since the credit crisis began. Now that the Fannie and Freddie news is out, I?m not sure what the markets have to look forward to.”
Meanwhile, in a rare episode for Jim Sinclair, he is speechless. Not only that, his initial reaction to the F&F Farce is playing second fiddle to the Storm in the Gulf:
“Now that it has been made public that the US Treasury (the US Government) has taken over Freddie and Fannie let us see exactly what ?taken over? means. A cursory look at the takeover suggest to me that the National Debt could rise by more than $5 trillion. Not even the government can be that stupid - or can they be?
Let’s get more information before opining further.”
Alas, I think the only additional information that is forthcoming for now is how the various markets will perceive this largest ever financial engineering in the history of the world. How long will it take the Wall Street geniuses and their hack economists to figure out that we have just witnessed the largest crowding out of the private sector ever? When will they realize that a primary effect of such crowding out is to cause or exacerbate a business downturn, which can (at least theoretically) only be mitigated by printing money? Assuming they do achieve a basic understanding of the situation, should we suppose they might even conclude (correctly) that the size of the money printing operation must be commensurate with the size of the crowding out? Nah. And even if they do, they won’t admit it publicly. “It” being that the only truly safe assets left in the world are gold and silver.
UPDATE 3: The nationalization program has now been announced. It consists of 4 parts: (1) A conservatorship (”temporary” takeover of control); (2) a purchase of up to $200 billion in special preferred shares that also gives the U.S. Treasury a warrant to acquire 79.9% of the common shares of both GSEs; (3) an unlimited mortgage-backed securities (MBS) purchase program (limited only by the national debt ceiling); and (4) an unlimited credit facility extended to the GSEs (limited only by the national debt ceiling).
Although it could have gone even further, the U.S. government intervention still amounts to a nearly complete and direct backing of GSE agency debt and agency MBS. Here is the statement from Treasury addressing this:
“Investors have purchased securities of these government sponsored enterprises in part because the ambiguities in their Congressional charters created a perception of government backing. These ambiguities fostered enormous growth in GSE debt outstanding, and the breadth of these holdings pose a systemic risk to our financial system. Because the U.S. government created these ambiguities, we have a responsibility to both avert and ultimately address the systemic risk now posed by the scale and breadth of the holdings of GSE debt and mortgage backed securities.” [Emphasis mine]
Note something interesting. The Treasury states that (in the past, presumably, the past being as recent as this Friday) there was only a perception of government backing of government sponsored enterprises. Presumably that perception has been tweaked over this weekend. Yet the Treasury does not unambiguously state that the ambiguities are being removed. Instead, the Treasury is “merely” fulfilling its responsibilities to avert and ultimately address the systemic risk. The reason for this waffling language is that an Act of Congress would be required before an explicit guarantee can be made. But let’s be realistic here, it is fairly certain that some sort of Act will be passed before December 2009 that fully nationalizes Freddie and Fannie. In the meantime, “[t]hese agreements will protect the senior and subordinated debt and the mortgage backed securities of the GSEs“, according to the U.S. Treasury. To boil it down to its essence, the U.S. government has just enacted a new New Deal and America is now on a crash course to becoming one of the most socialistic economies in the world.
More importantly (if that’s possible), what has just taken place is the largest financial engineering of all time. It is the largest intervention by an order of magnitude considering that more than $5 trillion of assets is being impacted. By comparison, the LTCM bailout in 1998 involved a mere $4 billion. And so far, the entire Federal Reserve bailout of the financial industry (via credit term facilities) has amounted to $300 billion. Here, I would note that the $5 trillion of assets currently yield a substantial spread to “risk-free” U.S. Treasuries. That spread will shrink substantially, perhaps in an instant. The result will be falling yields and higher asset values. For example, if yields on GSE debt and MBS were to fall 50 basis points across the board (I suspect this might be plausible), those $5 trillion of agency securities could appreciate in value by $250 billion more or less. That is no chump change and we could very well see a tsunami of fund flows and reallocations being unleashed next week. Such a huge repositioning of funds could easily overwhelm even the largest market in the world, foreign currencies. What it could do to/for a relatively small market like gold or silver is downright scary. Alternatively, we could see yields rise on U.S. Treasury securities. That could cause some equally violent havoc.
Nonetheless, here are some potentially positive considerations for the monetary metals. First, the commercials at COMEX have done a lot of short covering in the past couple of weeks, especially in silver. The open interest is not at an extreme low, but it is low enough to suggest that there isn’t a multitude of big players with inside knowledge who are ready to “cash in” on the Freddie/Fannie nationalization. Second, the basis in SLV and GLD, the big silver and gold ETFs, changed from discount earlier on Friday to a premium toward the end of the day. Moreover, there wasn’t a lot of action in the after-hours electronic gold and silver markets. Third, Freddie and Fannie rallied during the regular session on Friday along with the rest of the financials. And while the GSEs fell hard in after hours once the nationalization rumors started to spread, the financials did not rally very hard in after hours (although they did rally). Fourth, the multi-pronged nature of the Treasury’s Freddie/Fannie package indicates that the market may actually react to this news by shunning GSE securities, not rushing in to buy them. In particular, why did the Treasury feel the need to announce a plan to purchase MBS securities directly if the other funding mechanisms (preferred shares and credit facility) were enough to restore confidence in the GSEs?
I’d like to make another important, if not obvious, observation here. Given a fiscal deficit, the only way that the Treasury will be able to enact its “bold plan” to stabilize the GSEs is to issue U.S. Treasury securities on an incremental basis. Specifically, if and when the Treasury buys a Fannie or Freddie MBS, the funds to do that will come from the sale of Treasury securities. In other words, the U.S. Treasury will earn the spread between Treasury securities and MBS. That is a potentially lucrative business as long as the total difference between the two sets of interest payments (the Treasury’s payment of interest on Treasury securities and its receipt of interest on MBS) more than offsets the defaults on MBS loan principle. By way of example, if we suppose that an MBS has a duration of seven years and a spread to Treasuries of 2.5%, then theoretically up to 17.5% (7 times 2.5%) of defaults can be absorbed before taxpayers are on the hook. Yes, I know this is an extremely simplistic way of looking at this but it works for illustrative purposes. It also demonstrates some of the moral and fiscal hazards of such a plan. For example, a spike in mortgage defaults will tend to drive spreads apart and the U.S. Treasury may find itself having to either chase interest rates higher to “protect” homeowners OR let the spread widen in order to “protect” taxpayers. Another example is actually more of a question: what makes the government think that it can be effective as both the main price maker and main risk taker in the credit markets? I would venture that the answer is going to be spectacularly disastrous.
In conclusion, it needs to be said that the Treasury’s GSE bailout plan is a monstrously massive crowding out of private debt by public debt in the credit markets. In fact, President Lyndon B. Johnson privatized Fannie Mae in 1968 (Freddie didn’t exist yet) to get GSE liabilities off the government’s books in order to better manage U.S. finances in response to the budgetary demands of the Vietnam War. To think that reversing such a step during an even more challenging but similar period (not only do we have the Iraq War but a housing mess that we didn’t have in 1968) is going to turn out a Cinderella story is the height of folly. That, of course, won’t stop it from being spun as a positive development, even a miracle, by the mainstream. Jim Cramer got the ball rolling on Friday, proving once again that intelligence and common sense are sometimes mutually exclusive. Spin aside, I’m afraid the U.S. dollar is now officially a dead man walking.
UPDATE 2: The latest Federal Reserve Factors Affecting Reserve Balances report shows the Fed has up to $354.349 BILLION of assets other than Treasury securities on its books to back the Federal Reserve Note (FRN). This is 44.3% of the almost $800 billion of FRNs outstanding. For those who don’t understand what this means, Federal Reserve Notes are the actual pieces of paper fiat currency ($1, $5, $10, $20, $50 and $100 bills) that are the liabilities of nobody other than the central bank, and ultimately the U.S. government. All other forms of “U.S. dollars” (this includes checking accounts, savings accounts, certificates of deposit, money market accounts, etc. but excludes Treasury Bills, Notes and Bonds) are actually the liabilities of individual financial institutions. And what exactly are these $354.349 BILLION of other assets held on the Fed’s balance sheet? Why, I would imagine most of them are Freddie Mac and Fannie Mae “agency” securities. In other words, a perverted way of looking at the nationalizations of Freddie Mac and Fannie Mae is that the “safety and security” of the U.S. dollar has actually been strengthened as a result. Perhaps this is one of the reasons why the U.S. dollar has rallied over the past couple of months since Congress approved the “twin F’s” bailout. And why it is entirely possible that the “black = white” reaction to this weekend’s $5 trillion rescue could be more strength from the dollar and more weakness out of the monetary metals.
On the other hand, a direct guarantee of Freddie and Fannie securities by the U.S. government makes them arguably just as good as U.S. Treasury securities, which would mean that the global pool of U.S. dollar priced “risk-free” interest earning assets could have just doubled over the weekend. Assuming no equivalent increase in demand (i.e., instantaneous doubling by $5 trillion), this much paper could simply be too much for the world’s no-risk appetite. This tends to argue for the value of the dollar to take an instant haircut of up to 50%.
On the other foot, given the recent rate differential of nearly 100 basis points between U.S. Treasuries and agency debt, there could be a huge amount of jockeying and chasing a better “risk-free” interest rate during the next week. If a significant number of players want, but are unable, to swap Treasuries and agency securities directly, they may have to go to the currency markets to obtain dollars so they can make the switch. That, in turn, could create a short-lived but extremely strong demand for U.S. dollars.
So which hand or foot is it going to be? Darned if I know, but I’m thinking some amputations might be in order.
UPDATE 1: Bloomberg reports that House Financial Services Committee Chairman Barney Frank has confirmed that a plan is in the process of being hammered out this weekend between Fraidy Mac, Fanny Mae and the United States Department of the ?Treadsurely? (to which Paulson replies, stop calling me Shirley). U.S. Dollar, welcome to the jungle!
ORIGINAL: Media reports proliferated Friday night carrying the rumor that Freddie Mac and Fannie Mae will be taken over by the Treasury–a de facto nationalization–over the weekend. As many of you remember, my first impression of the “rescue plan” passed by Congress in July was that it was in fact a nationalization. But even I didn’t think it would be consummated just a few weeks later. While the takeover has not been confirmed as I write this, it does appear that retail bullion investors might be asleep at the wheel. What do I mean? Well, something like this has the potential to turn gold and silver prices around in a hurry. In fact, I wouldn’t be surprised to see gold and silver open gap up in Asia on Sunday night if some sort of plan is announced on Sunday. Then again, it wouldn’t surprise me either if the monetary metals take another plunge on what is possibly the most bullish news for bullion during this entire bull market. After all, the Russian invasion of Georgia at the opening of the Summer Olympics (also over a weekend) was a significant, bullish geo-political event for gold and silver, yet bullion reacted by actually plunging to new lows the next week.
In any case, those of you who are the betting type have the opportunity to take advantage of the potential gap up before Asian markets open. How? Well, you can buy gold and silver bullion, that’s how. And please no belly aches about availability. I just spoke with Mr. Hannes Tulving at www.tulving.com and he has decent stocks of gold bullion as well as 90% junk bags of silver along with boxes of silver Eagles and a few other items. And unlike most Internet dealers, he takes orders over the weekend. So, if you are a gambling man or woman, there is your craps table.
Getting back to “asleep at the wheel”, Mr. Tulving reports that he has not seen a major spike in orders today. This means one of the following: (1) retail bullion investors don’t get the significance of what could be happening this weekend; (2) retail bullion investors feel that the takeovers will be spun as being positive for the U.S. dollar and therefore negative for bullion; (3) retail bullion investors don’t know what to think given all the false flags and crazy boolsheet that have pervaded the gold and silver markets over the past couple of months.
Frankly, I myself am not going to take a gamble this weekend, so I can’t blame anybody else for “not getting it”. But I did feel it was important to report my observations. I’d be curious to hear what some of you think.
Tom thanks for the heads up, just picked up 50 oz of silver, (via BD) and pray that the current bizzaro world of good=bad, left=right, up=down. Fredie/Fannie nationalized=poor PM prices don’t continue
Sent you some email.
I’m in your camp. Let’s wait and see how this shakes out. We haven’t killed enough Au/Ag Bugs on the Bear’s Windshield, so the PM’s have a ways to go before the rally resumes. I’ve been buying all the way down, so I need this thing to turn eventually. Like your stuff.
I’m in your camp. Let’s wait and see how this shakes out. We haven’t killed enough Au/Ag Bugs on the Bear’s Windshield, so the PM’s have a ways to go before the rally resumes. I’ve been buying all the way down, so I need this thing to turn eventually. Like your stuff.
This can only lead to a weaker dollar. Short term smack down of silver / gold likely as there is an election coming and to protect the bond market (now showing a double top and ripe for a heavy sell off). Fundamentals will rule in the end and gold will respond upwards, as it always has in the past.
Tom,
Here is the problem with putting ones neck on the block so to speak. The trend is down in precious metals, especially silver. Looking at pretty much any chart on silver, it hurts my eyes. I am in the camp that silver is way oversold sold, on fundamentals. However as long as any bail out is preceive to be positive for the US dollar, PM will be flat to down. Perception is reality lately in the PM markets, the dollar rally has been engineered by the government to drop commodity prices. Even if silver were to gap up say .75-$1.00 in asia sunday night, by the time the US markets open monday, it will be hammereed back down. It happens all the time, especially on mondays. Now a gap up of say $2-$3 on silver(which will never happen) then you may have something going and reverse this trend in a sharp V pattern. Almost like a buying climax to reverse this thing. I think it prudent to wait and see how the US markets fair sometime mid morning monday. I would rather pay $13 plus dollars for silver on monday knowing a bail out will be a turning point. Then fork out money now only to see silver tumble another few dollars. If gold ever start to move lower with silver on a percentage bases, silver could see sub $10 real quick. In this case the risk is not worth the reward at all, for the average investor. I believe its prudent to keep some powder dry until monday sometime.
Here’s an interesting reply from a Silver Investor in India replying to one of David Morgan’s Articles:
“Mr Morgan,
I am a investor in silver from India who would like to give you the information regarding the silver contract which expired yesterday. The closing price of silver in indian rupees was 18800 per kg but the exchange over here settled all the contract at 20040. Investors who wanted delivery for their silver contracts are not getting it. The exchange is settling their contracts by giving them a marginal premium to the closing price of the contract.
Implicitly that means there is a DEFAULT OF SILVER IN THE INDIAN EXCHANGE.”
Regards
Sunil
Looks like problems with DELIVERING SILVER is happening in other countries than the United States.
Yes, I am in the camp that the CARTAL does have more ammunition to CLOBBER SILVER and GOLD. But here is the problem….with the new 6.1% Unemployment numbers (even with the BIRTH DEATH MODEL included), it is getting harding for the LIERS to LIE without looking really STOOPID.
If they decide to PULL another RIG JOB and drop gold and silver lower, it will make INVESTORS buy up even more GOLD and SILVER BULLION, making the SPREAD WIDER between PHSYCIAL and PAPER METAL.
On Jim Puplava’s weekly show, Jim spoke of this recent SELL OFF of Gold and Silver similar to the GOLD POOL back in the early 1960’s. Even though the G-7 countries were part of this GOLD POOL….France smelled a RAT and starting to take GOLD for dollars. This is similar to BULLION INVESTORS buying physical over the PAPER PRICE today.
Tom, it is good to see that you are now concluding the LARGE INCREASE in SHORT POSITIONS on these BANKS were not just transfers. Yes, seeing silver drop $.54 on Friday while Gold was higher $8.00 is quite FISHY.
Lastly, I understand the process of trading silver using the BASIS without regard for price…..but FEKETE has to now realize the SUPPRESSION of GOLD and SILVER has been done by “HOOK and CROOK” using his words. Tom, you need to spend more time showing the SILVER BASIS and its daily or weekly change. If you need VOLUNTEERS to help GRAPH this….by all means…let’s do it.
It will be interesting to see what happens on Monday….but the NEXT ROGUE WAVE in the CREDIT MARKETS is coming…add the highest MORTGAGE FORCLOSURE numbers in 3 decades with a 6.1% Unemployment……the CARTAL can’t be that STOOPID in trying to keep a GOLD and SILVER ROCKET down. By pushing the price down…they are actually pushing that BIG RUBBER BAND holding that GOLD and SILVER ROCKET down lower and lower.
Stupid is….Stupid does.
There are several typos and spelling errors in the past reply…..excuse me for this…I type quickly and care more about subject than grammer.
Tom….you need to read CARL LOEB’s newest article:
JOHN NADLER PROVES PRECIOUS METALS MANIPULATION (no…he really does)
http://news.silverseek.com/SilverSeek/1220635730.php
I believe Carl raps up how this is done….thanks to NADLER.
Put me in the “don’t know what to think” category (but I ain’t selling)!!
It is hard to imagine any commodity rallying here with the continuous redemptions driving the hedgies to liquidate what is liquid and thus easy to sell. I have friends in that world and it is scary right now. We are all like headless chickens running about. It is ironic that financial assets when on sale are disliked. It is human nature to chase the bull but flee the bear. If one is told that a expensive car is half price we run to buy but if silver is down by half most recoil. I am sure that most on this site are not of that ilk. I also follow Fakete’s work and am intrigued by his basis theory. I have been exchanging as much of my fake money for real money as I can. I was lucky enough to buy six monster boxes on friday. As Jim Sinclair says I am trying to remove all the financial intermediaries between me and my stuff.
Tom: I wouldnt be surprised if zilch happens on Monday.
Another bank failure (Silver State Bank of Nevada) and now the Freddy Fanny thing coming to something of a head…if this doesn’t mean a turn around, that’s a little unsettiling. Here’s hoping…
Puru Saxena on the Gold Seek Radio show told his clients to sell all their precious metal holdings in March of this year….he is now buying silver and gold. He started buying silver at $15 and gold at $800. He said that even though that he missed the bottom of silver by a few dollars, he believes that the panic selling is over….I believe him.
When there is FEAR in the markets….TIME TO BUY…when there is EURPHORIA…time to sell.
Furthermore, Saxena forcasts silver back to $17-18 or possibly $19 by years end. He has called the shots pretty well the past several years. So I think he is right on this one.
There are many now who think there is a DEFLATION SCARE….this is exactly what the CARTAL is hoping for….as the SHEEP are easily led to SLAUGHTER…..but in reality…its INFLATION. There has been an ASSET SELLOFF, but its not DEFLATION as the GOVT, FED and CNBC have HOODWINKED the public into believing.
Lastly, if people think some 300 million Americans and some million Japanese and Europeans are going to HOLD UP THIS ECONOMY…they will be sadly mistaken. 2.4 Billion Chinese and Indians along with a good 100 million Middle Eastern folks are going to Increase their standard of living, regardless of DEAD BEAT AMERICANS who can’t pay their bills. The Chinese have a MASSIVE ACCOUNT SURPLUS to start on the ROAD to increasing the standard of living of some 1.3 Billion Chinese.
Yes, many of the Foreign markets have sold off…WHY?? Because they have been HONEST about their INFLATION and Banking Problems. China stood up to the plate and brought down an OVERHEATED ASSET MARKET. The United States of America has done quite the opposite….it has LIED to the WORLD about its BANKS and its ECONOMY…as well as its INFLATION RATE. This will not last…as the FACTS are starting to SLAP across the FACES of AMERICANS….6.1% UNEMPLOYMENT: Largest MORTGAGE FORECLOSURES in 3 Decades: and the Nationalization of FREDDIE MAC and FANNE MAE increasing the NATIONAL DEBT to $10 trillion.
This last sell off in COMMODITIES, PRECIOUS METALS and the RISE in the US DOLLAR was done to BAMBOOZLE AMERICANS into thinking there is no INFLATION….rather DEFLATION….but when more BANKS FAIL and the FINANCIAL SITUATION really starts to IMPLODE….the GOVT and FED will be in the position to LOWER RATES AGAIN….thus the sell off was to GIVE ROOM for the DOLLAR to FALL and for GOLD and SILVER to RISE without exploding from the ORIGINAL HIGHS.
This is a GREAT TIME to be a SILVER and GOLD BULL…even though many have soiled shorts.
Looks like preffered shares of FNM and FRE will also suffer:
http://www.nakedcapitalism.com/2008/09/bye-bye-banks-freddie-and-fannie.html
“The stunner, which contradicts preliminary reports, is that the preferred shareholders in the GSEs will take losses. The WSJ reports that dividends on common will be eliminated and those on preferred will be suspended”
crazy times we live in 11 US banks + fannie\freddie all failed this yr ,the fdic is looking for $ and the world is calm.
very strange, I guess no one panics about these things anymore !
Strange it is not on the evening news everyday showing these people lining up for days to try and get there $ back. Hey I guess it ain’t so hard to figure out who controls the media here. But it is not even all over the internet. Why did everyone panic years ago with so little media back then?
Or have they numbed us all between the wars the gas price,food costs,job losses,foreclosures .
Heck I guess no one has any money left in the bank anyway.
Then who are all those people lined up to get there money??
I do not get it ! It is as if black is white and hot is cold.
Firstly, Tom what a great idea to start this blog, not only are you writing more of your (almost always
) insightful commentary, but the quality of comments by fellow Silveraxis followers has been a pleasant surprise.
I would also like to reiterate SRSrocco’s observation that Carl Loeb’s commentary of the large bank short of Comex silver is very enlightening:
http://news.silverseek.com/SilverSeek/1220635730.php
As to Fannie and Freddie they pose a huge systemic risk because they make up not only a large part of foreign central bank reserves, but also of US domestic bank reserves as well.
From MarketWatch:
Now these guys aren’t going to be happy about that sort of money vaporising, and with some domestic banks holding 20% of reserves in GSE debt, a further fall in it would result in either capital having to be raised or assets sold; not an easy thing to do in the current market, and could conceivably lead to bank failures.
This situation could be resolved by replacing GSE debt with government debt which is in fact what government backing will achieve.
Ergo, a lot of uncertainty if not fear will be removed, the dollar will strengthen, and metals will fall.
Personally I am a financial coward, so my money stays in metals; the Western financial system has been hollowed out by greed and expectations of something for nothing leading to massive overleveradge in finance and housing. The chickens will come home to roost as this bailout is simply a dilution of the US taxpayers equity and will eventually be reflected in the value of the dollar.
See you on Monday with my depreciated kilos of silver (and I hope I am wrong)
murrayf
Sorry, the MarketWatch quote did not come through in the previous post:
The top five foreign holders of Freddie and Fannie long-term debt are China, Japan, the Cayman Islands, Luxembourg, and Belgium. In total foreign investors hold over $1.3 trillion in these agency bonds, according to the U.S. Treasury’s most recent “Report on Foreign Portfolio Holdings of U.S. Securities.”
At some point the world is going to realize the USD is a bad risk. Could the Freddy/Fannie bailout do it? I don’t know because I have already seen so much non-stop prop-up crap.
Anyway, I feel the USD is toast and we are headed for 3rd world status. I also think it happens over the 4th quarter. Time to hold PM’s, food and some cash at home, just in case the banks go to a forced holiday(s).
I don’t understand how nationalizing Freddie and Fannie can be considered dollar positive. The United States is now MONETIZING BANKRUPTCY. There is no way for the Fed to do this without injecting massive inflation to the system. The only reason the US dollar has rallied is because currency traders have discovered the mess in England and southern Europe with housing, banks, and certain recession for the UK and European Union. What we have here are rats jumping from one sinking currency ship to another in a futile attempt to stay afloat. Gold and Silver will take flight.
Joey….yes the reason the DOLLAR has shot up is also due to the fact that the US GOVT, FED and WALL STREET have lied about the GDP, The Banks and the Financial System. Because we have a supposed 3.3%GDP means that the US has now started to EXIT the RECESSION…to get that 3.3%GDP the GOVT had to use a 1.2% Annualized Inflation rate when it is currently at 6%…..this is according to the FUDGED INFLATION NUMBERS….real inflation is over 10%.
So the US GOVT through the MEDIA have BAMBOOZLED the world into thinking the US is doing BETTER…..when in reality the real GDP number is more like a -3.5%. If the USA was HONEST like CHINA and the rest of the EUROPEAN COUNTRIES with their INFLATION and GDP numbers the US DOLLAR would be heading further south along with the BROADER STOCK MARKETS.
The NATIONALIZATION of FANNIE MAE and FREDDIE MAC are great for SILVER and GOLD BULLS….maybe not in the next several weeks or month…but by the end of the year and onward.
We will see $50 Silver on its way to $100 then $200….its just a matter of TIME, INFLATION and BLAZ to stay in there on TOUGH MARKET CORRECTIONS.
At some point the incremental issuance of treasury bonds will be underbid. Bond yields/interest rates can not be allowed to rise as a consequence of this so the OTC derivatives Tower of Bable does not come crashing down (read Professor Fekete’s excellent articles for a more detailed explanation). The bonds must therefore be monetized, just as Japan did and Greenspan has opined. Once the market is aware of this the treasury bonds will be heavily shorted and the dollar will go into freefall, with a race to the exits. Further Central Bank intervention will be used to try to limit the carnage - so the whole process may take months, but is probably inevitable. Stay in PM’s and see how it all pans out.
Last week Bill Gross was screaming for this take over of the GSE’s. I believe I read Pimco’s bond holdings were 61% in GSE’s. If the bond spread will shrink substantially. The result will be falling yields and higher asset values. If yields on GSE debt and MBS were to fall, Pimco would stand to make a huge return on their bonds. If I am right the Bond King has done it agian.
No country has ever paid off a debt this size. It is over and we are headed to 3rd world status. Default is near. Book it!
I don’t trust this bounce, it’s just too convient.
If I see gold break-out above $850 with huge volume, I will pile back in. For now it is wait-and-see.
I did as was suggested and called Mr. Hannes of Tulvare up and traded gold for that 1,000 silver bar on Sunday afternoon. I’ve been in this PM market since 1970 and have been trading the gold/silver ratio for the past five years, increasing the amount of silver by 61%. I love it when prices crash and the ratio rises and I get more silver for the gold and also when the prices increase and the ratio falls and I get more gold for the silver. I figured out this method by reading the biography of Alexander Hamilton and his “arrangement” with the first US Mint and the Coin Act of 1792 that set up the fix on the gold silver ratio at 15 to 1; then as the free market ratio of gold to silver shifted, he and his friends could make the gold to silver or silver to gold exchange no matter which way the ratio diverged from that “set” by the legal ratio of 15 to 1. What a deal! They soon stripped all the gold from the country and left only the lighter weight silver coins in circulation. This reduction in the supply of money eventually lead to the first depression to hit the new country, the Panic of 1819. I thought to my self that if Hamilton could to this, I could do it too. Though I don’t have the “FIX” in my favor at the US MINT, still I can trade against all the other market participents who are ignorant of the opportunity. This isn’t rocket science. Just a little mental thought and any one can figure it out…by the way it takes takes a tremendous emotional control, learning to seperate oneself from the herd instinct, feeling safer alone and away from the crowd. If you feel uncomfortable in a crowded gathering of any kind; if you can sense the raw energy in a group of emotionally charged people, then maybe, just maybe you have what it takes to be the loner.
A repositioning between US treasuries and 2Fs paper should be Dollar neutral shouldn?t it?
So who will be behind any new flows into or out of Dollar based markets?
Who will use the FOREX market to buy or sell Dollars and then buy or sell treasuries or 2Fs paper? My understanding is that the Dollar can only move via FOREX trade.
How significant are these foreign currency holdings that wish to enter the US Dollar?
How significant are the US Dollar holdings in either treasuries or 2Fs paper that wish to leave the Dollar?
Will non-Dollar investors want to park (more) cash in the US after this nationalization or pull out?
Will non-Dollar traders want to play the shrinking spread between treasuries and 2Fs paper?
If the Dollar sees increased volatility the next couple weeks it might actually help gold/silver regardless of the direction..?
I thought so, gold and silver losing altitude and USD rocketing. A suggestion: stop staring at USD, EUR and GBP, and watch YEN instead!
As a side note, I am seriously considering closing my online brokerage acccount and to focus on physical silver and gold only. I am tired of getting stopped-out constantly with this insane market; it is like death by a thousand cuts. This year I have lost 15% so far!
Silver will be manipulated down today, as the crooks always rush in to stop rallies on good news. the dollar will be bought, to make it look like this was a good thing. Look for a drop around 11 AM, as usual.
Can we beat these bastards?
Everyone who reads this, needs to contact their Senators, Representatives, and especially Presidential candidates, and complain bitterly, that you are being robbed. Until a large volume of complaints are received, nothing will change. Ted Butler frequently publishes emails of regulators, but they wont help. Only new laws, brought forth by politicians looking to be re-elected will matter.
Hi,
I don’t see how a bailout is going to affect the dollar or the PMs. The Fed, or the Treasury have overtaken only a contingent liability, which may or may not happen. The real crux of the matter is the US deficit, which makes the dollar bear a certainty. Although, in times of stagflation, the gold may not appreciate in real value, only in relative value. Is it possible that gold would decouple from the dollar?! The GSE nationalisation only gives a certain confidence to the US financial system, which won’t allow vulture funds and the hedge funds to do bargain hunting, thus reducing the volitility in the markets. Some stability is guaranteed now.
Do you see what silver and Gold are doing right now? Tom…some advice?
Silver at $11.99 and http://www.apmex.com just raised the premium to $3.49 above spot.
How low will it go…..
So the crash has been nothing more than a basis trade. Nonetheless, the basis traders acted all of a piece didn’t they? Let us not forget the government never produces, only takes, they are getting pretty good at taking aren’t they? My PM’s are staying in the vault. I would sure like to know more about trading the basis.
TARUN: You statement may appear correct on a superficial level but you are ignoring the crowding out effect. The Treasury has basically just offered to swap out agency debt and MBS for U.S. Treasury securities. This is not just about yield, it is also about duration. If interest rates are falling then nobody will want to hold “risk free” GSE MBS (even at a yield spread to Treasuries) because MBS will be paid off early (think refinancings). If interest rates are rising then nobody will want to (or could) compete with the GSEs to make mortgage loans. In either or both cases, the result will be a new monopoly and not a good one: All risk in the U.S. housing market previously borne by investors will eventually be borne by U.S. taxpayers. This might be fine if we have budget, trade or fiscal surpluses to pay for such a massive social program. But it is quite deadly when we have deficits everywhere. It is a wormhole and the only way out is to inflate. Speaking of which, issuing Treasury securities is already the number one and only way to actually inflate the money supply, so now Bernanke and Paulson have the tool to do so. In other words, they have just acquired an infinite supply of fuel to fly Bernanke’s helicopter. It’s a neat trick if you understand it, but it has absolutely dire consequences for the value of the U.S. dollar.
John: Advice? If you can’t afford to stay with your position, sell. If you have fiat money you won’t be needing for a while, buy. Otherwise, hold.
This is just AMAZING…..gold is down maybe a $1.00 or two and the GOLD STOCKS JUST HAMMERED. AEM down $4.00 or 7.5%, AUY down $.80 or 7.5%, SLW down $.90…..unreal…..this is a REAL BLOW OFF and these stocks are getting HAMMERED so low…much lower than the percentage of the prices of the commodities.
What is HILARIOUS is this BAIL OUT OF FANNIE AND FREDDIE as TOM comments is the DEATH of the DOLLAR….and look at the DOLLAR today….WHAT GOES UP THAT HIGH…will GO DOWN especially now…these PRECIOUS METAL STOCKS are becoming GREAT BARGINS…but I have not bought yet. But will soon.
PEOPLE and ANAL-LISTS are now talking of DEFLATION….HAHAHAHA…well you can KISS THAT one GOODBYE especially after this BAILOUT. There is no DEFLATION with the MONEY SUPPLY and INFLATION growing all over the world. What we have today is ASSET COLLAPSES of ENTITIES that are not FUNCTIONAL in the FUTURE WORLD……THE end of SUBURBIA is here…..CHINA is taking over as the WORLD SUPER ECONOMIES…and the USA will become a THIRD WORLD COUNTRY begging for SCRAPS…..
i have a little personal story which is an analogy of the current market.a single friend of mine is 40 years old.he has lots of casual girl friends but he cant find a decent woman.in conversation one night exasperated at why he cant find a good woman he said he was succesful good looking and would be a good catch for any woman i agreed. however he could not understand it why cant find a good woman in his own words he said it makes no sense.
out of the blue i replied “sense makes no sense anymore” the best thing you can do is look at any situation and take the nonsense decision (ie financial disaster sell silver) this in our crazy upside down world seems to work well. however as we all no ultimatley sense prevails(i think????). lets see
It is a quite interesting post but quite difficult to understand for me -
I never thought i will find this much information on Freddie and Fannie Nationalization today. Nice post mate - keep up the good work.
Found your blog on yahoo - thanks for the article but i still don’t get it.
I have to say, that I could not agree with you in 100%, but it