The Greenback and Commodity Prices

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http://www.cato.org/pub_display.php?pub_id=9639

As Mises and Hayek said, it is all about the value of money.

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From the premier bond trader, Bill Gross of Pimco.

http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2008/Investment+Outlook+Bill+Gross+Sept+2008+Bull+Market.htm

Here is an article on Mark-To-Market which, in my opinion at least, is what is driving the incredible deleveraging going, which is systemically driving financial markets to the brink.  This is very reminiscent of the 1930's and it does not have to be this way.  Enron used Mark-to-Market in the up market of the late 1990's to further leverage themselves, while also hiding non-performing assets in SIV's, and you didn't know exactly where they stood.  Once the market turned, and the mark-to-market went the other way, they had to deleverage overnight and the whole house of cards collapsed.

I am not a big fan of Alan Greenspan, but, (from the article)
Fair value accounting (mark-to-market) became all the rage in the early 1990s, including among such regulatory figures as SEC chairman Richard Breeden. But Alan Greenspan, in a 1990 note to Mr. Breeden, warned that the market-value accounting proposal could be damaging to the banking system. He said (according to economist Melanie L. Fein) that market-value accounting "could result in volatility in reported earnings and capital that is not indicative of the bank's true financial condition." He also said that problems posed by such accounting need to be "thoroughly studied and resolved before dramatic moves toward this accounting model are made."

Lehman, Bears Stearns, Merrill, Freddie/Fannie are all being driven down by mark-to-market.  Think of this in terms of you as a homeowner.  You have a mortgage, and you are making your mortgage payments without fail.  Market prices for similar homes (in other markets, and with mortgages completely different from yours) fall 30%, and now you owe more than the house is "worth" today.  The bank calls and says you need to come up with the difference or they are calling in your mortgage, regardless of the fact that you are meeting your mortgage payment.  We would have mortgages failing left and right, and the bank would be worse off by doing so.  This is what mark-to-market is doing.  You as the homeowner is not bleeding cash, and the bank is not bleeding cash, but the accounting rules say that effectively you are, so it forces liquidation and you are out of a house, have fewer assets, and the bank will start bleeding cash.  Like I said above it does not have to be this way

The reality is we are in a death spiral right now, predominately as a result of mark-to-market accounting.  Everytime you or anyone writes-down an asset (like a bundle of mortgages, or a CIV, or an SIV) then everyone has to write down their similar assets, even though there has been no cash loss.  Anyone on the edge with their debt-equity requirements, or capitalization requirements, now can fall out of compliance.  Once they fall out of compliance they are forced to liquidate assets to get back in compliance, but the process of liquidation further devalues their and everyone else's similar assets (by generating cash by selling assets to get in compliance, you drive yourself further out of compliance, because you have further asset devaluations, the death spiral).  This then leads to a new round of deleveraging and asset sales, which causes the process to repeat itself.  These companies are not bleeding cash.  They have assets where foreclosure rates are perhaps 1%, but those perfectly good investments are being marked down 30-40-50%, not based upon the quality of the asset, but based upon the arcane rules of mark-to-market.

http://www.financialpost.com/analysis/columnists/story.html?id=6070c96c-7396-452c-b114-e236f196d5ff&k=91199

[jemagee]

Obama blames republicans

McCain blames deregulation (which is basically blaming republicans as well, isn't it?  What's McCains voting record on all this deregulation nonsense)

Are gas prices going to go down?  Are fuel prices going to stop smacking my business around...are people going to stop getting government subsidies to grow corn for a boondogle of an alternative energy plan?

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Obama blames republicans

McCain blames deregulation (which is basically blaming republicans as well, isn't it?  What's McCains voting record on all this deregulation nonsense)

Everybody is trying to find someone else to blame, when in fact they are all full of S---, every damn one of them.  I don't see anyone actually stepping up to do anything to really address the issues at hand.  It is all a bunch of mumbo-jumbo coming out of all of them.  At this point I really don't care who gets elected, I just have 2 things I want.
Sean Hannity to shut the **** up, and
Keith Olbermann to have a complete and total emotional breakdown on national TV.  I would pay good money to watch that.

Are gas prices going to go down?  Are fuel prices going to stop smacking my business around...are people going to stop getting government subsidies to grow corn for a boondogle of an alternative energy plan?

Read the article by Steven Hanke it is very revealing about the underlying real price of oil.

[jemagee]

Sean Hannity to shut the **** up, and
Keith Olbermann to have a complete and total emotional breakdown on national TV.  I would pay good money to watch that.

I'd actually like to expand that to Fox News and MSNBC

WHat's the line from the american president?

Bob Rumson doesn't care about your problems. The only thing Bob Rumson is concerned with is how to make you scared of it, and tell you who to blame for it. That's the only thing Bob Rumson cares about.

[westkoast]

This is the part of the government I wish I understood a bit more.  When it comes to how businesses are reporting information is it really the governments place to step in?  How would they even step in?  Or are they the influence for moving to this mark-to-market strategy in the 90s?

Keith Oberman is about 45 days away from jumping on the YouTube and breaking down Ziggy.  Just you wait.  He's been silenced by msnbc for the rest of the election.  That was MSNBC's way of trying to act like they are making an effort to not be bias.  As for Faux News, the entire station needs to be wiped off the cable map.

[jemagee]

This is the part of the government I wish I understood a bit more.  When it comes to how businesses are reporting information is it really the governments place to step in?

I don't know a lot about it but I think it has to be a balance between a free market and protection of the average citizenry...yes the financial meltdown going on was probably inevitable and a natural market correction, but it's going to cost people who have no involvement or input in such things real things like their jobs and their homes.  The government steps in to try and stem the tide, but it depends on a government with a clue and a government that isn't already responsible for what's happening...poor oversight, greed and too much deregulation are possible reasons for the depth and breadth of this financial crisis.

At least that's how I see it from what I've read.

Admittedly, my news providers start with ESPN, but it makes it easier that way

[westkoast]

This is the part of the government I wish I understood a bit more.  When it comes to how businesses are reporting information is it really the governments place to step in?

I don't know a lot about it but I think it has to be a balance between a free market and protection of the average citizenry...yes the financial meltdown going on was probably inevitable and a natural market correction, but it's going to cost people who have no involvement or input in such things real things like their jobs and their homes.  The government steps in to try and stem the tide, but it depends on a government with a clue and a government that isn't already responsible for what's happening...poor oversight, greed and too much deregulation are possible reasons for the depth and breadth of this financial crisis.

At least that's how I see it from what I've read.

Admittedly, my news providers start with ESPN, but it makes it easier that way

That I understand.  They do need to step in but I wonder what took them so long?  It wasn't until Fannie May was 100% finished before they stepped in.  Why didn't they step in say, 3  years ago, when they realized the Enron way of going things was wrong and the housing market was dropping badly?

[jemagee]

That I understand.  They do need to step in but I wonder what took them so long?  It wasn't until Fannie May was 100% finished before they stepped in.  Why didn't they step in say, 3  years ago, when they realized the Enron way of going things was wrong and the housing market was dropping badly?

Because, even though IDEALLY the executive and legislative branches of the United States government should have the best interest of its citizenry at heart and do its best to help the largest base of citizenry we don't live in an ideal world, we live in the world of the gold rules and bipartisanship and blame laying instead of working together to solve problems.

And neither presidential candidate is going to fix that.

[rickortreat]

That I understand.  They do need to step in but I wonder what took them so long?  It wasn't until Fannie May was 100% finished before they stepped in.  Why didn't they step in say, 3  years ago, when they realized the Enron way of going things was wrong and the housing market was dropping badly?

Because, even though IDEALLY the executive and legislative branches of the United States government should have the best interest of its citizenry at heart and do its best to help the largest base of citizenry we don't live in an ideal world, we live in the world of the gold rules and bipartisanship and blame laying instead of working together to solve problems.

And neither presidential candidate is going to fix that.

Wrong.  They took that long because they were hoping another solution would present itself.  (It wouldn't and couldn't)  And, don't kid yourself about mark-to-market.

The only way to establish value is in an open, standardized market.  But when companies like Lehman engage in writing derivative contracts, which have no standards and no clearing house, how can you say what the contract is worth, especially when the contact states that no settlement or claim can be made until some point in the future!?!

The bottom line is that Greenspan said that this area of the market needed no regulation, when nothing could have been further from the truth.  The big problem with offsetting risk this way is the uncertainty.  You may think you are protected from a drop in interest rates, but if the guy who sold you this insurance is insolvent, your hedge is gone, even though you thought you paid for it.

Lehman going bankrupt is a disaster.  Watch what happens when the bankruptsy people start going through these contracts and demanding settlement with Goldman, Citi, Merrill or whoever is on the other side of the derivative contracts they wrote.  It is a train wreck in slow motion that will engulf the US economy.

Like I've been saying all along, buy gold and gold mining stocks.  Right now we are past the bottom in gold and on the way up.  Should be well over $1,000 before year end.  Also, the Dow is still heading down, and won't bottom until it gets to 9,500 or so.  Lots of money to be made on the short side.  On down days the banks will get slammed hard.