Saturday, May 24, 2008

Bank Failure 2009

The disaster in the U.S. banking system is just getting going, and while I have been venting about it for nearly 2 years (it seems I am ALWAYS a little early), the press has finally picked up on it.   

Although I would call the story "Bank Failure Lite", you get the idea.  It takes TIME for our journalists and politicians to warm up to a coming disaster.  They prefer to wait until the blood is already on the walls, the floor, and is seeping down the hallway.  Just take a look at Hurricane Katrina.

I refer to the FDIC view as "Bank Failure Lite" because they are not taking into account the economic contraction coming as a result of decreasing oil supplies, and increasing number of U.S. $.  Some very smart folks believe that the Fed and the Treasury can INFLATE the U.S. (and destroy the value of your life savings in the process) housing market, and hence the banking system, back to health.  I sincerely doubt this (actually I think there is NAFC, but only Wall Street analysts are dumb enough to take a position and then refuse to waiver no matter HOW MUCH DATA is presented that refutes their assertions), and I think you are seeing it in the price of the banking and brokerage stocks.

Lehman Brothers down nearly 19% for the week.  Goldman Sachs down 9 days in a row (first time that has happened since they went public).  The index, as measured by XLF, is closing in on its previous low, despite the Fed's aggressive rate cuts.  With the Fed Funds target now 2%, the Fed is running out of room.  Still, I think .5% is at least a 50/50 probability.  

If you took action and moved out of fixed income and CD's and financial stocks and other instruments of financial suicide, I commend you.  If you have not, there is still time - until there isn't.  I give the probability of a full scale monetary crisis involving the US$ at 100% by 2015, and 75% by 2011, 50% by year end 2009.  Nothing scientific about those estimations, BTW, just my back of the napkin, wet my finger and stick it up in the air kind of trader's quick calculation. But I AM putting my money where my mouth is, unlike those jerk off sell side Wall Street analysts.

(BTW, when you hear me railing against Wall Street's analysts, my ire is directed at the sell-side guys working for the brokerage firms.  These guys never met a stock or bond they didn't like.  90%+ of all recommendations are "Buy", "Strong Buy", "Double Secret Pooh-Ba Buy", or "Hold" or some silly description like "Speculative Appeal" which, along with the glowing verbiage accompanying that silly rating means "Buy".)

Sorry, that one got away from me.  I am back.

Occasionally someone smart says something in the Financial Press and you should pay them some attention.  Guys that made millions or billions running money (Soros, Rogers, Buffet, Pickens come to mind.  Just remember, these guys have losing trades, too) always get my respect.  Paid shill economists for the major investment banks do not.

So let me be more specific:

 New York City residential real estate - Yuck!

Farm land in the rain belt - Hurray!

The U.S. Dollar - Yuck!

Precious Metals - Hurray!

Financial Companies - Yuck!

Oi, Gas, and Precious Metals Producers - Hurry!

Auto Manufactures - Yuck!

Train, Bicycle, comfortable walking shoe manufacturers - Hurray!

Retailers - Yuck! Puke! Yuck!

Here is the deal: In a contracting economic environment it will be VERY difficult for you to replace any and/or all of your accumulated wealth lost in a monetary crisis.  And in this "brave, new world" instead of the rich getting richer, it will be the rich get poorer, faster, than you may believe possible.  And if you don't think you are rich now, when you look back from the future you will have a new appreciation for your current circumstances.  

Take action!  Or it is soon to be, "woulda, coulda, shoulda..."

Yours for a better world,

Mentatt (at) yahoo (d0t) com

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