Rep. Marcy Kaptur Lays the Smack Down on the Bailout

"Sounds like insider trading to me!"

Yeah Marcy!

Quick Thoughts on The Latest Black Monday

• When stocks require a $700 billion infusion in order to tread water - is the risk/reward of being long stocks really worth it?

• Granted, there are a lot of quality stocks being thrown out like the proverbial baby with the bath water. If a rising tide lifts all boats, does it follow that a falling tide sinks them?

• If the government is reaction this way with the stock market only off ~20%, what will it do if stocks fall 50%? Stocks are still quite expensive by historical standards - it could be a slippery slope downhill.
  

• Remember, bull markets in stocks usually begin with P/E's in the single digits, after everyone has thrown in the towel on stocks. I still see everyone in the financial media trying to pick a bottom - not nearly enough desperation for my liking.

• While they rarely ring a bell at the top or bottom, desperation in mainstream publications are often a good start. Remember this BusinessWeek cover from 1979?

• It may not yet be a global recession, but global stock markets look like they are already pricing in a global recession. Stock market action usually precedes normal economic action by 6-9 months - by the time a recession hits the midway point, stocks have usually hit bottom.

• I sure love commodities coming out of this global recession. I have a long buying list, and we already have some very cheap prices staring us in the face. Exhibit A: Cotton futures fell below 60 cents today.
  

My Current Commodity Futures Positions - 9/28/08

Top posts from the past week:

• Five Easy Ways You Can Diversify Away From the Dollar
• US Mint: Sorry, we're out of gold (again)
• Jim Rogers: Bailout is "welfare for the rich"
  

A review of my trades from the week that was:

• Went long the Swiss Franc - The Swissie is the Yen's carry trade cousin - they usually rise and fall in unison. The Swiss Franc is one of the world's sounder currencies, and I expect the carry trade will continue to unwind.
  

• Also shorted 10-Year Treasuries - As discussed earlier in the week, I am quite bearish on long-dated US Treasuries. I think interest rates have to rise, and rise significantly, as I can't imagine the world will continue to lend the US government money at these bargain basement rates.
  

Other existing positions I've got:

• Long the Japanese Yen - Not much action this week in the Yen.
  

• Long Gold - As we've discussed in this space before, I believe the government's printing of money as fast as it can will send the price of Gold and Silver higher.

• Short Soybeans - Nothing too exciting here, the trend still appears to be down. If the harvest is good, there will be a glut of soybeans on the market.

My wish list (waiting for an uptrend):

• Sugar
• Cotton
• Coffee
  
• Natural Gas
  
• Silver

Open Positions

Date	Position	Qty	Month/Yr	Contract	Entry Price	Last Price	Profit/Loss
09/04/08	Long	1	DEC 08	Japanese Yen	0.9340	0.9503	$2,037.50
09/22/08	Long	1	DEC 08	Swiss Franc	0.931700	0.9212	($1,312.50)
09/24/08	Short	1	MAR 09	T-Note (10yr)	113-245	113-225	$62.50
09/17/08	Long	1	DEC 08	Mini Gold	864.6	892.2	$916.32
09/09/08	Short	1	NOV 08	Mini Soybeans	1168 1/4	1167	$12.50
Net Profit/Loss On Open Positions:							$1,716.32

Account Balances
Current Cash Balance	$54,458.17
Open Trade Equity	$1,716.32
Total Equity	$56,174.49
Long Option Value	$0.00
Short Option Value	$0.00
Net Liquidating Value	$56,174.49

Cashed out: $20,000.00
Total value: $76,174.49

Weekly return: 0.2%
YTD return: -0.4%

***"Cash out" mostly means taxes, but lately I've also been using it to pay down my credit cards a bit. Why credit card debt? I'm financing a startup and trying to outpace my CC interest rate in the futures markets - kids, don't try this at home.

Andy Kessler: WSJ: Clean Up Print

Taking the "pro" side of the bailout argument, Andy Kessler believes that Henry Paulson may be pulling off "the mother of all trades." Andy calculates this move could net over a trillion dollars for the US Treasury.

I've mentioned before that Andy's about as smart as they come, and that I'm a big fan of his unique way of analyzing the world, beyond financial markets. Seeing him take the other side of the ledger on this move does give me pause - we'll need to make sure we are diligent in constantly rechecking our assumptions here.

Jim Rogers on Bloomberg: Bailout is "Welfare for the Rich"

Jim Rogers on Bloomberg September 25, 2008.

I'll give you a hint - he's not keen on the Paulson/Bernanke bailout plan.

"It's not the end of the world when people go bankrupt, despite what Paulson says" - Jim Rogers.

Recently, Jim says he's bought:

• agriculture
• Chinese shares
  
• foreign airlines
• Swiss Franc
• Japanese Yen
  

US Mint: Demand has exceeded supply for gold coins

From Reuters:

NEW YORK (Reuters) - The U.S Mint said Thursday it was temporarily suspending sales of American Buffalo 24-karat gold one-ounce bullion coins because strong demand depleted its inventory.

"Demand has exceeded supply for American Buffalo 24-karat gold one-ounce bullion coins, and our inventories have been depleted. We are, therefore, temporarily suspending sales of these coins," the Mint said in a memorandum to authorized American Buffalo dealers.

This is nearly unheard of - a price decrease in gold triggering a leap in demand for physical gold. What's going to happen when the price increases - complete hysteria?

Doesn't it seem slightly unusual that you can't find any physical gold to buy anywhere near current spot prices? I'm not inferring that spot prices are being artificially held down...that was soooo two weeks ago. Before the US government committed another trillion dollars or two to the bailout - er, rescue - of irresponsible financial institutions.

Ron Paul's Answer to the President

Dear Friends:

The financial meltdown the economists of the Austrian School predicted has arrived.

We are in this crisis because of an excess of artificially created credit at the hands of the Federal Reserve System. The solution being proposed? More artificial credit by the Federal Reserve. No liquidation of bad debt and malinvestment is to be allowed. By doing more of the same, we will only continue and intensify the distortions in our economy - all the capital misallocation, all the malinvestment - and prevent the market's attempt to re-establish rational pricing of houses and other assets.

Last night the president addressed the nation about the financial crisis. There is no point in going through his remarks line by line, since I'd only be repeating what I've been saying over and over - not just for the past several days, but for years and even decades.

Still, at least a few observations are necessary.

The president assures us that his administration "is working with Congress to address the root cause behind much of the instability in our markets." Care to take a guess at whether the Federal Reserve and its money creation spree were even mentioned?

We are told that "low interest rates" led to excessive borrowing, but we are not told how these low interest rates came about. They were a deliberate policy of the Federal Reserve. As always, artificially low interest rates distort the market. Entrepreneurs engage in malinvestments - investments that do not make sense in light of current resource availability, that occur in more temporally remote stages of the capital structure than the pattern of consumer demand can support, and that would not have been made at all if the interest rate had been permitted to tell the truth instead of being toyed with by the Fed.

Not a word about any of that, of course, because Americans might then discover how the great wise men in Washington caused this great debacle. Better to keep scapegoating the mortgage industry or "wildcat capitalism" (as if we actually have a pure free market!).

Speaking about Fannie Mae and Freddie Mac, the president said: "Because these companies were chartered by Congress, many believed they were guaranteed by the federal government. This allowed them to borrow enormous sums of money, fuel the market for questionable investments, and put our financial system at risk."

Doesn't that prove the foolishness of chartering Fannie and Freddie in the first place? Doesn't that suggest that maybe, just maybe, government may have contributed to this mess? And of course, by bailing out Fannie and Freddie, hasn't the federal government shown that the "many" who "believed they were guaranteed by the federal government" were in fact correct?

Then come the scare tactics. If we don't give dictatorial powers to the Treasury Secretary "the stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet." Left unsaid, naturally, is that with the bailout and all the money and credit that must be produced out of thin air to fund it, the value of your retirement account will drop anyway, because the value of the dollar will suffer a precipitous decline. As for home prices, they are obviously much too high, and supply and demand cannot equilibrate if government insists on propping them up.

It's the same destructive strategy that government tried during the Great Depression: prop up prices at all costs. The Depression went on for over a decade. On the other hand, when liquidation was allowed to occur in the equally devastating downturn of 1921, the economy recovered within less than a year.

The president also tells us that Senators McCain and Obama will join him at the White House today in order to figure out how to get the bipartisan bailout passed. The two senators would do their country much more good if they stayed on the campaign trail debating who the bigger celebrity is, or whatever it is that occupies their attention these days.

F.A. Hayek won the Nobel Prize for showing how central banks' manipulation of interest rates creates the boom-bust cycle with which we are sadly familiar. In 1932, in the depths of the Great Depression, he described the foolish policies being pursued in his day - and which are being proposed, just as destructively, in our own:

Instead of furthering the inevitable liquidation of the maladjustments brought about by the boom during the last three years, all conceivable means have been used to prevent that readjustment from taking place; and one of these means, which has been repeatedly tried though without success, from the earliest to the most recent stages of depression, has been this deliberate policy of credit expansion.

To combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about; because we are suffering from a misdirection of production, we want to create further misdirection - a procedure that can only lead to a much more severe crisis as soon as the credit expansion comes to an end... It is probably to this experiment, together with the attempts to prevent liquidation once the crisis had come, that we owe the exceptional severity and duration of the depression.

The only thing we learn from history, I am afraid, is that we do not learn from history.

The very people who have spent the past several years assuring us that the economy is fundamentally sound, and who themselves foolishly cheered the extension of all these novel kinds of mortgages, are the ones who now claim to be the experts who will restore prosperity! Just how spectacularly wrong, how utterly without a clue, does someone have to be before his expert status is called into question?

Oh, and did you notice that the bailout is now being called a "rescue plan"? I guess "bailout" wasn't sitting too well with the American people.

The very people who with somber faces tell us of their deep concern for the spread of democracy around the world are the ones most insistent on forcing a bill through Congress that the American people overwhelmingly oppose. The very fact that some of you seem to think you're supposed to have a voice in all this actually seems to annoy them.

I continue to urge you to contact your representatives and give them a piece of your mind. I myself am doing everything I can to promote the correct point of view on the crisis. Be sure also to educate yourselves on these subjects - the Campaign for Liberty blog is an excellent place to start. Read the posts, ask questions in the comment section, and learn.

H.G. Wells once said that civilization was in a race between education and catastrophe. Let us learn the truth and spread it as far and wide as our circumstances allow. For the truth is the greatest weapon we have.

In liberty,

Ron Paul

Jeff Clark: Nothing To Do Right Now - Except Buy Gold

In today's Growth Stock Wire, Jeff Clark cites Three New Reasons to Buy Gold.

His reasoning:

1. There's no way the US taxpayer will make money on this bailout - so why is the government floating that idea?
2. The urgency to pass this bill seems suspicious.
3. It basically grants unlimited authority to the US Treasury.

Definitely worth a read, I always love Jeff's take on the markets.

REQUEST FOR URGENT BUSINESS RELATIONSHIP

You may have seen this email floating around - check it out, it's hysterical.

DEAR AMERICAN:

I NEED TO ASK YOU TO SUPPORT AN URGENT SECRET BUSINESS RELATIONSHIP WITH A TRANSFER OF FUNDS OF GREAT MAGNITUDE.

I AM MINISTRY OF THE TREASURY OF THE REPUBLIC OF AMERICA. MY COUNTRY HAS HAD CRISIS THAT HAS CAUSED THE NEED FOR LARGE TRANSFER OF FUNDS OF 800 BILLION DOLLARS US. IF YOU WOULD ASSIST ME IN THIS TRANSFER, IT WOULD BE MOST PROFITABLE TO YOU.

I AM WORKING WITH MR. PHIL GRAM, LOBBYIST FOR UBS, WHO WILL BE MY REPLACEMENT AS MINISTRY OF THE TREASURY IN JANUARY. AS A SENATOR, YOU MAY KNOW HIM AS THE LEADER OF THE AMERICAN BANKING DEREGULATION MOVEMENT IN THE 1990S. THIS TRANSACTIN IS 100% SAFE.

THIS IS A MATTER OF GREAT URGENCY. WE NEED A BLANK CHECK. WE NEED THE FUNDS AS QUICKLY AS POSSIBLE. WE CANNOT DIRECTLY TRANSFER THESE FUNDS IN THE NAMES OF OUR CLOSE FRIENDS BECAUSE WE ARE CONSTANTLY UNDER SURVEILLANCE. MY FAMILY LAWYER ADVISED ME THAT I SHOULD LOOK FOR A RELIABLE AND TRUSTWORTHY PERSON WHO WILL ACT AS A NEXT OF KIN SO THE FUNDS CAN BE TRANSFERRED.

PLEASE REPLY WITH ALL OF YOUR BANK ACCOUNT, IRA AND COLLEGE FUND ACCOUNT NUMBERS AND THOSE OF YOUR CHILDREN AND GRANDCHILDREN TO WALLSTREETBAILOUT@TREASURY.GOV SO THAT WE MAY TRANSFER YOUR COMMISSION FOR THIS TRANSACTION. AFTER I RECEIVE THAT INFORMATION, I WILL RESPOND WITH DETAILED INFORMATION ABOUT SAFEGUARDS THAT WILL BE USED TO PROTECT THE FUNDS.

YOURS FAITHFULLY MINISTER OF TREASURY PAULSON

Five Easy Ways You Can Diversify Away From The Dollar

Note: This article was also picked up by Seeking Alpha.

I personally fear for what may happen to the dollar over the next several years - I don't see any way these government bailouts will not result in an excessive printing of US dollars.

Faced with this reality, I know that many people who share this concern are also unsure how exactly to diversify away from the dollar. The past 25 years of investing history have been all about stocks and bonds, all denominated in US dollars, for most US residents.

Fortunately today, we have some great investment options available to us that were not around even a few years ago. Here are five easy ways you can diversify out of the dollar:

• Open a savings or CD account with EverBank, denominated in one or more foreign currencies. I personally recommend the Japanese Yen, Swiss Franc, Chinese Renminbi, Singapore Dollar, and Australian Dollar as some of the more solid currencies.

• Buy an ETF - you can do this from the comfort of your brokerage account. A few that look attractive right now: GLD, SLV, UNG

• Buy natural resource stocks. I think gold and silver mining companies, along with natural gas producers, look particularly attractive at current prices.
  

• Buy infrastructure companies. The world's infrastructure is a mess right now - there is a lot of upgrading to do. One example of a company focused in this space, which I own, is Brookfield Infrastructure Partners (BIP).
  

• Short long-dated US Treasuries. It's very unlikely that the rest of the world will continue to lend us money at 3%+ while our government spends it like drunken sailors. Interest rates are going to go up in a big way. There are several ETFs that inversely track interest rates - DXKSX is the one I own, because it provides 2.5x leverage.
  

And a bonus pick - it's not as easy as the suggestions above, but it's not nearly as hard as most people picture. I would highly recommend:

• Start buying actual commodities via a Futures account. It's not as risky as you think, especially if you limit your use of leverage - it's the excessive use of leverage that does people in. I have this account through Farr Financial. Recently, I've opened up a couple other accounts - one with Interactive Brokers, and the other with RMB Group.
  

My Current Commodity Futures Positions - 9/21/08

A review of my trades from the week that was:

• Went long December Gold - I picked up a gold contract on the big breakout this week. As we've discussed in this space before, I believe the government's printing of money as fast as it can will send the price of Gold and Silver higher.
  

Other existing positions I've got:

• Long the Japanese Yen - This trade was looking fan-freaking-tastic mid-week, as the Yen was flirting with 0.97. Then the latest example of US socialism sent the Yen reeling, as the good times returned again on Wall St, and the carry trade was back on. Let's see how long this latest disregard for risk holds true.
  

• Short Soybeans - Nothing too exciting here, the trend still appears to be down. If the harvest is good, there will be a glut of soybeans on the market.
  

My wish list (waiting for an uptrend):

• Sugar
• Cotton
• Coffee
  
• Swiss Franc
• Natural Gas
  
• Silver

Open Positions

Date	Position	Qty	Month/Yr	Contract	Entry Price	Last Price	Profit/Loss
09/04/08	Long	1	DEC 08	Japanese Yen	0.9340	0.9431	$1,137.50
09/17/08	Long	1	DEC 08	Mini Gold	864.6	876.4	$391.76
09/09/08	Short	1	NOV 08	Mini Soybeans	1168 1/4	1161 1/2	$67.50
Net Profit/Loss On Open Positions:							$1,596.76

Account Balances
Current Cash Balance	$54,480.27
Open Trade Equity	$1,596.76
Total Equity	$56,077.03
Long Option Value	$0.00
Short Option Value	$0.00
Net Liquidating Value	$56,077.03

Cashed out: $20,000.00
Total value: $76,077.03

Weekly return: 0.6%
YTD return: -0.6%

***"Cash out" mostly means taxes, but lately I've also been using it to pay down my credit cards a bit. Why credit card debt? I'm financing a startup and trying to outpace my CC interest rate in the futures markets - kids, don't try this at home.

The Financial Bailouts in Perspective

Any 5-year old can tell you the story of poor Humpty Dumpty. To paraphrase for today's financial news:

All the king's horses, and all the king's men, couldn't put Wall St back together again.



And if you're the historical type - do you also get the feeling that old boy Hank Paulson is doing his best impression of King Canute?

Hitler Gets a Margin Call

Here's a very funny video for your Friday. You gold/silver bulls will especially enjoy the banter.

Welcome to Amerikan Finance

This CNN headline says it all:

Dow gains 410 on talk of a long-term government solution to the current turmoil.

The full article, if you're so inclined - I'm too sick to my stomach to read on.

Jim Rogers on Bloomberg - Sept 10, 2008

Jim Rogers commenting on:

• The current financial crisis and outlook for financials
• The Fannie/Freddie bailout
• Oil - the bull market is not over (he hasn't sold any, and doesn't plan to)
• His short position in long-term US treasuries
  

Gold Up $86 Today!

Looks like gold may have kicked that nasty downtrend...

(And phew - this rally could save my marriage!)

A Couple Jim Rogers Interviews

Some good recent hits from Jim Rogers:

• The US dollar is in trouble
• Oracle Rogers sees worse recession ahead
  

Says he's currently long the Swiss Franc, Japanese Yen, and airline stocks (as a contrarian play).

Also thinks coffee, cotton, sugar, silver, and zinc look potentially attractive (this is usually Rogers' code for - these are screaming buys).

Breaking News: Fed Takes Over AIG

So long, dollar!

From CNNMoney.com:

In a stunning turn, the Federal Reserve Board is lending as much as $85 billion to rescue crumbling insurer American International Group, officials announced Tuesday evening.

Blog Post Used as Evidence in Unemployment Hearing!

Apparently my former employer is a loyal reader of Blogging the Commodity Bull Market - they presented a former blog post of mine as evidence in my unemployment hearing today!

I'm not exactly sure what kind of insight they thought could be gleaned from this passage:

On a personal note, I recently left my job (this is a very good thing) - so for your added entertainment, my futures account will also serve as my sole source of income for the time being, as soon as I run through my relatively meager savings. C'mon grains - Daddy needs a new pair of shoes!!!

What a kick seeing one of these posts pulled out in a formal appeals court. Not only was it hilarious, but it did flash me back to a happier time - before the global economy rolled over, taking commodities with it!

For the record, the judge did not ask for disclosure on my current positions - long Japanese Yen, and short Soybeans :)

Jeff Clark: Explosion in Gold Stocks Coming Up

Jeff Clark writes that gold stocks are about as oversold as they can be - and he expects an explosive rally in the coming months.

I've been tracking Clark for a bit, and the guy is a very sharp trader - definitely pay attention when he calls a play like this.

Deflation Everywhere You Turn, Get Comfortable

My morning glance at the Futures screens revealed that, well, just about everything is down across the board. Of special note:

• Cotton flirting with the 60-cent handle (wow, that looks cheap)
• Silver getting kicked in the teeth again
• Oil off big again, flirting with $90

Not to mention global stock markets getting slammed across the board.

In fact the lone positions weathering this storm appear to be our old friend, the Japanese Yen, and US Treasuries - both due to this flight to "safety".

Maybe "perceived safety" in the case of Treasuries - is it really safe to lock in a long-term yield that is below the rate of inflation, to a heavy debtor with an awful balance sheet?

I'm playing this mostly from the sidelines. I've got my long Japanese Yen position, which is performing nicely. While adding another contract may be the trade to make, I'd like to see how the rest of the week goes at the very least. I don't like buying the Yen, and the Swiss Franc for that matter, on these spikes, as I've seen them give back these gains before.

Also have my short Soybeans contract - which looks like it wants to bust through that lower level of resistance.

All in all, we may need to hold tight on the commodity front until the global economy gets through this soft spot. My suggestion would be to get comfortable. When the global economy reheats, we will have some fantastic buying opportunities.

Andy Kessler: Lehman = Pan Am

If you're looking for a sound perspective on the latest Wall St firm meltdown, take a look at Andy Kessler's latest article for Forbes.com, where he compares the shut down of Lehman to the shut down of the old Pan Am Airlines - as in, nobody is going to miss them.

Andy is about as sharp as they come, and I read anything written by him that I can get my hands on (including his excellent books). I'm fortunate enough to have had the privilege of talking with him in person on multiple occasions, including a breakfast I was invited to last year with him down at his favorite Silicon Valley breakfast spot.

My Current Commodity Futures Positions - 9/14/08

A special Blogging the Commodity Bull Market shout out to my good friend Lance, who works at a prominent New York investment bank.

Lance (name altered to protect the innocent) is a regular reader of our blog, though he is strictly forbidden from commenting whatsoever due to his professional ties.

Via a text message exchange we had today during the late NFL games, Lance provided me with some key insider info: "hope ur long oil pal! dump the dollar". Lance went on to recommned that I "buy the norwegian krona".

Though these text messages no doubt were sent after a beer or ten, we give a hearty salute to Lance. And armed with his information and insights, I have indeed covered my short British Pound position, preparing for the next flush of the dollar down the porcelain bowl.


A review of my trades from the week that was:

• Closed out my short British Pound position - twice - I closed out my two short BP positions last Sunday night when the dollar rally looked over. Then the dollar surprisingly bounced back, and I shorted the BP again - and then covered again tonight, after watching it pop up nearly 5 cents since Friday. Both the BP and the Dollar are flawed currencies circling the bowl - the question is, which will circle towards the bottom faster.
  

• Shorted Soybeans - Beans look like they may want to break down. My research is telling me that a good harvest will put plenty of beans on the market. I'll quickly exit if beans rally on bullish harvest news.

Other existing positions I've got:

• Long the Japanese Yen - So far, so good.
  

My wish list (waiting for an uptrend):

• Sugar
• Cotton
• Coffee
  
• Swiss Franc
• Natural Gas
  
• Silver

Open Positions

Date	Position	Qty	Month/Yr	Contract	Entry Price	Last Price	Profit/Loss
09/04/08	Long	1	DEC 08	Japanese Yen	0.9340	0.9455	$1,437.50
09/09/08	Short	1	NOV 08	Mini Soybeans	1168 1/4	1189	($207.50)
Net Profit/Loss On Open Positions:							$1,230.00

Account Balances
Current Cash Balance	$54,504.37
Open Trade Equity	$1,230.00
Total Equity	$55,734.37
Long Option Value	$0.00
Short Option Value	$0.00
Net Liquidating Value	$55,734.37

Cashed out: $20,000.00
Total value: $75,734.37

Weekly return: -7.2%
YTD return: -1.1%

***"Cash out" mostly means taxes, but lately I've also been using it to pay down my credit cards a bit. Why credit card debt? I'm financing a startup and trying to outpace my CC interest rate in the futures markets - kids, don't try this at home.

Jim Rogers: Gov't interventions can't stop commodity bull

“Governments and politicians do not understand markets and they are making the situation worse by trying to impose controls on the markets," Jim Rogers commented in a recent speaking engagement.

• Rogers also expects coffee, sugar, and cotton prices to rise sharply.
• Sees upside for zinc and silver prices
• Has no plans to sell gold
• Intends to unload the rest of his US dollar holdings in this dollar rally
  

Agora Financial: US Housing Inventory

Can you spot the trend?