[Money-matters] Money Matters Update nov 1 2008

Sat Nov 1 20:24:46 UTC 2008

Washington Post Staff Writer 
Saturday, November 1, 2008; Page D01 
The government may need to back home mortgages indefinitely to keep the
broader housing market from going into a tailspin every time there is a
financial crisis,
<http://www.washingtonpost.com/ac2/related/topic/Ben+Bernanke?tid=informline
> Federal Reserve Chairman Ben S. Bernanke said yesterday. Bernanke's
remarks came as a new report showed that almost one of every five homeowners
owes more on their mortgage than their properties are worth. About 7.5
million mortgages, or 18 percent of all properties with a mortgage, were
under water, according to the report, by First American CoreLogic
 <http://online.wsj.com/public/quotes/main.html?type=djn&symbol=JPM> J.P.
Morgan Chase & Co. launched an ambitious plan Friday to modify the terms of
$70 billion in mortgages for borrowers who are behind on their payments or
soon could be.
The move by the New York bank will cover as many as 400,000 borrowers.
They'll be moved into loans carrying lower interest rates, smaller principal
amounts or other more-affordable terms.
Washington Post Staff Writer 
Saturday, November 1, 2008; Page D01 
Several big insurance companies this week reported big losses on investments
in the last quarter, raising fresh questions about the financial stability
of the firms as the U.S. government considers investing in them.
<http://www.washingtonpost.com/ac2/related/topic/The+Hartford+Financial+Serv
ices+Group+Inc.?tid=informline> Hartford Financial Services Group, a
Connecticut insurer, lost $2.63 billion in the third quarter.
<http://www.washingtonpost.com/ac2/related/topic/Prudential+Financial+Inc.?t
id=informline> Prudential Financial, the New Jersey insurer, lost $108
million. Assurant, a New York provider of specialty insurance, lost $111.4
million.
Nov. 1 (Bloomberg) -- Freedom Bank of Bradenton, Florida, became the 17th
U.S. bank seized by regulators this year as the deepest housing slump since
the Great Depression triggers record foreclosures and mounting losses.
Nov. 1 (Bloomberg) -- India's central bank unexpectedly cut interest rates
for the second time in two weeks and reduced the amount of money lenders
need to keep in government bonds and as cash reserves to boost growth amid a
global slowdown.

Marc's Notes:
Firstly let me say we again had email issues- now my router/ modem went out
so nothing was sent for the last week. I also apologize for taking some time
getting back toall your emails. When I got up and running my emails clicked
up to several hundred for each 48 hours I was down. Holy cow! I finally got
thru them all. This update is long as I am catching up on what is happening
while offline. So here it is. Take a deep breath, get a cup of tea or coffee
and take it all in..
Look at the above articles- Lets take them one by one to get you caught up. 
Article 1- As I said before, the Government will eventually realize what we
have been trying to tell them. The underlying problem is HOUSE PRICES. They
can throw all the money at the system they want (and they have) but until
they figure out a way to STOP the slide in house prices, no amount of money
will fix it. That is because all those mortgages and equity lines have been
sliced up and packaged and sold off all over the world. You cant renegotiate
millions of loan packages that were leveraged a hundred to one and are owned
by thousand of investors. But if you stop the slide in home prices, you
catch the underlying problem at the root of the cause. So the government is
finally waking up to this fact  (they are not very bright up there) and you
are now seeing calls for a MASSIVE ALL OUT pay off and bailout for all late
mortgages as well as  programs aimed at halting foreclosures. (Listen to our
real estate show #9 '06)  and you will hear me say " don't be surprised if
the Federal Government pays off your mortgage all together".  No one thought
that was possible when I said it so now I can say "I told you so".
As incredible as that seems, its gonna happen one idiotic way or another.
Realize MOST of us are NOT being late on our mortgage. Those that are
encompass a minority. And 8 out of 10 people are AGAINST any bailout for
dead beat homeowners. But since the BANKS are getting slammed with these
mortgages, the FEDS do not care what the majority thinks, and they will
throw trillions ( with a T) of dollars more with some sort of new
"ANNOUNCEMENT' about some sort of new program to spread the misery even
more.
Article 2- Stable as a "rock". Look at all these insurers who told you to
invest with them for annuities and the like. AIG has burned thru its 85
billion dollar loan like I said they would and are now up to 125 billion and
still hungry. Now look at the new members in the food line. More insurers
are lining up for free tax money. Bond insurers also cant pay all the
defaults and have their hand out as well.
Article 3- Another bank hits the dirt face down. There will be many more.
Remember, the FEDS pick and choose who fails and who doesn't. It is crony
capitalism at its best. Expect hundreds more to fail and your tax money
(FDIC) to bail them out. 
Article 4_-   Countries around the world need to get the banks "lending
again" (dumb huh?) to get us "borrowing" again so we can get even deeper in
debt to keep us "consuming" more to somehow fulfill their plan of getting us
to consume our way to prosperity again.  I don't need to tell you that
premise of "consuming our way to prosperity" is flawed to the core. Think
about it. You have to "sell" stuff to make money. You cant just borrow more.
Can a house bailout country wide work. Not really. Japan tried something
like it and has failed miserably. They are 20 year or so into the recession,
the one we just arrived at. Remember, if you prevent the fever from
happening, the body will never get well. The jest of the matter is this.
House prices got too high and nobody could afford them. If you allow them to
come down, people will be able afford them again. If you try and prevent
them from coming down, people   WONT  _ _   ____ __   _____  _THEM.   (you
fill in the blanks!)
Its that easy!
If people cant afford them, nobody will buy them. So you have to let them
correct. But they will try and prevent it. Remember, the 12 words you should
never believe.
"Hi, I am from the Government and I am here to help".   REAGAN     and also
"A government big enough to give you everything you want is big enough to
take everything you have"- (I think this was Johnson).
Create Jobs?
Obama nor McCain cant create jobs any more then my cat can. That's because
my cat (nor the government) doesn't "make" anything. You cant create jobs
without "making" something. Sure they can print the money to pay somebody to
build a road, but since the government gets all its money from you, they are
only allocating YOUR MONEY Let me make one thing perfectly clear"...
A government cannot create jobs. It can only redistribute wealth from one
person to another. How they choose to do that, whether it's a "job" or a
handout, it still is only taking a dollar from someone who works and giving
to another who doesn't. And that, folks, is not freedom, it is called
socialism. And both candidates are proposing it. 
Markets
Up, Up and away. Markets tested the 8100 level as I thought and it held and
bounced up 1200 points to date. It DID not crash thru the barrier of 8100,
hyped and prodded on by every guru and cheerleader on CNBC to get you "in"
again. Bear markets are designed to suck in every last dollar with "false
rallies" like the ones we have here. Technically our alert is dropped to
orange FROM red for now. A bear market rally is underway. WHEE!  10,500 is
possible, 11,500 even, but that wont change the fundamentals of the long
term bear. Since the consumer is 70 % of our economy, and all signs show he
his retreating like a bear in winter (pun intended), the underlying support
of the consumer will not be found. This will not include our next "stimulus"
check to get us "spending" again. The package WILL arrive in December to
rescue the retailers and make for a "happier" Christmas (although it is not
enough time for the check to get here). Another cool 200 or 300 billion is
now being discussed. Retailer stocks are up and banks are up and even
housing stocks are up. Hard to tell which way markets will go short term
with the election and all. I suspect a UPWARD bias short term. That could be
derailed by a large failure of somebody somewhere however. Another is
coming. With the trillions they are throwing at this thing, its bound to
eventually find its way into the market and it is.
Like I always say, they can always just print trillions and make a
"Zimbabwe" type stock market. ( Up 200,000% every few months!).
More Bailouts coming!
The 700 billion was just window dressing and a foot in the door. Since then
have you noticed  (maybe you haven't) that they have dwarfed that amount by
lending over 100 billion a day ( yes a day) to the banks. They also upped
the money to AIG without our your consent, lent 25 billion to GM FORD, spent
billions more thru FDIC by bailing out failed banks, given billions to B of
A and JP Morgan to buy up all those failed giants like Bear Sterns and
Merrill, and did you know they gave JPMorgan close to 100 billion to make
good on Bear Sterns bets to foreign banks? That was not even reported in
most arenas. And we estimate over 1 trillion in "under the table" funds
given to the  banks to close out bad loans, not counting the FEDS now buying
actual stock from over 30 banks, with more lining up each day. Although the
FEDS told you in June and July they estimated a 900 billion dollar bailout,
I put out in the previous  update the amount will probably be 10 trillion or
more and we are half way there already. Now hundreds of firms are
approaching the government to have them buy their stock as well. The line of
corporations with their hands out will approach 1000 or more in a month.
And don't forget the states now are asking for money. And the FDIC, the
agency that bails out your bad banks? They went into the business of home
loans. Every bank they now take over? They stop foreclosure and rewrite the
loan. BUT ONLY IF YOU ARE LATE ON YOUR MORTGAGE. Outrageous. And again, its
your tax money that is making up the difference of the lower interest as the
holders of those notes still get the original interest promised.
And guess what now is being discussed. The banks have billions in bad credit
card loans (no surprise there). Now the banks have approached the FEDS to
help:
1) Forgive all or a portion of the balance on past due credit cards
2) Get FED money under and over the table to help.
3) Allow the reduced amount to NOT BE LISTED AS LOSSES on their books (the
real reason).
4) BUT ATTENTION:  They will only bail out deadbeat borrowers!   So  let
see.. shall you and I stop paying????? ( HA HA- buts it really not that
funny).
5) BTW: If your home loan is owned by a bank that fails, that's good news
for YOU! The FDIC, the insurer of your bank account, now is halting all
foreclosures on banks it takes over and will renegotiate your interest
rate/payment and principal  to reflect 38 % of  your gross pay, regardless
of how much money it costs them. (That's you by the way with your TAX
DOLLARS).  Remember, the FDIC previously has or had NO AUTHORITY to get
involved in the mortgage business. They didn't ask nor revise their charter.
Sheila Barr, FDIC head, just did it on her own, using your tax money to do
it. But again, you have to be LATE on your mortgage. If you pay on time,
forget it. You just pay for the guy that IS LATE.  Nice huh?
.
That being said, here's what I see coming:
Expect unemployment now to spike and be the party spoiler! They can hide
some of this but not all of it. This and GDP will be the news along with
terrible retail sales. A classic bear market rally is now in force. You may
play this carefully if you day trade but otherwise stay out. Hedge your
shorts will fast movers such as  APPLE  RIMM or FCX or other big large high
beta stocks.
I still fear a major bad news blowup arriving anytime on my front page. The
US dollar is rallying right now causing a falling price structure in
commodities and gold. This is temporary. The stronger dollar helped the FEDS
for now, as they WANTED gold and energy to fall. They don't want you to
trade in your paper US dollars for gold or commodities so they orchestrate a
wipeout and make you think it is time got get back in the casino they call
the stock market. It is not. The US dollar rise happened as the hedge funds
are unwinding their massive bets and they needed US dollars to do it, as all
these were denominated in US dollars. So all those listeners' who asked why
the dollar was rising in face of all this printing? That is why. The US now
pays 13% of its GDP (prices for all transactions in one year) for it
interest and it rises everyday. No one is talking about addressing it
anymore so now we are on a one way street to eventual bankruptcy unless
Congress wakes up but that is not happening. They are now spending MORE, not
less, and planning even MORE. I cant say when, but you tell me. Can this go
on forever? No. It MUST end. The stock markets rally could continue, maybe
another 1000 points, maybe alittle more. But consumers are pulling back. A
FED ANNOUNCEMENT of a HOUSE BAILOUT, like the one we have been talking about
would JUICE the market AGAIN, so they still have some ammo left but not
much. A wide spread and all encompassing house bail out might be the biggest
announcement yet. A bailout of credit card bills may also be next. (Wow -
can you believe this?  Now its Credit Cards??)
The election may juice the market some as well but that is not as clear cut.
An OBAMA win COULD cause the markets to go down as Wall Street traditionally
does not like Democrats. But the OBAMA "hope" factor could bring Joe
Investor in. Eventually, fundamentals or a bad news item will again start
the BEAR market down again. BEAR MARKETS are designed to suck in every last
dollar by bringing you in again to get your very last dollars!  That's why
they call them BEAR MARKET RALLIES. This is nothing new. Don't fall for it.
Consider this small factoid. Volvo sold 41,900 big trucks in 2007.  Compare
that to 155 (YES  only 155) in this quarter !~ Now that's a 99 plus drop! 
Bottom line. We racked up trillion in debt.  Economic law says when the
bubble collapses, the debt has to be forgiven by the lenders as no one can
pay. Only this time, the Government is going to try and pay it all off for
us. Economic law is still in force. Lenders cant afford to write off all our
bad debt so the Government is going to insanely attempt to pay it all off!
Since it is,  we think about 500 TRILLION, you tell me if they can succeed.
They cannot. Bottom line though, they will try. Result?
A doomed US dollar.  Next week, next month, next year, next decade.. But
eventually.. You cant PRINT THIS AMOUNT OF MONEY AND GET AWAY WITH IT.
Holdings:
As indicated in the last 2 or 3 weeks emails updates, I really couldn't say
to add anything short of showing you what I was doing. Here is what I did.
I added SLV silver trust at about 9.70. This is not a "stock" per say, but
reflects the price of silver as silver could go up with other stocks going
down in a bad market. (we saw this in our last correction).  This is why I
added SLV and not a silver stock. I wanted exposure to silver but not to the
market. My play on this was I perceive a long term downside of 5.00 or so
with an upside of 100 or more- who knows. With the government printing
trillions and trillions (I don't need to tell you that though right?) the US
dollars will devalue eventually and Silver should skyrocket. But this could
take months, even years. I only hold this in my IRA as SLV is considered as
a "collectible" and taxed at a higher rate. I also added USO (as an option
call). This is oil. Since oil has a downside in my opinion of 40 or so ( The
OPEC folks have my back on this one) and the upside is 150.00 of more (where
it was a few weeks back) , then the downside is limited to 15 more bucks
down or so with an upside of 150 or more. Similar to our SLV trade.
I also added a small amount of stocks on the DIVIDEND payers list we put
out, as the yields were HUGE at their beat up stock prices. We are still
collecting dividends and all are still paying! Makes the pain alittle less
right?  I felt energy stocks had inherent value of which was being ignored
and would soon be "discovered" again and the market agreed with me as energy
has moved up with the general market. I also closed out a lot of retailer
shorts, including striking it big with Whirlpool, Tiffany, Marriot and
Nordstrom, selling into the falls as indicated and buying into the rally. I
now only hold puts on CCL (Carnival Cruise) and JCP  ( JC Penney) and HOT
(Starwood Hotels). All these bet on a FALLING MARKET. 
BEARX- up from about 6.00 or so depending on where you got in. Now at about
7.80    HOLD and ADD   Will pay 2 % dividend or so in DECEMBER.
CGMFX- Our long mutual stock fund.  Hit hard with the market drop. The
manager of this fund is now in financials for the first time and out of
commodities. For the first time, I now disagree with Kenneth Hebner and
recommend selling half of this fund and moving to our other holdings. Since
this should be only a very small part of your "mutual funds, your loss
should not be that great. If you sold when it was at 70 or so great for you.
Why am I changing my position on this fund? When conditions change, I change
my views. The conditions have changed. If you want you may hold until
December for its dividend payment and we can revaluate at that time. That is
what I plan to do with my shares. IF you think financial stocks will
rebound, then you can make your own decision on this fund. I still have
great respect for Hebner and wont be too surprised if he does well. The fund
has been slammed and I suspect it might be because of his change of
direction. I still don't like financials so will wait until B of A hits 16
or so then maybe buy a chunk for when it recovers in 2012 or so!
DBC- Hold as inflation hedge. Up then down. Ok to add small amounts.
UNWPX- I hold a lot of this fund at 12, 13   and 14. This bets on rising
metal prices and will perform when gold does. Ok to ADD. I am still looking
for a long term gain here.
Emerging markets funds. NEW:  I might be tempted to replace your CGFMX with
an emerging market fund. I have no pick other the OBCHX and IFN at this time
but for a LONG TERM hold only.  Japan, India and Asia are all beaten up. In
a general market crash, these will still get hurt so small amounts only and
hold cash for another day. IFN just paid a whopping 6 buck a share dividend.
In the long run, emerging markets will trounce the US Market. 
Gold and Silver in possession- ADD for the day we will need them. Physical
coins are hard to come by right now. Many listeners are telling me they
cannot get coins!  This conundrum will eventually result in an upside
explosion in prices of both silver and gold.
Tanker stocks and dividend payers- Ok to add small amounts at these levels.
Returns are high but again they can get hurt in another turn down. Small
amounts only please.
Foreign Currency funds- FXZ   FXC   FXY  FXF   These have been all over the
board but ok to ADD in equal amounts as usual. Most pay dividends/ interest
and protect against a falling dollar. FXY (yen ) moved up nicely as the YEN
CARRY TRADE I mentioned would happen is happening. 
Swiss Annuities- Add- Currency controls are coming. Only one company now
offers these. Denominate in Swiss Francs. They pay interest and dividends
(order free booklet by emailing me). YES. They are in FRANCS so your balance
has gone down but this is the hedge they offer. If they went down, your US
stocks went up, right? Nuff' said.
MOST IMPORTANT HOLDING: Treasury funds- MOST of your funds should be here
and in BANK CDs. Performing fine and paying nicely. Hold TIP  RRPIX  SHY and
VIPSX in equal amounts and the rest of your money in BANK CDs now paying 4
plus percent. FDIC INSURED ONLY. The time will come to get out of these but
that time is not now. 

Well, that just about covers it. Remember, if emailing me, keep it to fewer
than 3 sentences, don't ask me IRA or TAX questions, or ask me on specific
stocks or funds. Don't email me your specific situation as without a consult
I would be remiss in recommending anything. 
Your can subscribe to the update or have others do it by clicking on the
link that follows the email. You don't have to email me.
All for now.
Marc

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