Children disaster has come, Gold is over $1000.00

[rickortreat]

I have been warning you about this for quite some time, and have made quite a bit of money off of it's rise.  Unfortunately the things I have been worrying about are now coming to the fore.  Now, it is becoming obvious to everyone that there are severe financial strains which are now impacting the regular economy.

The bad risks they have all been taking are now coming back on them, and they are finding out they had no way to functional way evaluate the risk. They are trying to unload the risk, but no one is willing to assume their (bent over) position.  They have all cried to the government to bail them out.  The government is trying, and in doing so it is sacrificing the dollar.

As I write this Gold is now at $1004 and Oz. and going higher.

The dollar will continue to get worse for quite some time.

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http://www.ftportfolios.com/Common/CommentaryContent/MarketCommentary-938.pdf
http://www.ftportfolios.com/common/research/brianwesburybio.pdf

FEBRUARY CPI
Chief Economist ? Brian S. Wesbury
Senior Economist ? Robert Stein, CFA
? The Consumer Price Index (CPI) was unchanged in February versus a consensus expected increase of 0.3%. The CPI is up 4.0% versus a year ago and up at a 4.7% annual rate in the past six months.

? Energy prices fell 0.5% in February but are up 18.9% versus last year. Food and beverage prices were up 0.4% in February and are up 4.5% versus last year.
? Excluding food and energy, the ?core? CPI was unchanged in February. The core CPI is up 2.3% versus a year ago. Excluding just energy, the CPI was up 0.1% in February and is up 2.6% versus a year ago.
? Real average hourly earnings ? the cash earnings of production workers ? were up 0.2% in February but are down 0.8% versus a year ago. Year-to-year wage comparisons are likely to improve over the next few months.

Implications: The inflation threat took a breather in February but will come roaring back in March. On average, prices for energy and some other commodities (such as apparel) were lower in February than January, resulting in both the overall CPI and ?core? CPI being unchanged. However, energy prices and commodities have surged in March, so the report next month will show a steep increase in the CPI. In the meantime, today?s report on the CPI makes yesterday?s report on retail sales look better, supporting our view that real GDP is growing at a 2% annual rate in the first quarter. Despite today?s benign CPI report, the Federal Reserve needs to stop ignoring inflation. The CPI is still up 4% versus a year ago, which is more than the yield on Treasury securities maturing in 10 years or less ? and that?s before investors pay taxes on the interest.

Monetary policy has been accommodative since late 2001, which means an already serious inflation problem will continue to worsen in the years ahead.
This report was prepared by First Trust Advisors L. P., and reflects the current opinion of the authors. It is based upon sources and data believed to be
accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a
solicitation or an offer to buy or sell any security.

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http://www.ftportfolios.com/Commentary/EconomicResearch/2008/3/3/Economy_Remains_Resilient_in_Q1

Economy Remains Resilient in Q1
Two-thirds of the way through the second, third and fourth quarters of 2007, the consensus forecasts for real GDP growth were 2.6%, 2.4% and 1.0%, respectively. With final data now in, the actual rates of growth in Q2, Q3, and Q4, were 3.8%, 4.9% and 0.6%. In other words the consensus was off by an average of 1.0% in the past three quarters. It is likely that this trend will continue in the first quarter of 2008. The only question is whether or not the miss is on the high side or the low side. Our review of the data available so far suggests that the economy will exceed the consensus forecast of just 0.5% real growth. The biggest ?if? in our forecast of 2.0% annualized real GDP growth in the Q1 is inventories. We assume inventories rebound in Q1, adding 0.7 points to growth. Last quarter they subtracted 1.5 points. Although this is our best guess for inventories we are much more confident in our forecast that finals sales (which is everything but inventories) will grow at about a 1.3% annual rate. This would also be close to the 1.5% real GDP prediction we get from unemployment claims.

Personal Consumption: If real consumption is unchanged in February/March it would still grow at an
annual rate of 0.5% in Q1. However, we expect real consumption to rebound as inflation temporarily slows from the breakneck pace of the last two months, resulting in a 1.6% real consumption growth rate. With consumption accounting for 70% of GDP, real PCE will contribute 1.1 points to real GDP growth (1.1 equals 70% of 1.6).

Business Investment: Shipments of capital goods (exdefense/aircraft) were up in January but business
construction fell in early 2008. Continuing recent trends through March for each indicator suggests business investment will grow at about a 3% annual rate in Q1. With business investment accounting for 10.5% of GDP, this translates into another 0.3 points for real GDP growth (0.3 equals 10.5% of 3).

Housing: Data on home building suggests a decline at about a 24% annual rate in Q1. Given that the sector makes up 4.1% of GDP, this translates into a drag of 1.0 points on real GDP growth (1.0 equals 4.1% of 24).

Government: In the past five years, on average, government spending has accounted for 0.3 points of GDP
growth. We assume this trend continues.

Trade: The inflation-adjusted trade deficit has been declining for two years. Assuming the trend continues ?which is likely given the falling dollar ? net exports will add about 0.6 points to real GDP growth in Q1.

Inventories: Inventories dropped in Q4 by the most in almost six years, subtracting 1.5 points from real GDP
growth. We are penciling in a relatively small increase in inventories for Q1. A shift from declining inventories to a moderate increase would add 0.7 points to growth.

First Quarter GDP: = 2.0% / Final Sales = 1.3%

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http://www.ftportfolios.com/Commentary/EconomicResearch/2008/2/25/Monday_Morning_Outlook_-_Inflation_Denial

Inflation Denial
Despite a very clear set of data that show a sharp acceleration in inflationary pressures, there is a rampant
denial that these pressures are worth worrying about. Consumer prices, producer prices, and import prices are all signaling that American workers are having their purchasing power eroded. During the 12 months ending in January, consumer prices are up 4.3% - and 6.8% at an annual rate in the past three months, the fastest three-month increase since 1990 (excluding the immediate aftermath of Hurricanes Katrina and Rita). 
The Federal Reserve Bank of Cleveland tracks something called ?trimmed mean? inflation. This measure excludes the 8% of items that are rising the fastest and the 8% that are falling the fastest (or rising the slowest) to focus on the underlying inflation trend. Trimmed mean inflation is 3% for the past year, the highest since 1993. 
On Tuesday, January producer prices are expected by the consensus to rise 0.3% (we forecast 0.5%). Assuming the consensus is right, that would bring the total increase versus last January to 7.7%, the largest increase in any twelve months since 1981. Import prices are up 13.7% versus last year, the largest increase on record going back to the 1980s. Most of the increase is due to oil prices but even excluding petroleum, import prices are up 3.6% versus last year. This may not seem like much, but back in the late 1990s and early 2000s, non-oil import prices were falling, leading many people to talk about the US importing deflation from foreigners.
These statistics are ignored by many because home prices are falling. But this decline reflects a lower (or
negative) rate of return on residential land and structures, not the rental cost of putting a roof over one?s head. Although home prices have fallen in the past year, rents have continued to put upward pressure on the cost of living.
Meanwhile, the Federal Reserve has joined the ranks of those unconcerned about inflation. Despite the  data, and significant interest rate cuts, the last two statements issued by the Fed to accompany their interest rate decisions have completely omitted ?price stability? as a policy goal.
This is a reversal of the 1990s, when the Fed consistently argued that maximizing economic growth over
the long-run required price stability. The idea was that if the Fed focused on price stability, both low inflation and higher long-term economic growth would be the result.
This stance reflected the lessons of the 1980s when Paul Volcker used Fed policy to fight inflation and Ronald Reagan cut tax rates in an effort to free the economy. These policies reversed those that created stagflation.
Unfortunately, in the US today, the Fed is cutting interest rates in an attempt to boost economic activity at the same time politicians are discussing how much to raise tax rates. And denial that inflation is on the rise does not help.  This was one of the key ingredients of bad policy in the 1970s ? denial that there was a problem. But it can?t last forever. Eventually, inflation won?t be ignored and that time seems to be getting closer and closer.

[rickortreat]

Let me make this simple.  The problem is one of trust between companies who extend credit and insurance for these transactions of various kinds.

These derivative contracts - special performance vehicles that come into play when certain events occur, like a rise in interest rates, or a default on a mortgage.  Are the problem.  It appears every bank, or financial institution has some of these contracts on it's books. 

Because these contracts are unregulated, and have no open-market clearing, their value when signed was an agreement between two private parties. These two agreed on the value at the time, and that is all the dilligence there was.  Each party assumed that they would be able to sell these contracts when they no longer suited them, or that the terms of the contract were such that they would never have to pay.

Now, a lot of these contracts are bad, and because of their complexity no one is really sure who owes who what.  They are afraid that if the extend credit, they will never get it back.  THIS IS A SYSTEMIC LOCKUP OF THE WORLD BANKING SYSTEM!!!!

There is really nothing that can be done, short of extending credit to any failing entity in the hopes of extending their life.  If they gave every overextended homeowner a better job so he could afford his bills, that might really solve the problem, but such a thing cannot be done, paticularly since the greed heads in charge would never think to help the little guy, only to screw him!

It is the "papering over of debt" like what JPM is doing for Bear Sterns at the bequest of the Fed, lending money on assets (junk paper with no market) That is creating inflation, and it is this inflation- trillions of dollars of new money will be needed, is going to make commodities go to the moon, and Gold head well over $1600.

I can't say when this will happen the problem seems to be developing quite rapidly, and will soon exceed the ability of the Fed to control it all.

[Randy]

It's definately something to worry about Ziggy -- Demo's are wanting to raise taxes in a big way while the average consumer is still reeling over the loss of jobs, the increase in cost of fuel and groceries and we are finally beginning to reap the just rewards of poor lending habits by banks and lending institutions.  We want to bail out those banks, lending institutions and consumers for making bad loans and debt but we are throwing a lot of money for a bandaid that isn't going to last long -- we are just delaying the inevitable. 

We've been allowing outsourcing and unequal tariffs -- these two things are quite horrible.  Companies want to increase profit by outsourcing jobs that cost too much money in the US -- so by sending them out of the country, they are killing the consumers ability to afford their products.  Isn't this basic enough for even CEO idiots to understand?

And then we get the governments help in the whole process -- giving a huge contract to Airbus (a builder who is supported by foreign government) over Boeing.  Yep, this is DEFINATELY the time to start giving contracts to companies outside of the US.  If you have two choices and it's even CLOSE -- then give it to the business who will SUPPORT our country with their taxes and employment!  The idiots who made that decision need to fired and told to go live overseas!

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This report was prepared by First Trust Advisors L. P., and reflects the current opinion of the authors. It is based upon sources and data believed to be accurate and reliable. Opinions and forward looking  statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.

Another Ride on the Fed's Asset-Centric Rollercoaster
In a highly unusual move, the Federal Reserve announced on Sunday that the discount rate had been cut by 25 basis points and that it had approved the JPMorgan - Bear Stearns deal. In addition, it created another new lending facility for primary dealers, which appears to be open-ended in dollar terms and is available immediately.  At virtually the same time, it was announced that JPMorgan would acquire Bear Stearns for $2 a share, or $236.2 million. This is a huge shock. Bear Stearns had a market cap of over $20 billion about a year ago. A little later on Sunday, Carlyle Capital announced that it would liquidate its entire portfolio of mortgage securities. The Wall Street Journal reported that Carlyle Capital had $940 million of client money, but levered that by as much as 24 times and held $22.7 billion of mortgage bonds.

These developments show that without liquidity and capital, financial institutions and trading vehicles are in trouble. These developments also show that aggressive Fed rate cutting has been ineffective.
And while more rate cuts are likely, we believe they are a mistake. Interest rate cuts since August have been counterproductive. They have created an incentive for businesses and consumers to postpone activity. Why do something today if rates will be lower next week or month?

In addition, lower interest rates have undermined earnings at banks by causing all adjustable rate loans (tied to prime for example) to move lower. Cutting interest rates at a time of heightened risk also undermines the willingness of some investors to stay invested think repos, or auction rate preferred securities. From the beginning, the Fed should have used things like the Term Auction Facility for commercial banks or today?s lending vehicle for primary dealers. They should have been more like the European Central Bank.  Unlike rate cuts, these actions, by themselves, do not result in a looser monetary policy. They simply focus liquidity where it?s obviously needed the most.  The root cause of the Fed?s mistake is that for the past ten years it has been asset-centric rather than inflation centric.

This asset-centrism started in the late 1990s when despite rampant signs of deflation (like falling gold prices), the Fed raised rates to prick the stock market bubble. The market did not respond right away. In fact, tight money made the dollar strong and made US investments very attractive. Eventually, however, tight money cracked the market severely and caused deflation. The rollercoaster continued in 2002-03 when the Fed cut rates to 1% to offset the NASDAQ collapse and prevent a Japanese-style deflation. The Fed pushed rates below inflation and held them there despite the fact that rising gold prices were signaling the threat of deflation had passed.  Perhaps even worse was the way the Fed dragged its feet in raising rates even as CPI inflation went from 2% to 4% and gold was hitting 25+ year highs. As a result, the  Greenspan policy of accommodation and gradualism caused a housing bubble, which in turn created today's mess.  Despite all this, the Fed has still not learned. It is focused on asset prices again, not inflation. How else to explain the absence of "price stability" as a goal listed in its post-meeting statements, even as CPI inflation is near a 17-year high, producer prices are up more than at any time since 1981, import prices have been rising at a record pace, and the dollar falls? This rollercoaster ride makes recovery from
current problems even more difficult.

Mar 17, 2008 Monday Morning Outlook B r i a n S . W e s b u r y - Chief Economist
Robert Stein, CFA - Senior Economist

[rickortreat]

There is no solution to this mess.  None.  They are only making matters worse in the end, trying to keep the bubble up, after it has popped.

Asset Values are all out of whack because of the foolish manipulation of interest rates, which have expanded money aggregates and fostered inflation.

Housing and Stocks rose excessively fast, beyond the capacity of the public to afford.  Such an imbalance inevitably corrects.  Either you pay people more so they can afford items at this price level, or assets will fall to the level where they are affordable.

Gold will continue to rise, as it has historically done in financially uncertain times.

[ziggy]

There is no solution to this mess.  None.  They are only making matters worse in the end, trying to keep the bubble up, after it has popped.

Asset Values are all out of whack because of the foolish manipulation of interest rates, which have expanded money aggregates and fostered inflation.

Housing and Stocks rose excessively fast, beyond the capacity of the public to afford.  Such an imbalance inevitably corrects.  Either you pay people more so they can afford items at this price level, or assets will fall to the level where they are affordable.

Gold will continue to rise, as it has historically done in financially uncertain times.

There is a solution to this mess, and that is to allow the value of the underlying assets to fall to the level they need to fall to, even if equity is obliderated, as has happened with Bear Stearns.  The underlying problem right now is that there is no market for mortgage backed securities, or collateralized commercial paper.  The value of these assets is what someone will pay for it, and presently risk aversion is so high that no one will pay anything.  Once a market is created, then you can have an orderly disposition of those assets.  Up until now the Fed has attempted to create this through rates cuts which is accomplishing very, very little.  The actions last week of offering short term credit facilities with MBS, or CCP as collateral is at least a more creative approach, which I believe does have the possibility of getting a market created again for these assets.  The Fed does take some risk, but that risk only exists in the case of bankruptcy, the Fed is not on the hook for asset devaluation.  That risk though is limited to the rate of foreclosure, which is still less than 10%, so worst case the Fed is on the hook for maybe 20% of the underlying assets, only in the case of default or bankruptcy.
I do believe that allowing Bear to basically dissolve has sent a very clear message.  Clean up your act, because if the Fed does move in it will do so only to the most critical banks, and you are probably not one of them.

I mentioned before to any interested, read the book, When Genius Failed, The Story of Long Term Capital Management.  Different specifics but everything else is the same.  You can see the behind the scenes story of what happened this weekend with Bear.