How Now, Dollar Dead Sacred Cow?

By John Galt

July 24, 2008

Ah thank you oh former Bear Stearns cheerleader Christopher Cox who occasionally fills in as the “ENFORCER” at the Securities and Exchange Commission when he is not on Bubblevision promoting a particular stock which needs a bailout. It is the special order issued from up on high and the absurd way in which the media has been promoting it that inspired the “Sacred Cow” which can not be gored per the Grand Pooh-Bahs up on high. The funny thing is that as I listen to the various financial call in shows the intended impact of the order has already happened. The phrase “naked” was left off from the order against “naked shorting” and that means that the average schmuck thinks “oh my I don’t want to go to prison like Ken Lay did, I had best get out of all my short positions and just sit on the sidelines or do what Cramer says.” Of course that is a bit of an exaggeration as Ken Lay never did any prison time for his SEC approved approach to creative financing and investing (gee, any of the names on the cow seem similar) but the average individual investor is calling up the various shows down here in Florida terrified of the consequences of shorting stocks. Thus the government and financial industry inspired rally to save the banksters after the smooth transition the FDIC executed at Indymac just a little over a week ago.

So today, the US House of Representatives struck a deal so they could all go home and fleece, er, campaign for re-election by agreeing to provide an Unconstitutional expansion of powers for the US Treasury and the Federal Reserve. Oh and it also bails out 400,000 horrid mortgages the banksters are stuck with but the law of unintended consequences from overdosing on stupid pilss will be impacting the banksters beyond the last seventeen months or so of “oh crap” the executives who dabbled in this mess utter every morning when they walk into the office. Unfortunately for the Zippy the Pinhead crew who crafted this fine piece of legislation to insure the flow of political contributions continues uninterrupted, there will be an unintended side effect from this “bailout” of the terminally stupid.

There is a phrase that sends shudders up and down the spine of the banksters and our government dopes which has been dismissed as “not happening” even though it is happening every day. The homeowner who is upside down, the homeowner who owes considerably a lot more than the home is worth, the homeowner who did not belong in the home they own as the ARM resets, and the investor who purchased homes based on a DVD or some seminar shyster will probably want to follow Jim Cramer’s advice and walk away from the home. If the politicians want to commit another act of ultimate futility, who am I to stop them? By creating this new program, people who are in owner occupied homes with negative equity and actually read the details of this type of program will simply stop paying on their homes and wait until the new law takes effect so they can get a new mortgage based on a realistic valuation for their property. If I was drunk enough to buy a $200,000 home and get it at what used to be called “the only one of its kind at the bargain price of $425,000″ (I loved those ads and the realtors that used to promote them in their slutwear) then hell yes, let me go into default so my neighbors can bail me out. Of course they will really hate me because now their homes will get a de facto valuation assigned to them because of this program. I am sure my neighbors would appreciate a 40% plus haircut in their home values and the government will not mind one bit as long as the Graft Express never gets derailed. The consequences of this new bailout will trigger this problem and more.

Which will probably trigger another round of foreclosure activity.

Which will probably trigger more banking problems.

Which will probably trigger more Bubblevision wrist slashing round tables.

You can still stop this. Call your Senators NOW! This morning! Before it is too late! Here is a link to call your Senator to tell them to kill this legislation now before President Bush can push us into the EU Socialist model!

On to more news, fun and the rest of the story…..

Wow! What a Rally!

I elected to post this home made chart just to illustrate the start of the mess from February 2007 to the market close today. If you notice, we are not exactly lighting the world on fire and the bailout moves by all parties involved have stabilized the market each time a major corrective move is initiated to flush the system as to how bad it really is. Well how bad is it? Let us analyze a little if ever referenced portion of the Bureau of Labor Statistics CPI release from June 2008. I have edited the table to get to the key lines at the bottom of the CPI-U.

So based on the “purchasing power” of the consumer dollar in 1982-1984 dollars the DJIA would look something like this:

Hmmm, same pattern as 2008 but the numbers are not nearly as pretty. In fact, it does reflect that our dollar is worth less than half as much as it was some 25 years or so ago. Not a positive sign if you ask me, but then again, what do I know? I’m just a blogger with a chip on my shoulder because the government is hell bent on letting the Federal Reserve and financial community turn us into a third world Banana Republic with a currency that works as a rolling paper or toilet paper. I wrote about this in the op-ed “Weimarica” believe it or not one year ago today on July 24, 2007. If you think it is not that bad, using the same BLS data, let’s see what the DJIA is worth in 1967 dollars:

Once again, same pattern but boy do those numbers speak volumes. We have essentially destroyed the value of our dollar by about 85% and at the same time expanded our ability to commit to the destruction of our monetary system by failing to rein in the political and financial elites to a level which actual endangers the viability of our economy and the nation as a whole.

But few people care. The crash will happen, today, tomorrow, a year from now, who knows. But the bond market is speaking loud and clear. The news today highlighted the absurdity of the bailout package the House and Senate are ramming through with this blip off of Bloomberg:

Fannie Mae Unsold $5 Billion Homes Bring Peril to Shareholders

While that may not seem like a big deal because what’s a measly five billion bucks when we were talking FIVE FREAKING TRILLION last week, but it is indicative as to the severity of the problem that the interference in our free markets is not being allowed to correct.

At some point, barring the introduction of a fiscal and banking monetization of our debt, the stock market, dollar and real estate industries will correct to realistic levels and valuations commensurate with the risk they provide the markets. Unfortunately our nation does not have the will power nor the stomach or political class willing to withstand such a correction so logically speaking they will hyperinflate. They have to. Or they will watch their derivatives accelerate downward to zero. Still think there is a rally? Check out the ABX then; here is the ABX-HE-AAA-07-A chart and please, show me the huge rally:

Good thing the underlying AAA securities were vetted and given those ratings by the rating agencies (snicker) and probably have bond insurance from a company with an A2 rating (double snicker). You can check out all of the Markit products here and while that is not a total representation as to what is going in within the securitized debt markets, it should wake you up to the fact that as Mike Morgan wrote today in his excellent article:

The Back Half of the 500 Year Hurricane – Gets Worse

It is your must reading assignment as he is pointing out the obvious: Nothing has changed.

The powers that be can collapse the commodity markets (just remember who owns the ICE) and use their hedge funds to stabilize the US Treasury markets, but in the end the market always wins. And when the market finishes the job it started last February, to correct and wring out excesses, our nation and the people who reside here will see a change of historic proportions. As we have a lazy electorate, an inept group of leaders in Washington, and a complicit financial press the answer to the question is simple and hyperinflation will begin. The underlying economic statistics, no matter how much lipstick is applied, will only get worse and he end result will bring us back where we started about seventy-five years ago.

Consider this the time where the job FDR started gets finished. I hope you have prepared accordingly.

Got Gold?

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Got a passport to get the hell out of here?

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